[Federal Register Volume 85, Number 202 (Monday, October 19, 2020)]
[Proposed Rules]
[Pages 66410-66463]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21227]



[[Page 66409]]

Vol. 85

Monday,

No. 202

October 19, 2020

Part II





Federal Reserve System





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12 Part 228





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Community Reinvestment Act; Proposed Rule

  Federal Register / Vol. 85 , No. 202 / Monday, October 19, 2020 / 
Proposed Rules  

[[Page 66410]]


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FEDERAL RESERVE SYSTEM

12 CFR Part 228

[Regulation BB; Docket No. R-1723]
RIN 7100-AF94


Community Reinvestment Act

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Advance notice of proposed rulemaking; request for comment.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
is publishing for public comment an advance notice of proposed 
rulemaking (ANPR) to solicit public input regarding modernizing the 
Board's Community Reinvestment Act regulatory and supervisory 
framework. The Board is seeking comment on all aspects of the ANPR from 
all interested parties and also requests commenters to identify other 
issues that the Board should consider.

DATES: Comments on this ANPR must be received on or before February 16, 
2021.

ADDRESSES: You may submit comments, identified by Docket No. R-1723 and 
RIN 7100-AF94, by any of the following methods:
     Agency Website: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Email: [email protected]. Include docket 
and RIN numbers in the subject line of the message.
     FAX: (202) 452-3819 or (202) 452-3102.
     Mail: Ann E. Misback, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551.
    Instructions: All public comments are available from the Board's 
website at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, unless modified for technical reasons or 
to remove personally identifiable information at the commenter's 
request. Accordingly, comments will not be edited to remove any 
identifying or contact information. Public comments may also be viewed 
electronically or in paper in Room 146, 1709 New York Avenue NW, 
Washington, DC 20006, between 9:00 a.m. and 5:00 p.m. on weekdays. For 
security reasons, the Board requires that visitors make an appointment 
to inspect comments. You may do so by calling (202) 452-3684. Upon 
arrival, visitors will be required to present valid government-issued 
photo identification and to submit to security screening in order to 
inspect and photocopy comments.

FOR FURTHER INFORMATION CONTACT: S. Caroline (Carrie) Johnson, Manager, 
Division of Consumer and Community Affairs, (202) 452-2762; Catherine 
M.J. Gates, Senior Project Manager, Division of Consumer and Community 
Affairs, (202) 452-2099; Amal S. Patel, Counsel, Division of Consumer 
and Community Affairs, (202) 912-7879, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551. For users of Telecommunication Device for Deaf 
(TDD) only, (202) 263-4869.

SUPPLEMENTARY INFORMATION: 

I. Introduction: Request for Feedback, Objectives, and Overview

    In this ANPR, the Board requests feedback on different approaches 
to modernizing the regulatory and supervisory framework for the 
Community Reinvestment Act (CRA) \1\ in order to more effectively meet 
the needs of low- and moderate-income (LMI) communities and address 
inequities in credit access. This includes seeking feedback from 
stakeholders regarding, among other things, accounting for changes in 
the banking system, applying metrics to certain CRA evaluation 
standards, and providing greater clarity regarding CRA-eligible 
activities. The Board is also mindful of the economic impact of the 
COVID-19 pandemic, particularly on LMI communities and households, and 
seeks feedback on how it should consider these impacts in CRA 
modernization.
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    \1\ 12 U.S.C. 2901 et seq. The Board implements the CRA through 
Regulation BB. 12 CFR part 228.
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    In addition to requesting comment on all topics raised below, this 
ANPR also includes specific questions that are numbered consecutively. 
Commenters are requested to refer to these question numbers in their 
submitted comments, which will assist the Board in its efforts as well 
as members of the public that review comments online.
    The contemplated changes to Regulation BB are guided by the 
following objectives:
     More effectively meet the needs of LMI communities and 
address inequities in credit access, in furtherance of the CRA statute 
and its core purpose.
     Increase the clarity, consistency, and transparency of 
supervisory expectations and of standards regarding where activities 
are assessed, which activities are eligible for CRA purposes, and how 
eligible activities are evaluated and assessed, while seeking to 
minimize the associated data burden and to tailor collection and 
reporting requirements.
     Tailor CRA supervision of financial institutions (banks) 
\2\ to reflect:
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    \2\ ``Regulated financial institution'' means an ``insured 
depository institution'' as defined in 12 U.S.C. 1813. See 12 U.S.C. 
2902(2). ``Insured depository institution'' means any bank or 
savings association whose deposits are insured by the Federal 
Deposit Insurance Corporation. See 12 U.S.C. 1813(c)(2).
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    [cir] Differences in bank sizes and business models;
    [cir] Differences in local markets, needs, and opportunities, 
including with respect to small banks serving rural markets; and
    [cir] Expectations across business cycles.
     Update standards in light of changes to banking over time, 
particularly the increased use of mobile and internet delivery 
channels.
     Promote community engagement.
     Strengthen the special treatment of minority depository 
institutions (MDIs).
     Recognize that CRA and fair lending responsibilities are 
mutually reinforcing.
    The Board seeks public input on different policy options to carry 
out the above objectives in several key areas and looks forward to 
assessing this input to advance the goal of strengthening the CRA 
regulation. The ANPR includes the below sections.
    Background. Section II discusses the CRA's statutory history and 
purpose, including a discussion of the historical practice of redlining 
on the basis of race and the enactment of the CRA and other 
complementary federal civil rights laws to address systemic inequities 
in access to credit and other financial services. The background 
section also provides an overview of the Board's existing Regulation BB 
and stakeholder feedback on CRA modernization.
    Assessment Areas and Defining Local Communities for CRA 
Evaluations. Section III addresses the issue of how to define a bank's 
local communities, which impacts where banks' CRA performance is 
evaluated and is critical for ensuring that the CRA fulfills its 
purpose of encouraging banks to meet the credit needs of their local 
communities. The Board seeks to more predictably delineate assessment 
areas around physical locations, such as bank branches, and to ensure 
that assessment areas are contiguous, do not reflect illegal 
discrimination, do not arbitrarily exclude LMI census tracts, and are 
tailored to bank size and performance context. For large banks that 
conduct a

[[Page 66411]]

significant amount of lending and deposit-based collection far from 
their branches, the Board seeks comment on deposit-based and lending-
based alternative approaches to delineating assessment areas. For 
internet banks, the Board is also considering whether nationwide 
assessment areas could more holistically capture their banking 
activities.
    Overview of Evaluation Framework. Section IV provides an overview 
of the Board's proposed framework for evaluating banks' CRA performance 
with a Retail Test and a Community Development Test. The Retail Test 
would include two subtests: A Retail Lending Subtest and a Retail 
Services Subtest. The Community Development Test would also include two 
subtests: A Community Development Financing Subtest and a Community 
Development Services Subtest. This section proposes tailoring these 
tests based on differences in bank asset size and business models. The 
Board proposes an asset-size threshold of $750 million or $1 billion to 
distinguish between small and large retail banks. Small retail banks 
could continue to be evaluated under the current CRA framework, but 
would have the option to be evaluated under the Retail Lending Subtest 
alone and could also elect to have their retail services and community 
development activities evaluated. Large retail banks would be evaluated 
under all four subtests. Wholesale and limited purpose banks would be 
evaluated under the two community development subtests. Alternatively, 
any bank would have the option to be evaluated pursuant to an approved 
strategic plan.
    Retail Test. Section V describes the two subtests of the proposed 
Retail Test. For the Retail Lending Subtest, the Board proposes a 
metrics-based approach that is tailored based on a bank's major product 
lines and on the credit needs and opportunities within its assessment 
area(s). For the Retail Services Subtest, the Board proposes a 
qualitative approach that is intended to provide greater predictability 
and transparency for evaluating important aspects of retail banking 
services, including branches, other delivery systems, and deposit 
products. Section VI discusses updating and clarifying certain aspects 
of Retail Test qualifying activities, including the designation of 
major product lines, the evaluation of consumer loan products, the 
definitions of small business and small farm loans, and the 
consideration of retail activities conducted in Indian Country.
    Community Development Test. Section VII describes the two subtests 
of the proposed Community Development Test: A Community Development 
Financing Subtest and a Community Development Services Subtest. The 
Board proposes a metrics-based approach to evaluating community 
development financing activities that is transparent, predictable, and 
tailored to the community development needs and opportunities within an 
assessment area. For the Community Development Services Subtest, the 
Board proposes evaluating community development services in a way that 
better recognizes the value of qualifying volunteer activities, 
especially in rural communities.
    Section VIII discusses proposals for clarifying and updating 
Community Development Test qualifying activities pertaining to 
affordable housing, community services, economic development, and 
revitalization and stabilization, and discusses updating how activities 
outside of a bank's assessment areas would be considered. The Board 
seeks to emphasize qualifying activities that support MDIs and 
Community Development Financial Institutions (CDFIs). In addition, the 
Board is considering how to treat community development activities 
outside of assessment areas to help address discrepancies between so-
called CRA ``hot spots'' \3\ and ``deserts.'' \4\ The Board seeks 
feedback on defining designated areas of need--for example, in Indian 
Country or in areas that meet an ``economically distressed'' 
definition--where banks could conduct community development activity 
outside of an assessment area. The Board also seeks feedback on 
approaches to increase the upfront certainty about what activities 
qualify for CRA credit, including a process for banks and other 
stakeholders to obtain pre-approval that a particular activity 
qualifies for consideration and publication of illustrative lists of 
qualifying activities.
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    \3\ CRA hot spots are areas where large numbers of banks 
concentrate CRA and other banking activities in the same, relatively 
small number of localities.
    \4\ CRA deserts are areas with little bank presence and 
corresponding lesser availability of banking products and services 
and community development activities.
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    Strategic Plans. In Section IX, the Board seeks feedback on 
proposed revisions to the strategic plan option for CRA performance 
evaluations to provide more clarity and flexibility about establishing 
strategic plans and the standards used to assess activities.
    Ratings. In Section X, the Board discusses updating the way in 
which state, multistate metropolitan statistical area (MSA), and 
institution ratings are reached, basing these ratings in local 
assessment area conclusions for the different subtests, as applicable. 
For example, the Board proposes assigning a bank's overall rating on 
the Retail Test by using a weighted average of each of the bank's 
assessment area-level conclusions. The Board believes it is appropriate 
to anchor a bank's overall rating in its performance in all of its 
local communities, and therefore proposes to eliminate the designation 
of full- and limited-scope assessment areas in the evaluation process. 
Certain activities outside of a bank's assessment area(s) would also be 
considered in determining overall ratings, such as a partnership with 
an MDI, which could be considered as part of a pathway to an 
``outstanding'' rating. The Board also seeks to update the 
consideration of discrimination and other illegal credit practices in 
determining CRA ratings by adding violations of new laws and 
regulations that are related to meeting community credit needs.
    Data Collection and Reporting. In Section XI, the Board solicits 
feedback on potential revisions to data collection and reporting 
requirements. The Board is mindful of the potential tradeoff between 
the expanded use of metrics to provide greater certainty and 
consistency and the expanded need for data collection and reporting, 
and has prioritized using existing data wherever possible. The Board 
has also prioritized approaches that would exempt small banks from new 
data collection requirements. In addition, the Board seeks feedback on 
deposits data options for large banks, and in particular for large 
banks with extensive deposit activity outside of the areas served by 
their physical branches. The Board seeks feedback on how to balance the 
certainty provided through the use of metrics in CRA performance 
evaluations with the potential data burden implications.
    Request for Feedback:
    Question 1. Does the Board capture the most important CRA 
modernization objectives? Are there additional objectives that should 
be considered?

II. CRA Background

    The Board implements the CRA through Regulation BB. The CRA is 
designed to encourage regulated financial institutions to help meet the 
credit needs of their entire communities, including LMI neighborhoods, 
in which they are chartered. Under Regulation BB, the Board applies 
different evaluation standards to banks of different asset sizes and 
types.
    Together with the Federal Deposit Insurance Corporation (FDIC) and 
the

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Office of the Comptroller of the Currency (OCC), the Board has also 
published Interagency Questions and Answers Regarding Community 
Reinvestment (Interagency Questions and Answers) \5\ to provide 
guidance on the interpretation and application of the agencies' CRA 
regulations.
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    \5\ See 81 FR 48506 (July 25, 2016). ``Interagency Questions and 
Answers'' refers to the ``Interagency Questions and Answers 
Regarding Community Reinvestment'' in its entirety. ``Q&A'' refers 
to an individual question and answer within the Interagency 
Questions and Answers.
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A. CRA Statutory Purpose and History

    The CRA invests the Board, the FDIC, and the OCC with broad 
authority and responsibility for implementing the statute, which 
provides the agencies with a crucial mechanism for addressing 
persistent systemic inequity in the financial system for LMI and 
minority individuals and communities. In particular, the statute and 
its implementing regulations provide the agencies, regulated banks, and 
community organizations with the necessary framework to facilitate and 
support a vital financial ecosystem that supports LMI and minority 
access to credit and community development.\6\
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    \6\ See, e.g., Chairman Ben S. Bernanke, Board of Governors of 
the Federal Reserve System, ``The Community Reinvestment Act: Its 
Evolution and New Challenges'' (March 30, 2007), https://www.federalreserve.gov/newsevents/speech/Bernanke20070330a.htm 
(``After years of experimentation, the managers of financial 
institutions found that these loan portfolios, if properly 
underwritten and managed, could be profitable. . . . Moreover, 
community groups and nonprofit organizations began to take a more 
businesslike, market-oriented approach to local economic 
development, leading them to establish more-formalized and more-
productive partnerships with banks. Community groups provided 
information to financial institutions on the needs of lower-income 
communities for credit and services, offered financial education and 
counseling services to community members, and referred `bankable' 
customers to partner banks. Specialized community development banks 
and financial institutions with the mission of providing financial 
services and credit to lower-income communities and families emerged 
and grew.'').
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    Congress enacted the CRA in 1977 primarily to address economic 
challenges in predominantly minority urban neighborhoods that had 
suffered from decades of disinvestment and other inequities.\7\ Many 
believed that systemic inequities in credit access--due in large part 
to a practice known as ``redlining''--along with a lack of public and 
private investment, was at the root of these communities' economic 
distress.\8\ Redlining occurred when banks refused outright to make 
loans or extend other financial services in neighborhoods comprised 
largely of African-American and other minority individuals, leading to 
discrimination in access to credit and less favorable financial 
outcomes even when they presented the same credit risk as others 
residing outside of those neighborhoods. The term is widely associated 
with the former federal Home Owners' Loan Corporation (HOLC), which 
employed color-coded maps \9\ to designate its perception of the 
relative risk of lending in a range of neighborhoods, with 
``hazardous'' (the highest risk) areas coded in red. Redlined 
neighborhoods typically had a high percentage of minority residents, 
were overwhelmingly poor, and had less desirable housing.\10\ As 
Senator William Proxmire, who authored the CRA legislation, testified 
when discussing its purpose:
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    \7\ See Bernanke, ``The Community Reinvestment Act: Its 
Evolution and New Challenges'' (``Public and congressional concerns 
about the deteriorating condition of America's cities, particularly 
lower-income and minority neighborhoods, led to the enactment of the 
Community Reinvestment Act. . . . Several social and economic 
factors help explain why credit to lower-income neighborhoods was 
limited at that time. First, racial discrimination in lending 
undoubtedly adversely affected local communities. Discriminatory 
lending practices had deep historical roots.'').
    \8\ See, e.g., Michael Berry, Federal Reserve Bank of Chicago, 
and Jessie Romero, Federal Reserve Bank of Richmond, ``Federal 
Reserve History: Community Reinvestment Act of 1977,'' https://www.federalreservehistory.org/essays/community_reinvestment_act 
(also explaining that other federal and state policies likewise 
contributed to redlining and additional discriminatory practices).
    \9\ See ``Mapping Inequality: Redlining in New Deal America,'' 
https://dsl.richmond.edu/panorama/redlining/#loc=5/39.1/-94.58 
(archive of HOLC maps).
    \10\ See, e.g., Daniel Aaronson, Daniel Hartley, and Bhashkar 
Mazumder, Federal Reserve Bank of Chicago, ``The Effects of the 
1930s HOLC `Redlining' Map'' (Feb. 2019), https://www.chicagofed.org/publications/working-papers/2017/wp2017-12, p.1 
(``Neighborhoods were classified based on detailed risk-based 
characteristics, including housing age, quality, occupancy, and 
prices. However, non-housing attributes such as race, ethnicity, and 
immigration status were influential factors as well. Since the 
lowest rated neighborhoods were drawn in red and often had the vast 
majority of African American residents, these maps have been 
associated with the so-called practice of `redlining' in which 
borrowers are denied access to credit due to the demographic 
composition of their neighborhood.'').

    By redlining let me make it clear what I am talking about. I am 
talking about the fact that banks and savings and loans will take 
their deposits from a community and instead of reinvesting them in 
that community, they will actually or figuratively draw a red line 
on a map around the areas of their city, sometimes in the inner 
city, sometimes in the older neighborhoods, sometimes ethnic and 
sometimes black, but often encompassing a great area of their 
neighborhood.\11\
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    \11\ 123 Cong. Rec. 17630 (June 6, 1977).

    Against this backdrop, Congress passed the CRA, along with other 
complementary federal civil rights laws during the late 1960s and 
1970s, to address systemic inequities in access to credit and other 
financial services that contributed to often dramatic differences in 
economic access and overall financial well-being.\12\ In particular, 
the Equal Credit Opportunity Act (ECOA) \13\ and the Fair Housing Act 
(FHA) \14\ fair lending laws each include an explicit focus on 
discrimination on prohibited bases such as race, and the Home Mortgage 
Disclosure Act (HMDA) \15\ is intended to bring greater transparency to 
mortgage lending practices. Even with the implementation of the CRA and 
the other complementary laws, the harmful legacy of redlining and other 
discriminatory practices too often continues to be felt. In 2016, the 
``wealth gap [was] roughly the same as it was in 1962, two years before 
the passage of the Civil Rights Act of 1964[.]'' \16\
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    \12\ See, e.g., Governor Lael Brainard, ``Strengthening the 
Community Reinvestment Act by Staying True to Its Core Purpose'' 
(Jan. 8, 2020), https://www.federalreserve.gov/newsevents/speech/brainard20200108a.htm (``The CRA was one of several landmark pieces 
of legislation enacted in the wake of the civil rights movement 
intended to address inequities in the credit markets.'').
    \13\ 15 U.S.C. 1691 et seq.
    \14\ 42 U.S.C. 3601 et seq.
    \15\ 12 U.S.C. 2801 et seq.
    \16\ Dionissi Aliprantis and Daniel Carroll, Federal Reserve 
Bank of Cleveland, ``What is Behind the Persistence of the Racial 
Wealth Gap'' (Feb. 28, 2019), https://www.clevelandfed.org/newsroom-and-events/publications/economic-commentary/2019-economic-commentaries/ec-201903-what-is-behind-the-persistence-of-the-racial-wealth-gap.aspx. See also, e.g., The New York Times, ``How 
Redlining's Racist Effects Lasted for Decades'' (Aug. 24, 2017), 
https://www.nytimes.com/2017/08/24/upshot/how-redlinings-racist-effects-lasted-for-decades.html (citing William J. Collins and 
Robert A. Margo, ``Race and Home Ownership from the End of the Civil 
War to the Present'' (Nov. 2010) in stating, ``The black-white gap 
in homeownership in America has in fact changed little over the last 
century . . . . That pattern helps explain why, as the income gap 
between the two groups has persisted, the wealth gap has widened by 
much more.'').
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    In enacting the CRA, the Congress found that: (1) Banks and savings 
associations (collectively, banks) are required by law to demonstrate 
that their deposit facilities serve the convenience and needs of the 
communities in which they are chartered to do business; (2) the 
convenience and needs of communities include the need for credit 
services as well as deposit services; and (3) banks have a continuing 
and affirmative obligation to help meet the credit needs of the local 
communities in which they are chartered.\17\ The statute directed the 
relevant federal financial supervisory agencies to: Encourage the 
financial institutions they supervise to safely and soundly meet the 
credit needs of the communities they serve, including LMI

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neighborhoods; \18\ assess their record of doing so and take this 
record into account when evaluating banking applications for a deposit 
facility; \19\ and report to Congress the actions they have taken to 
carry out their CRA responsibilities.\20\ The CRA also directed each 
agency to publish regulations to carry out the statute's purposes.\21\
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    \17\ 12 U.S.C. 2901(a).
    \18\ 12 U.S.C. 2901(b).
    \19\ 12 U.S.C. 2903(a).
    \20\ 12 U.S.C. 2904.
    \21\ 12 U.S.C. 2905.
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    Since its enactment, Congress has amended the CRA several times, 
including through the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 \22\ (which required public disclosure of a 
bank's CRA written evaluation and rating); the Federal Deposit 
Insurance Corporation Improvement Act of 1991 \23\ (which required the 
inclusion of a bank's CRA examination data in the determination of its 
CRA rating); the Housing and Community Development Act of 1992 \24\ 
(which included assessment of the record of nonminority-owned and 
nonwomen-owned banks in cooperating with minority-owned and women-owned 
banks and low-income credit unions); the Riegle-Neal Interstate Banking 
and Branching Efficiency Act of 1994 \25\ (which (1) required an agency 
to consider an out-of-state national bank's or state bank's CRA rating 
when determining whether to allow interstate branches, and (2) 
prescribed certain requirements for the contents of the written CRA 
evaluation for banks with interstate branches); and the Gramm-Leach-
Bliley Act of 1999 \26\ (which, among other things, provided regulatory 
relief for smaller banks by reducing the frequency of their CRA 
examinations).
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    \22\ Public Law 101-73, 103 Stat. 183 (Aug. 9, 1989).
    \23\ Public Law 102-242, 105 Stat. 2236 (Dec. 19, 1991).
    \24\ Public Law 102-550, 106 Stat. 3874 (Oct. 28, 1992).
    \25\ Public Law 103-328, 108 Stat. 2338 (Sept. 29, 1994).
    \26\ Public Law 106-102, 113 Stat. 1338 (Nov. 12, 1999).
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    In 1978, consistent with Congress's statutory directive, the 
agencies promulgated the first CRA regulations, which included evidence 
of prohibited discriminatory or other illegal credit practices as a 
performance factor.\27\ The agencies have since significantly amended 
these regulations twice, in 1995 and 2005.\28\ In addition, the 
agencies have periodically published interpretations of the CRA 
regulations in the form of the Interagency Questions and Answers.
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    \27\ 43 FR 47144 (Oct. 12, 1978). See also Governor Lael 
Brainard, ``Strengthening the Community Reinvestment Act: What are 
We Learning?'' (Feb. 1, 2019), https://www.federalreserve.gov/newsevents/speech/brainard20190201a.htm (``The central thrust of the 
CRA is to encourage banks to ensure that all creditworthy borrowers 
have fair access to credit, and, to do so successfully, it has long 
been recognized that they must guard against discriminatory or 
unfair and deceptive lending practices.'').
    \28\ 60 FR 22156 (May 4, 1995); 70 FR 44256 (Aug. 2, 2005). The 
CRA regulations have typically been adopted individually by each 
agency, but drafted on an interagency basis and released jointly.
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    The Federal Reserve has also developed significant supervisory and 
other infrastructure to support the CRA and its objectives. Starting in 
1984, the Federal Reserve System, through the community development 
function at each Federal Reserve Bank, has engaged in outreach, 
educational, and technical assistance to help banks, community 
organizations, government entities, and the public understand and 
address financial services issues affecting LMI individuals and 
communities and to assist banks in meeting their affirmative 
obligations under the CRA.\29\
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    \29\ See, e.g., Chairman Jerome H. Powell, Board of Governors of 
the Federal Reserve System, ``Celebrating Excellence in Community 
Development'' (Dec. 3, 2018), https://www.federalreserve.gov/newsevents/speech/powell20181203a.htm (``The Fed's community 
development function . . . advances our Community Reinvestment Act 
responsibilities by analyzing and disseminating information related 
to local financial needs and successful approaches for attracting 
and deploying capital. These efforts strengthen the capacity of both 
financial institutions and community organizations to meet the needs 
of the communities they serve.'').
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    The CRA requires each agency to prepare a written evaluation of a 
bank's record of meeting the credit needs of its entire community, 
including LMI neighborhoods, at the conclusion of its CRA 
examination.\30\ This report, known as a performance evaluation, is 
required to be a public document that presents an agency's conclusions 
regarding a bank's overall performance for each ``assessment factor'' 
identified in the CRA regulations.\31\ A performance evaluation must 
also present facts and data supporting the agency's conclusions and 
contain both the bank's CRA rating and a description of the basis for 
the rating.\32\ A bank's CRA rating is considered, for example, in 
applications to merge with or acquire another bank, open a branch, or 
relocate a main office or branch.\33\ A bank with a CRA rating below 
``satisfactory'' may be restricted from certain activities until its 
next CRA examination.
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    \30\ 12 U.S.C. 2906.
    \31\ 12 U.S.C. 2906(b)(1)(A)(i).
    \32\ 12 U.S.C. 2906(b)(1)(A)(ii) and (iii). There are four 
statutory rating categories: ``outstanding,'' ``satisfactory,'' 
``needs to improve,'' and ``substantial noncompliance.'' 12 U.S.C. 
2906(b)(2).
    \33\ 12 CFR 228.29.
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    Request for Feedback:
    Question 2. In considering how the CRA's history and purpose relate 
to the nation's current challenges, what modifications and approaches 
would strengthen CRA regulatory implementation in addressing ongoing 
systemic inequity in credit access for minority individuals and 
communities?

B. Regulation BB and Guidance for Performance Evaluations

1. CRA Performance Evaluations
    Regulation BB provides different methods to evaluate a bank's CRA 
performance depending on its asset size and business strategy.\34\ 
Under the current framework:
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    \34\ See generally 12 CFR 228.21-.27. The Board, the FDIC, and 
the OCC annually adjust the CRA asset-size thresholds based on 
inflation.
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     Small banks--currently, those with assets of less than 
$326 million as of December 31 of either of the prior two calendar 
years--are evaluated under a retail lending test that may also consider 
community development lending. Community development investments and 
services may be considered for an ``outstanding'' rating at a bank's 
option, but only if the bank meets or exceeds the lending test criteria 
in the small bank performance standards.
     Intermediate small banks--currently, those with assets of 
at least $326 million as of December 31 of both of the prior two 
calendar years and less than $1.305 billion as of December 31 of either 
of the prior two calendar years--are evaluated under the retail lending 
test for small banks and a community development test. The intermediate 
small bank community development test evaluates all community 
development activities together.
     Large banks--currently, those with assets of more than 
$1.305 billion as of December 31 of both of the prior two calendar 
years--are evaluated under separate lending, investment, and service 
tests. The lending and service tests consider both retail and community 
development activities, and the investment test focuses on qualified 
community development investments. To facilitate the agencies' CRA 
analysis, large banks are required to report annually certain data on 
community development, small business, and small farm loans (small 
banks and intermediate small banks are not required to report these 
data).
     Designated wholesale banks (those engaged in only 
incidental retail lending) and limited purpose banks (those offering a 
narrow product line to

[[Page 66414]]

a regional or broader market) are evaluated under a standalone 
community development test.
     Banks may elect to be evaluated under a strategic plan 
that sets out measurable, annual goals for lending, investment, and 
service activities in order to achieve a ``satisfactory'' or an 
``outstanding'' rating. A strategic plan must be developed with 
community input and approved by the bank's primary regulator.
    The Board also considers applicable performance context information 
to inform its analysis and conclusions when conducting CRA 
examinations. Performance context comprises a broad range of economic, 
demographic, and institution- and community-specific information that 
examiners review to calibrate a bank's CRA evaluation to its local 
communities, including:

     Demographic data on median income levels, distribution 
of household income, nature of housing stock, housing costs, and 
other relevant assessment area-related data.
     Any information about lending, investment, and service 
opportunities in the bank's assessment area(s).
     The bank's product offerings and business strategy.
     Institutional capacity and constraints, including the 
size and financial condition of the bank, the economic climate, 
safety and soundness limitations, and any other factors that 
significantly affect the bank's ability to provide lending, 
investments, or services in its assessment area(s).
     The bank's past performance and the performance of 
similarly situated lenders.
     The bank's public file and any written comments about 
the bank's CRA performance submitted to the bank or to the Board, 
and any other information deemed relevant by the Board.\35\
---------------------------------------------------------------------------

    \35\ 12 CFR 228.21(b).
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2. Assessment Areas
    Regulation BB requires a bank to delineate one or more assessment 
area(s) in which its record of meeting its CRA obligations will be 
evaluated.\36\ The regulation requires a bank to delineate assessment 
areas consisting of metropolitan areas (MSAs or metropolitan divisions) 
or political subdivisions \37\ in which its main office, branches, and 
deposit-taking automated teller machines (ATMs) are located, as well as 
the surrounding geographies (i.e., census tracts) \38\ where a 
substantial portion of its loans are originated or purchased.
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    \36\ 12 CFR 228.41.
    \37\ Political subdivisions include cities, counties, towns, 
townships, and Indian reservations. Q&A Sec.  __.41(c)(1)--1.
    \38\ 12 CFR 228.12(k).
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    The assessment area definition's emphasis on branches reflects the 
prevailing business model for financial service delivery when the CRA 
was enacted. The statute instructs the agencies to assess a bank's 
record of meeting the credit needs of its ``entire community, including 
low- and moderate-income neighborhoods, consistent with the safe and 
sound operation of such institution, and to take such record into 
account in its evaluation of an application for a deposit facility by 
such institution.'' \39\ The statute does not prescribe the delineation 
of assessment areas, but they are an important aspect of the regulation 
because they define ``community'' for purposes of the evaluation of a 
bank's CRA performance.
---------------------------------------------------------------------------

    \39\ 12 U.S.C. 2903(a).
---------------------------------------------------------------------------

3. Eligible Activities
    Regulation BB and the Interagency Questions and Answers provides 
detailed information, including applicable definitions, regarding 
activities that are eligible for CRA consideration in an assessment of 
a bank's CRA performance. Banks that are subject to a performance test 
that includes a review of their retail activities are assessed in 
connection with retail lending activity (as applicable, home mortgage 
loans, small business loans, small farm loans, and consumer loans \40\) 
and, where applicable, retail banking service activities (e.g., the 
current distribution of a bank's branches in geographies of different 
income levels, and the availability and effectiveness of the bank's 
alternative systems for delivering banking services to LMI geographies 
and individuals).\41\
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    \40\ 12 CFR 228.12(j), (l), (u), and (w).
    \41\ See generally, 12 CFR 228.21-.27; 12 CFR 228.24(d).
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    Banks subject to a performance test that includes a review of their 
community development activities are assessed with respect to community 
development lending, qualified investments, and community development 
services, which by definition must have a primary purpose of community 
development.\42\
---------------------------------------------------------------------------

    \42\ See generally, 12 CFR 228.21-.27; 12 CFR 228.12(g), (h), 
(i), and (t).
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4. Guidance for Performance Evaluations
    In addition to information included in their CRA regulations, the 
Board and the other agencies also provide information to the public 
regarding how CRA performance tests are applied, where CRA activities 
are considered, and what activities are eligible through publicly 
available CRA performance evaluations,\43\ the Interagency Questions 
and Answers, interagency CRA examination procedures,\44\ and 
interagency instructions for writing performance evaluations.\45\
---------------------------------------------------------------------------

    \43\ See, e.g., Board of Governors of the Federal Reserve 
System, ``Community Reinvestment Act (CRA), Search: Evaluations and 
Ratings (Federal Reserve Supervised Banks),'' https://www.federalreserve.gov/apps/CRAPubWeb/CRA/BankRating.
    \44\ See, e.g., FFIEC, ``Community Reinvestment Act: CRA 
Examinations,'' https://www.ffiec.gov/cra/examinations.htm.
    \45\ Id.
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C. Stakeholder Feedback and Recent Rulemaking

    The financial services industry has undergone transformative 
changes since the CRA statute was introduced, including the removal of 
national bank interstate branching restrictions and the expanded role 
of mobile and online banking. To better understand how these 
developments impact both consumer access to banking products and 
services and a bank's CRA performance, the agencies have reviewed 
feedback from the banking industry, community groups, academics, and 
others stakeholders on several occasions.
    From 2013 to 2016, the agencies solicited feedback on the CRA as 
part of the Economic Growth and Regulatory Paperwork Reduction Act of 
1996 (EGRPRA) review.\46\ Commenters raised issues related to 
assessment area definitions; incentives for banks to serve LMI, 
unbanked, underbanked, and rural communities; recordkeeping and 
reporting requirements; need for clarity regarding performance measures 
and better examiner training to ensure consistency in examinations; and 
refinement of CRA ratings.
---------------------------------------------------------------------------

    \46\ See, e.g., 80 FR 7980 (Feb. 13, 2015).
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1. OCC CRA Advance Notice of Proposed Rulemaking and Federal Reserve 
Outreach Sessions
    On September 5, 2018, the OCC published an advance notice of 
proposed rulemaking to solicit ideas for a new CRA regulatory framework 
(OCC CRA advance notice of proposed rulemaking).\47\ More than 1,500 
comment letters were submitted in response. To augment that input, the 
Federal Reserve System held about 30 outreach meetings with 
representatives of banks, community organizations, and the other 
agencies.\48\
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    \47\ 83 FR 45053 (Sept. 5, 2018).
    \48\ For a summary of the Federal Reserve outreach session 
feedback see: https://www.federalreserve.gov/publications/files/stakeholder-feedback-on-modernizing-the-community-reinvestment-act-201906.pdf.

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[[Page 66415]]

    Although commenters agreed that the regulations needed to be 
modernized to reflect the evolution of the banking industry, they 
expressed strong support for some elements of the current approach to 
CRA and noted the significant volume of loans and investments directed 
toward LMI consumers and communities that it has generated. There was 
substantial support for retaining CRA's focus on LMI consumers and 
communities, and many commenters urged the agencies to proceed with 
caution so as not to disturb the important collaborative environment 
that CRA has fostered among banks and community stakeholders in support 
of community development.
    Although there was general openness to considering a more 
quantitative CRA framework, commenters raised concerns about a ``single 
metric'' approach, noting that setting a threshold for the ratio of CRA 
activity relative to deposits associated with each performance rating 
could incentivize banks to focus on high-value markets or activities 
without assessing their impact.
    Many stakeholders suggested that deposit-taking physical facility-
based (``branch-based'') assessment areas serve many banks well, but 
additional or different assessment areas may be appropriate for other 
banks, such as internet banks.
2. OCC-FDIC CRA Notice of Proposed Rulemaking and OCC CRA Final Rule
    On December 12, 2019, the FDIC and the OCC issued a joint notice of 
proposed rulemaking (FDIC-OCC CRA notice of proposed rulemaking).\49\ 
In response, the agencies received over 7,500 comment letters.\50\
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    \49\ 85 FR 1204 (Jan. 9, 2020).
    \50\ 85 FR 34734, 34734 and 34737 (June 5, 2020).
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    On May 20, 2020, the OCC issued a CRA final rule (OCC CRA final 
rule), retaining the most fundamental elements of the proposal but also 
making adjustments to reflect stakeholder input.\51\ The agency 
deferred establishing metrics-based thresholds for evaluating banks' 
CRA performance until it is able to assess additional data,\52\ with 
the final rule having an October 1, 2020 effective date and January 1, 
2023 and January 1, 2024 compliance dates.\53\ Additionally, the final 
rule retains the proposal's approach of allowing smaller banks 
(including renaming and adjusting the current intermediate small bank 
category as ``intermediate banks'') \54\ to continue to have their CRA 
performance evaluated in a manner comparable to the current CRA 
framework.\55\ The OCC CRA final rule also provides that wholesale and 
limited purpose banks will be reviewed in a manner similar to the 
current approach.\56\ The final rule's revised qualifying activities 
criteria are applicable to all bank types.\57\
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    \51\ 85 FR 34734 (June 5, 2020).
    \52\ See OCC, News Release 2020-63, ``OCC Finalizes Rule to 
Strengthen and Modernize Community Reinvestment Act Regulations'' 
(May 20, 2020), https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-63.html; see also 85 FR at 34736.
    \53\ 85 FR at 34784.
    \54\ The OCC CRA final rule defines small banks as those with 
total assets of $600 million or less and intermediate banks as those 
with total assets of over $600 million but less than $2.5 billion.
    \55\ See, e.g., 85 FR at 34780.
    \56\ See, e.g., id.
    \57\ See, e.g., id. at 34764, 34780.
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III. Assessment Areas

    In the current regulation, the definition of assessment areas 
reflects a time when banks delivered products and services almost 
exclusively through physical facilities, primarily branches. Banks now 
increasingly deliver financial products and services to consumers 
through online or mobile banking, which results in a broader geographic 
reach for some banks, especially large banks. Although the CRA statute 
does not expressly define ``communities'' or ``local communities,'' the 
statute provides the Board with broad authority to define these terms 
by regulation. This authority includes amending Regulation BB to 
incorporate, in the consideration of a bank's ``community,'' assessment 
areas that are not geographically local to its main office, branches, 
or deposit-taking ATMs, as currently defined.
    The Board is considering how best to define the local communities 
where banks' CRA activities are assessed to both reflect changes in the 
banking industry and to retain CRA's nexus with fair lending 
requirements. This includes evaluating changes to a bank's facility-
based assessment areas, as well as different approaches for defining 
assessment areas for certain large banks based on concentrations of 
deposits or lending that are geographically distant from the banks' 
facilities or that are primarily provided through non-branch means.

A. Current Approach for Designating Assessment Areas

    Pursuant to the CRA statute, banks have a continuing and 
affirmative obligation to help meet the credit needs of the local 
communities in which they are chartered.\58\ In their CRA regulations, 
the agencies have interpreted local communities to include the areas 
surrounding a bank's main office, branches, and deposit-taking ATMs. 
Accordingly, one of Regulation BB's core requirements is that each bank 
delineate areas representing the main geographic basis upon which their 
CRA performance is assessed--referred to as assessment areas--in 
keeping with this interpretation of local communities.
---------------------------------------------------------------------------

    \58\ 12 U.S.C. 2901.
---------------------------------------------------------------------------

    As noted previously, the CRA was one of several groundbreaking 
pieces of legislation enacted to address economic and financial 
inequity with respect to LMI individuals and communities and systemic 
disinvestment in LMI areas. Among other things, Regulation BB requires 
that assessment areas not reflect illegal discrimination and not 
arbitrarily exclude LMI geographies; these elements represent links to 
ECOA and the FHA, which work congruently with the CRA to combat 
redlining.\59\ Consequently, it is crucial that banks appropriately 
delineate their assessment areas.
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    \59\ Importantly, a redlining violation under ECOA or the FHA 
may be based on a number of factors, including inappropriate 
delineation of an assessment area, lending disparities, and 
branching patterns or marketing practices that have the effect of 
providing unequal access to credit, or unequal terms of credit, 
because of the race, color, national origin, or other prohibited 
characteristic(s) of the residents of the area in which the credit 
seeker resides or will reside or in which the property will be 
located. See FFIEC Interagency Fair Lending Examination Procedures 
(Aug. 2009), https://www.ffiec.gov/PDF/fairlend.pdf.
---------------------------------------------------------------------------

    Regulation BB currently defines assessment areas for banks (other 
than wholesale and limited purpose banks) in connection with a bank's 
deposit-taking physical locations and the surrounding areas in which it 
has originated or purchased a substantial portion of its loans.\60\ 
Assessment areas for wholesale and limited purpose banks consist 
generally of one or more MSAs or metropolitan divisions or one or more 
contiguous political subdivisions, such as counties, cities, or towns 
in which the bank has its main office, branches, and deposit-taking 
ATMs.\61\ Banks whose business models predominantly focus upon serving 
the needs of military personnel or their dependents who are not located 
within a defined geographic area may delineate their entire deposit 
customer base as their assessment area.\62\
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    \60\ 12 CFR 228.41(c).
    \61\ 12 CFR 228.41(b).
    \62\ 12 U.S.C. 2902(4); 12 CFR 228.41(f).
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B. Stakeholder Feedback on Assessment Areas

    Stakeholder input has generally indicated that branch-based 
assessment areas should be retained. Community

[[Page 66416]]

groups and research organizations have also indicated that, for banks 
without branch-centric business models, deposit or lending data, or 
both, should be used to delineate additional assessment areas for banks 
with considerable deposits or lending volumes outside of their 
assessment areas. Industry stakeholders have expressed some 
reservations about deposit-based assessment areas, citing concerns that 
the associated data collection and reporting for many large banks would 
be costly and burdensome. Relatedly, community groups and research 
organizations have advised against comprehensive changes to assessment 
area delineation without data-driven analysis regarding their potential 
impact. And both industry and community group stakeholders have 
expressed concern that deposit-based assessment areas could result in 
additional assessment areas in wealthier and metropolitan areas, 
exacerbating the CRA hot spot dynamic.
    Industry stakeholders have also expressed concern about being 
required to delineate large assessment areas (e.g., whole counties) 
when a bank serves only a portion of an area and/or when other banks 
already serve that area. These stakeholders have also noted uncertainty 
whether their lending in a geography would constitute a substantial 
portion and, as a result, would trigger an expectation to include that 
geography as part of their assessment area.
    Some industry stakeholders have also noted that internet banks 
lacking a physical presence in any market should have nationwide 
assessment areas. For example, some stakeholders have suggested that 
internet banks could be defined as those deriving no more than 20 
percent of their deposits from branch-based assessment areas.

C. Facility-Based Assessment Area Delineation Options

    To continue encouraging banks to meet the credit and community 
development needs of their local communities, the Board proposes 
continuing to delineate assessment areas where banks have a physical 
presence and seeks feedback on options to better tailor assessment 
areas around branches, loan production offices, and deposit-taking ATMs 
based on bank size, business model, and capacity.
1. Branch-Based Assessment Areas
    Branches have traditionally been the primary means through which 
banks connect with and serve their communities. In addition to 
providing a channel for delivering banking products and services, 
branches are frequently the places where individuals develop personal 
banking relationships and obtain financial education. Branches are 
particularly important in this regard to LMI consumers and small 
business owners.\63\ Because of these ancillary activities, branches 
are also essential to low-income communities, including many rural 
communities \64\ and low-income metropolitan neighborhoods where there 
is often a shortage of bank branches.\65\
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    \63\ See, Lei Ding, Federal Reserve Bank of Philadelphia, and 
Carolina K. Reid, University of California, Berkeley, ``The 
Community Reinvestment Act (CRA) and Bank Branching Patterns'' 
(Sept. 2019), https://www.philadelphiafed.org/-/media/community-development/publications/discussion-papers/discussion-paper_cra-and-bank-branching-patterns.pdf?la=en.
    \64\ Board of Governors of the Federal Reserve System, 
``Perspectives from Main Street: Bank Branch Access in Rural 
Communities'' (Nov. 2019), https://www.federalreserve.gov/publications/files/bank-branch-access-in-rural-communities.pdf.
    \65\ See Ding and Reid, ``The Community Reinvestment Act (CRA) 
and Bank Branching Patterns.''
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    Branch-based assessment areas can raise fair lending risk and 
uncertainty when they are not composed of whole political subdivisions, 
e.g., whole counties. For assessment areas composed of portions of 
political subdivisions, examiners conduct a more rigorous review that 
includes a bank's geographic lending patterns to ensure that LMI census 
tracts are not arbitrarily excluded. Consistent with the longstanding 
public policy to prevent redlining, examiners also validate that an 
assessment area does not reflect illegal discrimination. An assessment 
area that appears to have been drawn to exclude areas with a majority 
number of minority residents represents a higher risk of discriminatory 
redlining, as set forth in the FFIEC Interagency Fair Lending 
Examination Procedures.\66\ If LMI census tracts are found to be 
arbitrarily excluded or an assessment area reflects illegal 
discrimination, examiners work with a bank to delineate an assessment 
area that complies with the regulatory criteria, which in some cases 
could include the entire political subdivision. The revised assessment 
area is then used for the CRA evaluation. However, redrawing a bank's 
assessment area during a CRA evaluation can result in uncertainty and 
possibly a lower rating, since the bank may not have engaged in CRA 
activities inside the portions of the political subdivision that were 
previously excluded.
---------------------------------------------------------------------------

    \66\ See OCC, FDIC, Board, Office of Thrift Supervision, 
National Credit Union Association, ``Interagency Fair Lending 
Examination Procedures'' (Aug. 2009), www.ffiec.gov/PDF/fairlend.pdf.
---------------------------------------------------------------------------

    The Board is proposing to tailor the facility-based assessment area 
definition based on bank size. To address the uncertainty commenters 
noted when banks take assessment areas composed of partial political 
subdivisions, this approach would require facility-based assessment 
areas for large banks to consist of whole counties. Excluding partial 
county assessment areas for large banks would streamline the assessment 
area review process, add additional predictability and consistency to 
CRA examinations, and may provide incentives for large banks to lend in 
a broader area.
    In contrast, for small banks, the Board believes that defining 
assessment areas based on whole counties may not be appropriate. 
Smaller banks may not have the capacity and resources to serve the 
needs of a geographically large county, especially when a bank is 
situated near a county border, is otherwise geographically remote from 
an area where it may have some lending activity but no branches, or 
faces substantial competition from other financial institutions within 
the same geographies. Some small municipalities and community groups 
have also indicated that overly large assessment areas can mask poor 
performance in remote and underserved LMI areas. Therefore, small banks 
would continue to be allowed to define facility-based assessment areas 
that include partial counties or portions of smaller political 
subdivisions, including portions of cities or townships, as long as 
they are composed of at least whole census tracts.
    The Board proposes to provide greater clarity that a small bank 
would not be required to expand the delineation of an assessment area 
to include parts of counties where it does not have a physical presence 
and where it either engages in a de minimis amount of lending or there 
is substantial competition from other institutions, except in limited 
circumstances. Pursuant to this, it would clarify the limited 
circumstances under which a small bank would be asked to broaden the 
delineation of its assessment area beyond where it has branches, such 
as where an assessment area is drawn in a discriminatory manner or 
arbitrarily excludes LMI areas.
    Under this tailored approach, both large and small banks would 
still be required to delineate assessment areas to include the 
geographies in which a bank has its main office and its branches, as 
well as the surrounding geographies in which the bank has

[[Page 66417]]

originated or purchased a substantial portion of its loans, and may not 
extend substantially beyond an MSA boundary or beyond a state boundary 
unless the assessment area is located in a multistate MSA. The Board 
proposes a technical update to Regulation BB to also include a combined 
statistical area, in addition to MSAs, as a limitation to branch-based 
assessment areas. Similarly, the regulatory requirements that 
assessment area delineations may not reflect illegal discrimination and 
may not arbitrarily exclude LMI geographies would continue to apply.
2. Loan Production Office-Based and Deposit-Taking ATM-Based Assessment 
Areas
    The Board is considering whether assessment areas should be 
expanded to include loan production offices (LPOs). Certain banks 
source loans and other services through LPOs, which are non-depository 
lending facilities that extend retail lending products to the public 
and are frequently located outside of branch-based assessment areas. 
CRA performance associated with these facilities could be evaluated 
based on bank business models, capacities, and constraints, as well as 
community needs. For example, if a bank extends only small business or 
consumer loans from its LPOs and those products constitute a major 
product line as discussed in Section VI, only those types of loans 
would be subject to evaluation. Similarly, community development 
expectations could also be based on the bank's capacity to engage in 
community development financing and community development services. 
This approach could provide banks with CRA consideration for, and 
thereby incentivize, retail lending and community development activity 
potentially without some of the complexity associated with deposit- or 
lending-based assessment areas discussed below.
    Additionally, the Board is proposing to give banks the option of 
delineating facility-based assessment areas around deposit-taking ATMs, 
but they would not be required to do so. Some stakeholders have 
expressed the view that the current requirement for banks to delineate 
an assessment area around a deposit-taking ATM is outdated now that 
customers can use smartphones and other technologies to make deposits. 
However, if deposits from deposit-taking ATMs generate considerable 
bank deposits or comprise a comparatively large market share within a 
community, it may still be appropriate to delineate assessment areas 
around them.
    Request for Feedback:
    Question 3. Given the CRA's purpose and its nexus with fair lending 
laws, what changes to Regulation BB would reaffirm the practice of 
ensuring that assessment areas do not reflect illegal discrimination 
and do not arbitrarily exclude LMI census tracts?
    Question 4. How should the Board provide more clarity that a small 
bank would not be required to expand the delineation of assessment 
area(s) in parts of counties where it does not have a physical presence 
and where it either engages in a de minimis amount of lending or there 
is substantial competition from other institutions, except in limited 
circumstances?
    Question 5. Should facility-based assessment area delineation 
requirements be tailored based on bank size, with large banks being 
required to delineate facility-based assessment areas as, at least, one 
or more contiguous counties and smaller banks being able to delineate 
smaller political subdivisions, such as portions of cities or 
townships, as long as they consist of whole census tracts?
    Question 6. Would delineating facility-based assessment areas that 
surround LPOs support the policy objective of assessing CRA performance 
where banks conduct their banking business?
    Question 7. Should banks have the option of delineating assessment 
areas around deposit-taking ATMs or should this remain a requirement?

D. Deposit-Based or Lending-Based Assessment Areas for Certain Large 
Banks

    For certain large banks that engage in considerable business beyond 
their branch-based assessment areas, the Board is exploring alternative 
deposit-based and lending-based ways to delineate additional assessment 
areas. In considering options for creating new assessment areas that 
are not facility-based, the Board is also considering the types of 
banks to which these additional assessment area requirements should 
apply. The Board would be inclined to require such an approach only for 
internet banks that do not have physical locations and banks that 
partner with online lenders that do not have physical loan-making 
locations. The Board is also considering which approaches should apply 
to hybrid banks that have traditional branch-based assessment areas but 
also conduct a substantial majority of lending and deposit-taking 
beyond their assessment areas. For these banks, the Board is 
considering whether there is a certain threshold of outside activity 
that would prompt new assessment areas.
1. Deposit-Based Assessment Areas
    The Board is considering the option of establishing deposit-based 
assessment areas for large banks that provide all or a substantial 
majority of their products and services entirely via mobile and 
internet channels. There are currently deposits data gaps that make it 
difficult to understand how this option would affect banks with 
different business models and asset sizes and which communities it 
would impact. Additionally, deposit-based assessment areas also raise 
considerations of how much burden would be associated with deposits 
data collection, as discussed in Section XI. Subject to the deposits 
data limitations discussed above, one option for deposit-based 
assessment areas would be to trigger the delineation of additional 
assessment areas when a large bank exceeds a certain threshold of 
deposits outside of its facility-based assessment areas.\67\ However, 
based on stakeholder feedback that deposit-based assessment areas could 
exacerbate CRA hot spots and deserts, it would be important to evaluate 
the impact of this approach on LMI and other underserved communities.
---------------------------------------------------------------------------

    \67\ A deposit-based approach was proposed in the FDIC-OCC CRA 
notice of proposed rulemaking and adopted in the OCC CRA final rule. 
The OCC CRA final rule provides, in relevant part, that if a 
majority of a bank's deposits come from depositors located outside 
of its branch-based assessment area(s) additional assessment areas 
would be delineated in areas where a certain percentage of deposits 
are located.
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2. Lending-Based Assessment Areas
    Given some of the data challenges with adding deposit-based 
assessment areas, an alternative approach could be to base additional 
assessment areas for large banks on concentrations of lending activity. 
One advantage of lending-based assessment areas is that it is possible 
to analyze their impact given the availability of HMDA and CRA reporter 
data, reflecting home mortgage, small business, and small farm lending 
activity. The Board conducted two separate analyses of possible 
approaches to delineating additional assessment areas based on 
concentrations of lending activity outside of branches.\68\ The first 
used a business model approach based on banks having a substantial 
majority of lending outside of their branch-based assessment areas plus 
a concentration of lending at the county level. The second utilized the 
concentration of lending outside of banks' branch-based assessment 
areas.
---------------------------------------------------------------------------

    \68\ The data used in the various analyses to support the 
Board's ANPR reflect information that was available at the time that 
the analyses were conducted.

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[[Page 66418]]

a. Lending-Based Approach for Large Banks With a Substantial Majority 
of Lending Outside of Branches
    The Board analyzed how lending-based assessment areas might work 
for large banks that conduct a substantial majority (75 percent or 
greater) of their lending outside of their facility-based assessment 
areas. Such an approach would be intended to capture a subset of bank 
business models, including banks that do not rely principally on 
branches for extending loans.
    The Board's analysis reviewed 2017 HMDA, small business, and small 
farm data from CRA-reporting banks. The analysis indicated that this 
approach for delineating lending-based assessment areas may not meet 
the Board's policy objectives for defining additional assessment areas. 
The analysis revealed that additional assessment areas would be 
required for only 33 banks across all three lending categories.\69\ The 
small number of affected banks reflects two key findings of the 
analysis: (i) The vast majority of banks make less than a substantial 
majority of retail loans outside of their assessment areas, and (ii) 
for the banks that make more than a substantial majority of retail 
loans outside of their assessment areas, their lending is relatively 
dispersed rather than concentrated in particular geographic areas. 
Additionally, as with deposit-based assessment areas, this approach may 
exacerbate the discrepancies in CRA activity between CRA hot spots and 
deserts, because the new assessment areas identified under this 
approach tended to be located in high-density metropolitan areas with 
multiple active banks. Finally, the analysis indicates that this 
approach may not substantially increase banks' lending to LMI borrowers 
in the new assessment areas because the percentage of LMI borrowers is 
similar between banks that would add new lending-based assessment areas 
and banks that already have existing facility-based assessment areas.
---------------------------------------------------------------------------

    \69\ The Board defined a minimum concentration of lending at the 
county level needed to delineate a new assessment area in the 
following way. First, the Board identified banks making 75 percent 
or more of their retail loans outside of their assessment areas in 
2017, by product line. Next, the Board sought to delineate new 
assessment areas for these banks such that a substantial share of 
the lending currently outside of branch-based assessment areas would 
be newly included in lending-based assessment areas. To do so, by 
product line, the Board calculated a minimum concentration of loans 
at the county level that would capture approximately 50 percent of 
the loans outside of branch-based assessment areas that are not 
currently assessed for CRA within this group of banks. For home 
mortgage lending, this minimum concentration is 88 loans. Note that 
this calculation is based on lending of the group of banks making 75 
percent or more of their loans outside of branch-based assessment 
areas and not all lending outside of branch-based assessment areas.
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b. Lending-Based Approach for Large Banks With a Concentration of 
Lending Outside of Their Assessment Areas
    The second lending-based approach analyzed by the Board would 
require a bank to delineate additional assessment areas in counties 
with sufficient concentrations of lending, regardless of how many loans 
it makes outside of its branch-based assessment areas. Using 2017 data, 
the Board examined all banks that are both HMDA reporters and included 
in FDIC Summary of Deposits (SOD) data.\70\ The analysis examined HMDA 
mortgage lending only and used two illustrative thresholds of 100 and 
250 home mortgage loans, respectively, within a county as a trigger to 
delineate additional assessment areas. This analysis revealed that of 
3,160 banks analyzed, only 167 banks would be required to delineate at 
least one additional assessment area using a threshold of 100 mortgages 
loans and only 65 banks would be required to delineate at least one 
additional assessment area using a threshold of 250 mortgage loans. It 
is important to recognize that these numbers could increase over time 
as banks expand their reliance on mobile and online platforms.
---------------------------------------------------------------------------

    \70\ In this analysis, a proxy measure was used to determine 
banks' assessment areas using bank branch location data from the 
FDIC SOD. If a bank had a branch in a county in 2017, then that 
county was counted as part of the bank's assessment area(s).
---------------------------------------------------------------------------

    Request for Feedback:
    Question 8. Should delineation of new deposit- or lending-based 
assessment areas apply only to internet banks that do not have physical 
locations or should it also apply more broadly to other large banks 
with substantial activity beyond their branch-based assessment areas? 
Is there a certain threshold of such activity that should trigger 
additional assessment areas?

E. Nationwide Assessment Areas for internet Banks

    The Board is considering whether to allow internet banks to 
delineate nationwide assessment areas. Currently, these banks' 
assessment areas are based on the location of the bank's solitary main 
office. This results in assessment areas that are much smaller than the 
bank's actual business footprint. Additionally, the number of new 
assessment areas triggered for internet banks using the deposit-based 
or lending-based assessment area approach would vary and, for some of 
these banks, could be limited. The Board's above-referenced lending-
based assessment area analysis indicated that many banks' dispersion of 
lending activity would make it challenging to delineate additional 
assessment areas in specific counties. In contrast, nationwide 
assessment areas would be based holistically on an internet bank's 
overall business activity.
    The designation of a nationwide assessment area would require 
determining how to conduct performance evaluations for this approach, 
including for retail and community development activities. Such an 
approach would also require defining an internet bank for CRA purposes. 
In the extreme, the definition of internet bank could be limited to 
banks that exclusively use an online business model to deliver products 
and services. A hybrid definition might instead allow limited branch-
related activity in combination with a substantial majority of activity 
conducted through online channels.
    Request for Feedback:
    Question 9. Should nationwide assessment areas apply only to 
internet banks? If so, should internet banks be defined as banks 
deriving no more than 20 percent of their deposits from branch-based 
assessment areas or by using some other threshold? Should wholesale and 
limited purpose banks, and industrial loan companies, also have the 
option to be evaluated under a nationwide assessment area approach?
    Question 10. How should retail lending and community development 
activities in potential nationwide assessment areas be considered when 
evaluating an internet bank's overall CRA performance?

IV. Tailoring Evaluations Based on Bank Size and Business Model

    The Board is proposing a revised CRA evaluation framework that 
would consist of two separate tests: A Retail Test and a Community 
Development Test. Within these tests would be the following four 
subtests: Retail Lending Subtest, Retail Services Subtest, Community 
Development Financing Subtest, and Community Development Services 
Subtest. Retail and community development activities are both 
fundamental to CRA and essential for meeting the core purpose of the 
statute. Separately evaluating these activities in a Retail Test and a 
Community Development Test helps ensure that these activities are 
appropriately taken into consideration. Having a separate Retail Test 
and Community Development Test also provides the ability to tailor 
which tests and subtests

[[Page 66419]]

apply to banks based on asset size and other factors. Finally, separate 
tests facilitate using metrics and benchmarks that are customized to 
different activities, which allows the use of available data to the 
greatest extent possible and thereby minimizes burden.
    Treatment of Small and Large Retail Banks. The Board proposes 
giving small retail banks the option to be evaluated solely under the 
Retail Lending Subtest, while applying all four subtests to larger 
retail banks. A bank would receive a conclusion for each applicable 
subtest in each of its assessment areas. Accordingly, a small bank that 
chooses to opt in would receive a Retail Lending Subtest conclusion in 
each assessment area, and a large bank would receive four subtest 
conclusions in each assessment area. These subtest conclusions in 
assessment areas would form the foundation for state, multistate MSA, 
and institution CRA ratings.
    Defining Small and Large Banks for CRA Purposes. The approach 
described above would establish small bank and large bank categories of 
retail banks based on institution asset size, and would eliminate the 
current intermediate small bank category to reduce complexity and 
create more consistent evaluation standards. Currently, the asset 
threshold between small and intermediate small banks is $326 million, 
and the threshold between intermediate small and large banks is $1.305 
billion. The Board is seeking feedback on whether to set the asset 
threshold differentiating between small and large banks at either $750 
million or $1 billion, designating banks below this level as small 
banks and banks above this level as large banks.
    Under the proposed test structure, increasing a small bank 
threshold above the existing $326 million limit would reduce the scope 
of activities evaluated under CRA for some banks compared to the 
approach used today. Currently, small banks with assets below $326 
million are evaluated on retail lending performance alone, while 
intermediate small banks with assets between $326 million and $1.305 
billion are also evaluated on their community development activities. 
Although increasing the small bank threshold above the existing limit 
might result in fewer banks' community development activities evaluated 
for purposes of CRA, it would also better tailor the compliance and 
data implications of the proposed Community Development Test only to 
banks with substantial community development activity.
    Small Bank Considerations. The Board proposes that small retail 
banks under the Board's proposed threshold would, by default, have 
their retail lending activities evaluated under the qualitative 
approach used in the current examination procedures for small banks, 
rather than the metrics-based approach proposed in Section V. Small 
banks would also have the ability to opt in to the metrics-based 
approach at their choosing. The default approach of evaluation under 
the current qualitative framework would allow for continuity of 
examination procedures and would more fully account for qualitative 
performance context factors that may be especially relevant for smaller 
banks, such as capacity constraints. However, the default option would 
not deliver the consistency and predictability of the evaluation 
process desired by many banks and other stakeholders and would increase 
overall complexity because it requires multiple performance evaluation 
frameworks.
    Another consideration is allowing small banks to have the option of 
requesting that retail services, community development activities, or 
both, be considered in addition to the Retail Lending Subtest 
conclusions when developing CRA ratings. Small banks could opt to have 
these activities evaluated on a qualitative basis to improve their 
overall ratings and would not be required to collect the data necessary 
to be evaluated under the Retail Services Subtest and the Community 
Development Test. The Board believes that a small retail bank should 
also continue to be able to achieve any rating, including an 
``outstanding,'' based on its retail lending performance alone, and 
should not be required to be evaluated on other activities. Section X 
discusses ratings for small banks in greater detail.
    Wholesale and Limited Purpose Banks. The Board has also considered 
how to tailor evaluation standards to wholesale and limited purpose 
banks. Because these banks, by definition, do not conduct retail 
lending as a significant part of their business, the Board proposes 
evaluating these banks using only the Community Development Test. The 
Board anticipates that the evaluation approach used for the Community 
Development Test, however, would be applied differently to wholesale 
and limited purpose banks than retail banks. Specifically, although the 
Board is proposing a community development financing metric that 
incorporates deposits as a measure of a large retail bank's capacity 
within an assessment area, the Board is considering alternate measures 
of capacity for wholesale and limited purpose banks, such as total 
assets. In addition, as with any bank, wholesale and limited purpose 
banks would continue to have the option to be evaluated under an 
approved strategic plan, which allows for tailoring to their unique 
business models and strategies.
    Request for Feedback:
    Question 11. Is it preferable to make the default approach for 
small banks the current framework, with the ability to opt in to the 
metrics-based approach, as proposed, or instead the metrics-based 
approach, with the ability to opt out and remain in the current 
framework?
    Question 12. Should small retail banks that opt in to the proposed 
framework be evaluated under only the Retail Lending Subtest? Should 
large retail banks be evaluated under all four subtests: Retail Lending 
Subtest, Retail Services Subtest, Community Development Financing 
Subtest, and Community Development Services Subtest?
    Question 13. Is $750 million or $1 billion an appropriate asset 
threshold to distinguish between small and large retail banks? Or 
should this threshold be lower so that it is closer to the current 
small bank threshold of $326 million? Should the regulation contain an 
automatic mechanism for allowing that threshold to adjust with 
aggregate national inflation over time?

V. Retail Test: Evaluation of Retail Lending and Retail Services 
Performance

    The Board proposes using a Retail Lending Subtest--utilizing a 
metrics-based approach--to evaluate retail lending performance for all 
large retail banks and small retail banks that opt into the new 
framework. This approach would result in a small retail bank receiving 
a Retail Lending Subtest conclusion in each of its assessment areas. 
The Board also seeks feedback on a Retail Services Subtest, which would 
apply only to large banks above a specified asset threshold. A large 
bank would receive separate Retail Lending Subtest and Retail Services 
Subtest conclusions in each of its assessment areas.

A. Retail Lending Subtest Evaluation Approach

    This section proposes a metrics-based approach to a Retail Lending 
Subtest that leverages practices currently used in CRA examinations 
combined with more transparent performance expectations. At the heart 
of this analysis would be evaluating how well a bank serves LMI census 
tracts, LMI borrowers, small businesses, and small farms. This approach 
is intended to strengthen CRA's focus on how banks serve the retail 
credit needs of LMI

[[Page 66420]]

communities, and to improve the clarity and consistency of CRA 
examinations.
    First, the Board proposes using a retail lending screen that would 
determine whether a bank should be eligible for a metrics-based 
evaluation of retail lending that could result in a presumption of 
``satisfactory,'' or that should instead be evaluated subject to 
examiner discretion as a result of having relatively low levels of 
retail lending in an assessment area.
    Second, for banks that pass the simple screen, the Board proposes 
using retail lending distribution metrics to determine whether a bank 
is eligible for a presumption of ``satisfactory'' on the Retail Lending 
Subtest in a specific assessment area. The retail lending distribution 
metrics comprises two metrics: (a) A geographic distribution metric 
that would evaluate how well a bank is serving LMI census tracts; and 
(b) a borrower distribution metric that would evaluate how well a bank 
is serving LMI borrowers, small businesses, and small farms in their 
assessment area overall, regardless of geography. To determine which 
banks are eligible for a presumption of ``satisfactory,'' this approach 
would use tailored, dynamic thresholds that adjust across different 
communities and that reflect changes in the local business cycle. The 
Board believes that providing a dashboard--using data through the 
previous quarter or year, depending on the data source--to show the 
thresholds for specific assessment areas would facilitate ease of use 
and enable banks to track their performance over the course of an 
evaluation period.
    To complement the presumption of ``satisfactory'' approach, the 
Board is also considering a third step using the same distribution 
metrics relative to performance ranges set for each Retail Lending 
Subtest conclusion: ``outstanding,'' ``satisfactory,'' ``needs to 
improve,'' and ``substantial noncompliance.'' This would produce a 
recommended Retail Lending Subtest conclusion that an examiner would 
consider in addition to certain, targeted performance context and 
qualitative information to reach a final Retail Lending Subtest 
conclusion.
1. Current Structure for Evaluating Retail Lending Activity
    In current CRA examinations, retail lending performance is examined 
under a lending test that differs based on a bank's asset size category 
(small, intermediate small, and large). The lending test includes 
quantitative and qualitative criteria, and does not specify what level 
of lending is needed to achieve ``satisfactory'' or ``outstanding'' 
performance.
    Currently, the purpose of evaluating lending activity for both 
small and large banks is the same--to determine whether a bank has a 
sufficient aggregate value of lending in its assessment area(s) in 
light of a bank's performance context, including its capacity and the 
lending opportunities available in its assessment area(s). For small 
banks, examiners make a loan-to-deposit calculation based on the 
balance sheet dollar values at the institution level, and review the 
number of loans made inside and outside of assessment area(s). For 
large banks, examiners consider the number and dollar amount of loans 
in assessment area(s) and the number of loans inside and outside of 
assessment area(s). These approaches rely on examiner judgment to draw 
a conclusion about a bank's level of lending.
    Pursuant to Regulation BB, CRA examinations today also include an 
evaluation of the geographic distribution and borrower distribution of 
a bank's retail lending.\71\ This evaluation leverages a set of local 
data points referred to as comparators--both demographic comparators 
and aggregate comparators--that are tailored to each assessment area in 
which the bank operates.
---------------------------------------------------------------------------

    \71\ See 12 CFR 228.22(b).
---------------------------------------------------------------------------

    For the geographic distribution analysis, examiners evaluate the 
distribution of a bank's retail loans in low-income, moderate-income, 
middle-income, and upper-income census tracts. Examiners review the 
geographic distribution of home mortgage loans by income category and 
compare the percentage distribution of lending to the percentage of 
owner-occupied housing units in the census tracts. Similarly, in each 
income category of census tract, examiners compare small business 
lending to the percentage distribution of small businesses; small farm 
lending to the percentage distribution of small farms; and consumer 
lending to the percentage distribution of households in each category 
of census tract, as applicable.
    For the borrower distribution analysis, examiners evaluate the 
distribution of a bank's retail loans based on specified borrower 
characteristics, such as the income level of borrowers for home 
mortgage lending. The comparators used to inform the borrower 
distribution analysis are families by income level for home mortgage 
lending; businesses with gross annual revenues of $1 million or less 
for small business lending; farms with gross annual revenues of $1 
million or less for small farm lending; and households by income level 
for consumer lending.
    Examiners complement these distribution analyses by also reviewing 
the dispersion of a bank's loans throughout census tracts of different 
income levels in its assessment area(s) to determine if there are 
conspicuous lending gaps.
2. Stakeholder Feedback on Evaluating Retail Lending
    Although many stakeholders expressed support for the consideration 
of performance context and the qualitative aspects of CRA performance, 
they raised concerns about a lack of transparency and predictability 
regarding the amount and nature of retail lending activity required to 
achieve a particular rating. As explained above, Regulation BB and the 
related examination procedures require evaluations based on the number 
and dollar amount of loans, but without a formalized way of translating 
that analysis into performance expectations.
    Stakeholders have also expressed the need for greater consistency 
across CRA performance standards. CRA evaluations are tailored based on 
bank size and business strategy; however, these differences can be 
confusing as banks cross asset thresholds and are subject to different 
examination procedures. For example, as noted, overall lending activity 
is evaluated using a loan-to-deposit ratio criterion for small banks 
and by reviewing the number and amount of loans in a bank's assessment 
area(s) for large banks.
3. Potential Retail Lending Screen
    As a first step to evaluating a bank's retail lending, the Board 
proposes using a retail lending screen. The screen would measure a 
bank's retail lending relative to its capacity to lend in an assessment 
area to determine whether the bank is eligible for a presumption of 
``satisfactory'' using the retail lending distribution metrics, or 
whether it should instead be more closely evaluated by an examiner.
    Using the retail lending screen would ensure that a bank does not 
receive a presumption of ``satisfactory'' in assessment areas where it 
has overall low levels of retail lending relative to deposits, compared 
to other banks in the assessment area. Without such a screen, a bank 
with high levels of deposits that originated a very low number of 
retail loans during an evaluation period might otherwise appear to 
merit a ``satisfactory'' conclusion simply because, for example, those 
loans

[[Page 66421]]

happened to be concentrated among LMI borrowers and LMI census tracts.
    In each assessment area, the retail lending screen would measure 
the average annual dollar amount of a bank's originations and purchases 
of retail loans in the numerator--including home mortgage, small 
business, and small farm loans--relative to its deposits in the 
denominator. Both the numerator and denominator of the retail lending 
screen would be measured in dollars.
    The retail lending screen would be measured against a market 
benchmark that reflects the level of retail lending by other banks in 
the same assessment area, indicating the aggregate dollar amount of 
lending a typical bank might be expected to engage in given its level 
of retail deposits. Specifically, the proposed market benchmark for the 
retail lending screen would be the percentage of retail lending (in 
dollars) by all HMDA and CRA reporter banks in an assessment area 
compared to the aggregate amount of deposits for those banks in that 
same assessment area. The use of HMDA and CRA reporter data would 
minimize the data reporting requirements for small banks. To ensure 
that banks' ability to pass this retail lending screen would not depend 
on their business strategy (e.g., banks that hold their loans in 
portfolio rather than sell them into the secondary market), the 
threshold for this screen would be set at a low level, such as 30 
percent of the market benchmark.\72\ The intent would be to focus 
examiner attention on banks that are significantly underperforming 
relative to the market benchmark.
---------------------------------------------------------------------------

    \72\ The analysis of performance evaluation data, using the 
Board's publicly available CRA Analytics Data Tables, showed that 
the frequency of ratings below ``satisfactory'' increased 
substantially relative to ``high satisfactory'' or ``outstanding'' 
ratings when a bank's average annual loan-to-deposit ratio fell 
below 30 percent of the market benchmark. In 2017, the median market 
benchmark loan-to-deposit ratio for entire MSAs and for non-MSA 
counties were both approximately 9 percent. The proposed loan-to-
deposit ratio is based on the dollar amount of a bank's originations 
and purchases during the evaluation period. In contrast, the loan-
to-deposit ratio used under current small bank examination 
procedures is based on the dollar amount of loans and purchases on a 
bank's balance sheet.
---------------------------------------------------------------------------

    Under this approach, banks not meeting the retail lending screen 
threshold would not be eligible for a metrics-based presumption of 
``satisfactory'' on the Retail Lending Subtest in an assessment area. 
Instead, examiners would review the bank's aggregate lending, 
geographic distribution, and borrower distribution in combination with 
performance context and qualitative aspects of performance.
    Request for Feedback:
    Question 14. Is the retail lending screen an appropriate metric for 
assessing the level of a bank's lending?
4. Retail Lending Distribution Metrics for a Presumption of 
``Satisfactory''
    For banks that pass the retail lending screen, the Board proposes 
comparing a pair of retail lending distribution metrics against local 
quantitative thresholds to determine whether a bank is eligible for a 
presumption of ``satisfactory'' on the Retail Lending Subtest in an 
assessment area. For each product line evaluated under the Retail 
Lending Subtest, the Board proposes evaluating bank activity using both 
a geographic distribution metric and a borrower distribution metric, 
with each designed to evaluate different but complementary aspects of a 
bank's retail lending performance, similar to the focus of current 
examinations.
    If a bank's geographic distribution metric and borrower 
distribution metric both met or exceeded the relevant thresholds, then 
a bank would receive a presumption of ``satisfactory'' performance and 
would be eligible for a ``satisfactory'' or an ``outstanding'' 
conclusion in a specific assessment area.
a. Calculation of Retail Lending Distribution Metrics
    The geographic distribution metric would measure the number of a 
bank's loans in LMI census tracts within an assessment area. For each 
of the bank's major product lines, the geographic distribution metric 
would calculate the total number of the bank's originated or purchased 
loans in LMI census tracts (numerator) relative to the total number of 
the bank's originated or purchased loans in the assessment area overall 
(denominator). For mortgage and consumer loans, this would include 
loans to borrowers of any income level but located within an LMI census 
tract. For instance, assuming that a bank originated or purchased 25 
home mortgage loans in one of its assessment areas during the 
evaluation period and that five of these were located in LMI census 
tracts, the geographic distribution metric for home mortgage loans 
would be:
[GRAPHIC] [TIFF OMITTED] TP19OC20.000

    The borrower distribution metric would measure a bank's loans to 
LMI individuals (for home mortgages or consumer loans, respectively) or 
to small businesses (for small business loans) or small farms (for 
small farm loans) within an assessment area relative to the total 
number of the bank's corresponding loans in that category in the 
assessment area overall. For each of the bank's major product lines, 
the borrower distribution metric would be calculated separately. 
Options for revising the thresholds for small business lending and 
small farm lending are discussed in Section VI.
    Assuming that a bank originated or purchased 100 home mortgage 
loans in one of its assessment areas during the evaluation period, and 
that 20 of these went to LMI borrowers, the borrower distribution 
metric would be:
[GRAPHIC] [TIFF OMITTED] TP19OC20.001

    To calculate the retail lending distribution metrics, the Board's 
proposed approach would use the number of a bank's loans, not the 
dollar amount of those loans, in order to treat different-sized loans 
equally within product categories. For example, using an approach based 
on the number of loans, a $250,000 mortgage to a

[[Page 66422]]

moderate-income household would count the same as an $80,000 mortgage 
to a low-income household. This approach emphasizes the number of 
households, small businesses, and small farms served, and avoids 
weighting larger loans more heavily than smaller loans, as would occur 
when using dollar amounts. This better captures the importance and 
responsiveness of smaller dollar loans to the needs of lower-income 
borrowers and smaller businesses and farms, and does not provide an 
incentive to make larger loans to reach performance levels.
    For each product line evaluated using the retail lending 
distribution metrics, the Board proposes aggregating the calculation of 
the retail lending distribution metrics in certain aspects for 
simplicity and clarity. This would be a change from current practice, 
whereby examiners separately evaluate a bank's performance in each 
income category (low-, moderate-, middle-, and upper-); each loan 
category within a product line (e.g., home purchase loans, home 
refinance loans); and each year. The proposed approach would combine 
low- and moderate-income categories under a single metric calculation. 
The proposed approach would also aggregate all categories of home 
mortgage loans together when evaluating home mortgage lending, all 
categories of small business loans together when evaluating small 
business lending, and all types of small farm loans together when 
evaluating small farm lending. By comparison, the Board believes that 
there could be different considerations for evaluating consumer loan 
categories separately (e.g., motor vehicle lending separately from 
credit card lending) rather than as one consumer product line. Lastly, 
the Board proposes to combine all years of the evaluation period 
together under a single metric calculation.
    Calculating the retail lending distribution metrics on a more 
aggregated basis for each product line would simplify the number of 
calculations needed to determine whether a bank qualified for the 
presumption of ``satisfactory.'' This approach would result in only one 
calculation needed for each distribution metric for each product line 
during an evaluation period. Another benefit of aggregating the metrics 
in this manner is that, for small banks and rural banks with relatively 
fewer retail loan originations, this approach would more likely capture 
a sufficient number of loans for use in the metrics.
    The greater simplicity would also have some drawbacks. Combining 
low- and moderate-income categories together could potentially reduce 
the focus on lending in low-income census tracts and to low-income 
borrowers relative to lending to moderate-income tracts and moderate-
income borrowers. A potential drawback to combining all home mortgage 
lending products into one category is that the evaluation of home 
purchase lending could be obscured when combined with home refinance 
loans, particularly when levels of home mortgage refinancing 
increase.\73\
---------------------------------------------------------------------------

    \73\ Complicating this decision further is that, for loans 
originated in 2018, HMDA reporting requirements for home mortgage 
loans changed and now include, for certain reporters, home equity 
lines of credit (HELOCs) that are secured by a dwelling, regardless 
of loan purpose (unless otherwise exempt). See, e.g., 12 CFR 
1003.2(e); 82 FR 43088 (Sept. 13, 2017); 85 FR 28364 (May 12, 2020). 
As such, HELOCs reported in HMDA data may include loans secured by a 
dwelling but not connected to a dwelling-related purpose (i.e., home 
purchase, home refinance, or home improvement).
---------------------------------------------------------------------------

b. Benchmarks for the Retail Lending Distribution Metrics
    The Board proposes using two different kinds of benchmarks for each 
distribution metric as the building blocks for setting quantitative 
thresholds for the retail lending distribution metrics. First, a 
community benchmark would reflect the demographics of an assessment 
area, such as the number of owner-occupied units, the percentage of 
low-income families, or the percentage of small businesses or small 
farms. Second, a market benchmark would reflect the aggregate lending 
to targeted areas or targeted borrowers by all lenders operating in the 
same assessment area. Using these two kinds of benchmarks will help 
tailor the Retail Lending Subtest to the lending opportunities, needs, 
and overall lending taking place in an assessment area. Importantly, 
the Board believes that these benchmarks will focus CRA evaluations on 
the local communities being served by banks and will incorporate 
aspects of performance context directly into the metrics.
    Benchmarks grounded in local data are used today in CRA 
examinations, and the Board's approach seeks to translate these 
comparators into performance expectations in a consistent and 
transparent way. As discussed above, in current CRA performance 
evaluations, the benchmarks are referred to as ``comparators.'' The 
community benchmark is currently referred to as the demographic 
comparator. The market benchmark is currently referred to as the 
aggregate comparator.
    Within each retail lending product line evaluated under the Retail 
Lending Subtest, the geographic distribution metric would be compared 
to a community benchmark and a market benchmark, and the borrower 
distribution metric would be compared to a community benchmark and a 
market benchmark. Table 1 provides an overview of the benchmarks under 
consideration by the Board and their respective data sources.

 Table 1--List of Benchmarks for Retail Lending Distribution Metrics and
                              Data Sources
------------------------------------------------------------------------
     Distribution metric       Community benchmark    Market benchmark
------------------------------------------------------------------------
                                Mortgage
------------------------------------------------------------------------
Geographic:
    Data Point..............  Percentage of owner-  Percentage of home
                               occupied              mortgages in LMI
                               residential units     census tracts by
                               in LMI census         all lender-
                               tracts in             reporters in
                               assessment area.      assessment area.
    Data Source.............  American Community    HMDA Data.
                               Survey (Census).
Borrower:
    Data Point..............  Percentage of LMI     Percentage of home
                               families in           mortgages to LMI
                               assessment area.      borrowers by all
                                                     lender-reporters in
                                                     assessment area.
    Data Source.............  American Community    HMDA Data.
                               Survey (Census).
------------------------------------------------------------------------
                             Small Business
------------------------------------------------------------------------
Geographic:

[[Page 66423]]

 
    Data Point..............  Percentage of small   Percentage of small
                               businesses with       business loans in
                               gross annual          LMI census tracts
                               revenue less than     by all lender-
                               $1M in LMI census     reporters in
                               tracts in             assessment area.
                               assessment area.
    Data Source.............  Dun & Bradstreet....  CRA Data.
Borrower:
    Data Point..............  Percentage of small   Percentage of small
                               businesses with       business loans to
                               gross annual          small businesses
                               revenue less than     with gross annual
                               $1M in assessment     revenue less than
                               area.                 $1M by all lender-
                                                     reporters in
                                                     assessment area.
    Data Source.............  Dun & Bradstreet....  CRA Data.
------------------------------------------------------------------------
                               Small Farm
------------------------------------------------------------------------
Geographic:
    Data Point..............  Percentage of small   Percentage of small
                               farms with gross      farm loans in LMI
                               annual revenue less   census tracts by
                               than $1M in LMI       all lender-
                               census tracts in      reporters in
                               assessment area.      assessment area.
    Data Source.............  Dun & Bradstreet....  CRA Data.
Borrower:
    Data Point..............  Percentage of small   Percentage of small
                               farms with gross      farm loans to small
                               annual revenue less   farms with gross
                               than $1M in           annual revenue less
                               assessment area.      than $1M by all
                                                     lender-reporters in
                                                     assessment area.
    Data Source.............  Dun & Bradstreet....  CRA Data.
------------------------------------------------------------------------
                                Consumer
------------------------------------------------------------------------
Geographic:
    Data Point..............  Percentage of         Percentage of
                               households in LMI     consumer loans in
                               census tracts in      LMI census tracts
                               assessment area.      by all lender-
                                                     reporters in
                                                     assessment area.
    Data Source.............  American Community    To be determined.
                               Survey (Census).
Borrower:
    Data Point..............  Percentage of LMI     Percentage of
                               households in         consumer loans to
                               assessment area.      LMI borrowers by
                                                     all lender-
                                                     reporters in
                                                     assessment area.
    Data Source.............  American Community    To be determined.
                               Survey (Census).
------------------------------------------------------------------------

    To limit data burden for small banks that opt in to the metrics-
based approach, the Board proposes using HMDA and CRA reporter data to 
construct the market benchmark for mortgage, small business, and small 
farm product lines. In calculating the market benchmark for mortgage 
lending, the Board also proposes including all mortgage lenders, not 
just depository institutions. This is intended to capture the full 
breadth of lending to LMI borrowers in constructing the benchmark.
    As noted in Table 1, the Board has not yet identified a data source 
for the market benchmark for consumer loans due to the lack of 
consistent data collection on consumer lending.\74\ To use the same 
kind of benchmarks for consumer loans as for other product lines, 
market benchmarks would be needed that measure: (1) The percentage of 
consumer lending in LMI census tracts as a comparison point for the 
geographic distribution metric; and (2) the percentage of consumer 
lending to LMI borrowers as a comparison point for the borrower 
distribution metric.
---------------------------------------------------------------------------

    \74\ Regulation BB provides large banks with the option to 
collect and maintain consumer loan data for one or more categories 
of consumer loans in the event that a bank opts to have its consumer 
lending evaluated. See 12 CFR 228.42(c)(1). Regulation BB does not 
require small banks or intermediate small banks to collect, 
maintain, or report loan data. Instead, examiners evaluate these 
banks using information maintained in a bank's internal operating 
systems or gathered from individual loan files.
---------------------------------------------------------------------------

    The Board is considering the use of commercially available data 
from one or more of the nationwide credit reporting agencies to 
establish a market benchmark for the geographic distribution metric 
based on the rate of new account openings in LMI census tracts. This 
could facilitate a metrics-based approach to evaluate consumer lending 
without additional data reporting requirements. A downside of this 
approach is that it would not provide a measure of consumer lending to 
LMI borrowers that is necessary to create a market benchmark for the 
borrower distribution metric for consumer lending. However, it could be 
used to create a market benchmark for the geographic distribution 
metric for certain consumer lending products, such as motor vehicle 
loans and credit cards. Alternatively, consumer lending could continue 
to be evaluated under current examination procedures, which do not 
incorporate a standardized benchmark, or the Board could consider other 
data sources to develop benchmarks for consumer lending.
c. Establishing Quantitative Thresholds Based on Community and Market 
Benchmarks
    The Board proposes using the community and market benchmarks to set 
the quantitative thresholds used for determining whether a bank 
receives the presumption of ``satisfactory.'' Through this process, the 
Board believes that the quantitative thresholds in place for a 
presumption of ``satisfactory'' will directly incorporate aspects of 
performance context.
    The approach for setting thresholds would involve first calibrating 
each benchmark to align with the Board's expectations for 
``satisfactory'' performance sufficient to obtain the certainty of a 
presumption. This calibration would involve multiplying each benchmark 
by a fixed percentage. The Board would then refer to the calibrated 
benchmarks as the community threshold and market threshold, 
respectively. While the same fixed percentage would be used to 
calibrate each benchmark in each assessment area, the resulting 
thresholds would, in fact, be tailored for local community and market 
conditions

[[Page 66424]]

because the benchmarks are based on local data specific to each 
assessment area.
    For each distribution metric, the lower of the community threshold 
or market threshold would be selected as the binding threshold. For 
example, for the geographic distribution metric, if the community 
threshold was 30 percent and the market threshold was 35 percent, then 
the community threshold of 30 percent would be used as the binding 
threshold for this metric.
    There are several benefits of the proposed approach to setting 
quantitative thresholds for a presumption of ``satisfactory'' on the 
Retail Lending Subtest as described above. One benefit would be 
providing a bank with greater certainty about CRA performance 
expectations in an assessment area because the thresholds would be 
tailored to the different conditions in different local communities 
across the country. Rather than setting a static threshold level across 
the country that might be too high or too low in certain areas, this 
customized approach would facilitate a bank's ability to rely on the 
thresholds in each of its assessment areas.
    Another benefit is that the Board's approach would automatically 
adjust the threshold levels over time in a way that reflects changes in 
the business cycle because the market benchmarks reflect overall 
lending activity in each assessment area. This approach could reduce 
the instances in which the Board would need to adjust the threshold 
levels through a rulemaking or other regulatory action. If, for 
example, a market downturn affected an assessment area by making LMI 
lending more difficult, the downturn would likely have a similar effect 
on all lenders in an area, thereby causing the market benchmark to 
decline. Because the proposed approach would set a threshold by 
selecting the lower of the community threshold or market threshold, the 
decline in the market threshold itself during a downturn could have the 
effect of lowering the applicable threshold. Conversely, if overall LMI 
lending opportunities expanded, the threshold associated with the lower 
of the community threshold or market threshold may increase, creating 
greater expectations of local banks to make loans in LMI tracts, to LMI 
borrowers, and to small businesses and small farms.
    On the other hand, thresholds could be set low in areas where 
credit markets as a whole are underserving LMI census tracts, LMI 
borrowers, or both, which could have the effect of providing the 
presumption of ``satisfactory'' too often in communities with 
significant unmet credit needs. An approach that set performance 
standards too low could fail to fulfill one of the core purposes of 
CRA, which is to encourage banks to serve LMI communities. 
Additionally, given CRA's nexus with fair lending laws and the broader 
context of CRA as one of several complementary laws that address 
inequities in credit access, the Board is also mindful of analyzing how 
the proposed approach to setting thresholds would impact majority-
minority assessment areas relative to other assessment areas. As part 
of its ongoing analysis of threshold options, the Board intends to 
closely analyze these issues.
d. Meeting Quantitative Thresholds Across Retail Product Lines
    In addition to requiring that a bank meet the binding thresholds 
for both distribution metrics for a specific product line, the Board 
also proposes that banks should meet the binding thresholds across all 
retail lending product lines evaluated under the Retail Lending Subtest 
in order to receive a presumption of ``satisfactory.'' For example, if 
a bank were evaluated based on its home mortgage and small business 
lending in an assessment area, the bank would need to meet or exceed 
both distribution metric thresholds for its mortgage lending and both 
distribution metric thresholds for its small business lending--overall, 
a set of four thresholds. An approach that allowed such a bank to 
receive the presumption based on only one of its retail lending product 
lines could result in overlooking major product lines where the bank 
failed to serve LMI communities or LMI borrowers.
    Some stakeholders have expressed concern that requiring banks to 
pass a series of thresholds in an assessment area could be onerous and 
complex for banks evaluated under multiple retail lending product 
lines. The Board seeks to lessen this concern by only evaluating major 
product lines under the Retail Lending Subtest, which is discussed in 
more detail in Section VI. The Board also seeks to mitigate this 
concern by using the same metrics for the presumption of 
``satisfactory'' approach and the performance ranges approach described 
in Section V, and by providing simple dashboards to reduce complexity 
and make the thresholds transparent.
e. Ease of Use: Providing Dashboards To Track Progress
    The proposed approach is intended to help advance the objectives of 
certainty and transparency in setting CRA performance expectations for 
retail lending, and the Board is interested in ways to make the 
approach easy to adopt for banks and for the public. To this end, the 
Board is exploring providing banks with an online portal with 
dashboards, as shown in Figure 1, that would show thresholds for each 
major product line for a specific assessment area, with updates made on 
a quarterly or annual basis, as applicable. This would enable banks to 
track their own performance throughout an evaluation period against the 
relevant standards. For HMDA and/or CRA reporters, the dashboards could 
display a bank's metrics calculations to date in addition to the 
applicable thresholds.

[[Page 66425]]

[GRAPHIC] [TIFF OMITTED] TP19OC20.002

f. Limited Circumstances To Rebut the Presumption
    The Board believes that granting a presumption of ``satisfactory'' 
can provide banks with greater certainty about performance expectations 
and their results on the Retail Lending Subtest. To preserve this 
certainty, the Board is considering allowing examiners to rebut a 
``satisfactory'' presumption in a specific assessment area only in 
cases of consumer compliance violations involving discrimination and 
other illegal credit practices, as specified in Section X. 
Discrimination and other illegal credit practices can be indicative of 
performance that is lower than the metrics and quantitative thresholds 
would otherwise indicate. The process for rebutting a presumption in an 
assessment area would not change the process for potentially 
downgrading a rating for an institution overall. Discrimination and 
other illegal credit practices would also be considered separately 
under the ratings provisions, as discussed in Section X.
    Request for Feedback:
    Question 15. Are the retail lending distribution metrics 
appropriate for all retail banks, or are there adjustments that should 
be made for small banks?
    Question 16. Should the presumption of ``satisfactory'' approach 
combine low- and moderate-income categories when calculating the retail 
lending distribution metrics in order to reduce overall complexity, or 
should they be reviewed separately to emphasize performance within each 
category?
    Question 17. Is it preferable to retain the current approach of 
evaluating consumer lending levels without the use of standardized 
community and market benchmarks, or to use credit bureau data or other 
sources to create benchmarks for consumer lending?
    Question 18. How can the Board mitigate concerns that the threshold 
for a presumption of ``satisfactory'' could be set too low in 
communities underserved by all lenders?
5. Threshold Levels for Presumption of ``Satisfactory''
    A foundational part of the presumption of ``satisfactory'' approach 
is determining where to set the threshold level for this presumption. 
Threshold levels that are set too low could provide a presumption of 
``satisfactory'' for too many banks and potentially erode CRA 
performance over time due to inadequate incentives. Threshold levels 
that are set too high could be seen as unachievable and provide few 
banks with the certainty of obtaining a presumption.
a. Overview of Proposed Threshold Levels
    The Board has conducted an analysis of potential threshold levels 
for a presumption of ``satisfactory,'' and this section suggests a 
threshold level for the retail lending distribution metrics. This 
threshold level would establish the fixed percentages for calibrating 
the community benchmarks and market benchmarks for purposes of 
identifying the level of performance necessary to obtain a presumption 
of ``satisfactory.''
    Specifically, the threshold level would set the ``satisfactory'' 
presumption level at 65 percent of the community benchmark and 70 
percent of the market benchmark. An example illustrates this approach 
using the borrower distribution metric for mortgage lending. If the 
community benchmark shows that 30 percent of families in an assessment 
area are LMI, then the community threshold would be 19.5 percent (30 
percent times 65 percent). If the market benchmark shows that 35 
percent of mortgage originations in the assessment area are to LMI 
borrowers, then the market threshold would be 24.5 percent (35 percent 
times 70 percent). Because the community threshold is lower than the 
market threshold, a bank's performance on the borrower distribution 
metric for mortgage lending (which measures the percentage of a bank's 
mortgage lending to LMI borrowers) would need to meet or exceed the 
binding threshold of 19.5 percent in order to earn the presumption of 
``satisfactory.''
b. Analysis of Proposed Threshold Level Using CRA Analytics Data Tables
    To understand the impact of different threshold levels for the 
retail lending distribution metrics using past CRA examinations, the 
Board used the CRA Analytics Data Tables. These data tables combine 
publicly available information, proprietary data, and data that the 
Board compiled from past CRA performance evaluations. In total, the CRA 
Data Analytics Tables include data from a stratified random sample of 
approximately 6,300 performance evaluations from 2004 to 2017, with the 
sampling designed to capture the range of bank sizes, regulatory 
agencies, stages of the business cycle, and performance ratings.
    The Board used the CRA Analytics Data Tables to evaluate two 
related issues. First, the data were used to identify threshold options 
that would

[[Page 66426]]

likely provide a presumption of ``satisfactory'' performance for banks 
that had received assessment area conclusions or ratings of ``high 
satisfactory'' or ``outstanding'' on the lending test in their past 
examinations. Second, the data were used to identify options that were 
not likely to provide a presumption for banks that had received 
assessment area conclusions or ratings of ``needs to improve'' or 
``substantial noncompliance'' lending performance on past examinations. 
In this way, the Board's analysis sought to identify the level of 
performance on the proposed Retail Lending Subtest that would be 
strongly associated with a conclusion of ``satisfactory'' or better 
based on past performance evaluations.
    Based on this analysis of past examinations using the CRA Analytics 
Data Tables, the Board identified the threshold level that separates 
``high satisfactory'' or ``outstanding'' performance from ``needs to 
improve'' or ``substantial noncompliance'' performance on past 
examinations. The Board first analyzed how many individual assessment 
areas would have received the presumption of ``satisfactory'' using the 
threshold level set at 65 percent of the community benchmark and at 70 
percent of the market benchmark. This analysis showed a presumption of 
``satisfactory'' performance being granted to over 70 percent of 
assessment areas with a ``high satisfactory'' or ``outstanding'' on a 
past examination and less than 15 percent of the assessment areas with 
a ``needs to improve'' or ``substantial noncompliance'' on a past 
examination.\75\
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    \75\ The sample used to conduct this analysis was limited to 
assessment areas for which the bank in question: (1) Passed the 
retail lending screen (limiting the sample to large banks, for which 
the necessary data was available); and (2) had some amount of 
community development lending reported in its performance 
evaluation. These restrictions were imposed so that the sample would 
be limited to banks whose lending test performance conclusions were 
most tightly tied to the borrower income and geographic distribution 
of their loans. Banks with low levels of retail or community 
development lending could have received a ``needs to improve'' or 
``substantial noncompliance'' conclusion or rating on the lending 
test despite a good distribution of retail lending due to this low 
level of lending, so these observations were dropped from this 
analysis, which was intended to focus solely on the distribution 
metrics.
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    To understand instances where threshold levels would have provided 
a different result compared to past examinations, the Board also 
undertook a review of a sample of performance evaluations where the CRA 
examination conclusions on past examinations did not match the 
presumption approach using the retail lending distribution metrics. For 
banks that received a ``needs to improve'' in an assessment area on the 
existing lending test but would have passed the distribution metric 
based on the threshold level described above, the review found that the 
most common reason given in the performance evaluation was a low 
absolute level of either retail or community development lending. 
Substantive fair lending or unfair or deceptive acts or practices 
violations also explained some of these outliers. The Board's proposals 
to use a retail lending screen and to allow discrimination or other 
illegal credit practices to rebut the presumption of ``satisfactory'' 
are intended to address these kinds of situations.
    Conversely, where applying the distribution metrics would not have 
resulted in the bank receiving a presumption of ``satisfactory'' 
performance in an assessment area but the assessment area conclusion 
recorded in the past performance evaluation was ``satisfactory'' or 
better, the conclusion frequently was justified in the performance 
evaluation by a perceived compensating factor. For example, in some 
cases, a high percentage of loans in LMI geographies was viewed as 
making up for a low percentage of loans to LMI borrowers. Another 
common reason was the examiner making use of different comparators, or 
making adjustments to the comparators, relative to the presumption of 
``satisfactory'' approach discussed above. The presumption of 
``satisfactory'' proposal would increase rigor and consistency, and 
reduce uncertainty caused by examiner discretion. This analysis 
supports the conclusion that the proposed approach, in combination with 
the retail lending screen and the limited rebuttals of a presumption, 
would follow the same criteria and guidelines that banks would have 
been evaluated under in the past, but would do so with improved 
clarity, transparency and consistency.
    To better understand the potential impact of a threshold level set 
at 65 percent of the community benchmark and 70 percent of the market 
benchmark, the Board also analyzed how the proposed threshold level 
would perform for banks of different sizes, locations, and market 
conditions. To this end, using a sample of 7,067 assessment areas from 
the CRA Analytics Data Tables, the Board determined how frequently 
banks would obtain a presumption of ``satisfactory'' performance in an 
assessment area at different points in the market cycle, in 
metropolitan and nonmetropolitan areas, and for different bank asset 
sizes.\76\
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    \76\ For each assessment area in the publicly available merged 
data table, the analysis used the available data to calculate each 
component necessary to retroactively apply the retail lending 
distribution metrics to banks' home mortgage and small business 
lending activities in individual assessment areas for a given 
examination. To be included in this analysis, a loan product had to 
constitute a major product line, as described in Section VI, in that 
assessment area. Loan counts were used to approximate the major 
product line threshold to account for the lack of loan dollar amount 
data for small banks in the merged data table. The banks' geographic 
and borrower distribution metrics, as well as the community and 
market benchmarks, were calculated for each assessment area, using 
HMDA and CRA small business reported data or loan data extracted 
from performance evaluations for small banks where applicable. If 
all of the data necessary to calculate the retail distribution 
metrics and benchmarks were available then each major product line 
was tested using the thresholds of 65 percent for the community 
benchmark and 70 percent for the market benchmark. Some assessment 
areas were not scored due to lack of data or other data quality 
issues, but of the 7,069 assessment areas that were scored, 63 
percent received the presumption.
---------------------------------------------------------------------------

    Results of these comparisons are shown in Table 2. Examination 
years from 2005 through 2009 are defined as falling in a boom period, 
from 2010 through 2013 are defined as falling in a downturn period, and 
from 2014 through 2017 are defined as falling in a recovery period. 
Performance evaluations generally cover lending over a period of years 
prior to the actual examination date, so performance evaluations even 
into 2009 were covering loans made prior to the financial crisis. 
Assessment areas were defined as metropolitan if they were located in a 
metropolitan statistical area and as nonmetropolitan if they were not. 
Finally, banks were divided into categories of less than $300 million 
in assets, between $300 million and $1 billion, between $1 billion and 
$50 billion, and greater than $50 billion.

[[Page 66427]]



   Table 2--Percent of Assessment Areas Obtaining Presumption Across Different Business Cycles, Locations, and
                                         Banks of Different Asset Sizes
----------------------------------------------------------------------------------------------------------------
                                                                                     Number of
             Scenario                    Category                 Result            assessment        Percent
                                                                                       areas
----------------------------------------------------------------------------------------------------------------
Market Cycle.....................  Boom................  Pass...................             871              66
                                                         Not Pass...............             444              34
                                   Downturn............  Pass...................           1,755              64
                                                         Not Pass...............             970              36
                                   Recovery............  Pass...................           1,836              61
                                                         Not Pass...............           1,191              39
Assessment Area Location.........  Nonmetropolitan.....  Pass...................           1,389              62
                                                         Not Pass...............             840              38
                                   Metropolitan........  Pass...................           3,073              64
                                                         Not Pass...............           1,765              36
Asset Category...................  <$300 Million.......  Pass...................             423              59
                                                         Not Pass...............             288              41
                                   $300 Million to $1    Pass...................             901              66
                                    Billion.
                                                         Not Pass...............             467              34
                                   $1 to $50 Billion...  Pass...................           2,118              62
                                                         Not Pass...............           1,324              38
                                   >$50 Billion........  Pass...................           1,020              66
                                                         Not Pass...............             526              34
----------------------------------------------------------------------------------------------------------------

    Under the proposed threshold levels, the retail lending 
distribution metrics grant the presumption of ``satisfactory'' to 
similar percentages of assessment areas across the three phases of the 
market cycle, metropolitan and nonmetropolitan areas, and bank asset 
sizes. The share of assessment areas meeting this potential presumption 
standard falls slightly over the course of the previous economic cycle 
from boom, to downturn, to recovery period, starting at 66 percent and 
falling to 61 percent. Metropolitan and nonmetropolitan bank assessment 
areas met the potential presumption standard in 64 and 62 percent of 
cases, respectively. Finally, there was some variation in the share of 
assessment areas meeting the standard across bank sizes, without a 
clear pattern by size. For banks with less than $300 million in assets, 
59 percent of assessment areas would meet the presumption, compared to 
66 percent of the largest bank assessment areas.\77\ Overall, this 
analysis suggests that the proposed metrics-based approach 
appropriately tailors for different economic circumstances, 
geographies, and bank sizes.
---------------------------------------------------------------------------

    \77\ Data constraints make it difficult to precisely estimate 
the figure for the smallest banks because the data are neither as 
complete nor as precise as the data for large banks. For example, 
although large banks report assessment area boundaries at the census 
tract level, small and intermediate small bank assessment areas 
(derived from extracting data from performance evaluations) are 
generally recorded only at the county level. In cases when a small 
or intermediate small bank took only part of a county in its 
assessment area, the Board was not able to identify which census 
tracts within that county were included. As a result, the Board's 
analysis calculated the presumption of ``satisfactory'' performance 
thresholds for specific assessment areas based on benchmarks for the 
full county, even when the bank took a partial county. The Board 
also analyzed how the retail lending screen would work in 
conjunction with the retail lending distribution metrics by 
comparing bank performances using both metrics approaches for large 
retail banks, because the data to assess the impact of the screen on 
small banks and intermediate small banks is not currently available. 
This analysis found that the retail lending screen slightly 
decreased the share of large bank assessment areas receiving the 
presumption, to about 58 percent for banks above $1 billion in asset 
size.
---------------------------------------------------------------------------

    Request for Feedback:
    Question 19. Would the proposed presumption of ``satisfactory'' 
approach for the Retail Lending Subtest be an appropriate way to 
increase clarity, consistency, and transparency?
    Question 20. Is the approach to setting the threshold levels and a 
potential threshold level set at 65 percent of the community benchmark 
and at 70 percent of the market benchmark appropriate?
    Question 21. Will the approach for setting the presumption for 
``satisfactory'' work for all categories of banks, including small 
banks and those in rural communities?
6. Using ``Performance Ranges'' to Complement the Presumption of 
``Satisfactory''
    To provide additional certainty, the Board proposes using the 
retail lending distribution metrics and benchmarks to establish 
performance ranges for each recommended conclusion--``outstanding,'' 
``satisfactory,'' ``needs to improve,'' and ``substantial 
noncompliance.''
a. Overview of Performance Ranges Approach
    Performance ranges could be used to help reach Retail Lending 
Subtest conclusions in two ways. First, when a bank receives the 
presumption of ``satisfactory,'' this approach would provide 
transparency and consistency about the level of performance that would 
merit upgrading to an ``outstanding.'' Second, when a bank does not 
receive the presumption of ``satisfactory,'' the performance ranges 
could help provide greater consistency and predictability on which of 
the four possible conclusions the bank receives on the Retail Lending 
Subtest. In these two situations, the recommended conclusions developed 
through the performance ranges approach could be combined with an 
examiner's review of specific performance context factors along with 
any details about the bank's specific activities to reach a final 
conclusion for the Retail Lending Subtest.
    For each product line evaluated under the Retail Lending Subtest in 
an assessment area, the Board would derive performance ranges from 
community benchmarks and market benchmarks, similar to the approach to 
calculate the threshold for a presumption of ``satisfactory.'' The 
Board would then compare how well a bank performed on the retail 
lending distribution metrics relative to these performance ranges. 
However, while the presumption test would combine low- and moderate-
income groups for each distribution metric, the performance ranges 
would assess performance separately for low-income and moderate-income

[[Page 66428]]

borrowers. This would focus more attention (that of banks, examiners, 
and interested members of the community) on how a bank is serving the 
low-income segment of the population, in addition to the broader LMI 
category.
    The Board would compute a weighted average to determine how well 
the bank performed on different components of the retail lending 
distribution metrics relative to the performance ranges in order to 
reach an overall recommended assessment area conclusion on the Retail 
Lending Subtest.\78\ Averaging the different components of the retail 
lending distribution metrics would allow excellent performance in one 
part of a bank's retail lending to potentially offset lower performance 
in another aspect of that lending. This approach could address feedback 
from some stakeholders that raised concerns about the presumption of 
``satisfactory'' approach reducing the retail lending evaluation to a 
pass-fail test.
---------------------------------------------------------------------------

    \78\ The different components (geographic and borrower 
distribution metrics, low-income and moderate-income categories, and 
each major product line) could be weighted by the amount of business 
that the bank conducts in each product line, and, within each 
product line, by the value of the community benchmark. The proposed 
community benchmarks are the share of LMI households, small 
businesses or farms, or households or establishments in LMI 
neighborhoods, as applicable, in the assessment area. The weighting 
would be intended to ensure that the bank's recommended conclusion 
based on the performance ranges appropriately reflects both the 
bank's business model (giving more weight to products the bank 
specializes in for each assessment area) and the credit 
opportunities and needs in that assessment area.
---------------------------------------------------------------------------

    Another benefit of using the performance ranges approach in 
addition to a presumption of ``satisfactory'' approach would be to 
encourage excellent performance by providing clear ranges for an 
``outstanding.'' This is intended to address concerns that banks 
currently outperforming the threshold for a presumption of 
``satisfactory'' could reduce their levels of performance closer to the 
threshold level.
b. Incorporating Targeted Performance Context and Qualitative Aspects 
of Performance Into the Performance Ranges Approach
    In addition to seeking greater clarity in CRA performance 
evaluations, stakeholders have also expressed support for considering 
performance context and other qualitative aspects in CRA examinations. 
Although the approach to setting thresholds described in this section 
already incorporates key aspects of performance context information 
through the use of the quantitative benchmarks for each assessment area 
that are calibrated to local data, it is also important to consider the 
limited aspects of performance context not considered in the metrics, 
including qualitative information about performance. For example, a 
bank with capacity and constraint issues may deserve a ``satisfactory'' 
conclusion instead of ``needs to improve'' if additional lending would 
not be consistent with safety and soundness considerations. Further, 
performance context and qualitative aspects of lending could merit an 
increase from ``satisfactory'' to ``outstanding'' when considered 
cumulatively.
    Under the proposed approach, examiners would consider a combination 
of factors showing responsiveness, such as the margin by which a bank 
surpasses the thresholds applicable to the retail lending distribution 
metrics, flexible or innovative lending products and programs, 
activities undertaken in cooperation with MDIs, women-owned financial 
institutions, or low-income credit unions that help meet the credit 
needs of local communities in which these institutions are respectively 
chartered,\79\ and the bank's record of taking action, if warranted, in 
response to written comments submitted to the bank about its 
performance in responding to the credit needs in its assessment 
area(s).
---------------------------------------------------------------------------

    \79\ 12 U.S.C. 2903(b).
---------------------------------------------------------------------------

    For example, a bank that falls within the ``satisfactory'' range of 
performance could be considered to have an ``outstanding'' retail 
lending record by forming lending consortiums with, or purchasing loans 
originated by, MDIs. Providing a list of these kinds of activities 
related to ``outstanding'' performance could provide additional 
transparency and consistency when considering performance context and 
qualitative information.
    Unlike current examination procedures, this approach would 
specifically exclude using performance context based on economic or 
other conditions affecting the assessment area as a whole. Any such 
factors that would either limit or bolster lending in LMI tracts, or to 
LMI borrowers or small businesses or farms, would generally already be 
reflected in the benchmarks. As a result, examiners would be restricted 
to using bank-specific performance context factors that affect the bank 
being evaluated differently than its in-market peers.
    Request for Feedback:
    Question 22. Does the performance ranges approach complement the 
use of a presumption of ``satisfactory''? How should the Board 
determine the performance range for a ``satisfactory'' in conjunction 
with the threshold for a presumption of ``satisfactory''? How should 
the Board also determine the performance ranges for ``outstanding,'' 
``needs to improve,'' and ``substantial noncompliance''?
    Question 23. Should adjustments to the recommended conclusion under 
the performance ranges approach be incorporated based on examiner 
judgment, a predetermined list of performance context factors, specific 
activities, or other means to ensure qualitative aspects and 
performance context are taken into account in a limited manner? If 
specific kinds of activities are listed as being related to 
``outstanding'' performance, what activities should be included?

B. Retail Services Subtest Evaluation Approach

    The Board proposes a Retail Services Subtest that would use a 
predominately qualitative approach, while incorporating new 
quantitative measures, and that would apply only to large retail banks. 
In contemplating how to evaluate retail services, the Board seeks to 
encourage banks to offer important services in LMI communities; to 
increase transparency of evaluation criteria; and to account for 
changes in the way some customers interact with their banks, including 
the widespread use of mobile or online banking and the declining number 
of bank branches. As many banks nationwide closed their branch lobbies 
in response to the COVID-19 pandemic, consumers have relied more on 
self-service delivery channels such as ATMs, online banking, and mobile 
banking services. At the same time, branches remain a vital component 
of providing banking services to many LMI communities, as well as many 
rural communities.
1. Current Structure for Evaluating Retail Services Activity
    Retail services are currently evaluated only for large retail banks 
under the large bank service test. The evaluation of retail services 
incorporates quantitative and qualitative criteria, but does not 
specify a level of retail services activity that is tied to certain 
performance conclusions.
    Under Regulation BB, examiners review the following four factors 
when evaluating a bank's retail services activity: (1) The distribution 
of branches among low-, moderate-, middle-, and upper-income census 
tracts; (2) an institution's record of opening and closing branches and 
its effects,

[[Page 66429]]

particularly regarding those branches located in LMI census tracts or 
primarily serving LMI individuals; (3) the availability and 
effectiveness of alternative (subsequently to be referred to as non-
branch) delivery systems \80\ for delivering retail banking services in 
LMI census tracts and to LMI individuals; and (4) the range of services 
provided in low-, moderate-, middle-, and upper-income census tracts 
and the degree to which the services are tailored to meet the needs of 
those census tracts.\81\
---------------------------------------------------------------------------

    \80\ Regulation BB provides a non-exhaustive list of 
``alternative (non-branch) delivery systems'' which include: ``ATMs, 
ATMs not owned or operated by or exclusively for the bank, banking 
by telephone or computer, loan production offices, and bank-at-work 
or bank-by-mail programs.'' 12 CFR 228.24(d)(3).
    \81\ See 12 CFR 228.24(d).
---------------------------------------------------------------------------

    The primary emphasis for the large bank retail services test is on 
branches. Examiners evaluate the distribution of branches by comparing 
the percentage of branches and ATMs among low-, moderate-, middle-, and 
upper-income census tracts to the percentage of the population that 
resides in these tracts, particularly LMI tracts. Examiners also 
consider the reasonableness of business hours and services offered at 
branches and whether there is any notable difference between hours of 
operation and services offered at branches in LMI tracts compared to 
branches in middle- and upper-income tracts. Lastly, examiners analyze 
a bank's record of opening and closing branches relative to its current 
branch distribution and the impact of branch openings and closings, 
particularly on LMI census tracts or individuals.\82\
---------------------------------------------------------------------------

    \82\ See 12 CFR 228.24(d)(2); Q&A Sec.  __0;.24(d)--1.
---------------------------------------------------------------------------

    The evaluation of retail banking services relies on quantitative 
data from the bank's public file to assess the number of branches in an 
assessment area and the banking services provided, including the hours 
of operation and available products at each branch. Examiners have 
discretion to review these data in light of performance context, but 
there is little guidance on the factors that should be considered. 
Under current examination procedures, non-branch delivery channels are 
considered only to the extent that these channels are effective 
alternatives in providing services to LMI individuals and to LMI census 
tracts.\83\
---------------------------------------------------------------------------

    \83\ See Q&A Sec.  __.24(d)--1.
---------------------------------------------------------------------------

    In addition to delivery systems, examiners consider any other 
information provided by a bank related to both retail products and 
services, such as the range of products and services generally offered 
at their branches, transaction fees, and the degree to which services 
are tailored to meet the needs of particular geographies.\84\ Current 
guidance explains that examiners will consider products and services 
that improve access to financial services, or decrease costs, for LMI 
individuals. Examiners will also review data regarding the costs and 
features of deposit products, account usage and retention, geographic 
location of accountholders, and any other relevant information 
available demonstrating that a bank's services are tailored to meet the 
convenience and needs of its assessment area(s), particularly LMI 
geographies or LMI individuals.\85\ However, there is no guidance on 
how products and services activities will be weighed in deriving retail 
test conclusions or the data used to evaluate performance. 
Additionally, banks typically collect this type of information on 
products and services at the institution level. As a result, examiners 
do not typically have the data needed to evaluate differences in 
products and services across assessment areas and this component 
receives minimal weight in determining assessment area conclusions for 
the service test.
---------------------------------------------------------------------------

    \84\ See Q&A Sec.  __.24(a)--1.
    \85\ See Q&A Sec.  __.24(d)(4)--1.
---------------------------------------------------------------------------

2. Stakeholder Feedback on Retail Services
    Some community group stakeholders expressed support for CRA's role 
in encouraging banks to maintain branches in LMI communities and for 
the current structure of the retail services evaluation. Community 
group and industry stakeholders expressed support for clearer standards 
for evaluating products and a more robust analysis of products, and 
advocated for an approach to evaluating retail services that relies on 
more data and standard measures of performance.
    Community group stakeholders have expressed a range of opinions 
regarding the primary emphasis on branches in the current retail 
services evaluation based on their historic importance in providing 
consumers, particularly LMI individuals, with home mortgage loans and 
basic banking services and providing credit to small businesses.\86\ 
Some community group stakeholders worry that removing the primary 
emphasis on the location of branches in the evaluation of retail 
services could hasten the pace of branch closures. This is supported by 
research findings that current CRA requirements are associated with a 
lower risk of branch closure, particularly in neighborhoods with fewer 
branches and in major metropolitan areas.\87\
---------------------------------------------------------------------------

    \86\ See Ding and Reid, ``The Community Reinvestment Act (CRA) 
and Bank Branching Patterns.''
    \87\ See id.
---------------------------------------------------------------------------

    Industry stakeholders have suggested that greater weight should be 
placed on the evaluation of non-branch delivery channels given ongoing 
trends in the banking industry. Although branches were still the most 
widely used bank channel prior to the COVID-19 pandemic, branch usage 
overall has declined in recent years. Community group stakeholders 
expressed support for giving a bank more credit for non-branch delivery 
channels if the bank maintains data demonstrating corresponding 
benefits to LMI consumers.
    Community group stakeholders have also expressed concern that a 
reduced focus on retail services could result in banks offering fewer 
products and services to LMI individuals and in LMI census tracts. 
These stakeholders expressed support for an enhanced evaluation of 
banking products that places greater emphasis on assessing deposit 
account features and their usage, with a particular focus on products 
and services for LMI individuals. Some community group stakeholders 
also suggested that banks should be assessed on the impact of their 
products, not simply upon usage.
3. Proposed Retail Services Subtest Framework
    The Board proposes a Retail Services Subtest for large banks that 
would evaluate retail services under two components: (1) Delivery 
systems; and (2) deposit products. For the delivery systems component, 
the Board proposes evaluating the distribution of a bank's branches, 
branch-based services (e.g., hours of operation, bilingual services, 
disability accommodation, payroll and check cashing services, 
remittance services), and non-branch delivery channels. This approach 
is intended to recognize the importance of branches, particularly for 
LMI individuals and LMI communities, while also ensuring that CRA is 
flexible enough to give credit to other delivery channels and services 
that promote accessibility and usage.
    For the deposit products component, the Board proposes evaluating a 
bank's deposit products, including checking and savings accounts, 
focusing on those tailored to meet the needs of LMI individuals. 
Compared to how evaluations are currently conducted, this proposed 
approach would elevate

[[Page 66430]]

the focus on deposit products offered and the degree to which these 
products are available and responsive to the needs of LMI individuals 
and LMI communities. The Board is also exploring the option of 
requiring the very largest banks to provide a strategic statement in 
advance of their CRA examinations outlining their business strategy for 
offering deposit products that are responsive to the needs of LMI and 
other underserved communities.
    The approach of dividing the Retail Services Subtest into delivery 
systems and deposit products would more clearly articulate the 
different components of the evaluation of retail services and how they 
relate to one another. Additionally, the proposed approach would 
leverage quantitative benchmarks to evaluate a bank's branch 
distribution. Lastly, the Board is considering what additional 
quantitative information could best facilitate transparent and 
meaningful evaluations of delivery systems and deposit products, while 
taking into account the objective of minimizing data burden for 
institutions where possible.
a. Delivery Systems
    The Board proposes evaluating the full breadth of bank delivery 
systems by maintaining the emphasis on the importance of branches and 
increasing the focus on non-branch delivery channels. The proposed 
approach would evaluate all four current branch-related evaluation 
factors (branch distribution, the record of opening and closing 
branches, branch-related services, and non-branch delivery systems) 
under the delivery systems component of the retail services evaluation. 
The proposal also would leverage quantitative benchmarks to inform the 
branch distribution analysis. Additionally, the Board is exploring 
whether banks should receive additional consideration for operating 
branches in banking deserts. As part of modernizing the CRA framework, 
the Board also proposes more fully evaluating non-branch delivery 
systems to address the trend toward greater use of online and mobile 
banking.
    i. Branch Distribution
    Under the proposed Retail Services Subtest, analyzing the 
distribution of bank branches across census tracts of different income 
levels would continue to be a core part of evaluating delivery systems. 
The Board is considering incorporating several quantitative benchmarks 
that would complement a qualitative evaluation in order to provide 
greater transparency in evaluations and to provide a more comprehensive 
picture of the physical distribution of branches in assessment areas. 
The record of opening and closing branches would continue to rely on 
examiner judgment to determine whether changes in branch locations 
affected the accessibility of branch delivery channels, particularly in 
LMI areas or to LMI individuals.
    Branch Distribution Benchmarks. The Board is proposing using data 
specific to individual assessment areas, referred to as benchmarks, as 
points of comparison for examiners when evaluating a bank's branch 
distribution. Building on current practice, three community benchmarks 
and one market benchmark would be used in conjunction with examiner 
judgment and performance context information to assess a bank's branch 
distribution.
    Table 3 describes the proposed community benchmarks and their 
respective data sources. These benchmarks would allow examiners to 
compare a bank's branch distribution to local data to help determine 
whether branches are accessible in LMI communities, to individuals of 
different income levels, and to businesses in the assessment area, and 
would standardize examiner practice that is used today in some 
evaluations.

 Table 3--Community Benchmarks for Retail Services--Branch Distribution
------------------------------------------------------------------------
                 Benchmark(s)                         Data source
------------------------------------------------------------------------
Percentage of census tracts in an assessment   American Community Survey
 area by tract income level.                    (Census).
Percentage of households in an assessment      American Community Survey
 area by tract income level.                    (Census).
Percentage of total businesses in an           Dun & Bradstreet.
 assessment area by tract income level.
------------------------------------------------------------------------

    The Board is also considering a new aggregate measurement of branch 
distribution--referred to as a market benchmark--that would measure the 
distribution of all bank branches in the same assessment area by tract 
income. Table 4 provides an overview of the proposed market benchmark 
and the associated data source.

   Table 4--Market Benchmark for Retail Services--Branch Distribution
------------------------------------------------------------------------
                  Benchmark                           Data source
------------------------------------------------------------------------
Percentage of all bank branches \88\ in an     FDIC SOD Survey
 assessment area by tract income level.
------------------------------------------------------------------------

    The use of a market benchmark could improve the branch distribution 
analysis in several ways. First, making such a comparison could give 
examiners more context for determining how much opportunity exists for 
providing retail services in tracts of different income levels. Second, 
examiners may be able to identify assessment areas with a relatively 
low concentration of branches in LMI areas, which could be indicative 
of a banking desert. If a bank has a branch in a low-income or 
moderate-income census tract where few other lenders have branches, 
this could indicate particularly responsive or meaningful branch 
activity for the bank.
---------------------------------------------------------------------------

    \88\ The aggregate number of branches in an assessment area 
figure includes full-service and limited-service branch types as 
defined in the FDIC SOD.
---------------------------------------------------------------------------

    Table 5 provides an example of how the community and market 
benchmarks could be used in evaluating a bank's branch distribution.
    Table 5: Geographic Branch Distribution

[[Page 66431]]

[GRAPHIC] [TIFF OMITTED] TP19OC20.013

    In the example above, the bank has eight total branches in an 
assessment area, with none of those branches in low-income tracts and 
two in moderate-income tracts. An examiner could compare the fact that 
the bank has no branches in low-income tracts with the above community 
benchmarks. For example, as shown in the table above, 8.5 percent of 
all census tracts in the assessment area are low-income census tracts. 
The examiner could also compare the bank's lack of branches in low-
income census tracts with the market benchmark showing that 4.9 percent 
of branches for all banks in the assessment area are in low-income 
census tracts.
    Similarly, the examiner could also compare the fact that 25.0 
percent of the bank's branches are located in moderate-income tracts in 
the assessment area with the above community benchmarks. For example, 
25.7 percent of all households in the assessment area are moderate-
income households. The examiner could also compare the bank's 
distribution of branches in moderate-income census tracts with the 
market benchmark showing that 22.0 percent of branches for all banks in 
the assessment area are in moderate-income census tracts.
    An examiner could evaluate these data in different ways based on 
performance context. For example, examiners could give more weight to 
the bank's lack of branches in low-income census tracts combined with 
the fact that community benchmarks demonstrate there may be additional 
opportunity to provide banking services in these tracts. Alternatively, 
an examiner could consider performance context indicating that existing 
bank branches in low-income census tracts are adequately serving the 
needs of low-income households, particularly in light of the percentage 
of branches the bank has in moderate-income census tracts. As part of 
this performance context, an examiner might consider the proximity of 
the bank's branches in moderate-income census tracts to the low-income 
census tracts in the assessment area.
    Formalizing the use of benchmarks would promote transparency in the 
evaluation process, but given the importance of the branch distribution 
analysis, the Board does not believe setting thresholds to inform 
recommendations is appropriate.
    Minimum Number of Branches for Branch Distribution Analysis. When a 
bank has a limited number of branches in an assessment area, the Board 
is also considering whether the branch distribution analysis should be 
done qualitatively without the use of the community and market 
benchmarks described above. Currently, examiners review branch 
distribution for each assessment area, regardless of the bank's number 
of branches or the income distribution of census tracts in the 
assessment area. As a result, a branch distribution analysis is 
conducted even when a bank has only one branch in an assessment area. 
Instead, the Board is considering whether a minimum number of branches 
should be established in order to use the community and market 
benchmarks.
    Assessing Branches in Banking Deserts. The Board is also exploring 
whether to give additional consideration if a bank operates a branch in 
a designated banking desert within its assessment area(s). Creating 
such a standard would involve determining

[[Page 66432]]

how to define banking deserts, including the appropriate geographic 
standards and whether standards should be different for urban and rural 
areas. Examiners could consider any information an institution provides 
to determine the degree to which delivery systems are tailored to the 
convenience and needs of banking deserts in the assessment area.
ii. Branch-Related Services
    As part of evaluating delivery systems, the Board proposes 
clarifying that the evaluation of branch-related services would assess 
services that are not covered in the branch distribution analysis and 
that could improve access to financial services, or decrease costs, for 
LMI individuals. Examples of such services include:
     Extended business hours, including weekends, evenings, or 
by appointment;
     Providing bilingual/translation services in specific 
geographies and disability accommodations;
     Free or low-cost government, payroll, or other check 
cashing services; and
     Reasonably priced international remittance services.
    The Board is exploring how these services could be evaluated more 
consistently and what data could inform an analysis of how these 
services are meeting the needs of the assessment area, particularly in 
LMI areas.
    Consideration of Branches in Middle-Income and Upper-Income Tracts. 
Some industry stakeholders have suggested that branches located in 
middle- and upper-income census tracts and adjacent to LMI tracts can 
provide needed financial services to residents in the LMI tracts. Some 
stakeholders have raised concerns about inconsistencies in the 
treatment and criteria that are currently used to evaluate these 
branches and have suggested that common guidelines should be developed 
to ensure a more consistent evaluation. The Board is considering 
whether and how these branches should be incorporated into the analysis 
of branch-related services. On one hand, incorporating these branches 
into the analysis could capture more of the banking services banks are 
providing to meet the needs of LMI areas. Additionally, providing 
standard guidelines would ensure that examiners are treating these 
branches consistently. On the other hand, including these branches 
could de-emphasize the importance of branches in LMI areas.
    To balance these objectives, the Board believes that if a bank 
requests consideration of branches in middle- and upper-income census 
tracts as a means for delivering services to LMI individuals or areas, 
the Board would consider information provided by the bank demonstrating 
that LMI consumers use the branches. A review of this information would 
inform the qualitative review of branch-related services and would not 
be incorporated into the branch distribution analysis described above. 
The Board is exploring what type of data banks could provide to 
demonstrate that branches located in middle- and upper-income census 
tracts serve LMI individuals or areas.
iii. Non-Branch Delivery Channels
    In light of the growing use of online and mobile banking services, 
the proposed Retail Services Subtest would enhance the approach to 
evaluating the availability and effectiveness of non-branch delivery 
channels in helping to meet the needs of LMI census tracts and 
individuals. An important consideration in establishing a strengthened 
non-branch delivery channels evaluation is grounding this analysis in 
better and more consistent data, while also being mindful of the 
objective to minimize the burden for banks in providing additional 
data.
    Under current guidance, examiners consider a variety of factors to 
determine whether a bank's non-branch delivery channels (ATMs, mobile, 
and internet) are an effective means of delivering retail banking 
services in LMI areas and to LMI individuals. For example, this 
includes the ease of access, cost to consumers, and rate of adoption 
and use of these delivery channels. However, the type of data that 
banks provide to examiners is inconsistent and, as a result, 
consideration of non-branch delivery channels is uneven. Furthermore, 
there are no clear standards on how data are to be used to determine 
what constitutes a specific level of performance.
    Incorporating data on non-branch delivery channels would enhance 
the evaluation of non-branch delivery channels. However, there are 
questions about how to measure non-branch delivery channels 
consistently and what data points could be considered to demonstrate 
usage by LMI individuals. Possible data that could be considered 
include rates of usage of online and mobile services by customers 
(grouped by census tract) and rates of usage by customers (grouped by 
census tract) for the different types of ATMs offered by a bank. One 
challenge, however, is that usage data is proprietary and varies widely 
by bank. Due to proprietary business considerations, the data might be 
available only to examiners and may not enhance public insight.
    Request for Feedback:
    Question 24. In addition to the number of branches and the 
community and market quantitative benchmarks discussed above, how 
should examiners evaluate a bank's branch distribution?
    Question 25. How should banking deserts be defined, and should the 
definition be different in urban and rural areas?
    Question 26. What are the appropriate data points to determine 
accessibility of delivery systems, including non-branch delivery 
channel usage data? Should the Board require certain specified 
information in order for a bank to receive consideration for non-branch 
delivery channels?
    Question 27. Should a bank receive consideration for delivering 
services to LMI consumers from branches located in middle- and upper-
income census tracts? What types of data could banks provide to 
demonstrate that branches located in middle- and upper-income tracts 
primarily serve LMI individuals or areas?
    Question 28. Would establishing quantitative benchmarks for 
evaluating non-branch delivery channels be beneficial? If so, what 
benchmarks would be appropriate?
b. Deposit Products
    The Board is considering creating a second prong of the Retail 
Services Subtest that focuses specifically on the degree to which 
deposit products are responsive to the needs of LMI consumers. Given 
the number of LMI individuals who are unbanked or underbanked,\89\ 
deposit products that are tailored to meet the needs of LMI consumers 
could be considered to be responsive under the Retail Services Subtest. 
Examples of such products include:
---------------------------------------------------------------------------

    \89\ See Board of Governors of the Federal Reserve System, 
``Report on the Economic Well-Being of U.S. Households in 2018--May 
2019,'' https://www.federalreserve.gov/publications/2019-economic-well-being-of-us-households-in-2018-banking-and-credit.htm.
---------------------------------------------------------------------------

     Low-cost transaction accounts which are accessible through 
debit cards or general-purpose reloadable prepaid cards;
     Individual development accounts;
     Accounts with low or no monthly opening deposit or balance 
fees;
     Accounts with low or no overdraft and insufficient funds 
fees;
     Free or low-cost government, payroll, or other check 
cashing services; and
     Reasonably priced remittance services.
    As noted, under current examination procedures, examiners review 
deposit

[[Page 66433]]

products on a limited basis when considering the full range of services 
offered by a bank in census tracts of different income levels.\90\ One 
key reason the review of deposit products is generally given minimal 
weight is that data provided by banks to examiners on deposit accounts 
are generally limited and often provided only for the institution 
overall, rather than at the assessment area level.
---------------------------------------------------------------------------

    \90\ See Q&A Sec.  __.24(d)(3)--1.
---------------------------------------------------------------------------

    The Board proposes to elevate and strengthen the evaluation of 
deposit products that are responsive to the needs of assessment areas, 
and particularly LMI communities and consumers. In addition to 
assessing the availability of deposit products and the degree to which 
these products are tailored to meet the needs of LMI consumers, the 
Board is also considering how to evaluate the usage and impact of such 
products. To accomplish these objectives, the Board is exploring 
whether it would be beneficial to have additional data to inform the 
analysis of deposit products, such as the types of deposit products 
offered, product costs, account features tailored for needs of LMI 
consumers, and product usage by LMI consumers versus usage by all 
consumers. Access to this type of data could help examiners determine 
whether the bank offers deposit products that are responsive to the 
needs of LMI consumers and the usage of such products by LMI consumers. 
Additionally, presenting relevant data on the availability and usage of 
deposit products in performance evaluations would increase transparency 
and provide more information to all stakeholders on the types of 
deposit products that are most responsive to the needs of LMI 
consumers.
    The Board recognizes that evaluating deposit products presents 
challenges. First, expanding the focus on deposit products would 
require banks to provide new information for CRA evaluations, as well 
as the establishment of new supervisory standards for evaluating 
deposit products. Additionally, due to proprietary business 
considerations, data on deposit products and customer usage might be 
available only to examiners and may not enhance public insight.
    Despite these challenges, the Board believes that the review of 
deposit products is an important component of CRA modernization given 
the critical role of these products in providing an entry point to the 
banking system for LMI consumers, as well as a pathway for these 
individuals to obtain access to credit.
    Other Revisions to Retail Services Evaluation. The Board is also 
contemplating whether additional clarity and transparency could be 
gained by requiring a subset of the largest banks (e.g., banks with 
assets over $10 billion or banks with assets over of $50 billion) 
subject to the Retail Services Subtest to provide a statement 
articulating their approach to offering retail banking products for 
serving LMI individuals and communities across their assessment 
area(s). Such statements would allow examiners and stakeholders to 
understand how the largest banks--which serve a unique role in 
providing financial services to a large percentage of the population--
identify, monitor, track, and serve the needs of LMI communities and 
individuals through their product offerings. A consideration with this 
approach would be assessing the potential benefits of requiring these 
strategic statements relative to any burden associated with preparing 
them. Another consideration is whether this strategic statement would 
be appropriate to include in a bank's public file.
    Request for Feedback:
    Question 29. What types of data would be beneficial and readily 
available for determining whether deposit products are responsive to 
needs of LMI consumers and whether these products are used by LMI 
consumers?
    Question 30. Are large banks able to provide deposit product and 
usage data at the assessment area level or should this be reviewed only 
at the institution level?
    Question 31. Would it be beneficial to require the largest banks to 
provide a strategic statement articulating their approach to offering 
retail banking products? If so, what should be the appropriate asset-
size cutoff for banks subject to providing a strategic statement?
4. Retail Services Subtest Conclusions
    The Board proposes reaching a single Retail Services Subtest 
conclusion for large banks in each of their assessment areas. The Board 
proposes doing so in a qualitative manner that draws on the delivery 
systems and deposit products component assessments described above. In 
reaching an assessment area conclusion for the Retail Services Subtest, 
the Board is considering how examiners should weight the delivery 
systems component and the deposit products component, respectively. The 
Board recognizes the foundational and practical importance of delivery 
systems to creating and maintaining meaningful access to banking 
products and services for LMI consumers and communities. Therefore, the 
Board proposes that more weight be given to the delivery systems 
component than to the deposit products component when determining a 
single Retail Services Subtest conclusion. When deriving a conclusion 
for the delivery systems component, the weight given to branch 
distribution, branch-related services, and non-branch delivery channels 
would depend on a bank's profile and its capacity and constraints, as 
well as performance context. Relevant consumer compliance violations, 
including any unfair, deceptive or abusive acts or practices, would 
have a negative impact on the deposit products conclusion, and would be 
taken into account in determining a Retail Services Subtest conclusion.
    Request for Feedback:
    Question 32. How should the Board weight delivery systems relative 
to deposit products to provide a Retail Services Subtest conclusion for 
each assessment area? Should a large bank receive a separate conclusion 
for the delivery systems and deposit products components in determining 
the conclusion for the Retail Services Subtest?

VI. Retail Lending Subtest Definitions and Qualifying Activities

    In contemplating revisions to Regulation BB, the Board has 
considered what qualifying retail lending activities should be 
considered in specific assessment areas, including what targeted 
updates should be made to retail lending definitions \91\ and 
qualifying activities, as part of CRA modernization. The Board is 
considering the following proposals:
---------------------------------------------------------------------------

    \91\ See 12 CFR 228.12(l) (defining ``home mortgage loan''); 12 
CFR 228.12(v) (defining ``small business loan''); 12 CFR 228.12(w) 
(defining ``small farm loan''); and 12 CFR 228.12(j) (defining 
``consumer loan'').
---------------------------------------------------------------------------

     To use a clear quantitative threshold, perhaps 15 percent, 
to determine whether a bank's home mortgage, small business, and small 
farm lending should be evaluated as major product lines at the 
assessment area level, given the availability of public data for these 
product lines;
     To establish a substantial majority threshold for the 
treatment of consumer loans using measures based on either the number, 
the dollar value, or a hybrid approach, and that accounts for different 
characteristics, purposes and sizes by evaluating loan categories 
separately;

[[Page 66434]]

     To update the thresholds for small business loans and 
small farm loans that were last set in 1995, while retaining the nexus 
with the smallest small businesses and small farms, which often have 
the greatest unmet credit needs;
     To give consideration for non-securitized home mortgage 
loans purchased directly from an originating lender (or affiliate), in 
order to strike a balance between recognizing the importance of first-
time purchases for originating banks that rely on other lenders to 
directly provide liquidity and addressing concerns about loan churning; 
and
     To expand eligibility for retail lending CRA activities in 
Indian Country where there are high poverty rates and a relative lack 
of bank activities.

A. Determining Which Loans Are Evaluated Using Retail Lending Metrics

    Currently, large banks are evaluated on all home mortgage, small 
business, and small farm lending products, regardless of lending 
volume. Additionally, a large bank's consumer loans are currently 
considered at its option or if these loans constitute a substantial 
majority of the bank's business. There is not an established threshold 
for this standard, and examiner judgment is used to determine whether 
consumer loans constitute a substantial majority of a bank's business, 
which can be a source of confusion among stakeholders.\92\
---------------------------------------------------------------------------

    \92\ Current interagency guidance on when to consider consumer 
lending at large banks states, ``[t]he Agencies interpret 
`substantial majority' to be so significant a portion of the 
institution's lending activity by number and dollar volume of loans 
that the lending test evaluation would not meaningfully reflect its 
lending performance if consumer loans were excluded.'' See Q&A Sec.  
__.22(a)(1)--2.
---------------------------------------------------------------------------

    In contrast, small banks are evaluated on only those retail lending 
categories that are considered major product lines. Currently, there is 
no Regulation BB definition of a major product line. Instead, examiners 
select major product lines for evaluation at small banks based on a 
review of information, including the bank's business strategy and its 
areas of expertise. Examiners may evaluate all of a small bank's 
consumer loans taken together or select a category of consumer lending 
(e.g., credit card, motor vehicle) if those consumer loans are deemed 
to constitute a major product line.
1. Treatment of Home Mortgage, Small Business, and Small Farm Loans
    The Board proposes to use metrics to evaluate CRA performance on 
home mortgage, small business, and small farm lending, given the 
availability of appropriate public data for these product lines. Under 
such an approach, major product line designations for a bank could vary 
across its assessment areas. For example, a bank that is primarily a 
home mortgage and small business lender overall but specializes in 
small farm lending in certain rural assessment areas would have small 
farm lending considered in those specific assessment areas, but not in 
assessment areas where the bank makes few or no small farm loans.
    For large banks, reviewing major product lines at the assessment 
area level for home mortgage, small business, and small farm lending 
would constitute a change compared to the current approach that 
automatically includes reviews of these product lines in all of their 
assessment areas. Adopting a major product line approach for large 
banks would focus CRA evaluations on their actual retail lending, but 
would also eliminate consideration of some lending that the Board 
currently considers in large bank examinations. For small banks, 
adopting a major product line approach to home mortgage, small 
business, and small farm lending would be similar to the standards in 
place today, although the standards for determining major product lines 
would be quantitatively defined to ensure transparency and promote 
certainty.
    A benefit of evaluating all banks on their major product lines is 
that this approach could streamline evaluations and focus on the retail 
lending activity that has the biggest impact at each bank. Although 
some may be concerned about no longer including a review of home 
mortgage or small business loans in particular assessment areas where 
loan volume is low, a large bank's lower volume lending is currently 
already given less weight when evaluating a bank's retail lending 
performance. The Board is considering a threshold of 15 percent of the 
dollar value of a bank's retail lending in individual assessment areas 
for a major product line designation for home mortgage, small business, 
and small farm lending. Specifically, retail product lines would be 
evaluated using the metrics discussed in Section V if they constituted 
15 percent or more of a of the dollar value of a bank's retail lending 
in a particular assessment area over the evaluation period.
    Many stakeholders have supported designating a major product line 
standard for purposes of using metrics to evaluate retail lending. Some 
stakeholders have provided feedback that a threshold of 15 percent of 
an institution-level (not assessment area) dollar volume of total 
retail loan originations during the evaluation period could be too high 
for large banks. Some of these stakeholders have suggested choosing 
major product lines considering contextual information about the bank, 
or the bank's assessment area(s), such as its market share within the 
community. The approach discussed above would select major product 
lines at the assessment area level, and would likewise take into 
account this kind of local performance context information.
    Request for Feedback:
    Question 33. Should the Board establish a major product line 
approach with a 15 percent threshold in individual assessment areas for 
home mortgage, small business, and small farm loans?
    Question 34. Would it be more appropriate to set a threshold for a 
major product line determination based on the lesser of: (1) The 
product line's share of the bank's retail lending activity; or (2) an 
absolute threshold?
2. Treatment of Consumer Loans
    Consumer loan categories, as currently defined in Regulation BB, 
include motor vehicle, credit card, other secured consumer loans, and 
other unsecured consumer loans (e.g., education loans).\93\ Consumer 
lending is an important credit vehicle, and can fulfill key needs for 
LMI borrowers; however, it raises different considerations in 
determining when a bank is evaluated for CRA purposes based on its 
consumer lending. If households with urgent liquidity needs are unable 
to access a credit card or other consumer loan at a reasonable rate, 
they may turn to more costly and less sustainable forms of short-term 
credit. For example, motor vehicle loans can be especially important in 
areas where public transportation is not readily available and where 
jobs are distant from where people live.
---------------------------------------------------------------------------

    \93\ 12 CFR 228.12(j).
---------------------------------------------------------------------------

a. When To Evaluate Consumer Loans Under CRA
    Some stakeholders note the importance of small dollar loans and 
consumer lending to LMI borrowers, while others argue against mandatory 
inclusion of consumer lending, citing the burden of originating and 
reporting these loans. The Board proposes setting clear quantitative 
standards to determine whether to evaluate consumer lending for 
purposes of CRA. Specifically, the Board is considering establishing a 
substantial majority threshold, using measures based on the

[[Page 66435]]

number of consumer loans, the dollar value of consumer loans, or a 
hybrid approach combining both loan counts and dollar values of 
consumer loans. A benefit of using a loan count standard is that it 
would be the clearest indicator of how many consumers receive consumer 
loans from a specific bank or how many consumers use particular 
consumer lending products.
    Alternatively, using the dollar value of lending to designate a 
major product line threshold for consumer loans would ensure that 
consumer products are selected for evaluation in a manner that is 
consistent across retail products, as well as across examinations. 
Using the dollar amount of loans to determine major product line 
designations would include consumer loans only when quantitative 
standards defined in the regulation are met. For example, consumer 
lending could be evaluated if the dollar amount of consumer loans 
accounted for 25 percent of a bank's overall activity in an assessment 
area or, alternatively, 15 percent of a bank's lending in a particular 
consumer loan category.
b. Evaluating Consumer Loans as an Entire Product Line or at the 
Category Level
    The Board proposes applying the metrics-based approach to the 
entire product line of home mortgage loans, small business loans, and 
small farm loans, while evaluating consumer loans at the level of 
separate consumer loan categories (e.g., motor vehicle, credit card, 
other secured consumer loans, and other unsecured consumer loans). 
Evaluating separate consumer loan categories would recognize the 
different characteristics, purposes, average loan amounts, and uses of 
motor vehicle loans, credit cards, and other secured and unsecured 
consumer loans.
    Request for Feedback:
    Question 35. What standard should be used to determine the 
evaluation of consumer loans: (1) A substantial majority standard based 
on the number of loans, dollar amount of loans, or a combination of the 
two; or (2) a major product line designation based on the dollar volume 
of consumer lending?
    Question 36. Should consumer loans be evaluated as a single 
aggregate product line or do the different characteristics, purposes, 
average loan amounts, and uses of the consumer loan categories (e.g., 
motor vehicle loans, credit cards) merit a separate evaluation for 
each?

B. Small Business and Small Farm Thresholds

    The Board recognizes the importance of small business and small 
farm loans as essential financial services, particularly in underserved 
communities. Smaller revenue firms (with gross annual revenues of $1 
million or less) frequently have small dollar financing needs and 
typically have distinct credit challenges, but may not meet traditional 
bank underwriting criteria. Additionally, when applying for credit, 
small firms in general seek smaller loan amounts. According to the 
Federal Reserve's 2020 Small Business Credit Survey, nearly 60 percent 
of businesses that sought credit were seeking $100,000 or less in 
financing, and one in five sought less than $25,000.\94\
---------------------------------------------------------------------------

    \94\ Federal Reserve Banks, ``Small Business Credit Survey: 2020 
Report on Employer Firms'' (Aug. 2020) https://www.fedsmallbusiness.org/medialibrary/FedSmallBusiness/files/2020/2020-sbcs-employer-firms-report.
---------------------------------------------------------------------------

    The Board is considering whether the existing CRA small business 
and small farm loan definitions are appropriate. The Board also seeks 
comment on whether the asset-size thresholds for determining whether 
these loans are helping to meet the needs of smaller revenue businesses 
and smaller revenue farms should be updated to reflect changes to the 
industry since the thresholds were set in 1995.\95\ In considering 
updates to the thresholds, the Board seeks to retain the nexus of the 
small business and small farm definition with smaller small businesses 
and small farms that often have the greatest unmet credit needs.
---------------------------------------------------------------------------

    \95\ See 12 CFR 228.22(b)(3)(ii).
---------------------------------------------------------------------------

    Currently, in order to qualify as a small business or small farm 
loan, the loan amount must not exceed a specified dollar threshold. 
Specifically, based on the instructions for the Reports of Condition 
and Income (Call Reports), loans to small businesses are defined as 
loans with origination amounts of $1 million or less and loans to small 
farms are defined as loans with origination amounts of $500,000 or 
less.\96\ Regarding the gross annual revenues standards, Regulation 
BB's borrower characteristics criteria, as reflected in the large bank 
lending test, consider small business loans or small farm loans that 
have gross annual revenues of $1 million or less.\97\
---------------------------------------------------------------------------

    \96\ The Call Report defines ``loans to small businesses'' as 
loans with original amounts of $1 million or less that have been 
reported as ``Loans secured by nonfarm nonresidential properties.'' 
It defines ``loans to small farms'' as: (1) Loans with original 
amounts of $500,000 or less that have been reported as ``Loans 
secured by farmland (including farm residential and other 
improvements)''; or (2) Loans with original amounts of $500,000 or 
less that have been reported as ``Loans to finance agricultural 
production and other loans to farmers.'' See ``Instructions for 
Preparation of Consolidated Reports of Condition and Income (FFIEC 
031, 032, 033, and 034), RC-C-Small Business and Small Farm Loans, 
RC-C-37, https://www.ffiec.gov/PDF/FFIEC_forms/FFIEC031_034inst_200006.pdf.
    \97\ 12 CFR 228.22(b)(3).
---------------------------------------------------------------------------

    The Board is considering updating the thresholds for both loan size 
and gross annual revenue. First, the Board requests feedback on 
adjusting the loan size thresholds based on inflation, which would 
equal approximately $1.65 million dollars for small business loans and 
approximately $800,000 dollars for small farm loans.\98\ Updating these 
thresholds for inflation would adjust eligibility so that the small 
business and small farm loan thresholds would reflect the current value 
of the dollar relative to the last update. Another option would be to 
maintain the loan thresholds at their current levels as an incentive 
for banks to meet smaller dollar financing needs.
---------------------------------------------------------------------------

    \98\ Threshold inflation adjustments are based on 2018 numbers 
from Bureau of Labor Statistics Consumer Price Index conversion 
table and recalibrated to December 1995=100 (Source: https://www.bls.gov/cpi/research-series/home.htm).
---------------------------------------------------------------------------

    Input received from industry stakeholders generally supports 
raising the thresholds from the current levels, with some suggesting an 
adjustment to the loan thresholds to reflect inflation or raising them 
to $2 million. Community organizations generally support either 
maintaining the current loan thresholds or adjusting them only to 
reflect inflation.
    A challenge to determining the appropriate updated loan size 
thresholds, if any, is a lack of available data on business and farm 
loans. As noted above, currently the CRA small business and small farm 
loan thresholds correlate with Call Report requirements.\99\ 
Constraints on data availability raise the question of whether the 
small business and small farm loan thresholds should be raised without 
an ability to capture new information related to revised standards. The 
Board is considering whether to continue to define CRA small business 
and small farm loans based on the Call Report definitions or, 
alternatively, whether Regulation BB should define small business and 
small farm loan amount thresholds independently. Defining loan amount 
thresholds independently for CRA purposes may allow for greater 
flexibility and precision in determining threshold

[[Page 66436]]

levels, but could require that Regulation BB incorporate a new 
mechanism for collecting related data.
---------------------------------------------------------------------------

    \99\ Updating the small business loan and small farm loan 
thresholds for inflation would decouple them from Call Report data. 
Current Call Report data collection would not capture any revisions 
to these CRA loan thresholds.
---------------------------------------------------------------------------

    The Board is also considering updating the gross annual revenue 
thresholds used for the borrower distribution analysis of small 
businesses and small farms. Similar to the loan size thresholds, one 
option would be to increase these thresholds to reflect inflation. 
Adjusting the $1 million gross annual revenue thresholds based on 
inflation would result in revised thresholds today of approximately 
$1.65 million.\100\
---------------------------------------------------------------------------

    \100\ Threshold inflation adjustments are based on 2018 numbers 
from Bureau of Labor Statistics Consumer Price Index conversion 
table and recalibrated to December 1995=100, https://www.bls.gov/cpi/research-series/home.htm.
---------------------------------------------------------------------------

    A related question is whether adjusted small business and small 
farm loan size and gross annual revenue thresholds should also be 
regularly adjusted for inflation moving forward, such as at three-year 
or five-year intervals. A benefit of regularly adjusting thresholds is 
ensuring that similar ranges of activities would continue to qualify 
over time. However, one possible drawback to regular adjustments is 
additional burden and complexity for stakeholders.
    Request for Feedback:
    Question 37. Should the Board continue to define small business and 
small farm loans based on the Call Report definitions, or should 
Regulation BB define the small business and small farm loan thresholds 
independently? Should the Board likewise adjust the small business and 
small farm gross annual revenues thresholds? Should any or all of these 
thresholds be regularly revised to account for inflation? If so, at 
what intervals?

C. Treatment of Purchased Loans

    The Board is reviewing whether to treat non-securitized home 
mortgage loan purchases equivalently with home mortgage originations, 
particularly in conjunction with a metrics-based approach in the Retail 
Lending Subtest.\101\ Currently, purchased loans receive the same CRA 
consideration as loan originations, consistent with their treatment on 
the Call Report. The market for purchased loans is more concentrated 
than that for loan originations, with 15 banks accounting for 
approximately 90 percent of total loan purchases reported in both HMDA 
and CRA data. Although the market for purchased loans is concentrated, 
these loans can be viewed as providing liquidity by freeing up capital 
so that retail banks and other lenders, such as CDFIs, can originate 
additional loans to LMI individuals and in LMI areas.
---------------------------------------------------------------------------

    \101\ In 2017, over 75 percent of HMDA loans purchased by 
commercial banks were securitized or sold to the government-
sponsored enterprises within the same calendar year.
---------------------------------------------------------------------------

    Some stakeholders support continuing to provide equivalent 
consideration for purchases of home mortgage loans, noting that such 
purchases extend the capacity of lenders, including CDFIs, to make 
needed LMI loans. Some stakeholders have additionally noted that loan 
purchases are an important tool for banks that do not have the on-the-
ground capabilities to originate loans in certain markets in which they 
seek business opportunities. However, other stakeholders have expressed 
that purchased loans and originations should not receive equal 
consideration because of the lower level of effort required for loan 
purchases relative to loan originations, which require marketing, 
outreach, and business development resources that are not necessary for 
purchased loans.
    Moreover, other stakeholders have indicated that some banks solely 
purchase loans from other institutions that have previously purchased 
those loans, in order to garner CRA credit--a practice often described 
as ``loan churning.'' \102\ These stakeholders note that such banks are 
not using the liquidity generated to benefit either the originating or 
purchasing bank's community.
---------------------------------------------------------------------------

    \102\ In this practice, loans to LMI borrowers are purchased and 
sold repeatedly by different banks, with the possibility of each 
bank receiving CRA credit at an equivalent level to the banks that 
originated the loans.
---------------------------------------------------------------------------

    Although there are multiple reasons for banks to purchase loans, 
Board analysis indicates some CRA-motivated repeat purchases of home 
mortgage loans may be occurring. A review of 2017 HMDA data found that 
LMI loans are over five times as likely to be purchased within a year 
as other home mortgage loans. This analysis finds that 0.6 percent of 
home mortgage loans to non-LMI borrowers purchased by commercial banks 
were sold to another commercial bank within the same year, whereas the 
share was 3.3 percent for LMI borrower loans. At the same time, this 
analysis indicates that including purchased home mortgage loans in CRA 
evaluations may not have a significant impact on performance outcomes.
    The Board is considering including only home mortgage loans 
purchased directly from an originating lender (or affiliate) in CRA 
evaluations. This approach strikes a balance between recognizing the 
importance of first-time purchases to banks that rely on other lenders 
to directly provide liquidity in order to originate new loans and 
addressing the concern about loan churning.
    An alternative option the Board is considering would be an 
additional review to help exclude loan churning from the above-
referenced retail lending screen and distribution metrics. Although, 
generally, home mortgage loan purchases would remain eligible on par 
with originations, purchased loans added solely for purpose of 
inflating CRA lending performance would not. This option would minimize 
burden on banks by allowing them to continue their current data 
collection and reporting processes, but introduce a deterrent to 
prevent the repeat selling and purchasing of loans solely for the 
purposes of garnering consideration in CRA evaluations.
    Request for Feedback:
    Question 38. Should the Board provide CRA credit only for non-
securitized home mortgage loans purchased directly from an originating 
lender (or affiliate) in CRA examinations? Alternatively, should the 
Board continue to value home mortgage loan purchases on par with loan 
originations but impose an additional level of review to discourage 
loan churning?
    Question 39. Are there other alternatives that would promote 
liquidity by freeing up capital so that banks and other lenders, such 
as CDFIs, can make additional home mortgage loans to LMI individuals?

D. Broadening Consideration for Retail Activities in Indian Country

    The Board is proposing broadening consideration for retail lending 
activities conducted in Indian Country.\103\ These activities would be 
reviewed qualitatively and in conjunction with the proposed Retail 
Lending Subtest performance ranges approach described previously. 
Public feedback received from both community organizations and industry 
is generally supportive of expanding eligibility for retail CRA 
activities in Indian Country due to high poverty rates and relative 
lack of banking services. The Board believes that expanding eligibility 
may encourage greater retail lending activity in areas long identified 
as having unmet credit needs.
---------------------------------------------------------------------------

    \103\ See 18 U.S.C. 1151. Indian Country would be defined as 
federal Native Areas including Federally Designated Indian 
Reservations, Off Reservation Trust Lands, Alaskan Native Village 
Statistical Areas, and Hawaiian Home Lands.
---------------------------------------------------------------------------

    Currently, a retail activity located within Indian Country must 
also satisfy additional eligibility criteria under

[[Page 66437]]

Regulation BB to qualify for consideration. For example, such loans 
must be within a bank's assessment area. Under the proposed approach, 
the qualitative aspects of a bank's performance would include a review 
of any retail activity conducted in Indian Country, including loans to 
low-, moderate- and middle-income borrowers. The Board's proposed 
approach would make retail activities in Indian Country located both 
inside and outside of a bank's assessment area eligible for CRA 
consideration, as long as a bank satisfies the needs of its own 
assessment area(s). Activities outside of a bank's assessment area(s) 
would be evaluated qualitatively, and could be considered as a possible 
enhancement to a bank's Retail Test institution rating, as discussed in 
Section X.
    Request for Feedback:
    Question 40. Should CRA consideration be given for retail lending 
activities conducted within Indian Country regardless of whether those 
activities are located in the bank's assessment area(s)?
    Question 41. Should all retail lending activities in Indian Country 
be eligible for consideration in the Retail Lending Subtest or should 
there be limitations or exclusions for certain retail activities?

VII. Community Development Test: Evaluation of Community Development 
Financing and Community Development Services Performance

    The Board is proposing a new Community Development Test that would 
include a Community Development Financing Subtest and a Community 
Development Services Subtest. The Board proposes that the Community 
Development Test would apply only to large retail banks and wholesale 
and limited purpose banks in order to tailor performance expectations 
by bank size and business model. Banks evaluated under the Community 
Development Test would receive separate Community Development Financing 
Subtest and Community Development Services Subtest conclusions in each 
assessment area.

A. Community Development Financing Subtest Evaluation Approach

    In order to provide clear and consistent incentives for effective 
community development financing, the Board is considering a 
quantitative assessment of community development financing activities. 
The Board is proposing using a ``community development financing 
metric'' that measures the ratio of the dollar amount of a bank's 
qualifying community development financing activities compared to its 
deposits \104\ within each assessment area. The Board is also 
considering how to use local and national data to establish benchmarks 
for the community development financing metric at the assessment area 
level. Wholesale and limited purpose banks, whose business models 
generally do not involve retail deposit accounts, would be evaluated 
under separate procedures that would not involve retail deposits.
---------------------------------------------------------------------------

    \104\ Options for defining deposits, as well as potential data 
sources, are discussed in Section XI.B.
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1. Current Approach for Evaluating Community Development Loans and 
Qualified Investments
    Under current CRA standards, community development financing 
activities are considered differently based on the asset size and 
business model of a bank. For small retail banks, community development 
investments and services are reviewed only at a bank's option for 
consideration for an ``outstanding'' rating for the institution 
overall.\105\ For intermediate small retail banks and wholesale and 
limited purpose banks, community development loans, qualified 
investments, and community development services are considered together 
under one community development test.\106\
---------------------------------------------------------------------------

    \105\ See Q&A Sec.  __.26(d).
    \106\ 12 CFR 228.25(c) and 12 CFR 228.26(c).
---------------------------------------------------------------------------

    For large retail banks, community development loans are considered 
as part of the lending test together with retail loans, while qualified 
investments are considered separately in the investment test.\107\ A 
large retail bank receives consideration for both the number and dollar 
amount of community development loans originated and qualified 
investments made during the review period, as well as the remaining 
book value of qualified investments made during a prior review period, 
but not of community development loans made during a prior review 
period. Examiners also consider qualitative factors including the 
innovativeness or complexity of these activities, how responsive the 
bank has been to opportunities in its assessment area(s), and the 
degree of leadership a bank exhibits through its activities. The 
evaluation of qualitative factors is currently based on any information 
that a bank provides on the impact of its activities, along with an 
examiner review of performance context, which includes community needs 
and opportunities.
---------------------------------------------------------------------------

    \107\ 12 CFR 228.22 and 12 CFR 228.23.
---------------------------------------------------------------------------

    Under current guidance, a bank receives consideration for loans and 
investments that serve the bank's assessment area(s) when evaluating 
assessment area performance.\108\ Activities in broader statewide or 
regional areas that include the bank's assessment area(s) may be 
considered in evaluating performance for an assessment area, state, 
multistate MSA, or the institution overall, depending on the scope of 
the activities and whether they are shown to benefit or be targeted to 
the bank's assessment area(s). Broader statewide and regional 
activities that do not serve a bank's assessment area(s) are considered 
at the state or institution level only if the bank is first determined 
to have been responsive to the credit and community development needs 
within its assessment areas.
---------------------------------------------------------------------------

    \108\ See CA 14-2 (``Revised Interagency Large Institution CRA 
Examination Procedures and Consolidation of Interagency CRA 
Examination Procedures and Supporting Materials''), p. 21 (Apr. 18, 
2014), https://www.federalreserve.gov/supervisionreg/caletters/CA_14-2_attachment_1_Revised_Large_Institution_CRA_Examination_Procedures.pdf. See also Q&A Sec.  __.12(h)--6. (``The institution's 
assessment area(s) need not receive an immediate or direct benefit 
from the institution's participation in the organization or 
activity, provided that the purpose, mandate, or function of the 
organization or activity includes serving geographies or individuals 
located within the institution's assessment area(s).'').
---------------------------------------------------------------------------

    The current geographic treatment of community development 
activities recognizes that many activities have a geographic scope that 
extends beyond a single assessment area, such as a statewide or 
regional fund for affordable housing. Broader regional and statewide 
activities are an important source of community development capital in 
many communities, especially in places where strictly local community 
development organizations may lack the capacity to absorb large loans 
and investments.
2. Stakeholder Feedback on Evaluating Community Development Financing
    Stakeholders believe that evaluations of community development 
loans and investments could be improved by encouraging patient capital; 
increasing the clarity, consistency, and transparency of performance 
expectations; and by providing stronger incentives to serve underserved 
areas. Some stakeholders have noted that the current approach of 
considering community development loans and qualified investments under 
separate tests may inadvertently distort the choice of whether to make 
a loan or investment as well as the choice of term of a loan. A large 
bank seeking to improve its investment test performance may prefer to 
structure a community

[[Page 66438]]

development financing activity as an investment for the purpose of 
receiving CRA credit, even if a loan would otherwise be preferable for 
the bank and the project. In addition, the current practice of counting 
community development loans originated during the review period, but 
not those held on balance sheet from prior review periods, is 
inconsistent with the treatment of qualifying investments, and could 
discourage patient longer-term loans that often yield the most enduring 
benefits for communities.
    Stakeholders have also pointed to a lack of consistency and 
transparency in the quantitative evaluation of community development 
financing activities. Current examination procedures consider the 
number and dollar amount of community development loans and qualified 
investments, but do not provide guidance on suitable benchmarks or 
thresholds against which to evaluate this performance.\109\ As a 
result, examiners may measure the volume of community development loans 
and investments differently, and it can be challenging to know what 
level of a bank's activities corresponds to a certain conclusion. In 
addition, both industry and community stakeholders have noted community 
development activities may benefit larger statewide or regional areas 
that do not align with a bank's assessment area(s), and stakeholders 
have expressed concerns that these activities are not always treated 
consistently in the evaluation process.
---------------------------------------------------------------------------

    \109\ CA Letter 14-2, p. 9.
---------------------------------------------------------------------------

    Stakeholders have also emphasized that CRA should encourage more 
community development activities in areas with significant unmet credit 
needs, such as rural communities, communities that lack institutional 
capacity for community development, and areas with few bank branches. 
Stakeholders have noted that there is limited publicly available data 
on the location and type of community development financing activities. 
Currently, only community development lending data are reported, and 
only at an aggregate level for a bank. Data on qualifying investments 
are included inconsistently in performance evaluations, and with 
varying levels of detail. The lack of available data makes it difficult 
to know which activities banks are conducting to meet needs in 
different communities. Finally, some stakeholders have noted that the 
qualitative aspects of community development activities are not 
considered consistently.
    Existing guidance states that examiners can weigh community 
development activities differently based on the responsiveness, 
innovativeness, and complexity of the activities.\110\ There are no 
established standards for what should be considered to determine the 
responsiveness of activities, or clear examination procedures for how 
community development activities should be reviewed relative to 
performance context. Information regarding the impact of activities on 
LMI communities, such as the number of housing units built, is not 
routinely available to examiners.
---------------------------------------------------------------------------

    \110\ See Q&A Sec.  __.21(a)--2.
---------------------------------------------------------------------------

3. Combined Consideration of Community Development Loans and 
Investments
    The Board proposes evaluating community development loans and 
qualified investments together under a new Community Development 
Financing Subtest. The subtest would evaluate new loans and investments 
made or originated during each year of an evaluation period, as well as 
loans and investments made or originated in a prior year and held on 
balance sheet. Evaluating these activities under one subtest would give 
banks more flexibility to provide the type of financing--loans or 
investments--most appropriate to support their local communities 
without concern about meeting different evaluation criteria. 
Additionally, capturing the book value of qualifying community 
development loans that remain on the balance sheet from prior 
evaluation periods, as currently happens with qualifying investments, 
would more effectively encourage patient capital. These changes would 
allow banks to receive CRA credit for extending and maintaining long-
term financing activities, regardless of whether they are financed by 
debt or equity. However, some stakeholders worry that combining loans 
and investments could reduce direct incentives to make Low-Income 
Housing Tax Credit (LIHTC) investments.
    Request for Feedback:
    Question 42. Should the Board combine community development loans 
and investments under one subtest? Would the proposed approach provide 
incentives for stronger and more effective community development 
financing?
4. Community Development Financing Metric
    The Board is proposing a community development financing metric 
that would form the core of assessment area Community Development 
Financing Subtest conclusions. Only qualifying activities and deposits 
that are within an assessment area would be included in calculating a 
bank's community development financing metric for that assessment area, 
in order to precisely measure how banks are meeting the needs of their 
local communities. At the same time, to emphasize the importance of 
community development activities in broader statewide and regional 
areas, the Board would consider all qualifying activities that are 
contained within an eligible state, territory, or region in which a 
bank has an assessment area, as discussed in Section VIII, and would 
factor these activities into the state, multistate MSA, or institution 
conclusion or rating, respectively, as discussed in Section X. While 
the treatment of these broader activities in state, multistate MSA, and 
institution ratings would no longer depend on a bank's performance 
within an assessment area, the community development financing metric 
creates a strong incentive for banks to maintain a focus on serving 
local communities because it includes only those activities within a 
bank's assessment area(s).

[[Page 66439]]

    The metric would be the ratio of a retail bank's community 
development financing dollars (the numerator) relative to deposits (the 
denominator) within an assessment area.\111\ For example, if a bank has 
drawn $1 million in deposits from an assessment area and has conducted 
$20,000 in qualifying community development financing activities in 
that assessment area, its community development financing metric would 
be 2.0 percent.
---------------------------------------------------------------------------

    \111\ The Board would calculate the assessment area average 
annual value of new loan originations, investments, and purchases by 
adding together the initial origination or purchase value of all 
qualifying activities during the examination period and dividing 
that result by the number of years in the examination period. The 
Board would also calculate the assessment area average annual value 
of qualifying activities remaining on the bank's balance sheet from 
a prior year by adding together the remaining balance sheet value of 
qualifying activities that were originated or purchased in a prior 
year at the end of each calendar year of the examination period and 
dividing that result by the number of years in the examination 
period. The numerator is the sum of these two annual averages. The 
denominator is the average annual value of a bank's deposit holdings 
within its assessment area.
[GRAPHIC] [TIFF OMITTED] TP19OC20.003

    The numerator of the community development financing metric would 
be a bank's average annual dollars of community development financing 
activity loaned or invested in a given assessment area. This would 
include the value of community development loans and qualifying 
investments originated or purchased in each year of the evaluation 
period, as well as the value of community development loans and 
qualifying investments originated or purchased in a prior year and 
remaining on a bank's balance sheet. For the denominator, the Board 
proposes that a bank's annual average dollar amount of deposits within 
a given assessment area could be the most appropriate measure for a 
bank's financial capacity, and it aligns with the intent of CRA that a 
bank meet the credit needs in the communities where it conducts 
business. The Board is considering two options for how to construct 
this denominator for large retail banks. The first option would use 
FDIC SOD data to measure the dollar amount of deposits assigned to 
branches within a bank's assessment area.\112\ The second option would 
use the dollar amount of retail domestic deposits held on behalf of 
depositors residing within each assessment area.
---------------------------------------------------------------------------

    \112\ FDIC SOD data includes deposits pertaining to: 1. 
Individuals, partnerships, and corporations. 2. The U.S. Government. 
3. States and political subdivisions in the United States. 4. 
Commercial banks and other depository institutions in the United 
States. 5. Banks in foreign countries. 6. Foreign governments and 
official institutions (including foreign central banks). See FFIEC, 
``Consolidated Reports of Condition and Income for a Bank with 
Domestic and Foreign Offices--FFIEC 031,'' Schedule RC-E, Deposit 
Liabilities, p. 34, https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_202006_f.pdf.
---------------------------------------------------------------------------

    Some stakeholders have expressed concerns that a dollar-based 
metric would not adequately measure impact and responsiveness, and that 
it may provide incentives for banks to seek larger dollar activities 
that may not be as responsive to community needs as smaller 
transactions that may require the same amount, or more, of due 
diligence and preparation on the part of the bank. The Board has 
evaluated different options for metrics in order to maintain an 
emphasis on LMI individuals and communities, such as using the number 
of community development financing activities rather than the 
associated dollar amount. However, the Board determined that the 
overall dollar amount would more appropriately reflect the potential 
impact and scale of a bank's community development activities. This 
also would be more consistent with the current evaluation approach. 
Additionally, the Board proposes to complement the use of the community 
development financing metric with a qualitative review of 
responsiveness and impact, which would help give greater consideration 
to highly impactful, small dollar activities than the metric alone 
would reflect.
    The Board is considering how to use metrics to evaluate wholesale 
and limited purpose banks under the Community Development Financing 
Subtest. The deposit-based denominator of the community development 
financing metric that the Board is considering for large retail banks 
would not be appropriate for wholesale and limited purpose banks, which 
generally do not offer deposit accounts as part of their business 
model. There are two alternatives that the Board has considered: the 
community development financing metric could be modified to use assets 
as the denominator instead of deposits or the metric could be based on 
the amount of qualifying loans and investments without scaling to 
deposits or assets. Under either approach, examiners would also 
consider the impact and responsiveness of activities and other 
performance context factors.
    Request for Feedback:
    Question 43. For large retail banks, should the Board use the ratio 
of dollars of community development financing activities to deposits to 
measure its level of community development financing activity relative 
to its capacity to lend and invest within an assessment area? Are there 
readily available alternative data sources that could measure a bank's 
capacity to finance community development?
    Question 44. For wholesale and limited purpose banks, is there an 
appropriate measure of financial capacity for these banks, as an 
alternative to using deposits?
5. Benchmarks for the Community Development Financing Metric
    The Board is proposing to establish one local and one national 
benchmark tailored to each assessment area that would serve as 
appropriate comparators for the community development financing metric. 
Both of these benchmarks would be based on the dollar amount of 
community development financing and the dollar amount of deposits 
provided by all large retail banks at the corresponding geographic 
level. These benchmarks would be used by examiners to inform a 
Community Development Financing Subtest conclusion for large retail 
banks in each assessment area.
    Local Benchmark. The numerator for the local benchmark would be the 
annual average of the total dollar amount of all large banks' 
qualifying community development financing activities in the assessment 
area. The denominator for the local benchmark would be the annual 
average of the total dollar amount of all deposits held by large banks 
in the assessment area.

[[Page 66440]]

[GRAPHIC] [TIFF OMITTED] TP19OC20.004

    Given the high level of variation in community development 
financing activities across different communities, the Board believes 
that the local benchmark would enable the community development 
financing metric to be tailored to local conditions. This would control 
for factors such as economic and demographic differences, the 
availability and capacity of community development financing partners, 
the stage of the local business cycle, and the presence of other 
financial institutions, which contribute to differences in the level of 
community development activity across communities and within a 
community across time.
    National Benchmark. The Board is considering developing benchmarks 
for, respectively, all metropolitan areas and all nonmetropolitan areas 
nationally.\113\ One of these national benchmarks would be applied to 
each assessment area, depending on whether the assessment area was 
located in a metropolitan area or a nonmetropolitan area. Based on a 
Board analysis of performance evaluations from the Board's CRA 
Analytics Data Tables and existing FDIC SOD information, the ratio of 
banks' community development loans and qualifying investments to 
deposits is significantly higher for metropolitan assessment areas 
relative to nonmetropolitan assessment areas.\114\ Setting the national 
benchmark separately for metropolitan and nonmetropolitan areas would 
help examiners account for this difference.
---------------------------------------------------------------------------

    \113\ The Board would define ``metropolitan areas'' as any 
county or county equivalent that is part of an MSA, and 
``nonmetropolitan areas'' as any county or county equivalent that is 
either part of a micropolitan statistical area or falls outside of 
an MSA or a micropolitan statistical area, based on U.S. Census 
designations.
    \114\ The analysis used a sample of 5,735 assessment areas from 
large retail bank performance evaluation records from 2005 to 2017, 
which note the dollar amount of current period community development 
loan originations as well as current period and prior period 
qualifying investments in each assessment area. The total dollar 
amount of activities was divided by the length in years of each 
examination review period, to produce an annual average for each 
assessment area evaluation. FDIC SOD data was used to identify the 
dollar amount of deposits associated with the corresponding bank's 
branches in the assessment area. The aggregate ratio of annualized 
dollars of community development activities to dollars of deposits 
was computed separately for all metropolitan assessment areas and 
all nonmetropolitan assessment areas in the sample, respectively. 
Under this analysis, the metropolitan ratio was 1.4 percent, and the 
nonmetropolitan ratio was 0.9 percent, based on examinations from 
2014 to 2017. The metropolitan ratio remained significantly larger 
than the nonmetropolitan ratio when limiting the sample to only 
full-scope examinations, across different periods of the sample, and 
when computing the median ratio of all examinations, rather than a 
mean.
---------------------------------------------------------------------------

    The numerator for the national benchmarks would be the annual 
average of the total dollar amount of all large retail banks' 
qualifying community development financing activities (in either 
metropolitan or nonmetropolitan areas, depending on the assessment 
area), and the denominator would be the dollar amount of all deposits 
(again, either in metropolitan or nonmetropolitan areas).
[GRAPHIC] [TIFF OMITTED] TP19OC20.005

    In addition to accounting for differences across assessment areas, 
the use of separate benchmarks calibrated to local and national 
conditions could help account for factors that vary over time, 
including local and national business cycles. For example, a negative 
shock to a local economy could adversely affect the capacity of banks 
to lend and invest within an assessment area, such that the local 
benchmark would adjust downward. Similarly, a change in economic 
conditions that impacts the amount of large bank community development 
activities nationally would be reflected in the national benchmarks.
    Additionally, the formulae, data sources, and historic data for 
calculating the benchmarks could be made publicly available in simple 
dashboards and updated regularly, in order to provide the most 
transparency and clarity to banks to allow them, and the public, to 
track their performance.
    The Board recognizes the use of local and national benchmarks could 
require enhanced data collection and reporting procedures, discussed 
further in Section XI. In addition, the typical level of community 
development financing varies widely across assessment areas, which 
means that the local benchmark may vary widely as well. Although this 
variation would reflect past community development financing patterns, 
it could result in performance standards that are very low in some 
assessment areas and very high in others, depending on how standards 
are calibrated. In contrast, national benchmarks based on metropolitan 
and nonmetropolitan areas would be equal for all metropolitan and 
nonmetropolitan assessment areas, respectively. The national benchmarks 
could be much higher than the typical level of activity in some areas 
and much lower than the typical level of activity in other areas.
    Request for Feedback:
    Question 45. Should the Board use local and national benchmarks in 
evaluating large bank community development financing performance to 
account for differences in community development needs and 
opportunities across assessment areas and over time?
6. Establishing Thresholds for the Community Development Financing 
Metric
    This section discusses potential ways of setting thresholds for the 
community development financing metric that are derived from the local 
and national benchmarks, but it does not offer specific threshold 
levels based on the local and national benchmarks. The Board believes 
that enhanced data would be important for evaluating where to set the 
thresholds. This section also discusses two different options that 
could leverage thresholds based on the local and national benchmarks.

[[Page 66441]]

a. Setting Thresholds Using Local and National Benchmarks
    Establishing thresholds for the community development financing 
metric would have several advantages. First, the formulae, data 
sources, and thresholds themselves could be shared publicly and updated 
on an annual basis for each assessment area so that the expected level 
of community development financing activity is transparent and 
predictable. Second, such thresholds would create a more consistent and 
predictable evaluation process. Third, the quantitative thresholds 
could be set dynamically, using the local and national benchmarks, to 
account for varying market conditions across assessment areas, in a way 
that makes them adjust automatically to differences in local community 
development activity and economic cycles.
    The Board proposes establishing a threshold for each assessment 
area that would be the value of the community development financing 
metric consistent with at least a ``satisfactory'' conclusion. For 
example, if a bank had a community development financing metric of 3.0 
percent in an assessment area, and the threshold for ``satisfactory'' 
performance was 1.5 percent, then examiners could interpret the value 
of the bank's metric as indicative of at least a ``satisfactory'' 
conclusion on the Community Development Financing Subtest in this 
assessment area.
    The Board has considered whether this threshold should be based 
solely on the local benchmark, the greater of the local benchmark and 
the relevant national benchmark, or another method of combining the two 
benchmarks. More precise and comprehensive data would aid in analyzing 
these and other options. While the Board's CRA Analytics Data Tables 
provide information from a sample of performance evaluations, they 
include little or no information on prior period community development 
loans, on financing activities in broader statewide and regional areas, 
or on activities in many smaller cities and rural areas. Calibrating 
the thresholds appropriately based on thorough data and analysis is 
essential to developing an approach that neither sets performance 
standards too low relative to current levels of activities in some 
assessment areas nor unrealistically high in others.
b. Using Thresholds To Evaluate Community Development Financing 
Performance
    The Board is considering how to use the national and local 
community development financing thresholds for purposes of granting a 
presumptive conclusion of ``satisfactory'' performance, similar to the 
Retail Lending Subtest proposed in Section V. Under a presumption 
approach, if a bank's community development financing metric surpasses 
a certain threshold, the bank could be presumed to have achieved at 
least ``satisfactory'' performance. Examiners would evaluate 
qualitative factors to help determine whether a bank that surpasses the 
threshold should receive a ``satisfactory'' or ``outstanding'' 
conclusion, or to help determine the appropriate conclusion for a bank 
that does not meet the threshold, which could be any conclusion. This 
approach would provide banks and communities with greater clarity and 
certainty regarding the evaluation criteria and expectations, and would 
decrease the role of examiner discretion. However, in light of initial 
data limitations, it might be necessary at least initially to treat the 
thresholds as a general guideline to help evaluate a bank's community 
development financing metric rather than creating a presumption of 
``satisfactory.'' Under this gradated approach, surpassing a threshold 
would be taken into consideration, but would not initially grant a 
presumption of a specific conclusion. This gradated approach would 
start with a more incremental change from the current evaluation 
approach until more data permitted a presumption approach. The addition 
of a quantitative benchmark may provide banks and communities with 
somewhat more certainty regarding performance expectations relative to 
the current approach, which does not have any consistent quantitative 
thresholds. At the same time, stopping short of using the thresholds to 
grant a presumption of satisfactory could be beneficial in cases where 
the dollar amount of a bank's activities is large, but the activities 
are not determined to be particularly responsive or impactful. In such 
cases, examiners may determine that a bank may not merit a conclusion 
of ``satisfactory'' performance on the Community Development Financing 
Subtest, even if it has surpassed a quantitative threshold.
    Under either approach, a bank that does not surpass a quantitative 
threshold reflecting ``satisfactory'' performance may still be assigned 
a ``satisfactory'' or even ``outstanding'' conclusion based on an 
examiner's review of performance context factors and a detailed review 
of the banks activities.\115\ This framework could help examiners 
account for variations in the types of community development activities 
that banks engage in.
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    \115\ The use of local and national benchmarks would reflect the 
level of community development financing opportunities in each 
assessment area, while the examiners' review of performance context 
factors would emphasize a bank's capacity and constraints.
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    Request for Feedback:
    Question 46. How should thresholds for the community development 
financing metric be calibrated to local conditions? What additional 
analysis should the Board conduct to set thresholds for the community 
development financing metric using the local and national benchmarks? 
How should those thresholds be used in determining conclusions for the 
Community Development Financing Subtest?
7. Qualitative Considerations Within the Community Development 
Financing Subtest Framework
    The Board believes that a revised evaluation framework for 
community development loans and qualified investments should 
incorporate performance context and other qualitative factors into the 
evaluation process, in a way that is transparent and consistent. Banks, 
examiners, and the public should have clarity regarding how especially 
impactful activities, such as a significant capital investment in an 
MDI, are factored in to a bank's performance conclusion on the 
Community Development Financing Subtest. In addition, impactful smaller 
dollar activities, including qualifying contributions, may have little 
impact on a bank's community development financing metric and would 
need qualitative consideration in order to be adequately reflected in a 
bank's performance conclusions and ratings. Performance context factors 
would continue to play an important role in identifying the unique 
community development needs of each assessment area, which would help 
inform examiners' evaluation of the impact and responsiveness of a 
bank's activities.
    Activity-based Multipliers. The Board has considered the use of 
multipliers to weight certain categories of lending and investment 
activities differentially in calculating the community development 
financing metric, to help give greater weight to activities that are 
considered by many stakeholders as especially impactful and responsive. 
However, the impact and responsiveness of particular

[[Page 66442]]

community development financing activities can vary considerably, which 
could not be captured using uniform weights. Moreover, the calibration 
of appropriate weights would require developing robust empirical 
measurements of the community development impact associated with 
different types of activities.
    Impact Scores. Instead, the Board is proposing the use of ``impact 
scores.'' Examiners would assign an impact score to each bank community 
development financing activity based on their assessment of its impact 
locally that could range from 1-3, with 3 being the highest. This 
approach would build on the current evaluation approach, in which banks 
submit data to demonstrate that their activities have a primary purpose 
consistent with the definition of community development and have the 
option to provide information to describe the qualitative aspects of 
activities, such as the number of housing units developed or the number 
of jobs created. Examiners could use bank-provided information along 
with a review of performance context to determine an impact score for a 
bank's community development activities in an assessment area. All 
Community Development Financing Subtest conclusions could include a 
statement about both the community development financing metric and the 
impact score, which could be used to adjust the bank's performance 
conclusion relative to the quantitative assessment. This approach would 
increase the transparency of the CRA evaluation process by making more 
information available to banks and communities regarding the 
consideration of qualitative factors in determining assessment area 
conclusions.
    Supplementary Metrics. The Board is also considering the use of 
supplementary metrics to provide greater transparency and consistency. 
For instance, the Board could provide examiners with a series of data 
points, including the percentage and dollar amount of the bank's total 
qualifying community development financing activities that are loans, 
investments, and contributions, respectively, which would help to 
illustrate the composition of the bank's activities and how different 
financing vehicles were used to respond to community needs. These 
supplementary metrics would be consistent with the current approach of 
considering investment types differently and evaluating contributions 
separately from other qualifying investments. The supplementary metrics 
could be included in performance evaluations for purposes of providing 
more transparency to help stakeholders better understand how well banks 
are leveraging their resources to meet the needs of local communities. 
However, the Board is mindful of potential data burden that 
supplementary metrics could entail for banks, and would seek to 
minimize the need for enhanced data collection or reporting to create 
these metrics.
    Request for Feedback:
    Question 47. Should the Board use impact scores for qualitative 
considerations in the Community Development Financing Subtest? What 
supplementary metrics would help examiners evaluate the impact and 
responsiveness of community development financing activities?

B. Community Development Services Subtest Evaluation Approach

    The Board is proposing a new Community Development Services Subtest 
within the Community Development Test. Separately assessing and 
assigning a Community Development Services Subtest conclusion would 
focus a bank's attention on these services and underscore their 
critical importance for fostering partnerships among different 
stakeholders, building capacity, and creating the conditions for 
effective community development, including in rural areas. In 
developing a revised framework, the Board anticipates that the 
evaluation of community development services would be primarily 
qualitative, but the Board is also exploring several options for 
quantitative measures that could supplement a qualitative approach.
1. Current Structure for Evaluating Community Development Services and 
Stakeholder Feedback
    Community development services generally include activities such as 
service on boards of directors for community development organizations 
or on loan committees for CDFIs, financial literacy activities 
targeting LMI individuals, and technical assistance for small 
businesses.\116\ Current guidance advises that community development 
services should be tied to either financial services or to a bank 
employee's professional expertise (e.g., human resources, legal).\117\ 
Under the current regulation, community development services are 
evaluated for large banks as part of the service test, along with 
retail services. For small retail banks, community development services 
are reviewed at a bank's option for consideration for an 
``outstanding'' rating for the institution overall. For intermediate 
small retail banks and wholesale and limited purpose banks, community 
development services are considered along with community development 
loans and qualified investments under one community development 
test.\118\
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    \116\ See Q&A Sec.  __.12(i)--3.
    \117\ See Q&A Sec.  __.12(i)--1.
    \118\ 12 CFR 228.25(c), 12 CFR 228.26(c); Q&A Sec.  __.26(d).
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    Examiners consider the extent to which a bank provides community 
development services, as well as the innovativeness and responsiveness 
of the activities.\119\ Examiners may consider a variety of measures, 
such as the number of LMI participants; the number of organizations 
served; the number of sessions sponsored; or the bank staff hours 
dedicated. Additionally, the Interagency Questions and Answers provides 
some guidance on the qualitative evaluation of community development 
services, including whether the service activity required special 
expertise and effort on the part of the bank, the impact of a 
particular activity on community needs, and the benefits received by a 
community.\120\
---------------------------------------------------------------------------

    \119\ See 12 CFR 228.24(e).
    \120\ Q&A Sec.  __.24(e)--2.
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    Both industry and community stakeholders recognize the value of 
community development services in establishing the partnerships needed 
to build capacity and foster the growth of the community development 
ecosystem. Stakeholders have noted the high value of bank staff serving 
on local nonprofit boards and providing technical expertise to local 
organizations, particularly in rural or underserved areas. Stakeholders 
have also suggested improving the consistency and transparency of the 
evaluation of community development services, which is heavily reliant 
on examiner judgment. Many stakeholders have stated that a qualitative 
review of community development services and consideration of 
performance context would be more effective than an approach that tried 
to quantify the value of community development services. These 
stakeholders have expressed support for efforts to standardize the 
qualitative evaluation of the impact of community development services. 
Additionally, some stakeholders have argued that community development 
services should be weighted more heavily in a revised framework 
compared to current procedures.

[[Page 66443]]

2. Potential Community Development Services Subtest Framework
    The Board is proposing a Community Development Services Subtest 
that is primarily qualitative and would focus on the impact and 
responsiveness of these activities in each of a bank's assessment 
area(s). The Board is exploring whether there are quantitative measures 
that banks could submit on their activities, such as the number and 
hours of community development services, the community development 
purpose, and the geographies impacted by the activity. A standardized 
data format provided by the Board could streamline the process for 
banks and examiners and produce a more consistent and transparent 
evaluation methodology.
    The Board is also interested in whether other standardized metrics 
could improve the consistency of the evaluation, such as the ratio of 
community development services hours to the number of bank employees. 
Both industry and community stakeholders have expressed concerns that 
monetizing community development services based on an hourly wage for 
all employees would result in measuring inputs rather than impact.
    Impact Score for Community Development Services. In addition to 
quantitative measures, the Board is contemplating the use of an 
``impact score'' to establish more consistent and transparent standards 
for the qualitative review of community development services. This 
concept is similar to the one described above for the Community 
Development Financing Subtest, and would measure the impact of a bank's 
community development services activities on community needs. A bank 
could submit information, such as the number of clients in financial 
education classes who opened a bank account or a description of how a 
banker's service on the board of directors of a local organization 
supported the creation of a new small business lending program. 
Examiners would assign an impact score to community development service 
activities based on the information provided by the bank and other 
performance context information, with more responsive activities 
receiving a higher score. The overall impact score for the assessment 
area could be used in conjunction with some of the quantitative 
measures described above. This use of the impact score could make the 
qualitative review more transparent and would provide greater clarity 
on the types of activities that are considered responsive to community 
needs.
    Request for Feedback:
    Question 48. Should the Board develop quantitative metrics for 
evaluating community development services? If so, what metrics should 
it consider?
    Question 49. Would an impact score approach for the Community 
Development Services Subtest be helpful? What types of information on a 
bank's activities would be beneficial for evaluating the impact of 
community development services?
3. Community Development Services and Volunteer Activities
    The Board is considering several options for revising the 
definition of community development services to include a wider range 
of volunteer activities that help to support local communities and 
address important community needs. Currently, community development 
services are defined as activities that: (1) Have a primary purpose of 
community development; (2) are related to the provision of financial 
services; and (3) have not been considered in the evaluation of a 
bank's retail banking services.\121\ A primary community development 
purpose is generally determined by assessing whether a majority of 
those served by the activity are LMI individuals or communities, small 
businesses or small farms, and/or certain distressed or underserved 
rural geographies, or based on the express, bona fide intent of the 
activity.\122\ Additionally, guidance advises that community 
development services should be generally tied to either financial 
services or a bank employee's professional expertise in order to 
receive CRA consideration.\123\ Community development services 
currently qualify under one of the four prongs of the existing 
definition of community development, as discussed in Section VIII: 
Affordable housing; community services; economic development; and 
revitalization and stabilization.\124\
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    \121\ 12 CFR 228.12(i).
    \122\ See Q&A Sec.  __.12(h)--8.
    \123\ See Q&A Sec.  __.12(i). ``Providing financial services 
means providing services of the type generally provided by the 
financial services industry.'' Q&A Sec.  __.12(i)--1. Examples 
include ``providing services reflecting a financial institution's 
employees' areas of expertise at the institution, such as human 
resources, information technology, and legal services.'' Q&A Sec.  
__.12(i)--3.
    \124\ See 12 CFR 228.12(g).
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    Volunteer Activities in Rural Areas Unrelated to the Provision of 
Financial Services. The Board is proposing to broaden the range of 
qualifying community development services for banks in rural assessment 
areas to include volunteer activities that have a primary purpose of 
community development, but do not use the employee's technical or 
financial expertise. Under this option, activities such as volunteering 
at a homeless shelter or serving food at a soup kitchen could become 
eligible. Some stakeholders have argued that this expansion would allow 
for increased bank employee participation in community development 
activities in rural areas, where community development capacity is 
limited.
    Other Volunteer Activities in Rural Areas. The Board is proposing 
to expand consideration of activities in rural communities to include 
activities that address local community needs generally, without having 
to demonstrate a primary purpose of community development. In these 
communities, bank employees often provide needed leadership for 
nonprofit and civic organizations that are addressing community needs 
and serve as a catalyst for local economic development, even though 
some of these organizations do not necessarily have a primary purpose 
of community development as defined in the regulation.
    For example, serving on a board of a local chamber of commerce 
focused on economic development in a rural area could qualify, even if 
the organization was engaged in activities that did not typically 
qualify as economic development under the definition of community 
development. This approach is intended to provide incentives for 
additional civic and nonprofit volunteer activity in places with 
limited community development capacity, and it could encourage banks to 
take a leadership role in developing solutions to address unmet 
community needs in rural communities.
    Financial Literacy and Housing Counseling Without Regard to Income 
Level. Finally, the Board is contemplating whether financial education 
and literacy activities should be considered without regard to the 
income level of the beneficiaries. Under current guidance, eligible 
financial education and literacy activities must be targeted toward LMI 
beneficiaries, such as a housing counseling program in a low-income 
neighborhood.\125\ Broadening eligibility for financial literacy and 
housing counseling activities to all income levels would expand the 
range of eligible activities. For example, a financial planning seminar 
with senior citizens or a financial education program for

[[Page 66444]]

children in an upper-income school district could qualify for 
consideration.
---------------------------------------------------------------------------

    \125\ See, e.g., Q&A Sec.  __.12(h)--8.
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    Some stakeholders were supportive of expanding consideration of 
some of these activities to include activities that benefit all income 
levels, due to the presumed benefit to the financial well-being of the 
entire community. However, many community organization stakeholders 
expressed concern that expanding financial education and literacy 
activities to recipients of all income levels could result in a 
reduction in programs directly benefiting LMI people and places.
    Request for Feedback:
    Question 50. Should volunteer activities unrelated to the provision 
of financial services, or those without a primary purpose of community 
development, receive CRA consideration for banks in rural assessment 
areas? If so, should consideration be expanded to include all banks?
    Question 51. Should financial literacy and housing counseling 
activities without regard to income levels be eligible for CRA credit?

VIII. Community Development Test Qualifying Activities and Geographies

    The Board is proposing ways to clarify what activities would be 
considered under the Community Development Test, as well as clarifying 
where a bank could receive credit for community development activities 
outside of assessment areas. First, the Board presents approaches to 
establish more consistent standards for the existing community 
development definition subcomponents. Second, this section discusses 
available options to encourage more community development activity 
through mission-oriented banks and financial intermediaries, including 
MDIs, women-owned financial institutions, low-income credit unions, and 
CDFIs. Third, the section discusses options to increase certainty about 
how qualifying activities in broader statewide and regional areas 
outside of a bank's assessment areas will be considered. Finally, the 
Board proposes increasing ex ante clarity regarding qualifying 
activities by publishing an illustrative list of example activities and 
providing a pre-approval process.

A. Definitions for Community Development Subcomponents

    This section describes potential changes to clarify eligibility 
criteria for the affordable housing, community services, economic 
development, and revitalization and stabilization subcomponents of the 
definition of community development to give banks and communities 
greater certainty about what activities will be considered, and to 
continue to emphasize activities that are impactful and responsive to 
community needs.
1. Affordable Housing
    Regulation BB defines ``community development'' to include 
``affordable housing (including multifamily rental housing) for low- or 
moderate-income individuals.'' \126\ Stakeholders have emphasized the 
critical importance of CRA-motivated capital as a source of funding for 
affordable housing around the country and promoting homeownership among 
LMI populations. Therefore, as the Board contemplates revisions to 
Regulation BB, an important goal is to ensure strong incentives for 
banks to provide community development loans and investments for the 
creation and preservation of affordable housing, both rental and owner-
occupied.
---------------------------------------------------------------------------

    \126\ 12 CFR 228.12(g)(1).
---------------------------------------------------------------------------

    Broadly, the term ``affordable housing'' refers to housing that is 
targeted to LMI individuals. The concept of ``affordable housing'' for 
LMI individuals hinges on whether LMI individuals benefit, or are 
likely to benefit, from the housing. Affordable housing currently could 
receive consideration if its express, bona fide intent, as stated, for 
example, in a prospectus, loan proposal, or community action plan, is 
community development.\127\
---------------------------------------------------------------------------

    \127\ Q&A Sec.  __.12(g)(1)--1.
---------------------------------------------------------------------------

    Current CRA guidance does not expressly clarify that unsubsidized 
affordable housing (often referred to as naturally occurring affordable 
housing) is eligible. Many stakeholders have noted the importance of 
preserving unsubsidized housing that is affordable to LMI households. 
These stakeholders have suggested that financing the renovation of 
unsubsidized affordable units, in addition to constructing new 
affordable units, be considered as a CRA-eligible activity. However, 
stakeholders had different views about whether and how to ensure that 
the financing supports unsubsidized affordable housing units that will 
remain affordable to LMI households over a meaningful period of time.
a. Subsidized Affordable Housing
    The Board is contemplating new regulatory language that would 
specify that a housing unit would be considered affordable if it is 
purchased, developed, rehabilitated, or preserved in conjunction with a 
federal, state, local, or tribal government affordable housing program 
or subsidy, with the bona fide intent of providing affordable housing. 
This definition is intended to capture a wide variety of subsidies, 
including tax credit programs (such as the LIHTC), federal government 
direct subsidies (such as U.S. Departments of Housing and Urban 
Development (HUD) and Agriculture programs), and state and local 
government direct subsidies for the production or preservation of 
affordable housing. These programs could be for rental (such as HUD 
Section 8 vouchers) or homeownership (such as down-payment assistance 
programs for LMI borrowers). The suggested language could also cover 
programs that are not monetary subsidies, but that have the express 
intent of producing or preserving affordable housing, such as a loan in 
support of a land bank program.
b. Unsubsidized Affordable Rental Housing
    The Board is considering several options to clarify that the 
affordable housing prong of the community development definition 
includes the financing of certain unsubsidized affordable housing units 
and projects--both the preservation of existing units and the 
production of new unsubsidized affordable housing.
    The Board is considering a definition for eligible unsubsidized 
affordable housing requiring that: (1) The rent be affordable 
(potential definitions of ``affordable'' are discussed below); and (2) 
the unit(s) be located in either an LMI geography or a geography where 
the median renter is LMI. These two criteria are intended to be a proxy 
for tenant income certification to determine that the housing benefits 
LMI households; as many owners and managers of buildings with 
unsubsidized, yet affordable units, do not certify tenant income on an 
ongoing basis, that information might not be available to examiners. To 
ensure that CRA acts as an incentive for affordable housing 
preservation and development in all communities, the Board is also 
considering alternatives to define unsubsidized affordable housing.
    Finally, in commenting on expanding the affordable housing 
definition to include unsubsidized affordable housing, many 
stakeholders have noted the danger of providing CRA credit for 
initially affordable units that later increase rents to an unaffordable 
level in gentrifying areas. The Board is considering options to ensure 
that community development financing activities ensure long-term 
affordability

[[Page 66445]]

and limit displacement, while also being mindful of additional burden 
associated with supplementary documentation requirements.
c. Determining Affordability
    In considering which data sources and calculations should be used 
to determine rental affordability in lieu of verifying tenant income 
for unsubsidized units, ``affordable'' rents could be calculated based 
on area median income (AMI) using the standard that families should pay 
no more than 30 percent of their income toward housing. Other options 
include using HUD Fair Market Rents (FMR) or LIHTC rents to determine 
rental affordability.
    Similarly, the Board is contemplating what documentation should be 
requested to determine affordability of single-family developments by 
for-profit entities. Under current guidance, construction and other 
temporary financing of the construction-only portion of a construction-
to-permanent loan to a for-profit entity secured by residential real 
estate is considered if it can be demonstrated that the activity has a 
primary purpose consistent with the definition of community 
development. However, examiners have not consistently evaluated these 
activities partly due to lack of documentation reflecting that the 
activity has a primary purpose of community development and is intended 
for households earning 80 percent or less of AMI.
d. Responsiveness of Affordable Housing Activities
    The Board is also considering specifying certain activities that 
could be viewed as particularly responsive to affordable housing needs. 
Such activities could include, but would not be limited to, the 
financing of new or rehabilitated affordable housing units that include 
renewable energy facilities, energy-efficiency upgrades, or water 
conservation upgrades. The Board is also considering whether financing 
of housing that is close to public transportation, often referred to as 
``transit-oriented development,'' \128\ should be designated as 
particularly responsive. Finally, housing for very low-income, homeless 
or other harder to serve populations would be considered particularly 
responsive.
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    \128\ Transit-oriented development, or TOD, includes a mix of 
commercial, residential, office, and entertainment real estate 
centered around or located near a transit station, https://www.transit.dot.gov/TOD.
---------------------------------------------------------------------------

e. Pro Rata Credit in Mixed-Income Projects
    For mixed-income developments, an important issue is how to provide 
credit for buildings where a portion of units--but not all units--is 
affordable to families meeting LMI definitions. There are negative 
effects of concentrating poverty to a geographic area or building, and 
one way to counteract this is the development of mixed-income housing 
projects in areas with lower poverty rates. However, providing credit 
for mixed-income housing requires considering how credit is calculated 
in the community development financing metric both for buildings where 
over 50 percent of units are affordable and buildings where this level 
falls below 50 percent.
    Under the current ``primary purpose'' guidance, a bank can receive 
full credit for a loan or investment if a majority of the dollars or 
beneficiaries of the activity are identifiable to one or more of the 
enumerated community development purposes. For mixed-income housing 
where less than a majority of the dollars benefit LMI families or less 
than a majority of the beneficiaries are LMI, a bank can receive a pro 
rata share.\129\
---------------------------------------------------------------------------

    \129\ See Q&A Sec.  __.12(h)--8.
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    One option would be continuing to provide the same pro rata 
consideration where 50 percent or fewer of the units are affordable. 
Another option would be to provide 50 percent consideration for 
buildings or projects that meet a minimum percentage of affordable 
units, such as 20 percent, which could serve as a greater incentive for 
mixed-income housing. Another consideration is whether pro rata 
treatment should be the same for unsubsidized affordable housing, 
compared to subsidized affordable housing or buildings subject to 
affordable housing set-asides required by federal, state, or local 
governments.
f. Mortgage-Backed Securities Related to Affordable Housing
    The Board is contemplating the appropriate CRA treatment of 
mortgage-backed securities (MBS).\130\ Currently, bank purchases of MBS 
receive CRA credit if they are backed by loans that finance subsidized 
multifamily rental housing, loans for mixed-income housing that 
includes affordable housing for LMI families, or loans to LMI 
borrowers.\131\ Issuance of qualifying MBS can improve liquidity for 
lenders that make home mortgage loans to LMI borrowers, increasing the 
capacity of these lenders to make more loans that are needed in the 
community. Some stakeholders, however, are concerned that some banks 
rely heavily on purchases of qualifying MBS for CRA purposes instead of 
pursuing more impactful and responsive community development 
activities, which often involve deeper engagement with communities and 
entail a greater level of complexity for the bank. Other stakeholders 
voiced concern that some banks purchase large amounts of MBS just prior 
to their CRA examinations and then sell them shortly afterwards to 
another bank, which has little positive impact in their community.
---------------------------------------------------------------------------

    \130\ MBS generally are ``debt obligations that represent claims 
to the cash flows from pools of mortgage loans, most commonly on 
residential property.'' See U.S. Securities and Exchange Commission, 
``Mortgage-Backed Securities,'' https://www.sec.gov/fast-answers/answersmortgagesecuritieshtm.html.
    \131\ See Q&A Sec.  __.23(b)--2.
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    Request for Feedback:
    Question 52. Should the Board include for CRA consideration 
subsidized affordable housing, unsubsidized affordable housing, and 
housing with explicit pledges or other mechanisms to retain 
affordability in the definition of affordable housing? How should 
unsubsidized affordable housing be defined?
    Question 53. What data and calculations should the Board use to 
determine rental affordability? How should the Board determine 
affordability for single-family developments by for-profit entities?
    Question 54. Should the Board specify certain activities that could 
be viewed as particularly responsive to affordable housing needs? If 
so, which activities?
    Question 55. Should the Board change how it currently provides pro 
rata consideration for unsubsidized and subsidized affordable housing? 
Should standards be different for subsidized versus unsubsidized 
affordable housing?
2. Community Services
    Regulation BB also defines community development to include 
``community services targeted to low- or moderate-income individuals,'' 
but does not further define community services.\132\ The Interagency 
Questions

[[Page 66446]]

and Answers includes examples of what counts as community services, 
such as programs for LMI youth, homeless centers, soup kitchens, 
healthcare facilities, battered women's centers, and alcohol and drug 
recovery programs serving LMI individuals.\133\
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    \132\ 12 CFR 228.12(g)(2). Among possible changes to update 
Regulation BB, the Board is examining ways to alleviate possible 
confusion between the definition for ``community development 
services'' and the definition for ``community services.'' Although 
there is some overlap, these activities are generally considered 
under different components of CRA examinations and under different 
standards. Among differences, community development services 
generally include a broader set of service activities and can be 
defined using any of the four primary community development 
definitions. The Board is considering ways of alleviating any 
existing confusion, including changing the similar names of these 
definitions.
    \133\ See Q&A Sec.  __.12(t)--4.
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    The Board believes that it is important to maintain the focus of 
this community development subcomponent on community services 
``targeted to low- or moderate-income individuals,'' and is considering 
how to build on existing guidance to define this standard. One option 
is to define more specifically the different categories of eligible 
community services activities, such as childcare, education, 
healthcare, financial education, job training, and social services.
    The Board is also considering several ways to standardize how a 
bank can determine whether an activity meets the ``targeted to low- or 
moderate-income individuals'' standard. One option under consideration 
would be to clarify the use of a geographic proxy to determine 
eligibility: If the activity or relevant organization were located in 
an LMI census tract, the activity would meet the ``targeted to low- or 
moderate-income individuals'' standard. A second option would also 
build on current guidance by both clarifying, and expanding upon, the 
proxies that banks can use to demonstrate that 50 percent of 
participants served by a program or organization are LMI individuals. 
Examples from current guidance include, but are not limited to, 
services that are provided to students or their families from a school 
at which the majority of students qualify for free or reduced-price 
meals under the U.S. Department of Agriculture's National School Lunch 
Program or are targeted to individuals who receive or are eligible to 
receive Medicaid.\134\ The Board is considering expanding this list to 
include activities targeted to recipients of federal disability 
programs and recipients of federal Pell Grants.
---------------------------------------------------------------------------

    \134\ Q&A Sec.  __.12(g)(2)--1.
---------------------------------------------------------------------------

    Request for Feedback:
    Question 56. How should the Board determine whether a community 
services activity is targeted to low- or moderate- income individuals? 
Should a geographic proxy be considered for all community services or 
should there be additional criteria? Could other proxies be used?
3. Economic Development
    The Board believes that activities qualified through the economic 
development prong of Regulation BB provide key support for small 
businesses and small farms, as well as incentives for other types of 
important assistance for business development efforts. Research 
indicates that the smallest segment of small businesses often have more 
difficulty obtaining credit and are more challenging for banks to 
serve,\135\ and the COVID-19 pandemic has raised significant new 
challenges for small businesses. The Board is therefore considering 
ways to revise the economic development definition to better encourage 
activities most supportive of small businesses and farms, while also 
improving the overall transparency of the definition.
---------------------------------------------------------------------------

    \135\ See, e.g., Karen G. Mills, Fintech, Small Business & the 
American Dream, Ch. 4 (2018); Federal Reserve Banks, ``Small 
Business Credit Survey: 2020 Report on Employer Firms'' (Aug. 2020), 
https://www.fedsmallbusiness.org/medialibrary/FedSmallBusiness/files/2020/2020-sbcs-employer-firms-report.
---------------------------------------------------------------------------

    Current Economic Development Standards and Guidance. The Regulation 
BB definition of community development includes ``activities that 
promote economic development by financing businesses or farms that meet 
the size eligibility standards of the Small Business Administration's 
Development Company (SBDC) or Small Business Investment Company (SBIC) 
programs \136\ or have gross annual revenues of $1 million or less.'' 
\137\ Thus, to qualify for CRA consideration under this provision, a 
bank's financing activity must be for small businesses and small farms 
that fall beneath a regulatory ``size'' ceiling, and the financing must 
``promote economic development.''
---------------------------------------------------------------------------

    \136\ 13 CFR 121.301.
    \137\ 12 CFR 228.12(g)(3).
---------------------------------------------------------------------------

    The Interagency Questions and Answers identifies several types of 
activities to satisfy the requirement that an activity ``promote 
economic development'':
     Activities that support permanent job creation, retention, 
and/or improvement:
    [cir] For persons who are currently LMI or in LMI geographies or 
areas targeted for redevelopment by federal, state, local or tribal 
government; or
    [cir] by financing intermediaries that lend to, invest in, or 
provide technical assistance to start-ups or recently formed small 
businesses or small farms, or through technical assistance or 
supportive services for small businesses or farms, such as shared 
space, technology, or administrative assistance; \138\ and
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    \138\ See Q&A Sec.  __.12(g)(3)--1. Under current guidance, the 
Board presumes any loan or service to or investment in a SBDC, SBIC, 
Rural Business Investment Company, New Markets Venture Capital 
Company, New Markets Tax Credit-eligible Community Development 
Entity, or CDFI that finances small businesses or small farms 
promotes economic development. Id.
---------------------------------------------------------------------------

     Federal, state, local, or tribal economic development 
initiatives that include provisions for creating or improving access by 
LMI persons to jobs or to job training or workforce development.\139\
---------------------------------------------------------------------------

    \139\ See id.
---------------------------------------------------------------------------

    Stakeholders have noted various challenges with the current 
definition of economic development. Some observe that while guidance 
includes a variety of economic development activities, the smallest 
segment of businesses and farms may still face specific unmet financing 
needs. Industry stakeholders also indicate that it can be difficult to 
demonstrate that an activity meets both the ``size test'' and ``purpose 
test.'' Specifically, industry stakeholders have indicated that it can 
be difficult to demonstrate that small business or small farm activity 
has created, retained, and/or improved LMI employment.
    Encouraging Activities Supporting Small Businesses and Farms and 
Minority-Owned Small Businesses. The Board is considering ways to 
provide incentives for economic development activity with the smallest 
businesses and farms, as well as minority-owned small businesses. One 
approach would be specifying that economic development activity focused 
on the smallest businesses, smallest farms, and minority-owned small 
businesses would be considered responsive and impactful in developing a 
Community Development Test conclusion or rating. In recent years, the 
number of minority-owned businesses has grown rapidly; however, 
research reports small businesses owned by minorities as having more 
difficulty than white-owned firms gaining approval for loans from 
banks.\140\ Access to financing for these businesses is vital in 
fostering continued growth and broader economic opportunity in their 
communities.
---------------------------------------------------------------------------

    \140\ See, e.g., Federal Reserve Banks, ``Small Business Credit 
Survey: 2019 Report on Minority-Owned Firms'' (Dec. 2019), https://www.fedsmallbusiness.org/medialibrary/fedsmallbusiness/files/2019/20191211-ced-minority-owned-firms-report.pdf.
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    This approach, focused on responsiveness, would have the benefit of 
encouraging activity with smaller businesses and minority-owned small 
businesses without changing the business size standards for the

[[Page 66447]]

definition overall. However, this approach might provide insufficient 
incentives for engaging in activities with smaller businesses and 
minority-owned businesses given that loans to other businesses might 
have larger loan amounts and, therefore, more of an impact on the 
community development financing metric.
    Another option would be to qualify economic development activities 
using only a revised gross annual revenue threshold, and not SBIC or 
SBDC size standards. This approach could help focus economic 
development activities on smaller businesses and farms and might also 
reduce confusion about multiple size standard options by establishing a 
single, transparent threshold. The Board recognizes that a possible 
drawback to using only a revised gross annual revenue threshold is that 
certain currently eligible activities that qualify under the economic 
development definition might no longer qualify for consideration.
    Relatedly, the Board is also considering the appropriate gross 
annual revenue standards for defining a small business or farm, and for 
making these standards uniform under both the Retail Test and the 
Community Development Test. Revisions to the gross annual revenue 
thresholds for small businesses and small farms are discussed in 
Section VI.\141\
---------------------------------------------------------------------------

    \141\ As discussed in Section VI, the Board is also currently 
considering adjusting the small business and small farm loan size 
thresholds based on inflation and whether to update these thresholds 
for inflation at regular intervals.
---------------------------------------------------------------------------

    Demonstrating an Economic Development Purpose Through Job Creation. 
Another area of focus is how to provide more clarity on the standard 
that financing activities for small businesses demonstrate LMI job 
creation, retention, or improvement. Meeting this economic development 
purpose standard by documenting the number of jobs created, retained or 
improved can be challenging. In addition, activities supporting small 
businesses and small farms may serve important purposes beyond 
employment, including by covering start-up or working capital costs. 
The COVID-19 pandemic has further underlined the need for a broad range 
of financing activities to help sustain small businesses and farms 
overall. The Board is considering what standards could be established 
to demonstrate that an activity led to job creation, retention and 
improvement or whether the smallest businesses below a specified 
threshold could be exempted from the standard to demonstrate LMI job 
creation, retention, or improvement.
    Workforce Development and Job Training Programs. The Board is also 
considering whether workforce development activities should be included 
as a separate prong of the economic development definition, regardless 
of whether these activities also support small businesses and farms. 
This approach would include federal, state, local, or tribal economic 
development initiatives that include provisions for creating or 
improving access by LMI persons to jobs, job training, or workforce 
development.
    Request for Feedback:
    Question 57. What other options should the Board consider for 
revising the economic development definition to provide incentives for 
engaging in activity with smaller businesses and farms and/or minority-
owned businesses?
    Question 58. How could the Board establish clearer standards for 
economic development activities to ``demonstrate LMI job creation, 
retention, or improvement''?
    Question 59. Should the Board consider workforce development that 
meets the definition of ``promoting economic development'' without a 
direct connection to the ``size'' test?
4. Revitalization and Stabilization
    The Board is considering how to update and clarify the 
revitalization and stabilization subcomponent of the community 
development definition, which currently encompasses activities that 
revitalize or stabilize three targeted geography categories: LMI census 
tracts, designated disaster areas, and distressed or underserved 
nonmetropolitan middle income census tracts.\142\ Since its inception, 
the revitalization and stabilization prong of community development has 
included eligible activities in LMI geographies, defined as census 
tracts where the majority of households have incomes at or below 80 
percent of area median income. Originally, these tracts often 
overlapped with federally designated Empowerment Zones and Enterprise 
Communities, marked by high poverty rates and elevated levels of 
emigration. In 2005, the agencies broadened eligible geographies to 
include federally designated disaster areas and distressed or 
underserved middle-income nonmetropolitan areas.\143\
---------------------------------------------------------------------------

    \142\ 12 CFR 228.12(g)(4).
    \143\ Designated disaster areas are geographic areas covered by 
a major federal disaster declaration by the President pursuant to 
the declaration process specified by the Federal Emergency 
Management Agency. See 44 CFR part 206, subpart B. A nonmetropolitan 
middle-income geography will be designated as distressed if it is in 
a county that meets one or more of the following triggers: (1) An 
unemployment rate of at least 1.5 times the national average; (2) a 
poverty rate of 20 percent or more; or (3) a population loss of 10 
percent or more between the previous and most recent decennial 
census or a net migration loss of five percent or more over the five 
year period preceding the most recent census. A nonmetropolitan 
middle-income geography will be designated as underserved if it 
meets criteria for population size, density, and dispersion that 
indicate the area's population is sufficiently small, thin, and 
distant from a population center that the tract is likely to have 
difficulty financing the fixed costs of meeting essential community 
needs. Q&A Sec.  __.12(g)(4)(iii)--1.
---------------------------------------------------------------------------

    The Interagency Questions and Answers provides examples of a broad 
range of qualifying revitalization and stabilization activities for 
each targeted geography category. Some of these activities span across 
each targeted geography category and some activities are unique to a 
specific geography category. Based on the regulation and accompanying 
guidance,\144\ CRA consideration could extend to activities that range 
from attracting an industrial park for businesses whose employees 
include LMI individuals, to financing new broadband internet 
infrastructure in poorer rural communities. Other examples include 
providing financing to attract a major new employer that will create 
long-term job opportunities, including for LMI individuals, or 
activities that provide financing or other assistance for essential 
infrastructure in distressed or underserved nonmetropolitan middle-
income census tracts.\145\
---------------------------------------------------------------------------

    \144\ See Q&A Sec.  __.12(g)(4).
    \145\ See Q&As Sec.  __.12(g)(4)(i)--1, Sec.  __.12(g)(4)(ii)--
2, and Sec.  __.12(g)(4)(iii)--4.
---------------------------------------------------------------------------

    Considering activities under the existing revitalization and 
stabilization prong of the community development definition often 
involves a fact-specific review by examiners. To determine whether 
activities revitalize or stabilize a qualified geography, examiners 
evaluate an activity's actual impact on the targeted geography. The 
Interagency Questions and Answers also instructs examiners to give 
greater weight to activities most responsive to community needs and 
that primarily benefit LMI individuals.\146\
---------------------------------------------------------------------------

    \146\ See Q&As Sec.  __.12(g)(4)--2, Sec.  __.12(g)(4)(ii)--2, 
and Sec.  __.12(g)(4)(iii)--3.
---------------------------------------------------------------------------

    Given the complexity of the existing definition and guidance on the 
revitalization and stabilization category, in addition to the 
particularly fact-specific nature of eligibility and responsiveness 
determinations, the Board is considering how to both provide more 
detail in the regulation on which activities qualify in which targeted 
geographies and simplify the definition overall. Some of the key

[[Page 66448]]

issues that would need resolution are described below.
    Activities That Attract New, or Retain Existing, Residents and 
Businesses. The Interagency Questions and Answers states that eligible 
activities in each of the targeted geography categories include 
activities that attract new, or retain existing, residents and 
businesses, with greater weight given to activities that are most 
responsive to community needs.\147\ The Board is considering whether to 
codify the treatment of these activities across each of the targeted 
geography categories. This approach would provide greater consistency 
in defining eligible activities that help to attract or retain 
businesses or residents, which in turn could provide greater certainty 
regarding which activities qualify and could also help support greater 
investment in targeted geographies. The Board is interested in ensuring 
that, in addition to serving a revitalization and stabilization 
purpose, these activities include benefits to LMI communities and 
individuals, or other underserved communities. For example, some 
community group stakeholders have noted that existing guidance 
qualifies new housing for middle- or upper-income individuals as an 
activity that revitalizes or stabilizes an LMI geography, as long as 
the housing attracts new residents to the community. The concern raised 
by these stakeholders is that, in some LMI communities, this new 
housing may in fact contribute to the displacement of existing LMI 
residents in the community.
---------------------------------------------------------------------------

    \147\ See Q&As Sec.  __.12(g)(4)--2, Sec.  __.12(g)(4)(i)--1, 
Sec.  __.12(g)(4)(ii)--2, and Sec.  __.12(g)(4)(iii)--3.
---------------------------------------------------------------------------

    Definitions for Infrastructure, Community Facilities, and Other 
Large-Scale Projects. The Board recognizes that investments in large-
scale projects, infrastructure, and community facilities can be 
essential for revitalizing and stabilizing targeted geographies and is 
interested in how to define the eligibility of these activities in a 
way that retains a strong connection between these projects and meeting 
the needs of these communities.
    Currently, this issue is addressed differently across targeted 
geography categories. For example, for underserved nonmetropolitan 
middle-income census tracts, current guidance describes activities that 
help meet essential community needs as including financing the 
construction, expansion, improvement, maintenance, or operation of 
essential infrastructure or community facilities. Community facilities 
noted in current guidance include facilities for health services, 
education, public safety, public services, industrial parks, affordable 
housing, or communication services.\148\ The Interagency Questions and 
Answers does not explicitly discuss infrastructure and community 
facilities in other targeted geographies.
---------------------------------------------------------------------------

    \148\ See Q&A Sec.  __.12(g)(4)(iii)--4.
---------------------------------------------------------------------------

    Stakeholders have indicated that these inconsistencies leave some 
banks uncertain about what qualifies, and that the use of different 
standards across the geographies is a significant source of confusion 
for banks and communities alike. Community stakeholders have also 
commented that large-scale development and infrastructure projects may 
sometimes have limited benefit for targeted geographies. Given the 
large size of these projects, with a dollar-based metric approach for 
evaluating community development financing, stakeholders worry that 
resources may be directed to these activities instead of smaller and 
more impactful activities.
    Activities Specific to Designated Disaster Areas. The Interagency 
Questions and Answers includes examples of certain qualifying 
activities specific to designated disaster areas. For example, current 
guidance includes eligibility for activities that provide financial 
assistance for rebuilding needs, or for services to individuals who 
have been displaced from designated disaster areas.\149\ The Board is 
considering whether codifying the treatment of qualifying activities 
specific to designated disaster areas would help provide stakeholders 
with additional certainty. Additionally, the Board is considering 
whether the list of relevant activities related to disaster recovery 
should be expanded to include disaster preparedness and climate 
resilience in certain targeted geographies.
---------------------------------------------------------------------------

    \149\ See Q&A Sec.  __.12(g)(4)(ii)--2.
---------------------------------------------------------------------------

    Treatment of a Government Plan. According to existing guidance, 
examiners will presume an activity revitalizes or stabilizes a 
geography if the activity is consistent with a government plan for the 
revitalization or stabilization of the area. However, the types of 
government plans and the required degree of formality of the plan 
differ across the three qualified geography categories. The Interagency 
Questions and Answers indicates that activities in LMI areas are 
presumed to qualify if the activities receive official designation as 
consistent with a federal, state, local, or tribal government plan for 
the revitalization or stabilization of the low- or moderate-income 
geography.\150\ In other qualified geographies, however, guidance 
indicates that an activity need only be consistent with a government 
plan and does not need an official designation to be eligible for 
consideration.\151\ To clarify when this standard applies, the Board 
proposes to specify in Regulation BB which activities require 
association with a federal, state, local, or tribal government 
revitalization plan and the standards for the type of plan required for 
eligibility. The Board is also exploring the alternative standards 
necessary for demonstrating that an activity revitalizes or stabilizes 
a targeted geography in the absence of a government plan.
---------------------------------------------------------------------------

    \150\ See Q&A Sec.  __.12(g)(4)(i)--1. In certain situations, 
guidance instructs examiners to determine whether an activity is 
consistent with a community's informal plans for the revitalization 
and stabilization of the LMI geography without standards for 
determining consistency. Id.
    \151\ See Q&As Sec.  __.12(g)(4)(ii)--2, and Sec.  
__.12(g)(4)(iii)--3.
---------------------------------------------------------------------------

    Request for Feedback:
    Question 60. Should the Board codify the types of activities that 
will be considered to help attract and retain existing and new 
residents and businesses? How should the Board ensure that these 
activities benefit LMI individuals and communities, as well as other 
underserved communities?
    Question 61. What standards should the Board consider to define 
``essential community needs'' and ``essential community 
infrastructure,'' and should these standards be the same across all 
targeted geographies?
    Question 62. Should the Board include disaster preparedness and 
climate resilience as qualifying activities in certain targeted 
geographies?
    Question 63. What types of activities should require association 
with a federal, state, local, or tribal government plan to demonstrate 
eligibility for the revitalization or stabilization of an area? What 
standards should apply for activities not requiring association with a 
federal, state, local, or tribal government plan?

B. Minority Depository Institutions and Other Mission-Oriented 
Financial Institutions

    Recognizing the importance of mission-oriented financial 
intermediaries in helping retail and community development financing 
reach LMI and minority individuals and communities, the Board is 
proposing ways to encourage more activities that support MDIs, CDFIs, 
and other mission-oriented financial institutions.

[[Page 66449]]

1. Minority Depository Institutions, Women-Owned Financial 
Institutions, and Low-Income Credit Unions
    The Board recognizes the importance of MDIs in providing equitable 
financial access to LMI and minority consumers and communities. MDIs 
are banks that are owned by, or that predominately serve and have a 
board composed of a majority of, African Americans, Native Americans, 
Hispanic Americans, or Asian Americans.\152\ Most MDIs are small 
community banks that specialize in serving a minority, and often LMI, 
customer base. Congress has recognized these institutions in the CRA 
statute, including special consideration for MDIs as well as for women-
owned financial institutions and low-income credit unions.\153\ 
Specifically, majority-owned institutions receive CRA credit for 
capital investment, loan participation, training, technical assistance, 
and other ventures undertaken by the bank in cooperation with MDIs, 
women-owned institutions, and low-income credit unions.\154\
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    \152\ See, e.g., SR Letter 13-15/CA Letter 13-11 (``Federal 
Reserve Resources for Minority Depository Institutions''), (Aug. 5, 
2013), p.1, note 1, https://www.federalreserve.gov/supervisionreg/srletters/sr1315.pdf.
    \153\ 12 U.S.C. 2903, 2907.
    \154\ 12 U.S.C. 2903(b). Majority-owned institution is defined 
as a ``nonminority-owned and nonwomen-owned financial institution.'' 
Id.
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    Majority-owned institutions are also eligible for CRA credit for 
donating or selling on favorable terms a branch located in a 
predominately minority neighborhood to an MDI or women-owned depository 
institution.\155\ These activities must help meet the credit needs of 
local communities in which the MDIs, women-owned institutions, and low-
income credit unions are chartered.\156\ Unlike other provisions of 
CRA, these activities need not also benefit a bank's assessment area(s) 
or the broader statewide or regional area that includes the bank's 
assessment area(s).\157\
---------------------------------------------------------------------------

    \155\ 12 U.S.C. 2907(a).
    \156\ 12 U.S.C. 2903(b).
    \157\ 12 CFR 228.21(f).
---------------------------------------------------------------------------

    The Board has focused on ways to provide better incentives to 
majority-owned institutions to partner with MDIs and other mission-
oriented financial institutions. The Board seeks to ensure that any 
provisions to assist MDIs are clearly defined and applied in CRA 
performance evaluations, and that these special provisions are 
prominent and clear in a revised Regulation BB, supervisory guidance, 
and other agency public documentation.
a. Clarify Treatment of Activities With MDIs, Women-Owned Financial 
Institutions, and Low-Income Credit Unions Outside of a Bank's 
Assessment Area
    Although majority-owned institutions currently may receive CRA 
consideration for investments in MDIs, women-owned financial 
institutions, and low-income credit unions outside of the majority-
owned institution's assessment areas(s) or the broader statewide or 
regional area, such activities are not common. Stakeholders have noted 
that bankers do not know with confidence where and how these activities 
will count in their CRA evaluations. Therefore, the Board proposes that 
activities in support of these entities should be counted at the 
institution level when they are outside of the bank's assessment areas 
or eligible states and regions, as discussed in Section VIII.C below. 
This would ensure that there is a clear ``place'' for such activities 
to be counted.
b. Consider Activities With MDIs, Women-Owned Financial Institutions, 
and Low-Income Credit Unions as a Factor in Achieving an 
``Outstanding'' Rating
    An additional change the Board is considering to increase the 
incentives for activities in support of MDIs, women-owned financial 
institutions, and low-income credit unions is to consider these 
activities as a factor in determining whether a bank qualifies for an 
``outstanding'' rating for the Retail Test or Community Development 
Test. The Board believes that explicitly designating these activities 
as a criterion for an ``outstanding'' rating would give them greater 
emphasis and would provide banks with additional certainty regarding 
how these activities would be considered.
c. Provide Credit for MDIs, Women-Owned Financial Institutions, and 
Low-Income Credit Unions Investing in or Partnering With Other MDIs, 
Women-Owned Financial Institutions, and Low-Income Credit Unions
    Currently, only majority-owned institutions can receive CRA 
consideration for investing in MDIs, women-owned financial 
institutions, and low-income credit unions. MDIs, in particular, vary 
greatly in size, and there are several large MDIs that could invest in 
smaller MDIs. Similarly, MDIs and women-owned financial institutions 
that are subject to CRA may choose to partner in unique and mutually 
beneficial ways, and could receive credit for such activities. 
Therefore, the Board is considering whether MDIs and women-owned 
financial institutions should receive CRA credit for investing in other 
MDIs, women-owned financial institutions, and low-income credit unions.
d. Provide Credit for MDIs and Women-Owned Financial Institutions 
Investing in Limited Activities To Improve Their Own Banks
    The Board is proposing that MDIs and women-owned financial 
institutions be eligible for CRA credit for investing in limited 
activities to improve their own banks. Under this approach, MDIs and 
women-owned financial institutions could receive CRA consideration for 
retained earnings (less the amount of any dividends or stock 
repurchases) that are reinvested in the bank. Eligibility could be 
limited to activities that demonstrate meaningful investment in the 
business, such as staff training, hiring new staff, opening new 
branches in minority neighborhoods, or expanding products and services.
    Request for Feedback:
    Question 64. Would providing CRA credit at the institution level 
for investments in MDIs, women-owned financial institutions, and low-
income credit unions that are outside of assessment areas or eligible 
states or regions provide increased incentives to invest in these 
mission-oriented institutions? Would designating these investments as a 
factor for an ``outstanding'' rating provide appropriate incentives?
    Question 65. Should MDIs and women-owned financial institutions 
receive CRA credit for investing in other MDIs, women-owned financial 
institutions, and low-income credit unions? Should they receive CRA 
credit for investing in their own institutions, and if so, for which 
activities?
    Question 66. What additional policies should the Board consider to 
provide incentives for additional investment in and partnership with 
MDIs?
2. Community Development Financial Institutions
    CDFIs, which can be banks, credit unions, loan funds, microloan 
funds, or venture capital providers, are common intermediaries for bank 
financing to reach underserved communities.\158\ CDFIs certified by the 
U.S. Department of the Treasury's (Treasury Department) CDFI Fund must 
meet seven criteria to demonstrate that they are specialized 
organizations that provide financial

[[Page 66450]]

services in low-income communities and to people who lack access to 
financing.\159\
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    \158\ U.S. Department of the Treasury CDFI Fund, CDFI 
Certification, https://www.cdfifund.gov/programs-training/certification/cdfi/Pages/default.aspx.
    \159\ Id.
---------------------------------------------------------------------------

    While banks generally receive CRA consideration for investing in 
Treasury Department-certified CDFIs, bankers and community groups have 
commented that the regulation could provide a stronger incentive for 
these activities. Stakeholders noted that examiners sometimes require 
extensive paperwork to document that a CDFI assists low-income 
populations, even though the Treasury Department certification of a 
CDFI is already a clear indication of having a primary mission of 
community development.
    To provide greater certainty and clarity, the Board proposes to 
grant automatic CRA community development consideration for community 
development activities with Treasury Department-certified CDFIs. For 
activities in support of other financial entities that use the term 
``CDFI'' but are not formally certified by the Treasury Department, the 
activity would continue to be reviewed individually, as in current 
practice.
    Another issue is whether geographic limitations should apply to 
granting CRA credit for CDFI-related activities. Several stakeholders 
have suggested that investments in CDFIs should be considered on a 
nationwide basis, regardless of whether the CDFI operates in a bank's 
assessment area(s) or the broader statewide or regional area that 
includes the bank's assessment area(s), which is a condition for 
consideration under current practices. Commenters noted that this 
condition can be confusing for banks considering investments in larger 
CDFIs that serve multistate areas, and that it limits capital 
investments for the underserved areas that need it the most.
    To address this concern, the Board is considering whether to treat 
activities with CDFIs similarly to activities with MDIs, women-owned 
financial institutions, and low-income credit unions, so that banks 
could receive CRA consideration for loans, investments, or services in 
conjunction with CDFIs anywhere nationwide.\160\ This approach would 
remove the geographic uncertainty about whether a CDFI's service 
area(s) appropriately overlaps with a bank's assessment area(s). This 
could also incent banks to invest in CDFIs that serve parts of the 
country with few or no bank assessment areas.
---------------------------------------------------------------------------

    \160\ 12 CFR 228.21(f).
---------------------------------------------------------------------------

    However, the Board is mindful that this approach could 
inadvertently reduce the incentive for banks to focus on their 
assessment areas by granting them CRA credit for investing in CDFIs 
that serve entirely different geographies. The proposed use of the 
community development financing metric and associated benchmarks to 
evaluate a bank's assessment area activities is intended to maintain a 
strong emphasis on serving local communities. For this reason, the 
Board believes that the proposed Community Development Financing 
Subtest will help to address concerns that eligibility for certain 
activities on a nationwide basis, such as support of MDIs and other 
specific institutions, would discourage banks from meeting the needs of 
their assessment areas. Alternatively, the Board is considering whether 
CDFIs should instead be subject to the provisions of the broader 
geographic areas for consideration for community development activities 
described below.
    Request for Feedback:
    Question 67. Should banks receive CRA consideration for loans, 
investments, or services in conjunction with a CDFI operating anywhere 
in the country?

C. Geographic Areas for Community Development Activities

    The Board is considering approaches for providing greater clarity 
regarding where a bank's community development financing and services 
activities are eligible for CRA consideration, and for encouraging 
activities in areas with high unmet needs. First, the Board is 
proposing an approach that would consider community development 
activities anywhere within states, territories, or regions where a bank 
has at least one facility-based assessment area, with the activities 
counted towards the state or institution rating.\161\ In addition, the 
Board is considering designating geographic areas of need where banks 
could conduct activities outside of assessment areas. The Board 
believes that these approaches could help alleviate the CRA hot spots 
and deserts dynamic and increase community development lending and 
investment in areas where they are needed the most.
---------------------------------------------------------------------------

    \161\ In this context, region or regional refers to a multistate 
area.
---------------------------------------------------------------------------

1. Current Approach for Reviewing Activities Outside of Assessment 
Areas and Stakeholder Feedback
    Under current examination procedures, the standards for whether a 
bank receives consideration for community development loans, 
investments, and services differ depending on where that activity takes 
place. First, banks can receive consideration for community development 
financing activities that have a purpose, mandate or function of 
serving the bank's assessment area(s). Banks can also receive 
consideration for community development activities in a ``broader 
statewide or regional area'' that includes the bank's assessment areas 
if they have a purpose, mandate or function of serving the bank's 
assessment area(s). Additionally, activities that do not have a 
purpose, mandate or function of serving a bank's assessment area(s) are 
considered when evaluating the bank's performance at the state level or 
for the institution overall, but only if the bank is first determined 
to have been responsive to the credit and community development needs 
in its assessment area(s).\162\
---------------------------------------------------------------------------

    \162\ See Q&A Sec.  __.12(h)--6; CA Letter 14-2, p. 21.
---------------------------------------------------------------------------

    Banks have indicated that the standard for being sufficiently 
responsive to the needs of their assessment area(s) is not clearly 
defined, and that this creates uncertainty regarding whether a bank's 
activities in broader areas will be considered for CRA credit. In 
addition, stakeholder feedback suggests that a bank's physical presence 
within an assessment area enables them to access local community 
development opportunities and form partnerships to expand these 
opportunities. For these reasons, most banks focus their community 
development activities within their branch-based assessment areas, 
which may exacerbate CRA hot spots and deserts, and may make certain 
banks less likely to pursue impactful community development 
opportunities that are statewide or regional in nature.
2. Expanding Geographic Areas for Community Development Activities
a. Eligible States and Territories and Eligible Regions
    As discussed in the Community Development Test section, the Board 
is proposing to allow banks to receive CRA credit for community 
development activities not only within defined assessment areas, but 
also within ``eligible states and territories'' and ``eligible 
regions.'' This approach would build on, clarify, and broaden the 
``broader statewide and regional area'' approach in place today under 
CRA guidance, and would complement the implementation of the community 
development financing metric at the assessment area level.
    Under the proposed approach, qualified community development 
activities contained within one

[[Page 66451]]

assessment area would receive CRA credit when evaluating assessment 
area performance and would count toward a bank's community development 
financing metric for the specific assessment area. Banks could also 
receive credit for qualified community development activities that 
benefit areas outside of bank facility-based assessment area(s) 
anywhere within a bank's eligible states and territories, defined as 
any state or territory in which the bank has at least one facility-
based assessment area. Qualified activities in each eligible state or 
territory that are partially or entirely outside of a bank's assessment 
area(s) would be considered when assessing a bank's performance for 
state and institution ratings, as applicable.
    Banks could also receive credit for qualified activities in an 
``eligible region,'' defined as a multistate or other regional area 
that includes at least one eligible state or territory. As noted in 
current guidance, a ``regional area'' may be an intrastate area or a 
multistate area that includes the financial institution's assessment 
area(s), and that typically has some geographic, demographic, and/or 
economic interdependencies and may conform to commonly accepted 
delineations, such as ``the tri-county area'' or the ``mid-Atlantic 
states.'' \163\ Qualified activities in an eligible region would be 
considered when evaluating the bank's performance for an institution 
rating.
---------------------------------------------------------------------------

    \163\ Q&A Sec.  __.12(h)--7.
---------------------------------------------------------------------------

    The Board believes that this approach would provide ex ante 
certainty about when activities outside of an assessment area would be 
considered. This ex ante certainty could result in investments in areas 
that lack financial institutions, thus helping to alleviate CRA 
deserts. At the same time, banks would still have incentives to meet 
the needs of their assessment areas because the community development 
financing metric would include only activities within each assessment 
area, and would inform a bank's Community Development Financing Subtest 
conclusion. Performance in assessment areas would also be the 
foundation for determining the bank's state rating for the Community 
Development Test.
b. Designated Areas of Need
    The Board is considering whether a bank should receive 
consideration for activities outside of its eligible state(s), 
territories and regions if the activity is located in designated areas 
of need. This approach would help ensure that community development 
activities outside of a bank's assessment areas, eligible states and 
territories, or eligible regions, are occurring in areas of highest 
need. The Board is exploring the following criteria for defining areas 
of need:
     Economically distressed rural or metropolitan areas that 
meet certain criteria, for example an unemployment rate that is 
persistently 1.5 times the national average or a persistent poverty 
rate of 20 percent or more.\164\
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    \164\ Such an approach could leverage persistent poverty county 
definitions, which are defined in the Consolidated Appropriations 
Act of 2012 as any county that has had 20 percent or more of its 
population living in poverty over the past 30 years. Public Law 112-
74, 125 Stat. 786, 887 (2011).
---------------------------------------------------------------------------

     Areas where the local benchmark for the community 
development financing metric is below an established threshold.
     Areas that have low levels of home mortgage or small 
business loans as identified by lending data.
     Areas with limited bank branches or ATMs.
     Targeted geographies designated by other federal agencies 
that exhibit persistent economic distress, such as: Federal Native 
Areas including Federally Designated Indian Reservations, Off 
Reservation Trust Lands or Alaskan Native Village Statistical Areas, or 
Hawaiian Home Lands; ARC and DRA Areas, which are areas designated as 
distressed by, respectively, the Appalachian Regional Commission or 
Delta Regional Authority; and Colonias areas, which are low-income 
communities on the U.S.-Mexico border as designated by HUD.
    Careful consideration of CRA's statutory purpose would be needed in 
determining what criteria should be used to designate areas of need, 
and designations would need to be updated periodically to reflect 
current data. One approach would be for the Board to publish and update 
a list of designated areas of need on an annual or biennial basis. 
Areas could be removed from the list if they receive substantial 
amounts of community development financing, and others may be added 
that have pressing needs.
    Request for Feedback:
    Question 68. Will the approach of considering activities in 
``eligible states and territories'' and ``eligible regions'' provide 
greater certainty and clarity regarding the consideration of activities 
outside of assessment areas, while maintaining an emphasis on 
activities within assessment areas via the community development 
financing metric?
    Question 69. Should the Board expand the geographic areas for 
community development activities to include designated areas of need? 
Should activities within designated areas of need that are also in a 
bank's assessment area(s) or eligible states and territories be 
considered particularly responsive?
    Question 70. In addition to the potential designated areas of need 
identified above, are there other areas that should be designated to 
encourage access to credit for underserved or economically distressed 
minority communities?

D. Options To Provide Additional Certainty About Eligible Activities

    The Board is considering options to improve upfront certainty 
related to what community development activities qualify for 
consideration. The Board believes that greater ex ante certainty will 
provide stakeholders with additional transparency about what, how, and 
where activities are considered. Significant ex ante certainty could be 
achieved through several mechanisms, including clarifying qualifying 
activities directly in regulatory language as discussed above. However, 
the Board recognizes that changes to regulatory text alone might not 
provide the full upfront certainty sought by banks and community 
groups.
    Current Approaches to Determining What Community Development 
Activities Qualify. Currently, as part of their CRA examinations, banks 
submit community development activities that have already been 
undertaken without an assurance these activities are eligible. 
Previously qualified activities can frequently provide banks with some 
confidence that the same types of activities are likely to receive 
consideration in the future. However, new, less common, or more complex 
or innovative activities might require examiner judgment and the use of 
performance context to determine whether an activity qualifies for CRA 
purposes. For these activities, stakeholders might know only after an 
examination--and after a loan or investment qualification decision has 
been made--whether an activity will receive CRA credit. The lack of 
upfront certainty is a disincentive to undertake such activities, even 
if they potentially have great value to the local community.
    Some current processes provide upfront ``non-binding'' feedback to 
banks on eligibility of certain projects. For example, the Federal 
Reserve's Investment Connection platform provides a popular approach to 
proactively engage stakeholders on CRA-eligible community development

[[Page 66452]]

financing activities.\165\ Operated through multiple Reserve Banks, the 
platform provides a forum for community-based organizations, financial 
institutions, and other funders to review planned projects that are 
deemed to be CRA-eligible. In addition, Investment Connection provides 
website portals to help provide stakeholders advance transparency on 
eligibility of possible investments.
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    \165\ The Federal Reserve Bank of Kansas City pioneered the 
Investment Connection concept, which has been replicated by multiple 
Reserve Banks, https://www.kansascityfed.org/community/investmentconnection.
---------------------------------------------------------------------------

    To provide additional upfront certainty, the Board is exploring two 
proposals. The Board requests feedback on a proposal to publish an 
illustrative, non-exhaustive list of activities that meet requirements 
for CRA consideration. The Board also requests feedback on a proposal 
to establish a ``pre-approval'' process to improve certainty about 
qualification of community development activities.
    Create an Example List of Eligible Activities. The Board proposes 
publishing an illustrative, non-exhaustive list of community 
development activities that meet the requirements for CRA 
consideration. The list would be illustrative, but not exhaustive, as 
to the type and scope of eligible activities. Stakeholders have 
supported providing example activities as a way to further explain 
required standards of the CRA definitions while retaining definitional 
standards as the determinative factor in eligibility for activities.
    Although an illustrative list could provide greater information on 
required CRA criteria, it is important that it not have the unintended 
consequence of dissuading stakeholders from engaging in innovative 
activities simply because they are not included on the list. Some 
community organization and industry stakeholders have supported 
developing an illustrative list of eligible activities through a formal 
notice and public comment rulemaking process. However, alternative, and 
less burdensome, approaches for building and maintaining an example 
list may also exist.
    Pre-Approval Process. The Board is considering developing a formal 
option for stakeholders to receive feedback in advance on whether 
proposed activities would be considered eligible for CRA credit. 
Depending on the design of the process, it could either provide full 
confirmation that a submitted activity would qualify for consideration, 
including a review of transaction terms and counterparties, or instead 
provide information on the requirements necessary for the activity to 
garner consideration during a CRA evaluation.
    Request for Feedback:
    Question 71. Would an illustrative, but non-exhaustive, list of CRA 
eligible activities provide greater clarity on activities that count 
for CRA purposes? How should such a list be developed and published, 
and how frequently should it be amended?
    Question 72. Should a pre-approval process for community 
development activities focus on specific proposed transactions, or on 
more general categories of eligible activities? If more specific, what 
information should be provided about the transactions?

IX. Strategic Plan Evaluation

    The Board is considering amending the strategic plan option to 
provide more clarity and transparency about evaluation standards and 
where performance will be assessed. The Board is also considering how 
to tailor the strategic plan option for different bank business models 
as well as how to leverage the internet to facilitate public engagement 
in the strategic plan process. Over the past several years, 48 banks 
representing six percent of overall banking system assets opted to 
submit strategic plans; of those, five were wholesale and limited 
purpose banks, representing one percent of overall banking system 
assets.\166\
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    \166\ The banking system assets are based on June 30, 2020 FFIEC 
Call Report data, https://cdr.ffiec.gov/public/PWS/DownloadBulkData.aspx.
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A. Current Strategic Plan Framework

    Currently, the CRA strategic plan option is available to all types 
of banks,\167\ although it has been used mainly by non-traditional 
banks and banks that make a substantial portion of their loans beyond 
their branch-based assessment areas. The strategic plan option is 
intended to provide banks with flexibility in meeting their CRA 
obligations tailored to community needs and opportunities as well as 
their own capacities, business strategies, and expertise. Therefore, 
not all of the performance tests and standards described in Regulation 
BB necessarily apply to each bank's strategic plan.
---------------------------------------------------------------------------

    \167\ 12 CFR 228.27(a).
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    Banks that elect to be examined under strategic plans have a great 
deal of latitude in designing a strategic plan, but are subject to 
several key requirements. They must seek approval from the Board and 
solicit community feedback prior to submitting a strategic plan for 
regulatory approval.\168\ In addition, they are required to delineate 
assessment areas in the same manner as traditional banks,\169\ and 
large banks are obligated to report relevant lending data.\170\
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    \168\ 12 CFR 228.27(d) and (e).
    \169\ See, e.g., 12 CFR 228.27.
    \170\ 12 CFR 228.27(b).
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    Strategic plans also offer banks flexibility in various areas. 
Although banks must include measurable goals for helping to meet the 
credit needs of each assessment area, particularly the needs of LMI 
census tracts and LMI individuals, they have flexibility in setting 
these goals.\171\ Plan terms can be up to five years in length as long 
as any multi-year plan includes annual goals that are measurable.\172\ 
Banks are required to include goals for ``satisfactory'' performance, 
and they may opt to provide goals for ``outstanding'' performance as 
well.\173\ A bank also may provide in the plan that if it substantially 
fails to meet its goals for a ``satisfactory'' rating, the bank can be 
examined under the standard examination procedures.\174\ In addition, a 
bank may request the Board to approve an amendment to its strategic 
plan if there is a material change in circumstances.\175\
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    \171\ 12 CFR 228.27(f)(1).
    \172\ 12 CFR 228.27(c)(1).
    \173\ 12 CFR 228.27(f)(3).
    \174\ 12 CFR 228.27(f)(4).
    \175\ Amendments to a CRA strategic plan must include public 
participation in the same manner as when the plan was initially 
developed and finalized. 12 CFR 228.27(h).
---------------------------------------------------------------------------

    Regulation BB states that a bank's plan shall address the lending 
test, the investment test, and the service test and shall emphasize 
lending and lending-related activities unless the bank is a designated 
wholesale or limited purpose bank, in which case the plan would include 
only community development loans, investments, and services.\176\ The 
regulation also provides flexibility for a bank to choose a different 
emphasis as long as the change is responsive to the characteristics and 
credit needs of its assessment area(s) and takes into consideration 
public comment and the bank's capacity and constraints, product 
offerings, and business strategy.\177\
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    \176\ 12 CFR 228.27(f)(1)(ii).
    \177\ Id.
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    When reviewing a strategic plan, the Board considers the public's 
involvement in formulating the plan, any written public comments on the 
plan, and the bank's response to any public comments.\178\ A bank's 
engagement with its community is vital to the strategic plan process to 
develop the requisite information about community needs. Criteria for 
evaluating strategic plan goals include

[[Page 66453]]

the extent and breadth of lending or lending-related activities; the 
amount and innovativeness, complexity, and responsiveness of qualified 
investments; the availability and effectiveness of the bank's retail 
banking services; and the extent and innovativeness of the bank's 
community development services.\179\
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    \178\ 12 CFR 228.27(e).
    \179\ 12 CFR 228.27(g)(3).
---------------------------------------------------------------------------

B. Stakeholder Feedback on Strategic Plan Approach

    Both banks and community organizations have expressed support for 
the strategic plan option, but banks have asked for more flexibility in 
developing goals and a streamlined strategic plan process. Stakeholder 
feedback also has emphasized the need to address the increased use of 
mobile and online banking, which allows banks to offer products and 
services in areas far from their branch footprint. While there is broad 
support for community input into the strategic plan process, some have 
requested that the role of community input be clarified, especially for 
banks whose strategic plan covers a broad geographic area, including 
multiple assessment areas or the entire nation.

C. Updating the Strategic Plan Framework

    The Board is considering potential revisions to the current 
strategic plan framework to facilitate effective use of strategic 
plans, including the options discussed below.
1. Updating the Public Input Process for Strategic Plans
    Communication between a bank and the public allows for an exchange 
of information about community needs and the bank's business model and 
areas of expertise, which enables banks to develop responsive strategic 
plan goals that reflect the bank's capacity, constraints, and community 
needs.
    The Board is considering three proposals to improve the public 
input process. First, banks could be required to post the strategic 
plan on their website, the Board's website, or both, in place of the 
current newspaper publication requirement.\180\ Second, the Board is 
considering codifying in regulation the current guidance that it will 
consult with banks regarding procedural requirements, although it would 
not include commenting on the merits of a proposed strategic plan or on 
the adequacy of measurable goals.\181\ Finally, some industry 
stakeholders have suggested that strategic plan requirements should 
clarify that public comments help a bank to identify community needs 
and priorities, give a bank the opportunity to develop responsive 
products and services, and demonstrate the ways a bank has met those 
needs. Industry stakeholders also suggest that an amended regulation 
should codify current guidance that banks are not required to enter 
into community benefit agreements as a condition of developing 
strategic plans.\182\
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    \180\ For LMI, rural, and other areas without broadband service, 
the Board is considering options to provide access to bank's CRA 
strategic plans.
    \181\ See Q&A Sec.  __.27(c)--1.
    \182\ Q&A Sec.  __.29(b)--2.
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2. Increased Flexibility on Assessment Areas and Evaluation Method for 
Strategic Plans
    The Board is considering updating where banks are assessed for 
performance under the strategic plan framework. Currently, banks are 
required to delineate assessment areas in the same manner as 
traditional banks. The Board is considering allowing banks greater 
flexibility in defining assessment areas through a strategic plan, 
while also providing greater transparency and certainty about the 
process. The Board also seeks feedback on providing an option of using 
metrics to evaluate performance in those assessment areas, rather than 
the bank proposing measurable goals.
    Defining Assessment Areas in Strategic Plans More Broadly than a 
Branch Network. The Board is considering allowing a bank choosing the 
strategic plan approach to delineate assessment area(s) in addition to 
its branch-based assessment area(s) that would capture areas in which 
the bank has a significant proportion of its business and that align 
with the bank's capacity and constraints, product offerings, and 
business strategy.\183\ For each assessment area a bank would need to 
define goals and engage in the same process of seeking community 
feedback and regulatory approval. Alternatively, the Board is seeking 
feedback on whether banks that have a significant business footprint 
beyond their branch-based assessment areas should be required to define 
associated assessment areas, as opposed to allowing banks to define 
additional assessment areas voluntarily.
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    \183\ This option would be an alternative to defining assessment 
areas based on branches, instead using deposit or lending data. 
Deposit-based and lending-based assessment areas are discussed in 
more detail in Section III. These assessment areas would need to 
consist of at least whole census tracts, not reflect illegal 
discrimination, and not arbitrarily exclude LMI census tracts.
---------------------------------------------------------------------------

    Leveraging Metrics-Based Approaches to Evaluation. The Board is 
also considering enabling banks electing to prepare a strategic plan to 
have flexibility in leveraging retail lending and community development 
financing metrics as part of the bank's performance evaluation. This 
option could provide banks with greater certainty in how they will be 
evaluated by opting for the metrics-based approaches described in 
Sections V (Retail Test) and VII (Community Development Test), as 
appropriate based on a bank's size and business model.
3. Flexibility in Setting Plan Goals
    Regulation BB sets forth general expectations that a strategic plan 
address the lending, investment, and services performance categories, 
emphasizing lending but with flexibility to choose a different emphasis 
if it is responsive to the particular characteristics and credit needs 
of the bank's assessment area(s). In practice, the Board has exercised 
flexibility in the types of goals that banks may choose based on 
business strategy, expertise, capacity, constraints, public 
involvement, and whether the goals are responsive to assessment area 
characteristics and credit needs. The Board is considering whether to 
revise the strategic plan regulatory provisions to codify the 
flexibility in setting goals that has been allowed in practice.
4. Strategic Plan Amendments
    As noted earlier, Regulation BB states that a bank may request its 
banking agency approve an amendment to its strategic plan on grounds 
that there has been a material change in circumstances. The Board seeks 
to provide greater clarity regarding what constitutes a material change 
that should trigger amendments to strategic plans.
5. Options for Streamlining the Strategic Plan Approval Process
    Some stakeholders have noted that the strategic plan procedures 
could be further streamlined to make the option more appealing to a 
larger number of non-traditional banks. The Board is considering 
developing an electronic template with illustrative instructions to 
make it more straightforward for banks to engage in the strategic plan 
request and approval process. These changes would be procedural and 
would not require regulatory changes.
    Request for Feedback:
    Question 73. In fulfilling the requirement to share CRA strategic 
plans with the public to ensure transparency, should banks be required 
to publish them on the regulatory agency's website, their own website, 
or

[[Page 66454]]

both? Would it be helpful to clarify the type of consultation banks 
could engage in with the Board for a strategic plan?
    Question 74. How should banks demonstrate that they have had 
meaningful engagement with their community in developing their plan, 
and once the plan is completed?
    Question 75. In providing greater flexibility for banks to 
delineate additional assessment areas through CRA strategic plans, are 
there new criteria that should be required to prevent redlining?
    Question 76. Would guidelines regarding what constitutes a material 
change provide more clarity as to when a bank should amend their 
strategic plan?
    Question 77. Would a template with illustrative instructions be 
helpful in streamlining the strategic plan approval process?

X. Ratings

    The Board is proposing an approach to ratings that is grounded in 
performance in a bank's local communities. This approach would provide 
a transparent and consistent process for considering assessment area 
performance conclusions for the Retail Test and the Community 
Development Test when assigning ratings for each state and multistate 
MSA, as applicable, and for the institution overall. For large banks 
subject to the Community Development Test, the proposed approach also 
incorporates an assessment of community development activities outside 
of assessment areas in determining the overall state and institution 
ratings.
    The Board recognizes that CRA and fair lending responsibilities are 
mutually reinforcing. As such, the Board would continue to consider 
fair lending and illegal credit violations in determining overall CRA 
ratings for all institutions. Finally, the Board proposes to encourage 
activities involving MDIs, women-owned financial institutions, and low-
income credit unions by making retail and community development 
activities with these institutions a factor in achieving an 
``outstanding'' Retail Test or Community Development Test rating. 
Additionally, small banks would remain under the current CRA framework 
and would have the ability to opt into the Retail Lending Subtest and 
the proposed ratings approach.

A. Current Process for Developing Ratings

    Consistent with the CRA statute, Regulation BB provides that a bank 
is assigned an institution rating of ``outstanding,'' ``satisfactory,'' 
``needs to improve,'' or ``substantial noncompliance'' in connection 
with a CRA examination.\184\ Ratings are also required for a bank's 
performance in each state in which the institution maintains one or 
more branches, and for each multistate MSA for those institutions that 
have branches in two or more states within a multistate MSA.\185\ As a 
first step to assigning an overall institution rating, examiners assign 
state and multistate MSA ratings for each applicable performance test 
(lending, investment and service tests) based on the performance 
``conclusions'' assigned for each assessment area within the state or 
multistate MSA.\186\ Overall state-level or multistate MSA performance 
test ratings are assigned by combining the performance test ratings 
within each state or multistate MSA. Institution-level performance test 
ratings are derived from the state and multistate MSA performance test 
ratings, which are combined for the overall institution rating.
---------------------------------------------------------------------------

    \184\ 12 U.S.C. 2906(b), implemented by 12 CFR 228.28(a). The 
narrative descriptions of the ratings for performance under each 
evaluation method are in Appendix A to Regulation BB, 12 CFR part 
228.
    \185\ 12 U.S.C. 2906(d).
    \186\ Ratings are not required at the assessment area level. 
Therefore, examiners provide conclusions about a bank's performance 
at the assessment area level. If a bank operates in just one 
assessment area, however, the bank's institution-level rating is 
equivalent to the performance conclusion within that assessment 
area.
---------------------------------------------------------------------------

    With one notable exception, the rating scale used for performance 
test ratings mirrors that of the statutory institution-level ratings--
``outstanding,'' ``satisfactory,'' ``needs to improve,'' or 
``substantial noncompliance.'' For large banks, however, the 
``satisfactory'' rating for each performance test is split into ``high 
satisfactory'' and ``low satisfactory'' at the state, multistate MSA 
and institution level. For the overall institution rating for large 
banks, though, the ``satisfactory'' rating is not split into ``high 
satisfactory'' and ``low satisfactory.'' \187\
---------------------------------------------------------------------------

    \187\ See Q&A Sec.  __.28(a)--3.
---------------------------------------------------------------------------

    Under existing procedures for large banks, examiners use a rating 
scale in the Interagency Questions and Answers that assigns points to 
each test and each rating category, and adds those together to 
determine the overall institution rating.\188\ With the exception of 
this rating scale, the process of combining performance test ratings to 
determine the state, multistate MSA or institution ratings relies 
primarily on examiner judgment, guided by quantitative and qualitative 
factors outlined in the regulation. There is otherwise not a strictly 
defined process for assessing how different components of each 
performance test are combined or how performance conclusions or ratings 
should be weighted to determine overall ratings. The current rating 
system is designed to be flexible; for example, exceptionally strong 
performance in some aspects of a particular rating profile may 
compensate for weak performance in others.\189\
---------------------------------------------------------------------------

    \188\ Id.
    \189\ Q&A Appendix A to 12 CFR 228--1.
---------------------------------------------------------------------------

    Current examination procedures also allow for assessment areas to 
be evaluated either for full-scope or limited-scope review. Full-scope 
reviews employ both quantitative and qualitative factors, while 
limited-scope reviews are assessed only quantitatively and tend to have 
less weight in their contribution to the overall state, multistate MSA, 
or institution rating. Examiners select assessment areas for full-scope 
review based on a number of factors, such as community needs and 
opportunities, comments from community groups and the public regarding 
the institution's performance, and any apparent anomalies in the 
reported CRA and HMDA data for any particular assessment areas, among 
other factors.\190\
---------------------------------------------------------------------------

    \190\ See, e.g., CA Letter 14-2.
---------------------------------------------------------------------------

    Under current examination procedures, the Board uses a fact-
specific review to determine whether an overall institution-level CRA 
rating should be downgraded due to discriminatory and other illegal 
credit practices. Currently, the Board considers the nature, extent, 
and strength of the evidence of any discriminatory or other illegal 
credit practices, as well as any policies and procedures in place, or 
lack thereof, to prevent these kinds of practices, and any corrective 
action that the bank has taken or has committed to take.

B. Stakeholder Feedback on Ratings

    Stakeholders have consistently stated that CRA ratings should 
reflect a bank's performance in the local communities they serve. Both 
banks and community organizations have expressed concern that the 
current ratings process is subjective and lacks transparency about the 
levels of performance associated with different ratings. Both have also 
suggested that more transparency is needed regarding the selection of 
evaluated products and the weighting of products and tests when rating 
a bank. Many community organizations have stated that the ratings 
process should be reformed to add more rigor and stricter standards. 
Others have suggested that the current rating system using the

[[Page 66455]]

statutory ratings does not provide enough detail to gauge a bank's true 
performance, and that ratings should better differentiate performance 
to help the public understand a bank's true commitment to its 
community.

C. Increasing Transparency by Grounding Ratings in Assessment Area 
Conclusions

    The Board proposes revisions to the current CRA ratings framework 
to provide greater transparency, clarity and consistency in the 
assignment of ratings. The foundation for the proposed approach to 
ratings is based on a weighted average of assessment area conclusions. 
To increase consistency and reflect a more comprehensive assessment of 
a bank's overall performance, the Board is proposing to eliminate the 
distinction between full-scope and limited-scope assessment areas. 
Ratings would continue to be assigned for the institution, as well as 
for each state and multistate MSA where the bank has a presence, as 
required by the statute.\191\ Additionally, the Board proposes using 
the same ratings for banks of all sizes.
---------------------------------------------------------------------------

    \191\ 12 U.S.C. 2906.
---------------------------------------------------------------------------

    Weighted Average Approach. The Board is proposing to apply a 
weighted average approach to combining assessment area conclusions. The 
weight applied to each assessment area would average the percentage of 
a bank's deposits from that assessment area and the percentage of a 
bank's dollars of loans in that assessment area.\192\ For example, for 
a bank with 30 percent of its deposits in an assessment area and 20 
percent of its retail lending in an assessment area, the assessment 
area weight would be 25 percent.
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    \192\ For small banks that opt in to the revised framework, the 
Board is considering two options to reduce the burden of using 
deposits data to weight assessment areas: either using FDIC SOD data 
that allocates deposits to branches, or removing the deposit prong 
and only weighting assessment areas based on the percentage of a 
bank's retail lending in each assessment area. For example, if a 
small bank's assessment area were weighted solely based on retail 
lending, then a bank with 20 percent of its retail lending in an 
assessment area would have a weight of 20 percent for that 
assessment area.
---------------------------------------------------------------------------

    This use of both deposits and loans to weight assessment areas (as 
well as states and multistate MSAs, as applicable) would help to ensure 
that ratings accurately reflect performance in all markets, including 
those where lending volume is low relative to deposits. Compared to the 
current method, where limited scope assessment areas have less impact 
on the overall rating, the proposed approach would give full 
consideration to performance in each assessment area, proportional to a 
bank's lending level and capacity to lend.
    In order to combine assessment area conclusions in a manner 
consistent with these weights, examiners would first convert a Retail 
Test conclusion or Community Development Test conclusion to a score in 
each assessment area according to the following scale: Outstanding = 3, 
Satisfactory = 2, Needs to Improve = 1, and Substantial Non-Compliance 
= 0. Examiners would then take the weighted average of these assessment 
area scores, using the assessment area weights described above, to 
produce a state, multistate MSA or institution score. These aggregated 
weighted average scores would be used as the foundation for a bank's 
ratings. The underlying weights for each assessment area could be made 
available in the performance evaluations, making the ratings process 
transparent.
    Inclusive of All Assessment Areas. The Board is considering several 
options to ensure that all assessment areas, including smaller rural 
assessment areas, are appropriately factored into the Retail and 
Community Development Test ratings. First, as discussed above, the 
Board is considering weighting performance in all assessment areas 
based on deposits and loans to determine state and institution ratings. 
Second, the Board is considering limiting how high an overall rating 
can be for the evaluated state or multistate MSA if there is a pattern 
of weaker performance in multiple assessment areas. For example, the 
state rating could not be higher than the rating achieved by a certain 
percentage of the number of assessment areas for a bank that has 
several assessment areas in a state. Third, the Board is considering 
downgrading a bank's assessment area conclusion to ``substantial non-
compliance'' if the bank's performance in that assessment area was 
``needs to improve'' at the prior examination and the bank showed no 
appreciable improvement (and the performance context does not explain 
why).\193\ The second and third stipulations in particular would be 
intended to ensure that banks do not count on strong performance in a 
few assessment areas to offset persistently weak performance in 
numerous small assessment areas in the overall rating of a state, 
multistate MSA (as applicable), or institution.
---------------------------------------------------------------------------

    \193\ This would, in effect, modify current guidance, which 
provides that a bank's overall ``needs to improve'' rating can be 
downgraded when the bank fails to improve performance by the next 
evaluation. See Q&A Sec.  __.21(b)(5)--1. Rather than considering 
the downgrade on a bank's overall evaluation, the Board is 
considering applying the downgrade at the assessment area level.
---------------------------------------------------------------------------

    Consistency in Ratings Levels. The Board is proposing to use the 
four statutory ratings for banks of all sizes--``outstanding,'' 
''satisfactory,'' ``needs to improve,'' or ``substantial 
noncompliance.'' This revision would eliminate the ``high'' and ``low'' 
distinctions for ``satisfactory'' performance of large banks at the 
state and multistate MSA levels. While using both the ``high 
satisfactory'' and ``low satisfactory'' ratings can help to 
differentiate performance, the Board anticipates that a more 
transparent and metrics-based approach would help provide a more 
detailed perspective on performance.
    Request for Feedback:
    Question 78. Would eliminating limited-scope assessment area 
examinations and using the assessment area weighted average approach 
provide greater transparency and give a more complete evaluation of a 
bank's CRA performance?
    Question 79. For a bank with multiple assessment areas in a state 
or multistate MSA, should the Board limit how high a rating can be for 
the state or multistate MSA if there is a pattern of persistently 
weaker performance in multiple assessment areas?
    Question 80. Barring legitimate performance context reasons, should 
a ``needs to improve'' conclusion for an assessment area be downgraded 
to ``substantial non-compliance'' if there is no appreciable 
improvement at the next examination?
    Question 81. Should large bank ratings be simplified by eliminating 
the distinction between ``high'' and ``low'' satisfactory ratings in 
favor of a single ``satisfactory'' rating for all banks?

D. State, Multistate MSA and Institution Ratings for the Retail Test 
and Community Development Test

    The Board is proposing a ratings approach that builds on the 
weighted average of the bank's assessment area performance on the 
Retail Test and the Community Development Test, as applicable. The 
proposed approach would use the 0-3 scale discussed above to translate 
performance scores into state, multistate MSA, and institution ratings.
    This approach would tailor how performance ratings are assigned 
based on bank size and business model. Small banks opting into the 
revised framework would be rated on the Retail Lending Subtest, and 
large banks would be rated based on all four subtests under the Retail 
Test and Community Development Test. Wholesale and

[[Page 66456]]

limited-purpose banks would be rated on the Community Development Test 
alone.
1. Retail Test Ratings
a. Retail Test Conclusions in Assessment Areas
    The Board is proposing an approach for developing one Retail Test 
conclusion at the assessment area level that would provide more 
consistency and certainty in assigning assessment area conclusions, 
while accounting for performance context factors. Small banks opting 
into the revised framework would receive a Retail Lending Subtest 
conclusion in each assessment area, which would also serve as their 
overall Retail Test conclusion in each assessment area. For large banks 
evaluated under both the Retail Lending Subtest and Retail Services 
Subtest, the Board proposes using the below matrix to standardize how 
examiners combine these two conclusions into a single Retail Test 
conclusion in each assessment area.

                                Table 6--Retail Test Assessment Area Conclusions
----------------------------------------------------------------------------------------------------------------
                                                        Retail services subtest conclusion
                                 -------------------------------------------------------------------------------
                                                                                                  Substantial
                                      Outstanding        Satisfactory      Needs to improve      noncompliance
----------------------------------------------------------------------------------------------------------------
Retail Lending Subtest
 Conclusion:
    Outstanding.................  Outstanding.......  Outstanding.......  Satisfactory......  Satisfactory or
                                                                                               Needs to Improve.
    Satisfactory................  Outstanding or      Satisfactory......  Satisfactory or     Needs to Improve.
                                   Satisfactory.                           Needs to Improve.
    Needs to Improve............  Needs to Improve..  Needs to Improve..  Needs to Improve..  Needs to Improve
                                                                                               or Substantial
                                                                                               Noncompliance.
    Substantial Noncompliance...  Substantial         Substantial         Substantial         Substantial
                                   Noncompliance.      Noncompliance.      Noncompliance.      Noncompliance.
----------------------------------------------------------------------------------------------------------------

    Given CRA's traditional emphasis on lending, the Board is proposing 
to weight the Retail Lending Subtest conclusion more heavily than the 
Retail Services Subtest conclusion in determining the overall Retail 
Test assessment area conclusion for large banks. Using this 
standardized approach, most combinations of subtest conclusions would 
provide examiners with only one option for the overall Retail Test 
conclusion. However, in cases where the overall Retail Test conclusion 
could be one of two options based on the level of performance for each 
subtest and performance context factors, examiner judgment would be 
required. In these cases, the specific factors that informed the 
examiner's decision would need to be clearly articulated within the 
performance evaluation.
b. State, Multistate MSA, and Institution Retail Test Ratings
    As noted above, the CRA statute requires a separate rating for each 
state and multistate MSA, and for the institution overall.\194\ To 
develop the state, multistate MSA, and institution ratings for the 
Retail Test, the Board is proposing to aggregate a bank's assessment 
area performance using the weighted average approach described above. 
This approach would take a weighted average of the assessment area 
Retail Test scores to yield (as applicable) a Retail Test state score, 
Retail Test multistate MSA score, or Retail Test institution score. 
These scores in turn would translate to one of the four ratings by 
rounding.
---------------------------------------------------------------------------

    \194\ 12 U.S.C. 2906(b) and (d).
---------------------------------------------------------------------------

    The below example shows how this weighting would work for the 
Retail Test for a state-level rating where a bank had two assessment 
areas in a state:

Assessment Area 1: ``Satisfactory'' performance and weight of 25 
percent
2 * 0.25 = 0.5
Assessment Area 2: ``Outstanding'' performance and weight of 75 percent
3 * 0.75 = 2.25
Retail Test
State Score: 0.5 + 2.25 = 2.75 or ``outstanding''

    The Board is considering aggregating assessment area conclusions to 
calculate the Retail Test institution rating as well, rather than 
aggregating all Retail Test state ratings. With stipulations in place 
to ensure that all assessment areas, including smaller rural assessment 
areas, are appropriately factored into ratings (as discussed above), 
calculating the Retail Test institution rating based on assessment area 
conclusions could encourage banks to maintain a focus on retail 
activities in all of their assessment areas and not just the largest 
assessment areas in each state.
    Finally, to promote additional retail lending activities in Indian 
Country, the Board is proposing to make retail lending activities in 
Indian Country (both inside and outside of a bank's assessment area) 
eligible for CRA consideration. Activities inside a bank's assessment 
area(s) would be considered when determining assessment area 
conclusions; activities outside of a bank's assessment area(s) would be 
evaluated qualitatively, and could be considered as a possible 
enhancement to a bank's Retail Test state or institution rating.
2. Community Development Test Ratings
a. Community Development Test Conclusions in Assessment Areas
    Large retail banks and wholesale and limited purpose banks would 
receive separate conclusions for the Community Development Financing 
Subtest and Community Development Services Subtest for each assessment 
area. To provide greater certainty and transparency in assigning 
Community Development Test assessment area conclusions, a matrix, such 
as the one presented in Table 7, would be provided to standardize how 
examiners would combine the two conclusions into a single Community 
Development Test conclusion in each assessment area. This would provide 
transparency to local communities about a bank's overall community 
development performance within their assessment area.

[[Page 66457]]



                         Table 7--Community Development Test Assessment Area Conclusions
----------------------------------------------------------------------------------------------------------------
                                                 Community development services subtest conclusion
                                 -------------------------------------------------------------------------------
                                                                                                  Substantial
                                      Outstanding        Satisfactory      Needs to improve      noncompliance
----------------------------------------------------------------------------------------------------------------
Community Development Financing
 Subtest Conclusion:
    Outstanding.................  Outstanding.......  Outstanding.......  Satisfactory......  Satisfactory or
                                                                                               Needs to Improve.
    Satisfactory................  Outstanding or      Satisfactory......  Satisfactory or     Needs to Improve.
                                   Satisfactory.                           Needs to Improve.
    Needs to Improve............  Satisfactory or     Needs to Improve..  Needs to Improve..  Substantial
                                   Needs to Improve.                                           Noncompliance.
    Substantial Noncompliance...  Needs to Improve    Needs to Improve    Substantial         Substantial
                                   or Substantial      or Substantial      Noncompliance.      Noncompliance.
                                   Noncompliance.      Noncompliance.
----------------------------------------------------------------------------------------------------------------

    Using this standardized approach would allow an examiner to 
determine how to weight the Community Development Financing Subtest 
conclusion and the Community Development Services Subtest conclusion, 
with some combinations resulting in a single conclusion option. Where 
the overall Community Development Test conclusion could be one of two 
options, examiners would consider the level of performance for each 
subtest and take into account performance context factors, including 
the relative need for community development financing and services in 
the assessment area. In these cases, the specific factors that informed 
the examiner's decision would need to be clearly articulated within the 
performance evaluation.
b. State and Multistate MSA Ratings for the Community Development Test
    To develop the state and multistate MSA ratings for the Community 
Development Test, the proposed approach would aggregate a bank's 
assessment area performance for the Community Development Test using 
the weighted average approach described above. This would result in a 
Community Development Test state score or Community Development Test 
multistate MSA score. After calculating these scores, the examiner 
would need to take into account community development activities, if 
any, outside of a bank's assessment area(s) but within the relevant 
state or multistate MSA.
    The Board is proposing to create adjusted state scores or 
multistate MSA scores when an examiner determines that a bank's 
community development activities outside of its assessment area(s), but 
within the respective state or multistate MSA, merit an increase in the 
bank's Community Development Test score. After factoring in this 
adjustment for any outside assessment area activity, the adjusted score 
would then be rounded to the nearest whole number to assign a state or 
multistate MSA Community Development Test rating. The specific factors 
that informed the examiner's decision to increase the score would be 
clearly articulated within the performance evaluation. The Board is 
considering what standards should be developed to assist examiners in 
determining whether to increase these scores and, if so, by how much.
c. Institution Ratings for the Community Development Test
    The Board proposes to derive a bank's Community Development Test 
institution score by using a weighted average of the adjusted state 
scores and multistate MSA scores (as applicable), rather than using 
assessment area conclusions.\195\ Using state and multistate MSA scores 
would reflect statewide activities, if any, in addition to the 
conclusions for assessment areas in the state or multistate MSA.
---------------------------------------------------------------------------

    \195\ The proposed approach would weight states in a similar way 
to weighting assessment areas, based on an average of the percentage 
of a bank's deposits inside each state and the percentage of a 
bank's retail lending in each state.
---------------------------------------------------------------------------

    The Board is considering how to incorporate the volume and 
responsiveness of community development activities (both community 
development financing and community development services) not 
previously counted at the assessment area, state or multistate MSA 
levels.\196\ These activities could be reviewed qualitatively in 
addition to the weighted average calculation of state- and multistate 
MSA-level performance, to determine the appropriate increase for an 
adjusted institution Community Development Test score. This score would 
then be rounded up or down to the nearest whole number to produce the 
institution level Community Development Test rating.
---------------------------------------------------------------------------

    \196\ See Section VIII.C.2
---------------------------------------------------------------------------

d. Consistency in Evaluating Community Development Activities Outside 
of Assessment Areas
    The Board is exploring options to provide more consistency in 
evaluating community development activities outside of a bank's 
assessment area(s), which would be considered for the state, multistate 
MSA (as applicable), and institution Community Development Test 
ratings. For state ratings, one approach could be the use of a 
statewide community development financing metric. Similar to the 
community development financing metric for an assessment area, a 
statewide community development financing metric would compare the 
total dollar amount of a bank's qualifying community development loans 
and investments in a state to total deposits from all of the bank's 
assessment areas in the state. A statewide community development 
financing metric could provide more consistency to the evaluation of 
community development financing activities outside of assessment areas.
    A second option for evaluating community development activities 
outside of a bank's assessment area(s) would be the use of an impact 
score. Examiners could use bank-provided information along with a 
review of performance context to determine an impact score for 
activities outside of the bank's assessment area(s). The impact score 
could then be incorporated into the Community Development Test rating 
for the state, multistate MSA (as applicable), or the institution. The 
impact score and the basis for it would be stated in the performance 
evaluation, which would increase transparency in the evaluation process 
by clarifying how activities outside of assessment areas are factored 
in to the overall state, multistate MSA, or institution ratings.

[[Page 66458]]

E. Overall Ratings for Large Retail Banks

    The Board is considering how to weight consistently the Retail Test 
and Community Development Test to determine overall ratings at the 
state, multistate MSA, and institution levels for large retail banks. 
One option is to take a weighted average of the Retail Test institution 
score and the Community Development Test adjusted institution score, 
assigning a 60 percent weight to the Retail Test and a 40 percent 
weight to the Community Development Test to reflect the traditional 
emphasis on retail activities as the most significant aspect of CRA 
performance. This would result in an overall institution score, which 
would be rounded up or down to the nearest whole number to produce the 
institution's overall CRA rating.

F. Overall State, Multistate MSA, and Institution Ratings for Small 
Banks

    The Board is considering basing the overall state, multistate MSA, 
and institution ratings for small banks on the Retail Lending Subtest, 
for those opting into the metrics-based approach. Small banks would not 
be subject to the Retail Services Subtest or the Community Development 
Test. Consistent with the current Regulation BB, small banks could 
receive an overall ``outstanding'' rating based solely on the Retail 
Lending Subtest. Nonetheless, for those small banks who choose to 
receive an evaluation of their retail services, community development 
loans, qualified investments, or community development services, 
including volunteer activities, the Board would rely on a qualitative 
review of the activities and examiner judgment to determine whether a 
ratings enhancement is warranted.
    The Board is contemplating two options for incorporating community 
development activities and retail services into the small bank overall 
institution rating at the bank's request. One approach, similar to 
current procedures, would be that these activities could be considered 
only to elevate a ``satisfactory'' rating for the retail lending test 
to ``outstanding.'' This approach also maintains a primary emphasis on 
retail lending within the CRA evaluation.
    A second option is to use community development activities and 
retail services to augment performance at any level. For instance, a 
bank that received a rating below ``satisfactory'' for the Retail 
Lending Subtest could request a review of community development 
activities and retail services as a possible enhancement to achieve a 
``satisfactory'' rating. Taking this approach would put more emphasis 
on the full range of activities that small banks engage in to meet 
community needs. The Board considers that this approach should apply 
only to small banks that serve primarily rural areas in order to 
reflect the particular importance of volunteer and community 
development financing activities provided by community banks in rural 
areas in advancing economic and community development and strengthening 
the capacity of community and civic organizations. Alternatively, this 
option could be limited to small banks with only a small number of 
assessment areas or an asset size lower than that used to define a 
small bank.

G. Overall Ratings for Wholesale Limited Purpose Banks

    Consistent with current practices, the overall state, multistate 
MSA and institution ratings for wholesale and limited-purpose banks 
would be based solely on the Community Development Test.
    Request for Feedback:
    Question 82. Does the use of a standardized approach, such as the 
weighted average approach and matrices presented above, increase 
transparency in developing the Retail and Community Development Test 
assessment area conclusions? Should examiners have discretion to adjust 
the weighting of the Retail and Community Development subtests in 
deriving assessment area conclusions?
    Question 83. For large banks, is the proposed approach sufficiently 
transparent for combining and weighting the Retail Test and Community 
Development Test scores to derive the overall rating at the state and 
institution levels?
    Question 84. Should the adjusted score approach be used to 
incorporate out-of-assessment area community development activities 
into state and institution ratings? What other options should the Board 
consider?
    Question 85. Would the use of either the statewide community 
development financing metric or an impact score provide more 
transparency in the evaluation of activities outside of assessment 
areas? What options should the Board consider to consistently weight 
outside assessment area activities when deriving overall state or 
institution ratings for the Community Development Test?
    Question 86. For small banks, should community development and 
retail services activities augment only ``satisfactory'' performance, 
or should they augment performance at any level, and if at any level, 
should enhancement be limited to small institutions that serve 
primarily rural areas, or small banks with a few assessment areas or 
below a certain asset threshold?

H. Fair Lending and Other Illegal Credit Practices

    As noted in the Background section, the CRA was enacted along with 
several other important statutes that are mutually reinforcing civil 
rights laws designed to address systemic inequities in access to 
credit. Discrimination and illegal credit practices undermine the 
ability of creditworthy applicants to obtain loans and are thus seen as 
inconsistent with a bank's affirmative obligation to meet the entire 
community's credit needs. Accordingly, discrimination and illegal 
credit practices negatively impact an institution's CRA evaluation. The 
Board anticipates that in any revised CRA ratings framework, a bank's 
CRA performance would be adversely affected by evidence of 
discriminatory or other illegal credit practices by the bank in any 
geography or by any affiliate whose loans have been considered as part 
of the bank's lending performance in any assessment area. If examiners 
determine that a bank has engaged in discriminatory or other illegal 
credit practices, the Board anticipates that, if warranted, a ratings 
downgrade could occur when rating the institution overall, similar to 
current practices and consistent with Regulation BB. This subsection 
discusses revisions to the criteria considered in determining the 
impact of fair lending and other illegal credit practices on a bank's 
overall CRA rating, and revisions to examples of violations that are 
inconsistent with helping to meet community credit needs. These 
revisions reflect updates to the Uniform Interagency Consumer 
Compliance Rating System, as well as relatively recently enacted laws 
and regulations.
1. Effect of Fair Lending and Other Illegal Credit Practices on a CRA 
Rating
    Currently, in determining the effect of fair lending and other 
illegal credit practices violations on a bank's assigned rating, the 
banking agencies consider the nature, extent, and strength of the 
evidence of the practices; the policies and procedures that the bank 
(or affiliate, as applicable) has in place to prevent the practices; 
any corrective action that the bank (or affiliate, as applicable) has 
taken or has committed to take, including voluntary corrective action 
resulting from self-assessment;

[[Page 66459]]

and any other relevant information.\197\ These criteria were put in 
place at a time when the rating system for consumer compliance 
examinations placed greater emphasis on transaction testing rather than 
the adequacy of an institution's consumer compliance management system 
in preventing consumer harm. In 2016, the FFIEC agencies revised the 
Consumer Compliance Rating System to focus more broadly on an 
institution's commitment to consumer protection.\198\ Accordingly, the 
Board is considering updating the criteria for determining the effect 
of evidence of discriminatory or other illegal credit practices to be 
consistent with the updated Consumer Compliance rating system.
---------------------------------------------------------------------------

    \197\ 12 CFR 228.28(c)(2).
    \198\ See FFIEC, ``FFIEC Issues Uniform Consumer Compliance 
Rating System'' (Nov. 7, 2016), https://www.ffiec.gov/press/pr110716.htm.
---------------------------------------------------------------------------

    Under a modernized Regulation BB, the Board could determine the 
effect of evidence of discrimination and other illegal credit practices 
on a bank's assigned CRA rating based on the root cause or causes of 
any violations of law, the severity of any consumer harm resulting from 
violations, the duration of time over which the violations occurred, 
and the pervasiveness of the violations. In this way, the criteria to 
determine whether a CRA downgrade is warranted would be aligned with 
the Uniform Interagency Consumer Compliance Ratings System. In addition 
to the root cause, severity, duration, and pervasiveness of violations, 
examiners would also consider the degree to which the financial 
institution establishes an effective compliance management system 
across the institution to self-identify risks and to take the necessary 
actions to reduce the risk of non-compliance and consumer harm. All 
consumer compliance violations would be considered during a CRA 
examination, although some might not lead to a CRA rating downgrade.
2. Examples of Fair Lending and Other Illegal Credit Practices
    Currently, the Board considers evidence of discriminatory or other 
credit practices that violate an applicable law or regulation \199\ 
including, but not limited to:
---------------------------------------------------------------------------

    \199\ 12 CFR 228.28(c).
---------------------------------------------------------------------------

     Discrimination against applicants on a prohibited basis in 
violation, for example, of ECOA or the FHA;
     Violations of the Home Ownership and Equity Protection 
Act; \200\
---------------------------------------------------------------------------

    \200\ 15 U.S.C. 1601-02, 1639-41.
---------------------------------------------------------------------------

     Violations of section 5 of the Federal Trade Commission 
Act; \201\
---------------------------------------------------------------------------

    \201\ 15 U.S.C. 45(a)(1).
---------------------------------------------------------------------------

     Violations of section 8 of the Real Estate Settlement 
Procedures Act; \202\
---------------------------------------------------------------------------

    \202\ 12 U.S.C. 2607.
---------------------------------------------------------------------------

     Violations of the Truth in Lending Act provisions 
regarding a consumer's right of rescission; \203\ and
---------------------------------------------------------------------------

    \203\ 15 U.S.C. 1635.
---------------------------------------------------------------------------

     Violations of the Fair Credit Reporting Act.\204\
---------------------------------------------------------------------------

    \204\ 15 U.S.C. 1681 et seq.
---------------------------------------------------------------------------

    The Board is considering amending Regulation BB to include 
violations of the Military Lending Act,\205\ the Servicemembers Civil 
Relief Act,\206\ as well as the prohibition against unfair, deceptive, 
or abusive acts or practices (UDAAP),\207\ because the Board views 
violations of these laws as inconsistent with helping to meet community 
credit needs. It is important to note that this does not represent a 
substantive change to current examination procedures, since the 
included list of applicable laws, rules, and regulations is 
illustrative, and not exhaustive, and violations of these laws and 
regulations are currently considered in finalizing a bank's CRA rating. 
Nonetheless, the Board believes adding these laws to the list would 
provide greater clarity.
---------------------------------------------------------------------------

    \205\ 10 U.S.C. 987 et seq.
    \206\ 50 U.S.C. 3901 et seq.
    \207\ 12 U.S.C. 5531.
---------------------------------------------------------------------------

    Request for Feedback:
    Question 87. Should the Board specify in Regulation BB that 
violations of the Military Lending Act, the Servicemembers Civil Relief 
Act, and UDAAP are considered when reviewing discriminatory or other 
illegal credit practices to determine CRA ratings? Are there other laws 
or practices that the Board should take into account in assessing 
evidence of discriminatory or other illegal credit practices?

I. Consideration of ``Outstanding'' for Impactful Support to Minority 
Depository Institutions, Women-Owned Financial Institutions, and Low-
Income Credit Unions

    Another change the Board is considering is to use the ratings 
framework to encourage increased engagement with MDIs, women-owned 
financial institutions, and low-income credit unions. This approach 
would make lending or investment activities in these institutions a 
factor that could be used to enhance ratings for the Retail Test and 
Community Development Test. These activities could be considered when 
evaluating performance in an assessment area, state or multistate MSA, 
or for the institution. Activities with MDIs, women-owned financial 
institutions, and low-income credit unions located outside of the 
bank's footprint would be considered when assessing institution 
performance. The Board is considering that substantive and meaningful 
engagement with MDIs, women-owned financial institutions, and low-
income credit unions would be explicitly designated as criteria for an 
``outstanding'' overall rating in order to elevate the profile and 
importance of investments in these mission-oriented institutions.
    Request for Feedback:
    Question 88. Should consideration for an outstanding rating 
prompted by an investment or other activity in MDIs, women-owned 
financial institutions, and low-income credit unions be contingent upon 
the bank at least falling within the ``satisfactory'' range of 
performance?
    Question 89. Would it be helpful to provide greater detail on the 
types and level of activities with MDIs, women-owned financial 
institutions, and low-income credit unions necessary to elevate a 
``satisfactory'' rating to ``outstanding''?

XI. Data Collection and Reporting

    The Board is considering what data collection and reporting 
requirements would be necessary to implement certain options for 
updating the delineation of assessment areas and the proposed metrics-
based approaches in the Retail Lending Subtest and the Community 
Development Financing Subtest. The Board is mindful of the tradeoff 
between seeking to minimize burden potentially associated with new data 
collection and reporting requirements, especially for small banks that 
opt in to the metrics-based approach, while also enabling greater 
clarity, consistency, and transparency through the enhanced use of 
metrics.

A. Current Data Collection and Reporting Requirements

1. Current Data Used for Deposits
    Currently, the Board's CRA regulation does not require banks to 
collect or report deposits data. Instead, for small banks, total 
deposits and total loans data from the Call Report are used to 
calculate the loan-to-deposit ratio for the entire bank. Total deposits 
allocated to each branch from the FDIC SOD are used for performance 
context for banks of any size. Deposits data by depositor location are 
not currently collected or reported.
2. Current Small Bank and Intermediate Small Bank Data Standards for 
Retail Lending
    Currently, small banks and intermediate small banks are not

[[Page 66460]]

required to collect, maintain, or report loan data, unless they opt to 
be evaluated under the lending, investment, and service tests that 
apply to large banks.\208\ Examiners use information for a bank's major 
loan products gathered from individual loan files and maintained on the 
bank's internal operating systems, including data reported pursuant to 
HMDA, if applicable.
---------------------------------------------------------------------------

    \208\ 12 CFR 228.42(a) and 12 CFR 228.42(f).
---------------------------------------------------------------------------

3. Current Large Bank Data Standards for Retail Lending and Community 
Development Financing
    Large banks collect and report certain lending data for home 
mortgages, small businesses, small farm, and community development 
loans pursuant to either HMDA or Regulation BB. Examiners use these 
data, along with other supplemental data to evaluate CRA performance, 
as explained below. A bank may use the free FFIEC software for data 
collection and reporting or develop its own programs.
    Retail lending data collection and reporting requirements differ 
based on the product line. For large banks that do not report HMDA 
data, examiners use home mortgage information maintained on the bank's 
internal operating systems and/or from individual loan files. The data 
elements from home mortgage loans used for CRA include loan amount at 
origination, location, and borrower income. For small business and 
small farm loans, Regulation BB requires large banks to collect and 
maintain the loan amount at origination, loan location, and an 
indicator of whether a loan was to a business or farm with gross annual 
revenues of $1 million or less. Large banks report this information at 
the census tract level.\209\ Large banks are not required to collect or 
report data on consumer loans; however, if a large bank opts to have 
consumer loans considered as part of its CRA evaluation, the bank must 
collect and maintain this information and include it in its public 
file.\210\
---------------------------------------------------------------------------

    \209\ 12 CFR 228.42(b)(1).
    \210\ 12 CFR 228.42(c)(1); 12 CFR 228.43(b)(1)(i).
---------------------------------------------------------------------------

    Regulation BB also requires large banks to report the total number 
and dollar amount of their community development loans originated or 
purchased during the review period, but does not require information 
for individual community development loans, such as the location of the 
loan.\211\ Regulation BB does not require the reporting or collection 
of community development loans that remain on the bank's books or the 
collection and reporting of qualified community development 
investments. As a result, the total amount (originated and on-balance 
sheet) of community development loans and investments nationally, or 
within specific geographies, is not available. Consequently, examiners 
supplement reported community development loan data with additional 
information provided by the bank at the time of an examination, 
including the amount of investments, the location or areas benefited by 
these activities and information describing the community development 
purpose.\212\
---------------------------------------------------------------------------

    \211\ 12 CFR 228.42(b)(2).
    \212\ FFIEC, ``A Guide to CRA Data Collection and Reporting,'' 
https://www.ffiec.gov/cra/guide.htm.
---------------------------------------------------------------------------

4. Data Currently Used for CRA Retail Services and Community 
Development Services Analyses
    There are no specific data collection or reporting requirements in 
Regulation BB for retail services or community development services. A 
bank must, however, provide examiners with sufficient information to 
demonstrate its performance in these areas. The bank's CRA public file 
includes a list of bank branches, with addresses and census tracts; a 
list of branches opened or closed; and a list of services, including 
hours of operation, available loan and deposit products, transaction 
fees, and descriptions of material differences in the availability or 
cost of services at particular branches, if any.\213\ Banks have the 
option of including information regarding the availability of 
alternative systems for delivering services.\214\ Banks also volunteer 
information on community development services, such as the number of 
activities, bank staff hours dedicated or the number of financial 
education sessions offered.
---------------------------------------------------------------------------

    \213\ 12 CFR 228.43(a).
    \214\ Id.
---------------------------------------------------------------------------

B. Deposits Data Options

    The proposed approaches for the Retail Lending Subtest and 
Community Development Financing Subtest, as well as the potential 
approach for designating deposits-based assessment areas, would require 
deposits data that includes geographic location. The approach to 
ratings discussed in Section X could also potentially involve the use 
of deposits data. As discussed below, the Board seeks to balance 
proposals for a metrics-based approach that could increase certainty 
and transparency, with the need to minimize additional data reporting 
and collection requirements wherever possible.
1. Deposits Data Sources
    The use of SOD data would rely on an existing FDIC data source that 
collects information on a bank's total domestic deposits as defined in 
the Call Report, including deposits of: (1) Individuals, partnerships, 
and corporations; (2) U.S. Government; (3) States and political 
subdivisions in the United States;, (4) commercial banks and other 
depository institutions in the United States; (5) Banks in foreign 
countries; and (6) foreign governments and official institutions 
(including foreign central banks).\215\ Of these, the first and third 
components are the data points most relevant to CRA. Importantly, FDIC 
deposits reporting requirements allocate deposit accounts to specific 
bank branches, rather than by the address of the depositor.\216\
---------------------------------------------------------------------------

    \215\ See FFIEC, Schedule RC-E, Deposit Liabilities, p. 34, 
https://www.ffiec.gov/pdf/FFIEC_forms/FFIEC031_202006_f.pdf.
    \216\ See, e.g., FDIC, ``Summary of Deposits Reporting 
Instructions'' (June 30, 2020), https://www.fdic.gov/regulations/resources/call/sod/2020-06-sod-instructions.pdf. These instructions 
provide examples of common allocation methods and state, ``It is 
recognized that certain classes of deposits and deposits of certain 
types of customers may be assigned to a single office for reasons of 
convenience or efficiency. However, deposit allocations that diverge 
from the financial institution's internal record-keeping systems and 
grossly misstate or distort the deposit gathering activity of an 
office should not be utilized.'' Id. at 3.
---------------------------------------------------------------------------

    A requirement for some large banks to collect and report deposits 
data reflecting the location of those deposits would align evaluations 
more closely with the purpose of CRA by reporting the community where a 
bank takes deposits. This option would require careful consideration of 
and comment on the types of deposits that should be used for this 
purpose, as well as determining appropriate ways to report geographic 
location.
2. Deposits Data for Small Banks and Large Banks With One Assessment 
Area
    Under the Board's proposal, additional deposits data collection or 
reporting would not be required for small banks that opt-in to the 
metrics-based approach and for large banks with one assessment area. 
For small banks, only the Retail Lending Subtest would apply, and SOD 
data could be used for the retail lending screen, which would not 
require additional data. For large banks with one assessment area, SOD 
data could also be used for the retail lending screen and community 
development financing metric.
    Because SOD data requires banks to allocate deposit accounts to 
specific bank branches, rather than by the depositor location, using 
SOD data for

[[Page 66461]]

small and large banks with a single assessment area would be more 
precise than for banks with multiple assessment areas. For small banks 
with multiple assessment areas, the Board believes SOD data are also 
appropriate because this data would be used only for the retail lending 
screen and, potentially, when calculating ratings, and because it would 
minimize burden for small banks.
3. Options for Deposits Data for Large Banks With More Than One 
Assessment Area
    For large banks with more than one assessment area, the Board is 
considering whether these banks should also use SOD data for deposits 
or be required to collect and report deposits data that includes 
geographic information about the location of the bank's deposits. The 
Board is also considering whether large banks with more than one 
assessment area should be further differentiated between those that 
have deposits concentrated around their branches and those that have a 
substantial share of deposits that are more diffuse and not 
concentrated around branches. However, setting a standard to 
differentiate the location of deposits in this way could be 
challenging, given the limitations of existing deposits data.
    As noted above, large banks would need deposits data for the retail 
lending screen and community development financing metric. If SOD data 
is used, large banks would not be required to collect and report 
deposits data. However, there are several challenges with this 
approach. For large banks with multiple assessment areas, the practice 
of allocating deposit accounts to specific bank branches could lead to 
less accurate calculations of deposits in each of a bank's assessment 
areas. This lack of precision would likely be even greater for those 
large banks with business models and practices that generate 
significant deposits outside of their branch network. Another 
shortcoming in using SOD data for these banks is that it includes more 
information than needed for CRA purposes, such as deposits from foreign 
countries.
    This lack of precision in deposits data could misrepresent a bank's 
deposits drawn from a particular assessment area, as well as the 
performance of a bank's peers in that market. This lack of precision 
also could reduce the accuracy of the community development financing 
metric and increase an examiner's reliance on performance context 
information to interpret a large bank's performance.
    An alternative approach to using SOD deposits data would be 
requiring certain large banks to collect and report retail deposits 
data. The data could also be used in the future if deposits-based 
assessment areas were established. A concern, however, is that the 
process of implementing systems to compile the requisite data could be 
costly and burdensome, even for large banks. Stakeholders have noted 
that deposits data based on the address of a depositor would require a 
substantial one-time investment in systems and ongoing staff-related 
costs to identify customer records from multiple loan, deposit and 
investments platforms that need to be geocoded and allocated to the 
appropriate assessment areas.
    Request for Feedback:
    Question 90. Is it appropriate to rely on SOD data for all banks, a 
subset of large banks with multiple assessment areas based on business 
model or the share of deposits taking place outside of assessment 
areas, or only for small banks and large banks with one assessment 
area? What standards would be appropriate to set for business models or 
the appropriate share of deposits taking place outside of assessment 
areas, if such an approach is chosen?
    Question 91. Is the certainty of accurate community development 
financing measures using bank collected retail deposits data a 
worthwhile tradeoff for the burden associated with collecting and 
reporting this data for all large banks with two or more assessment 
areas?

C. Retail Lending Data Options for Small Banks Opting for the Metrics-
Based Approach

    Under the Board's proposed approach, small banks that opt in to the 
metrics-based approach would be evaluated under only the Retail Lending 
Subtest, not the Community Development Test or the Retail Services 
Subtest. Small bank lending is currently evaluated using a sample of 
data that is gathered from a bank's loan files, data pulled from its 
internal operating systems, or a combination of the two if a bank 
maintains some, but not all, information in its internal systems. Many 
small banks maintain information such as loan amount at origination, 
loan location, and borrower income or revenue in their internal 
operating systems, but some do not collect income or business revenue 
information. These data fields would be needed to calculate the retail 
lending distribution metrics.
    The Board is considering two options for gathering this 
information. Under the first option, the Board would use a sample of 
bank data drawn from each assessment area to generate the retail 
lending metrics for small bank evaluations. This approach could use 
information maintained by the bank in its internal operating systems 
and could supplement it with information pulled from loan files, 
similar to the process used today. A benefit to this approach is that 
it would not require any changes to a bank's data collection processes. 
A drawback to this approach is that it would not allow a small bank to 
obtain the certainty and clarity of knowing its performance in advance 
of an examination. The bank would not know which loans would be 
included in the sample used to evaluate performance and, therefore, 
could not use the metrics dashboard described in Section V with the 
same degree of confidence. In addition, as is the case today, bank 
staff would have to gather the information or files needed for 
examiners to review the loans sampled.
    As a second option, a bank could maintain information in a format 
consistent with its own internal operating systems, with income or 
revenue information required only to the extent it is used in the 
bank's underwriting process. A key benefit of this option is that it 
would provide a bank with certainty about the loans considered in the 
evaluation and, as a result, would allow it to track its performance 
using the dashboard to monitor its retail lending performance against 
the threshold for a presumption of ``satisfactory'' performance. A 
drawback to this option is that any small bank that uses, but does not 
capture, revenue or income information in the credit granting process, 
would need to update its systems and processes to capture this 
information.
    Request for Feedback:
    Question 92. Which approach for retail lending data collection 
would provide the best balance between data collection burden and the 
transparency and predictability of CRA examinations for small banks 
that opt in to the metrics-based approach--using a sample of bank data 
drawn from each assessment area to generate the retail lending metrics, 
or the use of information maintained by a bank in a format consistent 
with its own internal operating systems?
    Question 93. Are there other approaches to data collection that 
would benefit small banks and should be considered?

[[Page 66462]]

D. Collection and Reporting of Loan and Investment Data and Services 
Information for Large Banks

    The Board is considering how other data collection and reporting 
requirements would need to change to effectively implement a metrics-
based approach for large banks for the Retail Lending Subtest and the 
Community Development Financing Subtest. In addition, while the Retail 
Services Subtest and Community Development Services Subtest would 
remain primarily qualitative in nature, the Board seeks to improve the 
transparency of these evaluations by making more consistent information 
available to examiners.
1. Collection of Retail Lending Data
    Much of the retail lending data needed to examine a large bank 
under the proposed Retail Lending Subtest is currently collected and 
reported. However, additional data would be needed for the retail 
lending metrics for consumer loan data and home mortgage data for non-
HMDA reporters. The data necessary to analyze CRA performance for both 
home mortgage and consumer loans are loan amount at origination, loan 
location (state, county, census tract), and borrower income. The two 
options discussed above for gathering data for small banks (having 
examiners sample the bank's data or having banks collect the data in 
their own format) could also be used at large banks. A third option is 
to have large banks collect data in a format prescribed by the Board, 
as is done for small business or small farm loans under Regulation BB. 
The third option would not involve reporting consumer loans for large 
banks or home mortgage data for non-HMDA reporters that are also large 
banks.
    Request for Feedback:
    Question 94. What are the benefits and drawbacks of relying on 
examiners to sample home mortgage data for non-HMDA reporters and 
consumer loan data for all large banks, requiring banks to collect data 
in their own format, or requiring banks to collect data in a common 
Board prescribed format?
2. Collection and Reporting of Community Development Financing Data
    The lack of granular reporting of community development loan data 
or any community development investment data means that there is no 
aggregate community development data at a local level available to 
create the local benchmarks for the community development financing 
metric described in Section VII. In order to develop the community 
development financing metric and local benchmarks, large banks would 
need to report annually the number and dollar amount of community 
development loans originated and investments made, and the remaining 
number and dollar amount of community development loans and qualifying 
investments from prior years as reflected on the balance sheet at the 
end of the calendar year. As was noted earlier, large banks already 
report community development loans on an aggregated basis for the 
institution.
    The Board is considering the development of a Board-prescribed, 
machine-readable format to ensure a consistent and transparent process 
for collecting community development financing data. Information that 
could be collected for each community development loan or qualified 
investment includes the loan or investment amount (original or 
remaining on balance sheet), area(s) benefitted, community development 
purpose (e.g., affordable housing or economic development), and type of 
investments (e.g., equity investment or mortgage-backed security). A 
subset of that data (e.g., number and dollar amount of community 
development loans and qualified investments) would be reported at some 
aggregated level (e.g., county or MSA). The Board acknowledges that the 
collection and reporting of standardized community development loan and 
qualified investment data will likely necessitate up front changes to a 
bank's internal operating systems, including possibly the processes for 
booking community development loans and investments.
    Request for Feedback:
    Question 95. Are the community development financing data points 
proposed for collection and reporting appropriate? Should others be 
considered?
    Question 96. Is collecting community development data at the loan 
or investment level and reporting that data at the county level or MSA 
level an appropriate way to gather and make information available to 
the public?
    Question 97. Is the burden associated with data collection and 
reporting justified to gain consistency in evaluations and provide 
greater certainty for banks in how their community development 
financing activity will be evaluated?
3. Collection of Retail Services Information
    The Board is considering standardizing the types of data that banks 
would provide to examiners to make the assessment of the effectiveness 
and responsiveness of the bank's delivery systems, services, and 
products more consistent across large bank examinations. Relevant 
information would be provided in the CRA performance evaluation, 
thereby providing some transparency to the public.
    For the branch distribution analysis, the Board is considering 
whether it would be beneficial for banks to submit standardized branch 
data, including the number and location of branches, ATMs, hours of 
operation by branch location, and record of opening and closing of 
branch offices and ATMs (as of dates). A standardized (Board-provided) 
template for services would streamline the process for banks and 
examiners and produce a more consistent evaluation methodology. Given 
that branch data are currently required to be retained in the public 
files, this approach would not require new data collection.
    For non-branch delivery channels, a services template could include 
information on customer usage, number of transactions (rate of 
adoption), and cost to determine whether non-branch delivery channels 
are reaching LMI areas and individuals. For branch-related services, 
banks could include in the template a customized list of services 
offered that are responsive to LMI needs, including bilingual/
translation services in specific geographies, disability accommodation, 
free or low-cost government, payroll, or other check cashing services, 
and reasonably priced international remittance services.
    Request for Feedback:
    Question 98. Would collecting information in a Board-provided 
standardized template under the Retail Services Subtest be an effective 
way of gathering consistent information, or is there a better 
alternative?
4. Collection of Community Development Services Information
    In evaluating community development services, examiners currently 
consider the information a bank chooses to collect and provide to 
demonstrate the quantitative and qualitative aspects of its community 
development services. Banks generally provide information related to 
the lists included in the Interagency Questions and Answers, such as 
the number of community development service activities, bank staff 
hours dedicated,

[[Page 66463]]

the number of LMI participants, or the number of organizations 
served.\217\
---------------------------------------------------------------------------

    \217\ See Q&A Sec.  __.24(e)--2.
---------------------------------------------------------------------------

    The Board is considering a standardized (Board-provided) template 
with free form text fields. Banks would collect information on data 
points, such as the number and hours of community development services, 
the community development purpose, and the counties impacted by the 
activity. Further, a bank could provide information it deems relevant 
on the impact and responsiveness of its community development services 
activities. For example, a bank may choose to provide the number of 
clients in financial education classes who opened a bank account, or a 
description of how a banker's service on the board of directors of a 
local organization led to the creation of a new small business lending 
program. The number of bank employees in an assessment area is another 
quantitative field that could be collected as a reference point if 
metrics are used.
    Request for Feedback:
    Question 99. Possible data points for community development 
services may include the number and hours of community development 
services, the community development purpose, and the counties impacted 
by the activity. Are there other data points that should be included? 
Would a Board-provided template improve the consistency of the data 
collection or are there other options for data collection that should 
be considered?

    By order of the Board of Governors of the Federal Reserve 
System, September 22, 2020.
Ann E. Misback,
Secretary of the Board.
[FR Doc. 2020-21227 Filed 10-16-20; 8:45 am]
BILLING CODE P