[Federal Register Volume 89, Number 22 (Thursday, February 1, 2024)]
[Rules and Regulations]
[Pages 6574-7222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25797]



[[Page 6573]]

Vol. 89

Thursday,

No. 22

February 1, 2024

Part II





Department of the Treasury





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Office of the Comptroller of the Currency





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Federal Reserve System





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Federal Deposit Insurance Corporation





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12 CFR Parts 25, 228, and 345





Community Reinvestment Act; Final Rule

  Federal Register / Vol. 89, No. 22 / Thursday, February 1, 2024 / 
Rules and Regulations  

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 25

[Docket ID OCC-2022-0002]
RIN 1557-AF15

FEDERAL RESERVE SYSTEM

12 CFR Part 228

[Regulation BB; Docket No. R-1769]
RIN 7100-AG29

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 345

RIN 3064-AF81


Community Reinvestment Act

AGENCY: Office of the Comptroller of the Currency, Treasury; Board of 
Governors of the Federal Reserve System; and Federal Deposit Insurance 
Corporation.

ACTION: Final rule.

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SUMMARY: The Office of the Comptroller of the Currency (OCC), Board of 
Governors of the Federal Reserve System (Board), and the Federal 
Deposit Insurance Corporation (FDIC) are adopting final amendments to 
their regulations implementing the Community Reinvestment Act of 1977 
(CRA) to update how CRA activities qualify for consideration, where CRA 
activities are considered, and how CRA activities are evaluated.

DATES: 
    Effective date: This rule is effective on April 1, 2024, except for 
amendment nos. 29, 52, and 75, which are effective April 1, 2024, 
through January 1, 2031, and amendment nos. 7, 11, 18, 20, 25, 35, 39, 
43, 45, 49, 58, 62, 66, 68, and 72, which are delayed indefinitely. The 
agencies will publish a document in the Federal Register announcing an 
effective date for the delayed amendments.
    Applicability date: Sections __.12 through __.15, __.17 through 
__.30, and __.42(a); the data collection and maintenance requirements 
in Sec.  __.42(c) through (f); and appendices A through F of the common 
rule text as adopted by the OCC, Board, and FDIC are applicable on 
January 1, 2026. Section __.42(b) and (g) through (i) and the reporting 
requirements in Sec.  __.42(c) through (f) of the common rule text as 
adopted by the OCC, Board, and FDIC are applicable on January 1, 2027.

FOR FURTHER INFORMATION CONTACT: 
    OCC: Heidi M. Thomas, Senior Counsel, or Emily Boyes, Counsel, 
Chief Counsel's Office, (202) 649-5490; or Vonda Eanes, Director for 
CRA and Fair Lending Policy, or Cassandra Remmenga, CRA Modernization 
Program Manager, Bank Supervision Policy, (202) 649-5470, Office of the 
Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. 
If you are deaf, hard of hearing, or have a speech disability, please 
dial 7-1-1 to access telecommunications relay services.
    Board: Taz George, Senior Supervisory Policy Analyst; Dorian 
Hawkins, Counsel; S. Caroline (Carrie) Johnson, Manager; Matthew 
Lambert, Senior Supervisory Analyst; Eric Lum, Senior Supervisory 
Analyst; Cayla Matsumoto, Supervisory Policy Analyst; or Lisa Robinson, 
Lead Supervisory Policy Analyst; Lorna Neill, Senior Counsel; Amal 
Patel, Senior Counsel; or Jaydee DiGiovanni, Counsel; Division of 
Consumer and Community Affairs or David Alexander, Special Counsel; 
Cody Gaffney, Senior Attorney; or Gavin Smith, Senior Counsel; Legal 
Division, Board of Governors of the Federal Reserve System at (202) 
452-2412 or. For users of TDD-TYY, (202) 263-4869 or dial 711 from any 
telephone anywhere in the United States.
    FDIC: Pamela A. Freeman, Senior Examination Specialist, Compliance 
and CRA Examinations Branch, Division of Depositor and Consumer 
Protection, (202) 898-3656; Patience R. Singleton, Senior Policy 
Analyst, Supervisory Policy Branch, Division of Depositor and Consumer 
Protection, (202) 898-6859; Sherry Ann Betancourt, Counsel, Legal 
Division, (202) 898- 6560; Alys V. Brown, Senior Attorney, Legal 
Division, (202) 898-3565, Federal Deposit Insurance Corporation, 550 
17th Street NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Summary of the Final Rule
II. Background
III. General Comments Received
IV. Section-by-Section Analysis
    Section __.11 Authority, Purposes, and Scope
    Section __.12 Definitions
    Section __.13 Consideration of Community Development Loans, 
Community Development Investments, and Community Development 
Services
    Section __.14 Community Development Illustrative List; 
Confirmation of Eligibility
    Section __.15 Impact and Responsiveness Review of Community 
Development Loans, Community Development Investments, and Community 
Development Services
    Section __.16 Facility-Based Assessment Areas
    Section __.17 Retail Lending Assessment Areas
    Section __.18 Outside Retail Lending Areas
    Section __.19 Areas for Eligible Community Development Loans, 
Community Development Investments, and Community Development 
Services
    Section __.21 Evaluation of CRA Performance in General
    Section __.22 Retail Lending Test
    Section __.23 Retail Services and Products Test
    Section __.24 Community Development Financing Test
    Section __.25 Community Development Services Test
    Section __.26 Limited Purpose Banks
    Section __.27 Strategic Plan
    Section __.28 Assigned Conclusions and Ratings
    Section __.29 Small Bank Performance Evaluation
    Section __.30 Intermediate Bank Performance Evaluation
    Section __.31 Effect of CRA Performance on Applications
    Section __.42 Data Collection, Reporting, and Disclosure
    Section __.43 Content and Availability of Public File
    Section __.44 Public Notice by Banks
    Section __.45 Publication of Planned Examination Schedule
    Section __.46 Public Engagement
    Section __.51 Applicability Dates and Transition Provisions
V. Regulatory Analysis

I. Summary of the Final Rule

    The CRA \1\ is a seminal piece of legislation that requires the 
OCC, the Board, and the FDIC (together referred to as the agencies, and 
each, individually, the agency) to assess a bank's \2\ record of 
meeting the credit needs of its entire community, including low- and 
moderate-income neighborhoods, consistent with the bank's safe and 
sound operation. Upon completing this examination, the statute requires 
the agencies to ``prepare a written evaluation of the institution's 
record of meeting the credit needs of its entire community, including 
low- and moderate-income neighborhoods.'' \3\ The statute further 
provides that each agency must consider a bank's CRA performance ``in 
its evaluation of an application for a deposit facility by such 
institution.'' \4\ The agencies implement

[[Page 6575]]

the CRA and establish the framework and criteria by which the agencies 
assess a bank's performance through their individual CRA regulations, 
which are supplemented by supervisory guidance.\5\ Under the CRA 
regulations, the agencies apply different evaluation standards for 
banks of different asset sizes and types.
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    \1\ 12 U.S.C. 2901 et seq.
    \2\ For purposes of this SUPPLEMENTARY INFORMATION, the term 
``bank'' includes insured national and State banks, Federal and 
State savings associations, Federal branches as defined in 12 CFR 
part 28, insured State branches as defined in 12 CFR 345.11(c), and 
State member banks as defined in 12 CFR part 208, except as provided 
in 12 CFR __.11(c).
    \3\ 12 U.S.C. 2906(a).
    \4\ 12 U.S.C. 2903(a)(2).
    \5\ See 12 CFR parts 25 (OCC), 228 (Regulation BB) (Board), and 
345 (FDIC). For clarity and to streamline references, citations to 
the agencies' existing common CRA regulations are provided in the 
following format: current 12 CFR __.xx. For example, references to 
12 CFR 25.12 (OCC), 228.12 (Board), and 345.12 (FDIC) would be 
streamlined as follows: ``current 12 CFR __.12.'' Likewise, 
references to the agencies' proposed and final common CRA 
regulations are provided in the following formats, respectively: 
``proposed Sec.  __.xx'' and ``final Sec.  __.xx.''
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    The agencies issued a notice of proposed rulemaking published in 
the Federal Register on June 3, 2022 (NPR, proposal, or the proposed 
rule),\6\ seeking comment on updates to their respective CRA 
regulations to achieve the following objectives:
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    \6\ 87 FR 33884 (June 3, 2022).
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     Strengthen the achievement of the core purpose of the 
statute;
     Adapt to changes in the banking industry, including the 
expanded role of mobile and online banking;
     Provide greater clarity and consistency in the application 
of the regulations;
     Tailor performance standards to account for differences in 
bank size and business models and local conditions;
     Tailor data collection and reporting requirements and use 
existing data whenever possible;
     Promote transparency and public engagement;
     Confirm that CRA and fair lending responsibilities are 
mutually reinforcing; and
     Promote a consistent regulatory approach that applies to 
banks regulated by all three agencies.\7\
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    \7\ The agencies have revised this objective for the final rule, 
to recognize that the agencies currently have common regulations.
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    The agencies believe that each objective is met through the 
promulgation of this final rule. Additional discussion of, and 
commenter feedback received regarding, the agencies' objectives can be 
found in section III.B of this SUPPLEMENTARY INFORMATION.
    This section provides a summary of the final rule and highlights 
certain key elements and changes as compared to the proposal. For a 
more detailed discussion, including the agencies' considerations of the 
comments received, see sections III and IV of this SUPPLEMENTARY 
INFORMATION.

Bank Asset Size Categories and Limited Purpose Banks

    The final rule implements a revised regulatory framework for the 
CRA that, like the current framework, is based on bank asset size and 
business model. This tailoring of the framework recognizes the capacity 
and resource differences among banks. Under the final rule, banks are 
classified as either a large bank, an intermediate bank, a small bank, 
or a limited purpose bank. Pursuant to the final rule: large banks are 
those with assets of at least $2 billion as of December 31 in both of 
the prior two calendar years; intermediate banks are those with assets 
of at least $600 million as of December 31 in both of the prior two 
calendar years and less than $2 billion as of December 31 in either of 
the prior two calendar years; and small banks are those with assets of 
less than $600 million as of December 31 in either of the prior two 
calendar years. These asset-size thresholds will be adjusted annually 
for inflation.
    The final rule revises the definition of limited purpose bank to 
include both those banks currently considered ``limited purpose banks'' 
and those currently considered ``wholesale banks,'' as those terms are 
defined under the current regulation and were defined under the 
proposal. Specifically, the final rule defines a limited purpose bank 
as a bank that is not in the business of extending certain loans, 
except on an incidental and accommodation basis, and for which a 
designation as a limited purpose bank is in effect. The final rule 
therefore does not reference ``wholesale banks'' because a separate 
definition is no longer necessary. The agencies have also clarified 
that limited purpose banks are not evaluated as small, intermediate, or 
large banks.

Evaluation Framework

    Overview. The final rule's performance evaluation framework 
utilizes performance tests to evaluate a bank's performance in meeting 
the credit needs of its entire community. In finalizing this evaluation 
framework, the agencies seek to meet the objectives described above, 
including: strengthening the achievement of the core purpose of the 
statute; tailoring to account for differences in bank size, business 
model, and local conditions; and adapting to changes in the banking 
industry, including the rise of mobile and online banking. Depending on 
a bank's asset size or limited purpose bank designation, the agencies 
will evaluate banks under one or a combination of the following seven 
performance tests: the Retail Lending Test; the Retail Services and 
Products Test; the Community Development Financing Test; the Community 
Development Services Test; the Intermediate Bank Community Development 
Test; the Small Bank Lending Test; and the Community Development 
Financing Test for Limited Purpose Banks. The agencies have also 
retained the strategic plan option, with revisions, as an alternative 
method for evaluation under the CRA.
    The agencies will evaluate large banks under four performance 
tests: the Retail Lending Test, the Retail Services and Products Test, 
the Community Development Financing Test, and the Community Development 
Services Test. The agencies will evaluate intermediate banks under the 
Retail Lending Test and either the current community development test, 
referred to in the final rule as the Intermediate Bank Community 
Development Test, or, at the bank's option, the Community Development 
Financing Test. The agencies will evaluate small banks under either the 
current small bank test, referred to in the final rule as the Small 
Bank Lending Test or, at the bank's option, the Retail Lending Test. 
Finally, the agencies will evaluate limited purpose banks, under the 
Community Development Financing Test for Limited Purpose Banks.
    The final rule also provides that relevant activities of a bank's 
operations subsidiaries or operating subsidiaries are included in a 
bank's performance evaluation. Relevant activities of other affiliates 
would be considered at a bank's option.
    For each applicable performance test, the agencies will assign 
conclusions reflecting the bank's performance in its facility-based 
assessment areas, and in the case of the Retail Lending Test, certain 
other geographic areas. In most instances, including for small banks 
that opt to be evaluated under the Retail Lending Test, the agencies 
will assign one of five conclusions to the bank: ``Outstanding''; 
``High Satisfactory''; ``Low Satisfactory''; ``Needs to Improve''; or 
``Substantial Noncompliance.'' For small banks evaluated under the 
Small Bank Lending Test, the agencies will assign one of four 
conclusions: ``Outstanding''; ``Satisfactory''; ``Needs to Improve''; 
or ``Substantial Noncompliance.''
    The conclusions assigned in connection with each of the applicable 
performance tests are combined to develop a bank's CRA ratings. The 
agencies may assign a bank one of the four ratings, as indicated in the 
statute: ``Outstanding''; ``Satisfactory''; ``Needs

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to Improve''; or ``Substantial Noncompliance.''
    For banks that are evaluated under more than one performance test, 
specific weights are applied to each performance test conclusion, with 
weighting varying by bank asset size. For large banks: the Retail 
Lending Test is weighted at 40 percent; the Retail Services and 
Products Test is weighted at 10 percent; the Community Development 
Financing Test is weighted at 40 percent; and the Community Development 
Services Test is weighted at 10 percent. Relative to the proposal, this 
large bank weighting reflects a decrease in the percentages assigned to 
the Retail Lending Test and the Retail Services and Products Test and a 
resulting increase in the percentage assigned to the Community 
Development Financing Test. For intermediate banks, each applicable 
performance test is weighted at 50 percent.
    As noted above, banks of all sizes will maintain the option to 
elect to be evaluated under an approved strategic plan. Among other 
revisions, the final rule updates the standards for obtaining approval 
for such plans. The final rule clarifies the proposal to explain the 
circumstances in which banks must include the performance tests that 
would apply in the absence of a strategic plan, the modifications and 
additions that banks may make to those tests, and the justifications 
that banks must provide for their draft plans.
    Retail Lending Test. The Retail Lending Test evaluates a bank's 
record of helping to meet the credit needs of its entire community 
through the bank's origination and purchase of home mortgage loans, 
multifamily loans, small business loans, and small farm loans, as well 
as through automobile lending if the bank is a majority automobile 
lender. Specifically, the Retail Lending Test includes an evaluation of 
how banks are serving low- and moderate-income individuals, small 
businesses, small farms, and low- and moderate-income census tracts in 
the bank's facility-based assessment areas and, as applicable, retail 
lending assessment areas and outside retail lending areas. As noted 
above, under the final rule, intermediate and large banks are required 
to be evaluated under the Retail Lending Test, and small banks may opt 
to be evaluated under this performance test.
    The Retail Lending Test includes two sets of metrics, as well as 
additional factors that are used to complement the use of metrics. 
First, the Retail Lending Volume Screen measures the volume of a bank's 
retail lending relative to its deposit base in a facility-based 
assessment area and compares that ratio to a Retail Lending Volume 
Threshold based on the aggregate ratio for all reporting banks with at 
least one branch in the same facility-based assessment area.
    Second, the agencies evaluate the geographic distribution and 
borrower distribution of a bank's major product lines in its Retail 
Lending Test Areas (facility-based assessment areas, retail lending 
assessment areas, and outside retail lending area) using a series of 
metrics and benchmarks. For example, for a bank's closed-end home 
mortgage lending in a Retail Lending Test Area, the geographic 
distribution analysis evaluates the bank's percentage of lending (1) in 
low-income census tracts and (2) in moderate-income census tracts, 
while the borrower distribution analysis evaluates the bank's 
percentage of lending (3) to low-income borrowers and (4) to moderate-
income borrowers. Under the final rule, the agencies evaluate the 
distribution of a large bank's major product lines in its facility-
based assessment areas, any retail lending assessment areas the bank is 
required to delineate, and its outside retail lending area. For 
intermediate banks, and small banks that opt to be evaluated under the 
Retail Lending Test, the agencies evaluate the distribution of the 
bank's major product lines in its facility-based assessment areas and 
any outside retail lending area, if applicable. Regardless of the 
geographic area in which a bank is evaluated, for most major product 
lines, a bank's performance relative to the retail lending distribution 
benchmarks is translated into a recommended conclusion using 
performance ranges that establish the level of performance needed to 
achieve a particular conclusion, such as ``High Satisfactory.''
    In addition, in the final rule the agencies consider a list of 
additional factors that are intended to account for circumstances in 
which the retail lending distribution metrics and benchmarks may not 
accurately or fully reflect a bank's retail lending performance, or in 
which the benchmarks may not appropriately represent the credit needs 
and opportunities in an area.
    In response to commenter feedback, the agencies sought ways to 
ensure that the final rule's Retail Lending Test appropriately balances 
the agencies' objectives. For example, the agencies adjusted some of 
the multipliers utilized as part of the Retail Lending Test to make 
``Outstanding'' and ``High Satisfactory'' Retail Lending Test 
supporting conclusions more attainable relative to the proposal, while 
maintaining an appropriate degree of rigor. Moreover, as compared to 
the proposal, the final rule reduces the number of product lines 
potentially evaluated under the Retail Lending Test from six to three 
(closed-end home mortgage loans, small business loans, and small farm 
loans) for most banks. In addition, the agencies will only evaluate a 
bank's automobile loans if automobile loans represent a majority of the 
bank's retail lending, or if the bank opts to have its automobile loans 
evaluated under the Retail Lending Test.
    Retail Services and Products Test. The Retail Services and Products 
Test utilizes a tailored approach to evaluate the availability of a 
bank's retail banking services and retail banking products and the 
responsiveness of those services and products to the credit needs of 
the bank's entire community, including low- and moderate-income 
individuals, low- and moderate-income census tracts, small businesses, 
and small farms. Under the final rule, this performance test maintains 
the overall approach set out in the NPR, with certain modifications, 
and incorporates benchmarks to evaluate the availability of a bank's 
branch and remote service facilities. In addition, the agencies will 
evaluate the digital and other delivery systems of some banks.
    Evaluation of the retail banking services of a large bank with 
assets greater than $10 billion includes a review of the bank's branch 
availability and services, remote service facilities (including 
automated teller machines (ATMs)), and digital delivery systems and 
other delivery systems. The agencies will also consider the digital 
delivery systems and other delivery systems of large banks with assets 
less than or equal to $10 billion if the bank does not operate any 
branches or, for banks that operate at least one branch, at the bank's 
option.
    Evaluation of a bank's retail banking products includes a review of 
the responsiveness of the bank's credit products and programs, and 
availability and usage of responsive deposit products. Both deposit 
products and credit products and programs are evaluated at the 
institution level and, in a change from the proposal, are given only 
positive consideration and may not negatively impact a bank's Retail 
Services and Products Test conclusion. This aspect of the performance 
test is designed to evaluate a bank's efforts to provide products that 
are responsive to the needs of low- and moderate-income communities. 
The agencies will not evaluate the availability and usage of responsive 
deposit products in connection with large banks with assets

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less than or equal to $10 billion, unless the bank opts in.
    Community Development Financing Test. The Community Development 
Financing Test evaluates how well large banks and intermediate banks 
that opt into the performance test meet the community development 
financing needs in each facility-based assessment area, each State or 
multistate metropolitan statistical area (MSA), as applicable, and for 
the institution. The test is not assessed in retail lending assessment 
areas.
    The Community Development Financing Test includes the following 
elements: (1) a community development financing metric used to evaluate 
the dollar volume of a bank's community development loans and 
investments relative to the bank's deposit base; (2) standardized 
benchmarks to aid in evaluating performance; and (3) an impact and 
responsiveness review to ensure consideration of community development 
loans and investments that are particularly impactful or responsive. 
The final rule also includes a metric for banks with assets greater 
than $10 billion to measure the bank's community development 
investments relative to deposits. This metric is intended to ensure a 
focus on certain bank community development investments (including 
Federal Low-Income Housing Tax Credit (LIHTC) and New Market Tax Credit 
(NMTC) investments). This metric is applied at the institution level 
and may only contribute positively to a bank's Community Development 
Financing Test conclusion.
    Community Development Services Test. The Community Development 
Services Test considers the importance of community development 
services in fostering partnerships among different stakeholders, 
building capacity, and creating conditions for effective community 
development, including in rural areas. The agencies will evaluate large 
banks under this performance test in facility-based assessment areas, 
in States, multistate MSAs, and nationwide.
    Under the final rule, the evaluation includes a qualitative review 
of relevant community development services data, and an impact and 
responsiveness review to assess services that are particularly 
responsive to community needs. After considering commenter feedback, 
the performance test does not require a metric of community development 
service hours per full-time employee for banks with assets greater than 
$10 billion. Moreover, the final rule maintains the existing 
requirement that volunteer services considered under this performance 
test must be related to the provision of financial services or the 
expertise of bank staff and must have a community development purpose. 
The performance test will provide consideration for activities that 
promote financial literacy for low- or moderate-income individuals, 
households, and families, even if the activities benefit individuals, 
households, and families of other income levels as well.

Geographic Areas in Which a Bank's Activities Are Considered

    Facility-based assessment areas. As under the current CRA 
regulations, the final rule maintains facility-based assessment areas 
as the cornerstone of the CRA evaluation framework. The final rule 
adopts the delineation requirements for facility-based assessment areas 
mostly as set out in the proposal with clarifying changes. 
Specifically, banks will continue to delineate facility-based 
assessment areas in the MSAs or nonmetropolitan areas of States in 
which the following facilities are located: main offices, branches, and 
deposit-taking remote service facilities. As under the proposal, large 
banks are required to delineate facility-based assessment areas 
composed of whole counties, while intermediate and small banks will 
continue to be permitted to delineate facility-based assessment areas 
consisting of partial counties. The final rule continues to provide 
that facility-based assessment areas may not reflect illegal 
discrimination and may not arbitrarily exclude low- or moderate-income 
census tracts.
    Retail lending assessment areas. The final rule requires a large 
bank to delineate a new type of assessment area, referred to as retail 
lending assessment areas, in an MSA or the nonmetropolitan area of a 
State in which the large bank has a concentration of closed-end home 
mortgage or small business lending outside of its facility-based 
assessment area(s). Large banks are evaluated under the Retail Lending 
Test, but not the other performance tests, in retail lending assessment 
areas. Relative to the proposal, the final rule tailors the retail 
lending assessment area requirement by exempting large banks that 
conduct more than 80 percent of their retail lending within facility-
based assessment areas.
    Upon consideration of commenter feedback regarding the retail 
lending assessment area proposal, the final rule increases, relative to 
the proposal, the loan count thresholds that trigger the retail lending 
assessment area delineation requirement to at least 150 closed-end home 
mortgage loans or at least 400 small business loans in each year of the 
prior two calendar years. The final rule also simplifies the evaluation 
of a large bank's retail lending performance by reducing the number of 
product lines potentially evaluated in a retail lending assessment area 
from six to two product lines, and only evaluating a product line if 
the bank exceeds the relevant loan count threshold.
    Outside retail lending areas. Under the final rule, the agencies 
will evaluate the retail lending performance of all large banks, 
certain intermediate banks, and certain small banks that opt to be 
evaluated under the Retail Lending Test in the outside retail lending 
area, which consists of the nationwide area outside of the bank's 
facility-based assessment areas and applicable retail lending 
assessment areas, excluding certain nonmetropolitan counties. 
Evaluation in these areas is designed to facilitate a comprehensive 
evaluation of a bank's retail lending to low- and moderate-income 
individuals and communities under the Retail Lending Test, and to adapt 
to changes in the banking industry, such as mobile and online banking. 
For an intermediate bank or a small bank that opts to be evaluated 
under the Retail Lending Test, the agencies evaluate the bank's retail 
lending performance in the outside retail lending area on a mandatory 
basis if the bank conducts a majority of its retail lending outside of 
its facility-based assessment areas. If the intermediate or small bank 
does not conduct a majority of its retail lending outside of its 
facility-based assessment areas, the bank may opt to have its retail 
lending in its outside retail lending area evaluated.
    Areas for eligible community development activities. Like the 
proposal, the final rule provides that all banks will receive 
consideration for any qualified community development loans, 
investments, or services, regardless of location. In assessing a large 
bank's Community Development Financing Test performance, the final rule 
includes a focus on performance within facility-based assessment areas. 
Specifically, when developing conclusions for a State, multistate MSA, 
or for the institution overall, the final rule combines two components 
through a weighted average calculation: (1) performance within the 
bank's facility-based assessment areas in the State, multistate MSA, or 
for the institution overall; and (2) performance across the entire 
State, multistate MSA, and for the institution. The weights of the two

[[Page 6578]]

components are based on the percentage of a bank's retail lending and 
deposits inside its facility-based assessment areas. For example, for a 
bank with a relatively low percentage of retail lending and deposits 
inside its facility-based assessment areas, the bank's performance 
within its facility-based assessment areas receives less weight than 
its performance across the entire State, multistate MSA, or nationwide 
area. In this way, the Community Development Financing Test recognizes 
differences in bank business models.

Categories of Community Development

    Updated community development definition. Under the current CRA 
regulations, in evaluating a bank's CRA performance, banks may receive 
community development consideration for community development loans, 
investments, and services under various tests. The final rule updates 
the definition of community development to provide banks with 
additional clarity regarding the loans, investments, and services that 
the agencies have determined support community development. The 
agencies believe these activities are responsive to the needs of low- 
and moderate-income individuals and communities, designated distressed 
or underserved nonmetropolitan areas, Native Land Areas,\8\ small 
businesses, and small farms. Specifically, the agencies have defined 
the following eleven community development categories in the final 
rule:
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    \8\ The final rule defines ``Native Land Areas'' in final Sec.  
__.12.
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     Affordable housing, which has five components: (1) rental 
housing in conjunction with a government affordable housing plan, 
program, initiative, tax credit, or subsidy; (2) multifamily rental 
housing with affordable rents; (3) one-to-four family rental housing 
with affordable rents in a nonmetropolitan area; (4) affordable owner-
occupied housing for low- or moderate-income individuals; and (5) 
mortgage-backed securities.
     Economic development, which includes loans, investments, 
and services undertaken in conjunction or in syndication with 
government programs; loans, investments, and services provided to 
intermediaries; and other forms of assistance to small businesses and 
small farms. Unlike the proposal, this category includes direct loans 
to small businesses and small farms in conjunction or in syndication 
with government programs that meet a size and purpose test.
     Community supportive services, which includes activities 
that assist, benefit, or contribute to the health, stability, or well-
being of low- or moderate-income individuals, and replaces the current 
rule's ``community services targeted to low- or moderate-income 
individuals'' category.
     Six categories of place-based activities, which replace 
the revitalization and stabilization activities component of the 
current rule. Each of the final place-based categories adopts a focus 
on targeted geographic areas and includes common place-based 
eligibility criteria that must be met. The six place-based categories 
are:
    [cir] Revitalization or stabilization activities;
    [cir] Essential community facilities;
    [cir] Essential community infrastructure;
    [cir] Recovery activities that promote the recovery of a designated 
disaster area;
    [cir] Disaster preparedness and weather resiliency activities; and
    [cir] Qualifying activities in Native Land Areas.
     Activities with minority depository institutions (MDIs), 
women's depository institutions (WDIs), low-income credit unions 
(LICUs), and community development financial institutions (CDFIs).
     Financial literacy, which retains the proposed approach of 
qualifying activities assisting individuals, families, and households 
of all income levels, including low- or moderate-income individuals, 
families, and households.
    Illustrative list and confirmation process. To promote clarity and 
consistency, the final rule also provides that the agencies will issue, 
maintain, and periodically update a publicly available illustrative 
list of non-exhaustive examples of loans, investments, and services 
that qualify for community development consideration. In addition, the 
final rule includes a process through which banks can confirm with the 
appropriate Federal financial supervisory agency whether a particular 
loan, investment, or service is eligible for community development 
consideration.\9\
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    \9\ The CRA defines ``appropriate Federal financial supervisory 
agency'' as (1) the Comptroller of the Currency with respect to 
national banks and Federal savings associations (the deposits of 
which are insured by the Federal Deposit Insurance Corporation); (2) 
the Board of Governors of the Federal Reserve System with respect to 
State chartered banks which are members of the Federal Reserve 
System, bank holding companies, and savings and loan holding 
companies; (3) the Federal Deposit Insurance Corporation with 
respect to State chartered banks and savings banks which are not 
members of the Federal Reserve System and the deposits of which are 
insured by the Corporation, and State savings associations (the 
deposits of which are insured by the Federal Deposit Insurance 
Corporation). 12 U.S.C. 2902(1).
---------------------------------------------------------------------------

    Impact and responsiveness review. To promote clarity and 
consistency in the final rule, the agencies will evaluate the extent to 
which a bank's community development loans, investments, and services 
are impactful and responsive in meeting community development needs, 
through the application of a non-exhaustive list of review factors. 
Such factors were referred to as impact review factors in the agencies' 
proposal but are referred to as impact and responsiveness factors in 
the final rule.

Data Collection, Maintenance, and Reporting

    Consistent with the proposal, the agencies are not imposing any new 
data collection and reporting requirements for small and intermediate 
banks. For large banks, the final rule leverages existing data where 
possible and introduces updated data collection, maintenance, and 
reporting requirements to fill gaps in the current regulation and 
facilitate implementation of the final rule. For example, the final 
rule requires certain large banks to collect, maintain, and report data 
that would enable the agencies both to implement the metrics and 
benchmarks included in the Retail Lending Test and Community 
Development Financing Test, and to evaluate activities under the Retail 
Services and Products Test. These data requirements are intended to 
support greater clarity and consistency in the application of the CRA 
regulations and are tailored by bank size, such as by introducing 
certain data requirements only for those large banks with assets over 
$10 billion dollars.
    The final rule requires the agencies to publish on their respective 
websites certain information related to the distribution by borrower 
income level, race, and ethnicity of a large bank's home mortgage loan 
originations and applications in each of the bank's assessment areas. 
This disclosure would leverage existing data available under the Home 
Mortgage Disclosure Act (HMDA).\10\
---------------------------------------------------------------------------

    \10\ 12 U.S.C. 2801 et seq.
---------------------------------------------------------------------------

Transition

    Although the effective date of the final rule is April 1, 2024, the 
applicability date for the majority of the provisions is January 1, 
2026. Specifically, the following provisions of the final rule will 
become applicable on January 1, 2026: final Sec. Sec.  __.12 through 
__.15; final Sec. Sec.  __.17 through __.30; final Sec.  __.42(a); the 
data collection and maintenance requirements in final Sec.  __.42(c) 
through (f); and appendices A through

[[Page 6579]]

F. Banks will have until January 1, 2027, to comply with the reporting 
requirements of Sec.  __.42(b) through (f), with data reporting 
requirements every April 1 beginning in 2027. In final Sec.  __.51, the 
agencies have also included transition provisions relating to: 
applicability of the current CRA regulations; HMDA data disclosures; 
CRA consideration of eligible loans, investments, services, or 
products; strategic plans; and a particular ratings standard relating 
to minimum performance requirements applicable to large banks. Until 
the applicability dates for these provisions, banks will follow the 
current CRA regulations, included as appendix G to the revised CRA 
regulations.

Transition to Section 1071 Data

    As discussed in the section-by-section analysis of Sec. Sec.  
__.12, __.22, and __.42, the agencies have included amendments to 
transition to the use of Consumer Financial Protection Bureau's (CFPB) 
final rule under section 1071 of the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act) \11\ (Section 1071 Final Rule) 
\12\ small business and small farm lending data (section 1071 data) 
once the data are available. The section 1071 data would replace CRA 
small business and small farm lending data required to be collected, 
maintained, and reported pursuant to final Sec.  __.42(a)(1) and 
(b)(1).
---------------------------------------------------------------------------

    \11\ Public Law 111-203, 124 Stat. 1376 (2010).
    \12\ 88 FR 35150 (May 31, 2023); see also 12 CFR part 1002.
---------------------------------------------------------------------------

    With respect to the agencies' transition to using section 1071 
data, as indicated in the section-by-section analysis of Sec.  __.12, 
the agencies have removed proposed references to section 1071 data in 
the final rule's regulatory text. Instead, each agency is adopting 
separate agency-specific amendatory text that provides for a transition 
to section 1071 data. These transition amendments implement the intent 
of the agencies articulated in the proposal to leverage section 1071 
data while accounting for the current uncertainty surrounding the 
availability of that data. Specifically, when effective, these 
transition amendments will add appropriate references to the section 
1071 rulemaking, remove references to Call Report-based small business 
and small farm data, and make other corresponding changes to the final 
rule regulatory text.
    The agencies are not including an effective date for these section 
1071-related transition amendments in the final rule. Instead, once the 
availability of section 1071 data is clarified, the agencies will take 
steps to provide appropriate notice in the Federal Register of the 
effective date of the transition amendments. The agencies expect that 
the effective date will be on January 1 of the relevant year to align 
with the final rule's data collection and reporting, benchmark 
calculations, and performance analysis, which all are based on whole 
calendar years.

Implementation

    The agencies expect to issue supervisory guidance, including 
examination procedures, to promote clarity and transparency regarding 
implementation of the final rule. In addition, the agencies will 
conduct outreach and training to facilitate implementation of the final 
rule. For instance, the agencies expect to develop data reporting 
guides and technical assistance materials to assist banks in 
understanding supervisory expectations with respect to the final rule's 
data reporting requirements. In addition, the agencies expect to 
develop templates, such as for the submission of digital and other 
delivery systems data as well as for responsive deposit products data, 
to increase consistency, and will continue to explore other tools to 
improve efficiency and reduce burden. The agencies are also planning to 
develop data tools for banks and the public that will increase 
familiarity with the operation of the performance tests and allow for 
monitoring of performance relative to benchmarks based on historical 
data.
    Each of the topics highlighted through this Summary of the Final 
Rule are discussed in greater detail in the section-by-section analysis 
in section IV of this SUPPLEMENTARY INFORMATION. The agencies are 
setting forth in this SUPPLEMENTARY INFORMATION the final rule using 
common regulation text for ease of review. The agencies have also 
included agency-specific amendatory text \13\ where necessary to 
account for differing agency authority and terminology.\14\
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    \13\ The OCC notes that current 12 CFR part 25 includes subpart 
E, Prohibition Against Use of Interstate Branches Primarily for 
Deposit Production. This subpart implements section 109 of the 
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, 
12 U.S.C. 1835a, which only applies to certain national banks and 
Federal branches of a foreign bank. As proposed, this final rule 
redesignates this subpart as subpart F but does not amend it.
    \14\ In addition to the changes described in this SUPPLEMENTARY 
INFORMATION, the agencies have made conforming and technical changes 
throughout the final rule. The agencies will evaluate at a later 
date other rules that cross-reference to the CRA regulations to 
identify conforming changes that may be appropriate.
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II. Background

A. General Statutory Background

    The CRA was passed by Congress as part of the Housing and Community 
Development Act of 1977 \15\ and is designed to encourage regulated 
banks to help meet the credit needs of the communities in which they 
are chartered. Specifically, Congress found that (1) regulated 
financial institutions 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) regulated financial institutions have a 
continuing and affirmative obligation to help meet the credit needs of 
the local communities in which they are chartered.\16\
---------------------------------------------------------------------------

    \15\ Public Law 95-128, 91 Stat. 1111 (Oct. 12, 1977).
    \16\ 12 U.S.C. 2901(a).
---------------------------------------------------------------------------

    The CRA requires the agencies to ``assess the institution'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.'' \17\ Upon completing this assessment, 
the statute requires the agencies to ``prepare a written evaluation of 
the institution's record of meeting the credit needs of its entire 
community, including low- and moderate-income neighborhoods.'' \18\ The 
statute further provides that each agency must consider a bank's CRA 
performance ``in its evaluation of an application for a deposit 
facility by such institution.'' \19\
---------------------------------------------------------------------------

    \17\ 12 U.S.C. 2903(a)(1).
    \18\ 12 U.S.C. 2906(a).
    \19\ 12 U.S.C. 2903(a)(2).
---------------------------------------------------------------------------

    Since its enactment, Congress has amended the CRA several times, 
including through: the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 \20\ (which required public disclosure of a 
bank's CRA written evaluation and rating); the Federal Deposit 
Insurance Corporation Improvement Act of 1991 \21\ (which required the 
inclusion of a bank's CRA examination data in the determination of its 
CRA rating); the Resolution Trust Corporation Refinancing, 
Restructuring, and Improvement Act of 1991 (which permits the agencies 
to provide favorable consideration where the bank has donated, sold on 
favorable terms, or

[[Page 6580]]

made available rent-free any branch of the bank ``located in any 
predominantly minority neighborhood to any minority depository 
institution or women's depository institution''); \22\ the Housing and 
Community Development Act of 1992 \23\ (which included assessment of 
the record of nonminority-owned and nonwomen-owned banks in cooperating 
with minority-owned and women-owned banks and LICUs); the Riegle-Neal 
Interstate-Banking and Branching Efficiency Act of 1994 \24\ (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 \25\ (which, among other things, 
provided regulatory relief for smaller banks by reducing the frequency 
of their CRA examinations).
---------------------------------------------------------------------------

    \20\ Public Law 101-73, 103 Stat. 183 (Aug. 9, 1989).
    \21\ Public Law 102-242, 105 Stat. 2236 (Dec. 19, 1991).
    \22\ Public Law 102-233, 105 Stat. 1761 (Dec. 12, 1991).
    \23\ Public Law 102-550, 106 Stat. 3874 (Oct. 28, 1992).
    \24\ Public Law 103-328, 108 Stat. 2338 (Sept. 29, 1994).
    \25\ Public Law 106-102, 113 Stat. 1338 (Nov. 12, 1999).
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    Additionally, Congress directed the agencies to publish regulations 
to carry out the CRA's purposes.\26\ In 1978, the agencies promulgated 
the first CRA regulations, which included evidence of prohibited 
discriminatory or other illegal credit practices as a performance 
factor as discussed further in the next section.\27\ Since then, the 
agencies have together significantly revised and sought to clarify 
their CRA regulations twice--in 1995 \28\ and 2005 \29\--with the most 
substantive interagency update occurring in 1995. In addition, the 
agencies have periodically jointly published the Interagency Questions 
and Answers Regarding Community Reinvestment (Interagency Questions and 
Answers) \30\ to provide guidance on the CRA regulations.
---------------------------------------------------------------------------

    \26\ 12 U.S.C. 2905.
    \27\ 43 FR 47144 (Oct. 12, 1978). Congress also charged, in 
addition to the agencies, the Office of Thrift Supervision (OTS) and 
its predecessor agency, the Federal Home Loan Bank Board, with 
implementing the CRA. The OTS had CRA rulemaking and supervisory 
authority for all savings associations. Pursuant to Title III of the 
Dodd-Frank Wall Street Reform and Consumer Protection Act, Public 
Law 111-203, 124 Stat. 1376, 1522 (2010) (Dodd-Frank Act), the OTS's 
CRA rulemaking authority for all savings associations transferred to 
the OCC and the OTS's CRA supervisory authority for State savings 
associations transferred to the FDIC. As a result, the OCC's CRA 
regulation applies to both State and Federal savings associations, 
in addition to national banks, and the FDIC enforces the OCC's CRA 
regulations with respect to State savings associations.
    \28\ 60 FR 22190 (May 4, 1995).
    \29\ 70 FR 44268 (Aug. 2, 2005).
    \30\ See 81 FR 48506 (July 25, 2016). ``Interagency Questions 
and Answers'' refers to the ``Interagency Questions and Answers 
Regarding Community Reinvestment'' guidance in its entirety. ``Q&A'' 
refers to an individual question and answer within the Interagency 
Questions and Answers.
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B. CRA, Illegal Discrimination, and Fair Lending

    The CRA was one of several laws enacted in the 1960s and 1970s to 
address fairness and financial inclusion in access to housing and 
credit.\31\ During this period Congress passed the Fair Housing Act 
\32\ to prohibit discrimination in the sale or rental of housing,\33\ 
and the Equal Credit Opportunity Act (ECOA) in 1974 \34\ (amended in 
1976), to prohibit creditors from discriminating against an applicant 
in any aspect of a credit transaction on the basis of race, color, 
religion, national origin, sex, marital status, and age, because all or 
part of the applicant's income derives from any public assistance 
program, or because the applicant has in good faith exercised any right 
under the Consumer Credit Protection Act.\35\ These fair lending, fair 
housing, and other similar laws provide the legal basis under Federal 
law for prohibiting discriminatory lending practices by creditors based 
on race, ethnicity, and other protected characteristics.\36\
---------------------------------------------------------------------------

    \31\ See, e.g., Board, Gov. 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.''). See also 
123 Cong. Rec. 17630 (1977) (statement of Sen. Proxmire) (discussing 
enactment of CRA and addressing banks taking deposits from a 
community without reinvesting them in that community).
    \32\ 42 U.S.C. 3601 et seq.
    \33\ 42 U.S.C. 3604 through 3606.
    \34\ 15 U.S.C. 1691 et seq.
    \35\ 15 U.S.C. 1691(a).
    \36\ See Federal Financial Institutions Examination Council 
(FFIEC), ``Interagency Fair Lending Examination Procedures'' (Aug. 
2009), https://www.ffiec.gov/pdf/fairlend.pdf.
---------------------------------------------------------------------------

    The agencies have long recognized that CRA and fair lending are 
mutually reinforcing. For example, starting with the original CRA 
regulations issued in 1978, the agencies have taken evidence of 
discrimination or other illegal credit practices into account when 
evaluating a bank's CRA performance.\37\ Other provisions in the 
original 1978 regulations similarly expressed the agencies' view that 
the exclusion of certain segments of a bank's community is ``contrary 
to'' and ``in conflict with'' the CRA's purpose of requiring banks to 
meet the credit needs of their entire communities.\38\ Specifically, 
the agencies provided for ``assessment of an institution's lending 
patterns to see if the institution discriminates between geographic 
areas or excludes qualified borrowers from low- and moderate-income 
neighborhoods.'' \39\ Factors identified as warranting unfavorable 
treatment were ``practices intended to discourage applications,'' 
evidence of ``violations of the Equal Credit Opportunity Act and the 
Fair Housing Act,'' and ``failure to provide usual services--such as 
not accepting mortgage applications--at certain branches.\40\
---------------------------------------------------------------------------

    \37\ See 43 FR 47144, 47146 (Oct. 12, 1978); current appendix A, 
paragraph (a)(1).
    \38\ See 43 FR 47144, 47146 (Oct. 12, 1978).
    \39\ Id.
    \40\ Id.
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C. Overview of Current CRA Regulations and Guidance for Performance 
Evaluations

CRA Performance Evaluations
    The current CRA regulations provide different methods to evaluate a 
bank's CRA performance depending on the asset size and business 
strategy of the bank.\41\ Under the current framework:
---------------------------------------------------------------------------

    \41\ See generally current 12 CFR __.21 through __.27. The 
agencies annually adjust the CRA asset-size thresholds based on the 
annual percentage change in a measure of the Consumer Price Index 
for Urban Wage Earners and Clerical Workers. The current bank asset-
size thresholds set forth in this SUPPLEMENTARY INFORMATION are 
accurate through December 31, 2023.
---------------------------------------------------------------------------

    [cir] Small banks--currently, those with assets of less than $376 
million as of December 31 of either of the prior two calendar years--
are evaluated under a lending test and may receive an ``Outstanding'' 
rating based only on their retail lending performance. Qualified 
investments, services, and delivery systems that enhance credit 
availability in a bank's assessment areas may be considered for an 
``Outstanding'' rating, but only if the bank meets or exceeds the 
lending test criteria in the small bank performance standards.
    [cir] Intermediate small banks--currently, those with assets of at 
least $376 million as of December 31 of both of the prior two calendar 
years and less than $1.503 billion as of December 31 of either of the 
prior two calendar years--are evaluated under the lending test for 
small banks and a community development test. The intermediate small 
bank community development test evaluates all community development 
activities together.
    [cir] Large banks--currently, those with assets of at least $1.503 
billion as of December 31 of both of the prior two calendar years--are 
evaluated under separate lending, investment, and

[[Page 6581]]

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 loans, small business loans, and 
small farm loans (small banks and intermediate small banks are not 
required to report these data unless they opt into being evaluated 
under the large bank lending test).
    [cir] Designated wholesale banks (those engaged in only incidental 
retail lending) and limited purposes banks (those offering a narrow 
product line to a regional or broader market) are evaluated under a 
standalone community development test.
    [cir] Banks of any size 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 appropriate Federal financial 
supervisory agency.
    The agencies also consider applicable performance context 
information to develop their analysis and conclusions when conducting 
CRA examinations. Performance context comprises a broad range of 
economic, demographic, and bank- and community-specific information 
that examiners review to calibrate a bank's CRA evaluation to its 
communities.
Assessment Areas
    The current CRA regulations require a bank to delineate one or more 
assessment areas in which the bank's record of meeting its CRA 
obligations is evaluated.\42\ The regulations require a bank to 
delineate assessment areas generally consisting of one or more MSAs or 
metropolitan divisions, or one or more contiguous political 
subdivisions \43\ in which the bank has its main office, branches, and 
deposit-taking ATMs, as well as the surrounding geographies (i.e., 
census tracts) \44\ in which the bank has originated or purchased a 
substantial portion of its loans (including home mortgage loans, small 
business and small farm loans, and any other loans the bank chooses, 
such as consumer loans on which the bank elects to have its performance 
assessed).
---------------------------------------------------------------------------

    \42\ See current 12 CFR __.41.
    \43\ Political subdivisions include cities, counties, towns, 
townships, and Indian reservations. See Q&A Sec.  __.41(c)(1)--1.
    \44\ See current 12 CFR __.12(k).
---------------------------------------------------------------------------

    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.'' \45\ The statute does not prescribe the delineation 
of assessment areas, but they are an important aspect of the regulation 
because the agencies use assessment areas to determine what constitutes 
a bank's ``community'' for purposes of the evaluation of a bank's CRA 
performance.
---------------------------------------------------------------------------

    \45\ 12 U.S.C. 2903(a).
---------------------------------------------------------------------------

Qualifying Activities
    The CRA regulations and the Interagency Questions and Answers 
provide detailed information, including applicable definitions and 
descriptions, respectively, regarding activities that are eligible for 
CRA consideration in the evaluation of a bank's CRA performance. Banks 
that are evaluated under a performance test that includes a review of 
their retail activities are assessed in connection with retail lending 
activity (e.g., home mortgage loans, small business loans, small farm 
loans, and consumer loans) \46\ 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 low- and moderate-income geographies and individuals).\47\
---------------------------------------------------------------------------

    \46\ See current 12 CFR __.12(j), (l), (v), and (w).
    \47\ See generally current 12 CFR __.21 through __.27; see also 
current 12 CFR __.24(d).
---------------------------------------------------------------------------

    Banks evaluated under 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 must have a primary purpose of community 
development.\48\
---------------------------------------------------------------------------

    \48\ See current 12 CFR __.12(g) through (i) and (t); see also 
current 12 CFR __.21 through __.27.
---------------------------------------------------------------------------

Guidance for Performance Evaluations
    In addition to information included in their CRA regulations, the 
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,\49\ the Interagency Questions and Answers, interagency CRA 
examination procedures,\50\ and interagency instructions for writing 
performance evaluations.\51\
---------------------------------------------------------------------------

    \49\ See, e.g., Board ``Search: Evaluations & Ratings (Federal 
Reserve Supervised Banks),'' https://www.federalreserve.gov/apps/CRAPubWeb/CRA/BankRating; FDIC, ``Community Reinvestment Act (CRA) 
Performance Ratings,'' https://crapes.fdic.gov/; OCC, ``CRA 
Performance Evaluations,'' https://occ.gov/publications-and-resources/tools/index-cra-search.html.
    \50\ See, e.g., FFIEC, ``Community Reinvestment Act: CRA 
Examinations,'' https://www.ffiec.gov/cra/examinations.htm.
    \51\ Id.
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D. Stakeholder Feedback and Recent Agency Rulemaking Efforts

    The financial services industry has undergone transformative 
changes since the CRA was enacted, including the removal of national 
bank interstate branching restrictions and the expanded role of mobile 
and online banking. Prior to publishing the NPR, and to better 
understand how these developments impact both consumer access to 
banking products and services and a bank's CRA performance, the 
agencies sought, received, and reviewed feedback from the banking 
industry, community groups, academics, and other stakeholders on 
several occasions.
Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA)
    From 2013 to 2016, the agencies solicited feedback on the CRA as 
part of the EGRPRA review process.\52\ Stakeholders raised issues 
related to: assessment area definitions; incentives for banks to serve 
low- and moderate-income, unbanked, underbanked, and rural communities; 
regulatory burdens associated with recordkeeping and reporting 
requirements, and asset thresholds for the various CRA examination 
methods; the need for clarity regarding performance measures and better 
examiner training to ensure consistency and rigor in examinations; and 
refinement of CRA ratings methodology.\53\
---------------------------------------------------------------------------

    \52\ See, e.g., 80 FR 7980 (Feb. 13, 2015).
    \53\ See 82 FR 15900 (Mar. 30, 2017).
---------------------------------------------------------------------------

OCC CRA Advance Notice of Proposed Rulemaking and OCC and Federal 
Reserve Outreach Sessions
    On September 5, 2018, the OCC published an advance notice of 
proposed rulemaking (ANPR) to solicit ideas for a new CRA regulatory 
framework.\54\ More than 1,500 comment letters were submitted in 
response. The

[[Page 6582]]

OCC held more than 40 meetings and outreach events after its ANPR. To 
augment that input, the Board and the Federal Reserve Banks held about 
30 outreach meetings with representatives of banks, community 
organizations, and the FDIC and OCC.\55\
---------------------------------------------------------------------------

    \54\ See 83 FR 45053 (Sept. 5, 2018).
    \55\ For a summary of the Federal Reserve outreach session 
feedback, see ``Perspectives from Main Street: Stakeholder Feedback 
on Modernizing the Community Reinvestment Act'' (June 2019), https://www.federalreserve.gov/publications/files/stakeholder-feedback-on-modernizing-the-community-reinvestment-act-201906.pdf.
---------------------------------------------------------------------------

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 to revise and update their CRA regulations.\56\ In 
response, the FDIC and the OCC received over 7,500 comment letters.
---------------------------------------------------------------------------

    \56\ 85 FR 1204 (Jan. 9, 2020).
---------------------------------------------------------------------------

    On May 2020, the OCC issued a CRA final rule (OCC 2020 CRA Final 
Rule), retaining the most fundamental elements of the joint proposal 
but also making adjustments to reflect stakeholder input.\57\ The OCC 
deferred establishing the metrics-framework for evaluating banks' CRA 
performance until it was able to assess additional data,\58\ with the 
final rule having an October 1, 2020, effective date and January 1, 
2023, and January 1, 2024, compliance dates for certain provisions.\59\
---------------------------------------------------------------------------

    \57\ 85 FR 34734 (June 5, 2020).
    \58\ 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 34736.
    \59\ 85 FR 34784.
---------------------------------------------------------------------------

Board CRA Advance Notice of Proposed Rulemaking
    On September 21, 2020, the Board issued a CRA ANPR (Board CRA ANPR) 
requesting public comment on an approach to modernize the CRA 
regulations by strengthening, clarifying, and tailoring the regulations 
to reflect the current banking landscape and better meet the core 
purpose of the CRA.\60\ The Board CRA ANPR sought feedback on ways to 
evaluate how banks meet the needs of low- and moderate-income 
communities and address inequities in credit access. The Board received 
over 600 comment letters in response.
---------------------------------------------------------------------------

    \60\ 85 FR 66410 (Oct. 19, 2020).
---------------------------------------------------------------------------

Interagency Statement and Other Developments
    On July 20, 2021, the agencies issued an interagency statement 
indicating their commitment to work collectively to, in a consistent 
manner, strengthen and modernize their CRA regulations.\61\ On December 
15, 2021, the OCC issued a final rule, effective January 1, 2022, to 
rescind the OCC 2020 CRA Final Rule and replace it with CRA regulations 
based on those that the agencies jointly issued in 1995, as amended. 
The OCC's final rule also integrated the OCC's CRA regulation for 
savings associations into its national bank CRA regulation at 12 CFR 
part 25.\62\
---------------------------------------------------------------------------

    \61\ See ``Interagency Statement on Community Reinvestment Act, 
Joint Agency Action'' (July 20, 2021), https://www.occ.gov/news-issuances/news-releases/2021/nr-ia-2021-77.html (OCC); https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210720a.htm 
(Board); https://www.fdic.gov/news/press-releases/2021/pr21067.html 
(FDIC).
    \62\ 86 FR 71328 (Dec. 15, 2021).
---------------------------------------------------------------------------

E. The Agencies' Proposal

    Community development definitions. The NPR included a proposal to 
revise the community development definitions to clarify eligibility 
criteria for a broad range of community development activities and 
incorporate certain guidance currently provided through the Interagency 
Questions and Answers. The agencies also proposed using a primary 
purpose standard for determining eligibility of community development 
activities, with pro rata consideration for certain affordable housing 
activities.
    Qualifying activities confirmation and illustrative list of 
community development activities. The agencies proposed to maintain a 
publicly available illustrative, non-exhaustive list of community 
development activities eligible for CRA consideration, which the 
agencies would periodically update. In addition, the agencies proposed 
a process, open to banks, for confirming eligibility of community 
development activities in advance.
    Impact review of community development activities. To promote 
clearer and more consistent evaluation procedures, the agencies 
proposed to include impact and responsiveness factors (referred to in 
the NPR as impact review factors) in the regulation. The impact review 
factors would inform the agencies' evaluation of the impact and 
responsiveness of a bank's activities under the proposed community 
development tests.
    Assessment areas and areas for eligible community development 
activity. The agencies offered a series of proposals on delineating 
facility-based assessment areas for main offices, branches, and 
deposit-taking remote service facilities (to include ATMs). The NPR 
sought to maintain facility-based assessment areas as the cornerstone 
of the CRA evaluation framework. Under the proposal, large banks would 
delineate assessment areas comprised of full counties, metropolitan 
divisions, or MSAs. Intermediate and small banks could continue to 
delineate partial county facility-based assessment areas, consistent 
with current practice.
    The agencies also proposed that large banks would delineate retail 
lending assessment areas where the bank has concentrations of home 
mortgage and/or small business lending outside of its facility-based 
assessment areas. Under that aspect of the proposal, a large bank would 
delineate retail lending assessment areas where it had an annual 
lending volume of at least 100 home mortgage loan originations or at 
least 250 small business loan originations in an MSA or nonmetropolitan 
area of a State for two consecutive years.
    The agencies also proposed to allow banks to receive CRA credit for 
any qualified community development activity, regardless of location, 
although performance within facility-based assessment areas would be 
emphasized.
    Performance tests, standards, and ratings in general. The agencies 
proposed an evaluation framework that would include a Retail Lending 
Test, a Retail Services and Products Test, a Community Development 
Financing Test, and a Community Development Services Test. Under the 
proposal, large banks would be evaluated under all four tests. 
Intermediate banks would be evaluated under the Retail Lending Test and 
the status quo community development test, unless they opted into the 
Community Development Financing Test. Small banks would be evaluated 
under the status quo small bank lending test, unless they opted into 
the Retail Lending Test. Wholesale and limited purpose banks would be 
evaluated under a tailored version of the Community Development 
Financing Test.
    Under this proposed framework, large banks would be banks that had 
average quarterly assets, computed annually, of at least $2 billion in 
both of the prior two calendar years; intermediate banks would be banks 
that had average quarterly assets, computed annually, of at least $600 
million in both of the prior two calendar years and less than $2 
billion in either of the prior two calendar years; and small banks 
would be banks that had average quarterly assets, computed annually, of 
less than $600 million in either of the prior two calendar years.\63\ 
The agencies also

[[Page 6583]]

proposed adding a new definition of ``operations subsidiary'' to the 
Board's CRA regulation and ``operating subsidiary'' to the FDIC's and 
OCC's CRA regulations to identify those bank affiliates whose 
activities would be required to be attributed to a bank's CRA 
performance (together, bank subsidiaries). The agencies proposed to 
maintain the current flexibilities that would allow a bank to choose to 
include or exclude the activities of other bank affiliates that are not 
considered bank subsidiaries. The NPR also discussed performance 
context, and the requirement for activity in accordance with safe and 
sound operations.
---------------------------------------------------------------------------

    \63\ Of particular relevance to the agencies' CRA regulations, 
the SBA revised the size standards applicable to small commercial 
banks and savings institutions, respectively, from $600 million to 
$750 million, based upon the average assets reported on such a 
financial institution's four quarterly financial statements for the 
preceding year. The final rule had a May 2, 2022, effective date. 
See 87 FR 18627, 18830 (Mar. 31, 2022).
---------------------------------------------------------------------------

    Retail Lending Test product categories and major product lines. The 
agencies proposed categories and standards for determining when a 
bank's retail lending product lines are evaluated under the proposed 
Retail Lending Test. The agencies proposed the following retail lending 
product line categories: closed-end home mortgage, open-end home 
mortgage, multifamily, small business, and small farm lending. The 
agencies also proposed including automobile lending as an eligible 
retail lending product line. In addition, the agencies proposed a 15 
percent major product line standard to determine when a retail lending 
product line would be evaluated.
    Retail Services and Products Test. The agencies proposed to 
evaluate large banks under the Retail Services and Products Test, which 
would use a predominantly qualitative approach, incorporating 
quantitative measures as guidelines, as applicable. The agencies 
proposed that the evaluation of digital and other delivery systems 
would be required for large banks with assets of over $10 billion, and 
not required for large banks with assets of $10 billion or less.
    Furthermore, the credit products and deposit products part of the 
proposed Retail Services and Products Test aimed to evaluate a bank's 
efforts to offer products that are responsive to the needs of low- and 
moderate-income communities. The agencies proposed that the evaluation 
of deposit products responsive to the needs of low- or moderate-income 
individuals would be required for large banks with assets of over $10 
billion, and not required for large banks with assets of $10 billion or 
less.
    Community Development Financing Test. The agencies proposed to 
evaluate large banks as well as intermediate banks that opt into the 
test under the proposed Community Development Financing Test. As 
proposed, the Community Development Financing Test would consist of a 
Community Development Financing Metric, benchmarks, and an impact 
review. These components would be assessed at the facility-based 
assessment area, State, multistate MSA, and institution levels, and 
would inform conclusions at each of those levels.
    Community Development Services Test. The agencies proposed to 
assess a large bank's community development services, underscoring the 
importance of these activities for fostering partnerships among 
different stakeholders, building capacity, and creating the conditions 
for effective community development. The agencies proposed that in 
nonmetropolitan areas, banks may receive community development services 
consideration for volunteer activities that meet an identified 
community development need, even if unrelated to the provision of 
financial services. The proposed test would consist of a primarily 
qualitative assessment of the bank's community development service 
activities. For large banks with assets of over $10 billion, the 
agencies proposed also using a metric to measure the hours of community 
development services activity per full time employee of a bank.
    Wholesale and limited purpose banks. The agencies proposed a 
Community Development Financing Test for Wholesale and Limited Purpose 
Banks, which would include a qualitative review of a bank's community 
development lending and investments in each facility-based assessment 
area and an institution level-metric measuring a bank's volume of 
activities relative to its capacity. The agencies also proposed giving 
wholesale and limited purpose banks the option to have examiners 
consider community development service activities that would qualify 
under the Community Development Services Test.
    Strategic plans. The agencies proposed to maintain a strategic plan 
option as an alternative method for evaluation. Banks that elect to be 
evaluated under a strategic plan would continue to request approval for 
the plan from their appropriate Federal financial supervisory agency. 
The agencies proposed more specific criteria to ensure that all banks 
meet their CRA obligation to serve low- and moderate-income individuals 
and communities. As proposed, banks approved to be evaluated under a 
strategic plan option would have the same assessment area requirements 
as other banks and would submit plans that include the same performance 
tests and standards that would otherwise apply unless the bank is 
substantially engaged in activities outside the scope of these 
performance tests. In seeking approval for a plan that does not adhere 
to requirements and standards that are applied to other banks, the plan 
would be required to include an explanation of why different standards 
would be more appropriate in meeting the credit needs of the bank's 
communities.
    Assigned conclusions and ratings. The agencies proposed to provide 
greater transparency and consistency on assigning ratings for a bank's 
overall performance. The proposed approach would produce performance 
scores for each applicable test, at the State, multistate MSA, and 
institution levels based on a weighted average of assessment area 
conclusions, as well as consideration of additional test-specific 
factors at the State, multistate MSA, or institution level. These 
performance scores would be mapped to conclusion categories to assign 
test-specific conclusions at each level. The agencies further proposed 
to combine these performance scores across tests to assign ratings at 
each level.
    The agencies proposed to determine a bank's overall rating by 
taking a weighted average of the applicable performance test scores. 
For large banks, the agencies proposed the following weights: 45 
percent for Retail Lending Test performance score; 15 percent for 
Retail Services and Products Test performance score; 30 percent for 
Community Development Financing Test performance score; and 10 percent 
for Community Development Services Test performance score. For 
intermediate banks, the agencies proposed to weight the Retail Lending 
test at 50 percent and the community development test, or if the bank 
opted into the Community Development Financing Test, at 50 percent.
    The agencies also proposed updating the criteria to determine how 
discriminatory and other illegal practices would adversely affect a 
rating, as well as what rating level (State, multistate MSA, and 
institution) would be affected.
    Performance standards for small and intermediate banks. The 
agencies proposed to continue evaluating small banks under the small 
bank performance standards in the current CRA framework. However, under 
the proposal, small banks could opt into the

[[Page 6584]]

Retail Lending Test and could continue to request additional 
consideration for other qualifying CRA activities. The agencies would 
evaluate intermediate banks under the proposed Retail Lending Test, and 
would evaluate an intermediate bank's community development activity 
pursuant to the criteria under the current intermediate small bank 
community development test. Intermediate banks could also opt to be 
evaluated under the proposed Community Development Financing Test.
    Effect of CRA performance on applications. The agencies proposed no 
substantive changes to the regulatory provisions concerning the effect 
of CRA performance on bank applications, such as those for mergers, 
acquisitions, or consolidation of assets, deposit insurance requests, 
and the establishment of domestic branches.
    Data collection, reporting, and disclosure. The agencies proposed 
to revise data collection and reporting requirements to increase the 
clarity, consistency, and transparency of the evaluation process 
through the use of standard metrics and benchmarks. The proposal 
recognized the importance of using existing data sources where 
possible, and tailoring data requirements, where appropriate.
    In addition to leveraging existing data, however, the proposal 
would have required large banks to collect, maintain, and report 
additional data. The data requirements under the proposal for 
intermediate banks and small banks would remain the same as the current 
requirements. All large banks under the proposal would have new 
requirements for certain categories of data, (including community 
development financing data, branch location data, and remote service 
facility location data); however, some new data requirements would only 
apply to large banks with assets of over $10 billion. The agencies also 
proposed updated standards for all large banks to report the 
delineation of their assessment areas.
    Content and availability of public file, public notice by banks, 
publication of planned examination schedule, and public engagement. The 
agencies proposed to provide more transparent information to the public 
on CRA examinations and encourage communication between members of the 
public and banks. The agencies proposed to make a bank's CRA public 
file more accessible to the public by allowing any bank with a public 
website to include its CRA public file on its website. The agencies 
also proposed publishing a list of banks scheduled for CRA examinations 
for the next two quarters at least 60 days in advance in order to 
provide additional notice to the public. Finally, the agencies proposed 
to establish a way for the public to provide feedback on community 
needs and opportunities in specific geographies.
    Transition. The agencies proposed a phased-in timeline that would 
facilitate the transition from the current regulatory and supervisory 
framework to the updated CRA regulatory and supervisory framework.

III. General Comments Received

    The agencies received approximately 950 unique comment letters 
regarding the proposal from a wide range of commenters, including: 
financial institutions; non-financial institution and financial 
institution trade associations; CDFIs; financial and non-financial 
businesses; community development organizations; consumer advocacy 
groups; civil rights groups; other nonprofit organizations; Federal, 
State, local, and tribal government commenters; tribal organizations; 
academics; individuals; and other interested parties. The agencies have 
carefully considered all the commenter feedback in developing the final 
rule.
    Comments received by the agencies cover a wide-ranging set of 
topics across the entire proposal. General public comments on the NPR 
are summarized below. Comments relating to specific regulatory 
provisions of the agencies' proposal and the final rule are discussed 
in detail in the section-by-section analyses of the specific provisions 
on which commenters shared their views.

A. General Comments Regarding the NPR

    Modernizing the CRA performance evaluation framework. Many 
commenters expressed appreciation for the agencies' unified efforts to 
modernize the CRA framework. Some commenters noted support for the 
objective of providing transparency and consistency for banks covered 
by CRA and the communities they serve. In addition, several commenters, 
expressed support for various aspects of the NPR, including the 
proposal's metrics-driven approach and attention to climate resiliency.
    Some commenters stated that while the agencies' proposal is a step 
in the right direction, more could be done to improve the CRA 
regulations, such as requiring the agencies to consult with a diverse 
set of community representatives when evaluating an institution's CRA 
performance. A few commenters also suggested that the final rule should 
encourage both meaningful action to help low- and moderate-income 
communities and collaboration between banks and financial technology 
(fintech) companies. Another commenter recommended that the agencies 
view the military community as a community deserving of CRA support. 
The commenter further stated that bank activities that serve the 
military community should generally receive CRA credit.
    Other commenters opposed or expressed concerns about the proposal 
for various reasons, asserting that aspects of the NPR could result in, 
for example: decreased bank competition; undue burden and costs; less 
credit availability; gentrification of urban Black neighborhoods; and 
fewer services in low- and moderate-income communities.
    Complexity of the proposed rule. Numerous commenters expressed 
concern that the agencies' proposal was too complex and difficult to 
understand--primarily related to the proposed performance test measures 
and ratings methodology requiring significant resources and costs to 
implement--and recommended that the agencies develop a simpler final 
rule to avoid unintended negative consequences. Some commenters 
recommended the agencies develop tools, guidance, and training for 
examiners and allow banks to consult with the agencies as needed.
    Coordination of the CRA regulations with State and Federal 
agencies. A few commenters expressed concerns regarding the lack of 
coordination between the agencies, the CFPB, and the States and 
suggested the agencies work together with these other entities to 
improve consistency and further the mission of CRA. Other commenters 
noted that given shifts in the banking industry, the agencies should 
extend CRA regulations to nonbank lenders and, some commenters 
recommended, work with the CFPB to do so.
    Length of the comment period and other rulemakings. Several 
commenters objected to the length of the comment period stating that it 
was too short and did not provide sufficient time for analysis and 
comment, with some commenters recommending that the agencies withdraw 
the proposal, issue a revised set of proposed rules, or open a new 
comment period. A few commenters suggested that the agencies should 
delay issuance of a final rule given uncertainty in the industry and 
the status of other rulemakings such as the CFPB's Section 1071 Final 
Rule and the agencies' separate rulemaking on capital requirements for 
certain banks.

[[Page 6585]]

    Application of the proposed regulations to different business 
models. Some commenters expressed concern that the agencies' proposal 
did not address the needs of different business models and could create 
a one-size-fits-all approach that favors particular business models, 
which would not reflect the ever-changing banking landscape. These 
commenters indicated that the final rule should do more to recognize 
the inherently diffuse nature of digital banking and that more 
flexibility is necessary to account for different business models.
    Promoting activities in local communities, including rural and 
underserved areas. Some commenters asserted that the NPR would be more 
effective in boosting reinvestment activity in underserved areas if the 
evaluations and ratings were more rigorous. Other commenters expressed 
concerns regarding the proposed use of metrics and certain data, 
suggesting that they could lead to disinvestment in hard to serve areas 
and overinvestment in urban areas due to the use of census data.
    The agencies also received comments outlining different methods of 
promoting activities and investments at the local level, including 
specific recommendations: on how to promote investments in underserved 
rural and native communities; that the agencies should incentivize 
affordable small dollar loans and other products; and that the agencies 
should seek to end ``rent-a-bank'' partnerships.
    A few other commenters suggested that the final rule should address 
the issue of appraisal bias to ensure lenders are fulfilling the needs 
of the communities they serve, and recommended that bank lenders should 
complete additional due diligence on the appraisers they work with.
    The agencies also received several comments regarding the 
importance of performance context, suggesting that performance context 
and examiner discretion is necessary to understand the metrics embedded 
in the CRA exam.
    Legal issues. Some commenters provided general comments raising 
legal concerns with the proposal. For example, some commenters stated 
that if the proposal is finalized as proposed, the final rule could be 
challenged as arbitrary and capricious because it was not supported by 
a reasoned analysis. Several commenters expressed the view that the 
agencies lack the authority to adopt the proposal. Finally, a commenter 
questioned the FDIC Board's authority to issue the NPR and to adopt a 
final rule based on certain aspects of the FDIC's organic statute and 
the FDIC Board's composition at the time the NPR was issued.
    Other comments. The agencies also received suggestions about how 
the agencies could evaluate the impact of the final rule, including 
five-year lookback reviews and an impact study. Commenter feedback also 
included noting that performance evaluations should be published as 
soon as reasonably possible. Some commenters urged the agencies to 
expand the coverage of CRA to credit unions to ensure low- and 
moderate-income communities are adequately served.
Final Rule
    The agencies have carefully considered the general commenter 
feedback regarding ways in which the NPR could be improved and believe 
the final rule strikes the proper balance between the stated 
objectives, including to update the CRA regulations to strengthen the 
achievement of the core purpose of the statute and adapt to changes in 
the banking industry. For additional discussion regarding the agencies' 
objectives, see section III.B of this SUPPLEMENTARY INFORMATION. The 
agencies also carefully considered commenters' concerns regarding the 
complexity of the proposed rule and have made modifications to various 
aspects of the final rule to reduce complexity as explained in more 
detail in section IV of this SUPPLEMENTARY INFORMATION. In addition, 
with respect to the Retail Lending Test, the agencies believe that the 
final rule ensures that CRA evaluations of retail lending are 
appropriately robust and comprehensive, provides greater consistency 
and transparency, and reduces overall complexity relative to the 
approach set out in the NPR. The agencies note that any evaluation 
approach leveraging metrics and benchmarks that captures the different 
ways that banks may serve the credit needs of an area will necessarily 
entail a degree of complexity.
    The agencies appreciate commenter feedback that the military 
community should be considered a community deserving of CRA support. 
The agencies believe that the final rule encourages banks to meet the 
credit needs of military communities. For example, the final rule 
codifies ``military bank'' as a defined term in final Sec.  __.12, and 
clarifies the assessment area and evaluation approach to military banks 
in final Sec. Sec.  __.16(d) and __.21(a)(5), respectively.\64\ In 
addition, the agencies are specifying in final Sec.  __.28(d) that 
violations of the Military Lending Act and Servicemembers Civil Relief 
Act may constitute discriminatory or other illegal credit practices 
that may adversely affect a bank's CRA performance. More generally, the 
agencies believe that many bank activities that serve the military 
community may receive community development consideration under the 
final rule. For further discussion of these provisions, see the 
section-by-section analyses of Sec. Sec.  __.12, __.16(d), __.21(a)(5), 
and __.28(d).
---------------------------------------------------------------------------

    \64\ See also 12 U.S.C. 2902(4).
---------------------------------------------------------------------------

    The agencies appreciate comments encouraging the agencies to 
coordinate with States, the CFPB, and other Federal regulators to 
improve consistency and efficiency of CRA examinations, and the 
agencies note that they currently, and will continue to, coordinate 
with other regulators when appropriate on CRA examinations. Further, 
the agencies are not able to extend the CRA regulations to cover 
nonbank lenders and credit unions. Such an expansion is outside the 
scope of this rulemaking and the agencies' current authority.
    In response to comments regarding the length of the comment period, 
the agencies note that the NPR's comment period was 90 days, which is 
consistent with the requirements of the Administrative Procedure Act 
and provided sufficient time for public consideration and comment, as 
demonstrated by the number of detailed and thoughtful comments the 
agencies received on the proposal.
    One of the objectives of the CRA proposal was to tailor performance 
standards to account for differences in bank size, business models, and 
local conditions. The agencies have carefully considered commenter 
feedback, and while the agencies believe the proposal provided 
flexibility to accommodate institutions with different business models, 
the agencies have made various changes in response to commenter 
feedback to provide additional flexibility in the final rule as 
outlined in the section-by-section analyses in section IV of this 
SUPPLEMENTARY INFORMATION. The agencies also note the final rule 
retains the strategic plan option for banks to adjust the performance 
tests or weighting based on their business model.
    After carefully considering commenter suggestions on how to 
encourage reinvestment activity through rigorous evaluations and 
standards, the agencies are declining to adopt these specific commenter 
recommendations. The agencies believe the final rule's evaluation 
framework is appropriately rigorous and encourages reinvestment 
activity, while maintaining flexibility and allowing room for 
consideration of

[[Page 6586]]

performance context. The agencies have considered the views from some 
commenters raising concerns on the potential negative impacts of the 
use of metrics and data in the proposal. As discussed further in 
section IV of this SUPPLEMENTARY INFORMATION, the agencies believe the 
use of metrics and data in the final rule is appropriately tailored to 
encourage, rather than deter, reinvestment in hard to serve areas. 
While the agencies appreciate commenters' suggestions on additional 
methods to encourage activities and investments at the local level, the 
agencies are declining to adopt these recommendations and believe the 
final rule adequately evaluates activities and investments in 
underserved and native communities. The agencies appreciate the 
comments highlighting the importance of performance context in CRA 
examinations, and the agencies are retaining the use of performance 
context in the final rule, as explained in the section-by-section 
analysis of Sec.  __.21(d).
    The agencies appreciate commenters' suggestions to address 
appraisal bias, and the agencies note that if such bias were found to 
evidence discrimination by an institution evaluated under CRA, the 
agencies may consider this as the basis for a downgrade as discussed in 
the section-by-section analysis of Sec.  __.28.
    The agencies believe that the NPR adequately explained the 
agencies' rationale for the proposed changes. The NPR contains detailed 
analysis of the current CRA regulations, the need for modernization, 
and an in-depth review of the proposed rule and alternatives the 
agencies considered, which are all supported by extensive data.
    The agencies acknowledge that commenters provided general comments 
raising legal concerns with the proposal. The agencies note that the 
CRA authorizes the agencies to adopt regulations to carry out the 
purposes of the statute,\65\ and requires the agencies to assess the 
institution'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 the bank.\66\ The final rule 
furthers the purposes of the CRA and is consistent with the agencies' 
rulemaking authority. The agencies also considered the points raised by 
the commenter questioning the FDIC Board's authority but find no such 
impediment to adoption of the final rule. Legal issues concerning 
particular aspects of the proposal are discussed in the section-by-
section analysis in section IV of this SUPPLEMENTARY INFORMATION.
---------------------------------------------------------------------------

    \65\ See 12 U.S.C. 2905.
    \66\ 12 U.S.C. 2903(a)(1).
---------------------------------------------------------------------------

    In response to comments regarding lookback reviews, the agencies 
often do reviews of their examinations after implementation of revised 
or new rules. While the agencies will keep these recommendations in 
mind, the agencies are not committing to adopt such recommendations in 
a specific timeframe or through a specified method. Regarding the 
development of tools, including for small banks, as noted in section I 
of this SUPPLEMENTARY INFORMATION, the agencies expect to develop 
various materials for banks including data reporting guides, data 
reporting templates, and technical assistance to assist banks in 
understanding supervisory expectations with respect to the final rule's 
performance evaluation standards and data reporting requirements. The 
agencies will continue to explore other tools to provide transparent 
information to the public, improve efficiency, and reduce burden.

B. General Comments Regarding the Agencies' CRA Modernization 
Objectives

    As noted in section I of this SUPPLEMENTARY INFORMATION, the 
agencies' updates to their CRA regulations in this final rule are 
guided by eight objectives. These objectives were set out in the NPR, 
and some general comments received on the objectives are summarized 
below. Throughout this SUPPLEMENTARY INFORMATION, the agencies provide 
additional information and discussion regarding the ways in which this 
final rule accomplishes the objectives, including in the section-by-
section analysis in section IV.
The Agencies' Proposal, Comments Received, and the Final Rule
    Strengthen the achievement of the core purpose of the statute. As 
provided for in the statute, the CRA states that ``[i]t is the purpose 
of this chapter to require each appropriate Federal financial 
supervisory agency to use its authority when examining financial 
institutions, to encourage such institutions to help meet the credit 
needs of the local communities in which they are chartered consistent 
with the safe and sound operation of such institutions.'' \67\ The CRA 
requires the agencies to ``assess the institution'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.'' \68\
---------------------------------------------------------------------------

    \67\ 12 U.S.C. 2901(b).
    \68\ 12 U.S.C. 2903(a)(1).
---------------------------------------------------------------------------

    Commenter feedback on this objective included: support for updating 
the CRA regulations to achieve this purpose; that CRA modernization 
should result in a net increase in the quantity and quality of 
financial products and services available in low- and moderate-income 
areas; and, that the burden is on the agencies to demonstrate that 
modernization efforts would meet these baseline goals for reform. 
Additional commenter feedback included: that the sole criterion for 
extending CRA consideration to a business activity should be its 
direct, significant, and exclusive benefit to low- and moderate-income 
individuals; that by ignoring race during CRA exams, the agencies' 
proposal falls far short of this objective; and that to achieve the 
goal of serving communities with the greatest needs, the agencies must 
maintain a balance between the qualitative and quantitative aspects of 
the tests and, specifically, to align the twin tracks of CRA compliance 
and CDFI certification.
    The agencies believe that the final rule updates the CRA 
regulations to strengthen the achievement of the core purpose of the 
statute. The agencies believe the final rule accomplishes this in 
various ways, for example, by: establishing a tailored and rigorous 
approach for the performance tests used to assess a bank's record of 
meeting the credit needs of its entire community; evaluating the 
responsiveness of certain bank's credit products and deposit products, 
including an impact and responsiveness review for community development 
activities; and including community development definitions that 
reflect an emphasis on activities that are responsive to community 
needs, especially the needs of low- and moderate-income individuals and 
communities. With respect to a commenter's assertion that the agencies 
should not ignore race during CRA examinations, the agencies note that 
the final rule retains the conditions that facility-based assessment 
areas are prohibited from reflecting illegal discrimination and must 
not arbitrarily exclude low- or moderate-income census tracts. 
Additionally, banks' performance under the CRA can be adversely 
affected by evidence of discriminatory or other illegal credit 
practices, including violations of ECOA and the Fair Housing Act. The 
agencies also believe the final rule appropriately balances the 
qualitative and quantitative aspects of the performance tests by

[[Page 6587]]

incorporating standardized metrics and benchmarks in several of the 
performance tests, and retaining the ability for the agencies to 
consider performance context.
    Adapt to changes in the banking industry, including the expanded 
role of mobile and online banking. Many commenters expressed general 
support for this objective with several of these commenters noting that 
now is the time to update the CRA regulations, given advances in 
banking technology. A few of these commenters also stated that the CRA 
has not kept up with the way consumers expect to use technology to 
access financial products and services and that the current CRA 
regulations and guidance do not recognize the wide diversity in 
business practices of banks or the changes in the financial services 
industry that have occurred since the CRA was enacted in 1977.
    While some commenters believed the agencies met this objective, 
particularly in response to the expanded role of mobile and online 
banking, other commenters did not believe the proposal sufficiently met 
the objective, noting: efforts to modernize the CRA regulations should 
account for current and future ranges of banking and financial service 
business models; the NPR emphasizes physical bank branches, which the 
commenter asserted will require the agencies to update the CRA rule 
once digital banking becomes more common; the proposal may adversely 
impact how banks are able to respond to innovations in the marketplace, 
explaining that banks should have the ability to comply with the letter 
and spirit of the CRA within their chosen business models; the agencies 
should request additional authority from Congress to maintain the 
integrity and vibrancy of the CRA; and, CRA modernization must 
recognize and address the critical importance of digital equity for 
creating opportunities and upward mobility for low- and moderate-
income, minority, and rural communities. Also, a commenter stated that 
adapting to advances in banking technology should be the one and only 
objective of CRA reform, and that the other seven objectives can be 
accomplished within the current regulatory framework and through more 
effective examinations.
    The agencies believe that the final rule takes into account changes 
in the banking industry. For example, evaluating retail lending outside 
of facility-based assessment areas accounts for current and future 
ranges of banking business models. The agencies also believe that the 
final rule strikes the appropriate balance by maintaining the 
importance of physical branches, while including consideration of 
digital and other delivery systems for large banks in recognition of 
the trend toward greater use of online and mobile banking. The section-
by-section analysis provides additional discussion regarding the 
agencies' decision to maintain the importance of physical branches in 
this final rule. See section IV of this SUPPLEMENTARY INFORMATION.
    Provide greater clarity and consistency in the application of the 
CRA regulations. Some commenters expressed general support for this 
objective, with a commenter stating, for example, that the CRA 
regulations and supervision have become overly complex and 
unpredictable. Another commenter asserted that the proposal promotes 
this objective by establishing a framework that would lead to many 
positive changes but asserted that certain revisions to the proposal 
are required to effectively meet the objective.
    The agencies believe that the final rule meets this objective in 
several ways, including, for example, by clarifying eligibility 
requirements for community development activities, providing that the 
agencies will maintain a publicly available illustrative list of non-
exhaustive examples of qualifying activities, and updating certain 
performance tests to incorporate standardized metrics, benchmarks, and 
thresholds and performance ranges, as applicable.
    Better tailor performance standards to account for differences in 
bank size, business models, and local conditions, and better tailor 
data collection and reporting requirements and use existing data 
whenever possible. Commenter sentiments on this objective included 
support for tailoring the performance standards and data requirements 
of the final rule, as well as concerns that the agencies' proposal 
failed to meet these objectives. The agencies believe the final rule 
tailors the performance standards based on bank size, business models, 
and local conditions in multiple ways. For example, small banks may 
continue to be evaluated under the Small Bank Lending Test, unless they 
opt into the Retail Lending Test; and intermediate and large banks, 
which have more resources than small banks, will be evaluated under the 
Retail Lending Test. The final rule also tailors data collection and 
reporting requirements because, as further explained in the section-by-
section analysis of Sec.  __.42, the new data collection and 
maintenance requirements in the final rule do not apply to small and 
intermediate banks, and certain new requirements apply only to large 
banks with more than $10 billion in assets.
    Promote transparency and public engagement. Commenter feedback on 
this objective included statements that the CRA regulations must 
enhance community participation so that CRA activity is tied to 
community needs, and concerns that the proposal may not expand 
community participation. The agencies believe the final rule advances 
this objective. For example, as explained in more detail in the 
section-by-section analysis of Sec.  __.46, the final rule specifically 
provides a process whereby the public can provide input on community 
credit needs and opportunities in connection with a bank's next 
scheduled CRA examination. Further, the strategic plan provision 
provides an opportunity for the public to provide input on a bank's 
strategic plan. See the section-by-section analysis of Sec.  __.27.
    Confirm that the CRA and fair lending responsibilities of banks are 
mutually reinforcing. The agencies received an array of comments on 
this objective. Some commenters, for example, asserted that robustly 
enforcing current and future CRA requirements relating to race and 
ethnicity, in addition to other relevant Federal, State, and local laws 
and regulations, is essential to addressing racial and ethnic 
inequality. Many commenters asserted that greater coordination between 
CRA examinations and fair lending examinations is needed, including, 
for example, through development of a CRA examination racial 
discrimination assessment that would identify disparate trends, such as 
in marketing, originations, pricing and terms, default rates, and 
collections. In turn, these commenters indicated that any adverse 
findings from this assessment should trigger and support fair lending 
examinations. A few commenters indicated that such CRA discrimination 
assessments should include an affordability analysis and an analysis of 
the quality of lending for all major product lines that includes, for 
example, a review of delinquency and default rates. Other commenters 
asserted that, in CRA examinations, the agencies should assess whether 
banks employ discriminatory algorithm-driven models or other assessment 
criteria that disproportionately screen out low- and moderate-income 
and minority consumers. Additional commenters indicated that, likewise, 
when a fair lending examination is pending, appropriate CRA follow-up 
activity and corrective action must ensue once it has concluded.

[[Page 6588]]

    Several commenters suggested incorporating additional information 
related to discrimination into banks' CRA examinations. In this regard, 
a few commenters noted that public information about fair lending 
examinations included in CRA performance evaluations has typically been 
cursory. Several commenters specified that the agencies should use 
race-based HMDA data and, once available, race-based section 1071 data 
as a screen in CRA examinations for fair lending reviews. Some 
commenters suggested that the agencies should consider evidence of 
discrimination obtained by State and local agencies.
    On fair lending examinations specifically, commenter feedback 
included: that the agencies should bolster fair lending reviews 
accompanying CRA exams for banks that perform poorly in the HMDA data 
analysis of lending by race; that fair lending examinations should 
solicit and rely on feedback from all relevant Federal and State 
agencies, as well as community group stakeholders; that both section 
1071 data and HMDA data by race should be utilized in bank fair lending 
examinations; that fair lending examinations should include a 
quantitative analysis of lending to minority individuals and 
communities and incorporate an analysis of access to services; and that 
disparate impact related to climate change should be incorporated into 
the existing fair lending supervisory framework.
    The agencies reiterate their view that CRA and fair lending 
requirements are mutually reinforcing. Both regimes recognize the 
importance of ensuring that the credit markets are inclusive. 
Accordingly, and as noted above and discussed further in the section-
by-section analysis of Sec.  __.16, the final rule retains the 
provisions that delineations of a bank's facility-based assessment 
areas are prohibited from reflecting illegal discrimination and must 
not arbitrarily exclude low- and moderate-income census tracts. As 
discussed further in the section-by-section analysis of Sec.  __.23, 
the agencies are specifying in the final rule that all special purpose 
credit programs under ECOA can be a type of responsive credit program. 
As discussed further in the section-by-section analysis of Sec.  __.28, 
the agencies are also retaining the provision that allows downgrading a 
bank for discriminatory or other illegal credit practices. For more 
information and discussion regarding the agencies' consideration of 
comments recommending adoption of additional race- and ethnicity-
related provisions in the final rule, see section III.C of this 
SUPPLEMENTARY INFORMATION. Moreover, although the agencies appreciate 
suggestions to enhance the rigor of fair lending examinations, such 
examinations are outside the scope of this rulemaking. The agencies are 
nevertheless committed to upholding their regulatory responsibilities 
for both fair lending and CRA examinations, and the agencies will seek 
to coordinate those examinations where practicable.
    Additionally, and in furtherance of the agencies' objective to 
promote transparency, as discussed in the section-by-section analysis 
of Sec.  __.42(j), the final rule requires the agencies to provide 
additional information to the public for large banks related to the 
distribution by borrower income, race, and ethnicity of the bank's home 
mortgage loan originations and applications in each of the bank's 
assessment areas. This disclosure would leverage existing data 
available under HMDA. As discussed in the section-by-section analysis 
of Sec.  __.42(j), providing data about borrower and applicant race and 
ethnicity in this disclosure would have no independent impact on the 
conclusions or ratings of the bank and would not on its own reflect any 
fair lending finding or violation. Instead, this provision of the final 
rule is intended to enhance the transparency of information available 
to the public.
    Promote a consistent regulatory approach that applies to banks 
regulated by all three agencies. Commenter feedback on this objective 
included support for a coordinated interagency approach to CRA 
modernization and a unified CRA rule, with a commenter stating that the 
CRA's purpose is more fully realized when the agencies work in concert. 
Some commenters expressed support for coordination between Federal and 
State CRA regulatory requirements and between Federal and State 
agencies for CRA exams.
    The agencies appreciate these comments, believe the final rule 
meets this objective, and will continue to coordinate their 
implementation of the final rule as appropriate.

C. General Comments Regarding the Consideration of Race and Ethnicity 
in the CRA Regulatory Framework

Comments Received
    The agencies received many comments regarding consideration of race 
and ethnicity in the CRA regulatory and supervisory framework from a 
wide range of commenters. General comments on this topic are summarized 
below, in this section of the SUPPLEMENTARY INFORMATION. Furthermore, 
the agencies received comments regarding the consideration of race and 
ethnicity with respect to the agencies' proposed approach to an array 
of specific topics, such as: bank size categories; \69\ assessment 
areas; \70\ the Retail Lending Test; \71\ the Retail Services and 
Products Test, including the consideration of special purpose credit 
programs; \72\ affordable housing; \73\ economic development; \74\ 
activities with MDIs and CDFIs; \75\ disaster preparedness and climate 
resiliency; \76\ impact factors; \77\ data on race and ethnicity in the 
CRA regulatory framework; \78\ discriminatory or other illegal 
practices; \79\ bank applications; \80\ public files; \81\ and public 
engagement.\82\ The agencies have carefully considered this commenter 
feedback in developing the final rule.
---------------------------------------------------------------------------

    \69\ See the section-by-section analysis of final Sec.  __.12 
(asset size).
    \70\ See, e.g., the section-by-section analysis of final Sec.  
__.16 (facility-based assessment areas).
    \71\ See the section-by-section analysis of final Sec.  __.22 
(Retail Lending Test), including the section-by-section analyses of 
final Sec.  __.22(d)(1)(ii)(A)(1), (d)(4), and (e).
    \72\ See the section-by-section analysis of final Sec.  __.23 
(Retail Services and Products Test).
    \73\ See the section-by-section analysis of final Sec.  __.13(b) 
(affordable housing).
    \74\ See the section-by-section analysis of final Sec.  __.13(c) 
(economic development)
    \75\ See the section-by-section analysis of final Sec.  __.13(j) 
(activities with MDIs, WDIs, LICUs, or CDFIs).
    \76\ See the section-by-section analysis of final Sec.  __.13(i) 
(disaster preparedness/weather resiliency).
    \77\ See the section-by-section analysis of final Sec.  __.15 
(impact and responsiveness review).
    \78\ See the section-by-section analysis of final Sec.  __.42(j) 
(HMDA disclosure).
    \79\ See the section-by-section analysis of final Sec.  __.28(d) 
(conclusions and ratings).
    \80\ See the section-by-section analysis of final Sec.  __.31 
(effect of CRA performance on applications).
    \81\ See the section-by-section analysis of final Sec.  __.43 
(public file).
    \82\ See the section-by-section analysis of final Sec.  __.46 
(public engagement).
---------------------------------------------------------------------------

    Comments relating to specific regulatory provisions of the 
agencies' proposal and the final rule, referenced above, are discussed 
in detail in the section-by-section analyses of the specific provisions 
on which commenters shared their views. Those discussions cross-
reference this section of the SUPPLEMENTARY INFORMATION where 
appropriate.
    General comments. Many commenters providing input on the 
consideration of race and ethnicity under the CRA asserted that the 
agencies' proposal represented a missed opportunity to make racial 
equity a central focus of the CRA and to maximize what some commenters 
viewed as the statute's potential impact on advancing minority

[[Page 6589]]

access to lending, investment, and services through the mainstream 
financial system. Most of these commenters stated that the CRA was 
enacted as a response to the history of redlining, other systemic 
discrimination, and structural racism, and that the agencies' current 
and proposed CRA regulations do not adequately address the need to 
advance racial equality, reduce racial wealth and homeownership gaps, 
and address intergenerational poverty in minority communities. In this 
regard, commenter feedback included that there has been little progress 
in closing the racial wealth gap since the enactment of the CRA, and 
that the racial wealth gap has actually worsened since that time. 
Commenter feedback also included that approximately 98 percent of banks 
pass their CRA examinations and that expanded consideration of race and 
ethnicity would be appropriate to increase the rigor of CRA 
examinations. Additional views included that the agencies should use 
the CRA to broaden access to credit for racial and ethnic minorities in 
much the same way that the statute has broadened access to credit for 
low- and moderate-income individuals and communities.
    Some of these commenters also urged greater consideration of race 
in a modernized CRA evaluation framework due to racial inequality 
related to land use policies, and unjust and inequitable lending 
practices, all of which, these commenters indicated, have contributed 
to persistent disparities in home ownership rates, wealth accumulation, 
and educational and health outcomes for racial and ethnic minorities. 
In this regard, some commenters drew attention particularly to the lack 
of affordable housing opportunities for racial and ethnic minorities in 
metropolitan and rural communities alike. For instance, one commenter 
asserted that racial and ethnic minorities who are more likely to live 
in low-cost neighborhoods as part of the legacy of historical 
residential segregation and decades of discriminatory real estate 
practices are not adequately served due to unmet demand for low-cost 
housing, including but not limited to small-dollar home mortgage loans. 
In addition to the housing concerns, another commenter asserted that 
low-income minority communities disproportionately do not have access 
to the banking services and products that they need to build wealth, 
and further stated that not requiring banks to better address these 
needs leads to increased potential for predatory lending and reduced 
wealth in these communities. Some commenters also asserted that 
robustly enforcing current and future CRA requirements relating to race 
and ethnicity, in addition to other relevant Federal, State, and local 
laws and regulations, is essential to addressing racial and ethnic 
inequality.
    A few commenters asserted that explicit consideration of race and 
ethnicity in the CRA evaluation framework would provide a buffer 
against displacement of minority consumers, which these commenters 
indicated leads to the loss of important local resources, such as 
healthcare and social services. In this regard, commenter feedback 
included: advocating for a greater focus on loans to minority consumers 
and not simply loans in minority communities, where the loans might be 
made largely to white consumers; an assertion that banks' lending 
practices in connection with minority consumers and minority 
communities were impacted by the lack of diversity among bank 
employees, particularly at senior and executive levels; an assertion 
that all banks should be positioned to work with non-English speaking 
consumers; and a recommendation that banks be given consideration for 
offering linguistically and culturally appropriate services and 
resources to consumers with limited English proficiency so that such 
consumers may access safe and affordable credit.
    Some commenters suggested that the agencies adopt forms of 
quantitative analyses to consider race and ethnicity as part of CRA 
evaluations. For example, a commenter recommended that the agencies 
conduct periodic statistical analyses to identify areas where 
discrimination or ethnic and racial disparities in credit access exist. 
This commenter further recommended that in areas where significant 
disparities exist, the agencies should incorporate performance measures 
based on race and ethnicity into bank performance evaluations, with 
separate race- and ethnicity-based performance measures contributing to 
bank ratings on individual performance tests and overall.
    On the subject of terminology, a commenter urged the agencies not 
to use the term ``minority'' in the CRA regulations but rather to use 
the term BIPOC (Black, Indigenous, and People of Color), which the 
commenter asserted better acknowledges different types of prejudice and 
discrimination.\83\
---------------------------------------------------------------------------

    \83\ The agencies acknowledge the commenter suggestion to use 
the term ``BIPOC'' throughout the final rule but are electing to use 
the term ``minority,'' which is used expressly in the CRA statute, 
and to clarify, where practicable, when the agencies intend to refer 
specifically to racial and ethnic minorities. See 12 U.S.C. 
2907(b)(3).
---------------------------------------------------------------------------

    Comments on legal basis for express consideration of race and 
ethnicity in the CRA regulatory framework. Several commenters provided 
input supporting the permissibility of express consideration of race 
and ethnicity under the statute. Some of these commenters asserted that 
the CRA is a civil rights law and that, accordingly, the agencies have 
authority to expressly consider race and ethnicity in their CRA 
regulations to address redlining and other racial discrimination in 
banking. Moreover, several commenters stated that addressing racial 
inequities is a core ``remedial'' purpose of the CRA as part of a 
``suite'' of laws enacted to address racial inequities in housing and 
credit. A few commenters pointed to the CRA's focus on encouraging 
banks to serve their ``entire community'' \84\ suggesting that the 
agencies should therefore focus specifically on the minority 
constituencies who are part of the entire community in evaluating each 
bank's CRA performance. Another commenter provided legal analysis 
arguing that the agencies could incorporate express consideration of 
race and ethnicity in CRA regulations in various ways that the 
commenter stated were consistent with requirements applicable to race-
based government action under the Equal Protection Clause of the U.S. 
Constitution. Relatedly, the commenter indicated that, to satisfy 
constitutional requirements and appropriately target the effects of 
discrimination, the agencies should conduct and periodically update a 
study to determine with specificity where, and regarding which 
financial products, discrimination continues to have an impact. Other 
commenters asserted that express references to race in the statute, 
such as the provision allowing investments with MDIs to count for 
CRA,\85\ indicate that an explicit focus on race is within the purview 
of the CRA.
---------------------------------------------------------------------------

    \84\ See 12 U.S.C. 2903 and 2906.
    \85\ See, e.g., 12 U.S.C. 2903(b).
---------------------------------------------------------------------------

    Conversely, a few commenters cautioned against expanding 
consideration of race and ethnicity in the CRA regulatory framework due 
to legal concerns. Some of these commenters expressed their perspective 
that the law is limited in its capacity to address racial equity, even 
though they view the CRA as a civil rights law and acknowledge that 
racial equity is central to equal opportunity, social cohesion, and 
prosperity. Another commenter

[[Page 6590]]

suggested that the CRA is a race-neutral law designed to combat race-
based discriminatory policies and practices. Additionally, commenter 
feedback included that, although structural racism is a reality, 
incorporating racial equity into the CRA evaluation process could lead 
to both legal and practical issues and undermine the valuable 
contribution that CRA can make to low- and moderate-income consumers 
and communities.
    Low-and moderate-income status and race. Many commenters advocating 
for greater consideration of race and ethnicity under the CRA indicated 
that, in addition to focusing on low- and moderate-income consumers and 
communities, the agencies should explicitly focus on minority consumers 
and communities. For example, a commenter asserted that racial 
discrimination will persist if income categorizations continue to be 
used to rate bank performance without considering race. Some commenters 
also noted that low- and moderate-income communities and minority 
communities are not the same, so closing racial wealth gaps requires 
express consideration of race. To illustrate this point, a commenter 
stated that about two-thirds of low-income communities are 
predominantly minority, but only about one-third of moderate-income 
neighborhoods are predominantly minority. Another commenter similarly 
indicated that nearly two-thirds of low- and moderate-income households 
are White, while nearly 40 percent of Black households and more than 
half of Hispanic households are not low- or moderate-income.
    Consequently, many commenters urged that racial equity should be 
incorporated comprehensively into the agencies' CRA regulations, 
including through both incentives and affirmative obligations for banks 
to serve racial and ethnic minority consumers, businesses, and 
communities. Many of these commenters asserted that doing so would have 
a direct, positive impact on such minorities' economic inclusion, 
quality of life, and health outcomes. Closing the racial wealth gap, a 
commenter stated, would also make the U.S. economy substantially 
stronger. To facilitate the incorporation of racial equity into the CRA 
regulations, a commenter asserted that the agencies could employ the 
``other targeted population'' framework already provided for in the 
Riegle Community Development and Regulatory Improvement Act's 
definition of ``targeted populations,'' which the commenter explained 
can include either individuals who are low-income or others who ``lack 
adequate access to Financial Products or Financial Services in the 
entity's Target Market,'' to include certain minority groups.
Final Rule
    The agencies have considered and appreciate the many comments 
asserting that the agencies should incorporate additional regulatory 
provisions regarding race and ethnicity into the CRA regulatory and 
supervisory framework. These comments raise important and significant 
considerations about financial inclusion, discrimination, and broader 
economic issues. The agencies have carefully considered these comments, 
including those summarized in this section and in the section-by-
section analysis of the final rule (see section IV of this 
SUPPLEMENTARY INFORMATION), as well as the statutory purposes and text 
of the CRA. The agencies have also assessed other relevant legal and 
supervisory considerations, including, in particular, the 
constitutional considerations and implementation challenges associated 
with adopting regulatory provisions that expressly address race and 
ethnicity when implementing statutory text that does not expressly 
address race or ethnicity. Based upon these considerations, the 
agencies have determined not to include additional race- and ethnicity-
related provisions other than what is adopted in this final rule and 
discussed in more detail throughout this Introduction and section IV of 
the SUPPLEMENTARY INFORMATION.
    The agencies believe that the final rule strengthens the CRA's 
emphasis on encouraging banks to engage in activities that better 
achieve the core purpose of the CRA, and thereby meet the credit needs 
of their entire communities, including low- and moderate-income 
individuals and communities. Relatedly, the agencies continue to 
recognize that the CRA and fair lending requirements are mutually 
reinforcing, including by specifying in the final rule that special 
purpose credit programs under ECOA can be a type of responsive credit 
program, and by reaffirming that violations of the Fair Housing Act and 
ECOA can be the basis of a CRA rating downgrade. As noted, for example, 
in section III.B of this SUPPLEMENTARY INFORMATION, the final rule also 
retains the current rule's prohibition against banks delineating 
facility-based assessment areas in a manner that reflects illegal 
discrimination or arbitrarily excludes low- and moderate-income census 
tracts, and provides that the CRA performance of banks that engage in 
discriminatory or other illegal credit practices can be adversely 
affected by such practices. For more information and discussion 
regarding how the final rule strengthens the achievement of the core 
purpose of the statute, and confirms that CRA and fair lending 
responsibilities are mutually reinforcing (see sections III.B and IV of 
this SUPPLEMENTARY INFORMATION).

IV. Section-by-Section Analysis

Section __.11 Authority, Purposes, and Scope

Current Approach and the Agencies' Proposal
    Current Sec.  __.11 sets forth the authority, purposes, and scope 
of the CRA regulations. Paragraphs (a) and (c) of the section are 
agency-specific regulatory text, with paragraph (a) outlining the legal 
authority for each agency to implement the CRA and paragraph (c) 
providing the scope of each agency's CRA regulations. Common rule text 
in Sec.  __.11(b) provides that this part implements the CRA by 
establishing the framework and criteria by which the agencies assess a 
bank's record of helping to meet the credit needs of its entire 
community, including low- and moderate-income neighborhoods, consistent 
with the safe and sound operation of the bank; and providing that the 
agencies take that record into account in considering certain 
applications.
    Consistent with the current rule, proposed Sec.  __.11 sets forth 
the authority, purposes, and scope of the CRA regulations, with the 
authority and scope paragraphs (proposed Sec.  __.11(a) and (c)) 
including agency-specific regulatory text. Proposed Sec.  __.11(b) 
included technical, non-substantive edits to the current regulatory 
text, such as adding CRA's legal citation.
    The OCC proposed to amend its authority section, Sec.  25.11(a) by 
referencing part 25 in its entirety instead of each subpart, and by 
removing paragraph (a)(2), Office of Management and Budget (OMB) 
control number, as such information is unnecessary for regulatory text. 
The OCC also proposed technical edits to its scope section, Sec.  
25.11(c), to reflect the organization of the proposed common rule text.
    The Board did not propose any amendments to its authority section, 
Sec.  228.11(a), and proposed to amend its scope section, proposed 
Sec.  228.11(c), to replace references to ``special purpose banks'' 
with ``exempt banks'' to avoid any potential confusion with the OCC's 
special purpose bank charter.

[[Page 6591]]

    The FDIC proposed to amend its authority section, Sec.  345.11(a), 
by removing paragraph (a)(2), OMB control number, as such information 
is unnecessary for regulatory text. The FDIC did not propose any 
amendments to its scope section in Sec.  345.11(c).
Comments Received and Final Rule
    The agencies did not receive comments specific to the language in 
proposed Sec.  __.11(b) or the agency-specific language in proposed 
Sec.  __.11(a) and (c). Therefore, the agencies are adopting Sec.  
__.11(b) as proposed, and the Board is adopting its agency-only 
provisions, paragraphs (a) and (c), as proposed.
    The OCC adopts paragraph (a) as proposed, and paragraph (c) as 
proposed with technical edits. Specifically, the OCC has moved the 
definition of ``appropriate Federal banking agency'' in proposed Sec.  
25.11(c)(1)(iii) to final Sec.  25.12 (Definitions), where it more 
appropriately belongs. As in the current rule and as proposed, 
``appropriate Federal banking agency'' in the final rule means, with 
respect to subparts A (except in the definition of minority depository 
institution in Sec.  25.12) through E and appendices A through G, the 
OCC with respect to a national bank or Federal savings association and 
the FDIC with respect to a State savings association.\86\ In addition, 
the OCC has added Federal branches of foreign banks to paragraph 
(c)(1)(i), which lists the types of entities for which the OCC has 
authority to prescribe CRA regulations, to more accurately describe 
this authority. The OCC has also made minor technical edits to the 
listing of part 25 subparts in final paragraph (c).
---------------------------------------------------------------------------

    \86\ Final subpart F of part 25, Prohibition Against Use of 
Interstate Branches Primarily for Deposit Production, applies only 
to certain national banks and Federal branches of a foreign bank and 
includes ``OCC'' instead of ``appropriate Federal banking agency.''
---------------------------------------------------------------------------

    The FDIC is adopting paragraph (a) as proposed and paragraph (c) 
with technical edits. In the proposed rule, the FDIC's paragraph (c)(2) 
maintained references to current Sec.  345.41. The FDIC is adopting 
paragraph (c)(2) to reflect the final rule's new assessment area 
provisions. Thus, final paragraph (c)(2) provides that, for insured 
State branches of a foreign bank established and operating under the 
laws of any State, their facility-based assessment area and, as 
applicable, retail lending assessment areas and outside retail lending 
assessment area, are the community or communities located within the 
United States, served by the branch as described in Sec.  345.16 and, 
applicable, Sec. Sec.  345.17 and 345.18.

Section __.12 Definitions

    In proposed Sec.  __.12 (Definitions), the agencies proposed many 
terms defined in the current CRA regulations, some with substantive or 
technical revisions. The agencies also proposed new definitions that 
the agencies considered necessary to clarify and implement proposed 
revisions to the CRA evaluation framework, some of which reflect 
understandings of terms long used in the CRA evaluation framework or 
that are consistent with the Interagency Questions and Answers.
    The agencies received numerous comments on some of these 
definitions. These comments and the definitions as included in the 
final rule are discussed below.
Affiliate
    Under the current CRA regulations, the term ``affiliate'' means any 
company that controls, is controlled by, or is under common control 
with another company. The term ``control'' has the same meaning given 
to that term in section 2 of the Bank Holding Company Act, 12 U.S.C. 
1841(a)(2), and a company is under common control with another company 
if both companies are directly or indirectly controlled by the same 
company.\87\ The agencies proposed to retain their current definitions 
of ``affiliate,'' with the Board including one technical change to the 
definition in its regulation to add a reference to its bank holding 
company regulations, Regulation Y, 12 CFR part 225. Specifically, the 
Board proposed to define affiliate as any company that controls, is 
controlled by, or is under common control with another company. The 
term ``control'' has the meaning given to that term in 12 U.S.C. 
1841(a)(2), as implemented by the Board in 12 CFR part 225, and a 
company is under common control with another company if both companies 
are directly or indirectly controlled by the same company. The FDIC and 
the OCC did not propose any revisions to the definition of 
``affiliate'' in the agencies' respective CRA regulations.\88\
---------------------------------------------------------------------------

    \87\ See current 12 CFR __.12(a).
    \88\ See current 12 CFR 25.12(a) (OCC) and 345.12(a) (FDIC).
---------------------------------------------------------------------------

    The agencies did not receive any comments on the proposed 
definitions of ``affiliate'' and adopt the definitions as proposed in 
the final rule. Accordingly, the Board is adopting the proposed 
definition of ``affiliate'' in the final rule, which will be contained 
solely in its CRA regulations. The FDIC and the OCC are retaining the 
current definition of ``affiliate'' in their respective CRA 
regulations, which define affiliate as any company that controls, is 
controlled by, or is under common control with another company. The 
term ``control'' has the same meaning given to that term in 12 U.S.C. 
1841(a)(2), and a company is under common control with another company 
if both companies are directly or indirectly controlled by the same 
company.\89\
---------------------------------------------------------------------------

    \89\ See id.
---------------------------------------------------------------------------

Affordable Housing
    The agencies proposed to add a definition of ``affordable housing'' 
to mean activities described in proposed Sec.  __.13(b). See the 
section-by-section analysis of Sec.  __.13(b) for a detailed discussion 
of affordable housing. The agencies did not receive any comments on the 
proposed ``affordable housing'' definition and adopt it as proposed in 
the final rule.
Area Median Income
    The agencies proposed to retain the current definition of ``area 
median income,'' \90\ with one conforming change to replace the term 
``geography'' with ``census tract,'' but keep the same meaning (see the 
discussion of ``census tract'' in Sec.  __.12 of this section-by-
section analysis).\91\ Under the proposal, ``area median income'' would 
mean: (1) the median family income for the metropolitan statistical 
area (MSA), if a person or census tract is located in an MSA, or for 
the metropolitan division, if a person or census tract is located in an 
MSA that has been subdivided into metropolitan divisions; or (2) the 
statewide nonmetropolitan median family income, if a person or census 
tract is located outside an MSA.
---------------------------------------------------------------------------

    \90\ See current 12 CFR __.12(b).
    \91\ See current 12 CFR __.12(k) (defining ``geography'' to mean 
``a census tract delineated by the United States Bureau of the 
Census in the most recent decennial census'').
---------------------------------------------------------------------------

    The agencies did not receive any comments on the proposed ``area 
median income'' definition. However, the agencies are adopting the 
definition in the final rule as proposed with conforming and clarifying 
edits. First, in paragraph (1), the agencies have made a minor 
conforming change by replacing ``metropolitan statistical area (MSA)'' 
with ``MSA.'' Second, in paragraphs (1) and (2), the agencies have 
replaced the phrase ``if a person'' with ``if an individual, family, 
household.'' Third, in paragraph (1), the agencies have added the 
phrase ``that has not been subdivided into metropolitan divisions'' 
after ``located in an MSA'' to differentiate the first and second 
prongs of this paragraph. Fourth, in paragraph (2), as a conforming 
change, the

[[Page 6592]]

agencies have replaced the phrase ``outside an MSA'' with ``in a 
nonmetropolitan area.'' Final Sec.  __.12 defines ``nonmetropolitan 
area'' to mean any area that is not located in an MSA.
    Accordingly, the final rule defines ``area median income'' to mean: 
(1) the median family income for the MSA, if an individual, family, 
household, or census tract is located in an MSA that has not been 
subdivided into metropolitan divisions, or for the metropolitan 
division, if an individual, family, household, or census tract is 
located in an MSA that has been subdivided into metropolitan divisions; 
or (2) the statewide nonmetropolitan median family income, if an 
individual, family, household, or census tract is located in a 
nonmetropolitan area.
Assets
    The final rule includes a new definition for ``assets,'' not 
included in the proposal. This term means total assets as reported in 
Schedule RC of the Consolidated Reports of Condition and Income as 
filed under 12 U.S.C. 161, 324, 1464, or 1817, as applicable (Call 
Report), or as reported in Schedule RAL of the Report of Assets and 
Liabilities of U.S. Branches and Agencies of Foreign Banks (Report of 
Assets and Liabilities), as filed under 12 U.S.C. 1817(a), 3102(b), or 
3105(c)(2), as applicable. Although the agencies did not propose this 
definition, they have added it to the final rule to clarify the 
intended meaning of this term in the CRA regulations.
Assessment Area
    The current CRA regulations define ``assessment area'' to mean a 
geographic area delineated in accordance with 12 CFR __.41.\92\ Current 
Sec.  __.41 sets out the criteria for banks to delineate assessment 
areas. The agencies proposed to replace ``assessment area'' with three 
new terms in proposed Sec.  __.12: ``facility-based assessment area,'' 
``retail lending assessment area,'' and ``outside retail lending 
area,'' as these new terms are used in the proposal. These new 
definitions are discussed below. The agencies did not receive any 
comments concerning the removal of the ``assessment area'' definition 
and have removed this term in the final rule.
---------------------------------------------------------------------------

    \92\ See current 12 CFR __.12(c).
---------------------------------------------------------------------------

Bank
    Under the current CRA regulations, the Board and FDIC have separate 
definitions for the term ``bank.'' Each agency defines ``bank'' to 
refer to the entities regulated by the agency for which the agency 
evaluates CRA performance. The FDIC and Board did not propose changes 
to the current definitions of ``bank'' in their respective CRA 
regulations and received no comments on their proposed definitions of 
``bank.'' Accordingly, the final rule retains the current definitions 
of ``bank'' in the FDIC's and the Board's regulations.\93\
---------------------------------------------------------------------------

    \93\ The agencies' definitions of ``bank'' are included in the 
agency-specific amendatory text, outside of the common rule text.
---------------------------------------------------------------------------

    As such, for the FDIC, the term ``bank'' means a State nonmember 
bank, as that term is defined in section 3(e)(2) of the Federal Deposit 
Insurance Act (FDIA) (12 U.S.C. 1813(e)(2)), with federally insured 
deposits, except as defined in final Sec.  345.11(c). The term ``bank'' 
also includes an insured State branch as defined in final Sec.  
345.11(c).
    For the Board, the term ``bank'' means a State member bank as that 
term is defined in section 3(d)(2) of the FDIA (12 U.S.C. 1813(d)(2)), 
except as provided in final Sec.  228.11(c)(3) and includes an 
uninsured State branch (other than a limited branch) of a foreign bank 
described in final Sec.  228.11(c)(2). Accordingly, consistent with the 
Board's current CRA regulations, the term ``bank'' in final Sec.  
228.12 includes an uninsured State branch (other than a limited branch) 
of a foreign bank that results from an acquisition described in section 
5(a)(8) of the International Banking Act of 1978 (12 U.S.C. 
3103(a)(8)). Also, generally consistent with the current CRA 
regulations, ``bank'' in final Sec.  228.12 does not include banks that 
do not perform commercial or retail banking services by granting credit 
to the public in the ordinary course of business, other than as 
incident to their specialized operations and done on an accommodation 
basis.\94\ This exception for banks that do not perform commercial or 
retail banking services aligns with the current CRA regulations, 
including that performing commercial and retail banking services solely 
``on an accommodation basis'' will not qualify an entity as a ``bank.''
---------------------------------------------------------------------------

    \94\ See final Sec.  228.12 (defining ``bank'' to exclude 
institutions described in final Sec.  228.11(c)(3)). These 
institutions include bankers' banks, as defined in 12 U.S.C. 
24(Seventh), and banks that engage only in one or more of the 
following activities: providing cash management-controlled 
disbursement services or serving as correspondent banks, trust 
companies, or clearing agents.
---------------------------------------------------------------------------

    The OCC's current CRA regulation provides that ``bank or savings 
association'' means, except as provided in Sec.  25.11(c), a national 
bank (including a Federal branch as defined in part 28) with federally 
insured deposits or a savings association. Further, the OCC regulation 
provides that ``bank and savings association'' means, except as 
provided in Sec.  25.11(c), a national bank (including a Federal branch 
as defined in part 28) with federally insured deposits and a savings 
association.\95\
---------------------------------------------------------------------------

    \95\ See current 12 CFR 25.12(e). Pursuant to title III of the 
Dodd-Frank Act, and as described in footnote 2 of this SUPPLEMENTARY 
INFORMATION, the OCC's CRA regulation applies to both State and 
Federal savings associations, in addition to national banks. The 
FDIC enforces the OCC's CRA regulations with respect to State 
savings associations.
---------------------------------------------------------------------------

    For clarity and conciseness, the OCC proposed separate definitions 
of ``bank'' and ``savings association,'' without changing the substance 
of the current definitions. The OCC received no comments on this 
technical change and adopts the definitions as proposed in the final 
rule. As a result, in the final rule, ``bank'' means a national bank 
(including a Federal branch as defined in part 28) with federally 
insured deposits, except as provided in Sec.  25.11(c); and ``savings 
association'' means a Federal savings association or a State savings 
association.
Bank Asset-Size Definitions
Current Approach
    Under the current CRA regulations, the agencies define ``small 
bank'' to mean ``a bank that, as of December 31 of either of the prior 
two calendar years, had assets of less than $1.503 billion.'' \96\ The 
agencies defined ``intermediate small bank'' to mean ``a small bank 
with assets of at least $376 million as of December 31 of both of the 
prior two calendar years and less than $1.503 billion as of December 31 
of either of the prior two calendar years.'' \97\ The agencies adjust 
these terms annually for inflation based on the year-to-year change in 
the average of the Consumer Price Index for Urban Wage Earners and 
Clerical Workers (CPI-W), not seasonally adjusted, for each 12-month 
period ending in November, with rounding to the nearest million.\98\ 
The current CRA regulations do not define the term ``large bank,'' but 
any bank with assets exceeding those defining an ``intermediate small 
bank'' is understood to be a large bank (otherwise referred to as a 
``large institution'').
---------------------------------------------------------------------------

    \96\ The current asset-size threshold for a ``small bank'' 
reflects the annual dollar adjustment to the figures contained in 
current 12 CFR __.12(u)(1). See current 12 CFR __.12(u)(2).
    \97\ See current 12 CFR __.12(u)(1).
    \98\ See current 12 CFR __.12(u)(2).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed raising the asset-size threshold for the 
``small bank'' definition to provide more clarity, consistency, and 
transparency in the

[[Page 6593]]

evaluation process, and in recognition of the potential challenges 
associated with regulatory changes and data collection requirements for 
banks with more limited capacity. Under the proposal, a small bank 
would be a bank that had average assets of less than $600 million in 
either of the prior two calendar years, based on the assets reported on 
its four quarterly Call Reports for each of those calendar years. The 
agencies also proposed to add a new definition for ``intermediate 
bank'' that would replace the current ``intermediate small bank'' 
definition. Under the proposal, intermediate bank would mean a bank 
that had average assets of at least $600 million in both of the prior 
two calendar years and less than $2 billion in either of the prior two 
calendar years, based on the assets reported on its four quarterly Call 
Reports for each of those calendar years. The agencies intended the 
proposed ``intermediate bank'' definition to comprise a category of 
banks that have meaningful capacity to engage in CRA-related activities 
under the proposed Retail Lending Test and conduct community 
development activities, but that might have more limited capacity 
regarding data collection and reporting requirements than large banks.
    Finally, the agencies proposed to add a new ``large bank'' 
definition that would mean a bank that had average assets of at least 
$2 billion in both of the prior two calendar years, based on the assets 
reported on its four quarterly Call Reports for each of those calendar 
years. This proposed definition reflects the agencies' view that banks 
of this size generally have the capacity to conduct the range of 
activities that would be evaluated under each of the four performance 
tests proposed to apply to large banks.
    The agencies proposed to make annual adjustments to the asset-size 
thresholds for all three categories of banks based on the same CPI-W 
inflation measure used in the current CRA regulations for small and 
intermediate banks.\99\
---------------------------------------------------------------------------

    \99\ See current 12 CFR __.12(u)(2).
---------------------------------------------------------------------------

    As under the current CRA regulations, asset-size classification is 
relevant because it determines a bank's CRA evaluation framework. 
Consistent with the proposal, under the final rule, large banks are 
evaluated under the Retail Lending Test in final Sec.  __.22, the 
Retail Services and Products Test in final Sec.  __.23, the Community 
Development Financing Test in final Sec.  __.24, and the Community 
Development Services Test in final Sec.  __.25. Intermediate banks are 
evaluated under the Retail Lending Test in Sec.  __.22, and either the 
current Intermediate Bank Community Development Test, in final Sec.  
__.30(a)(2),\100\ or, at the bank's option, the Community Development 
Financing Test in final Sec.  __.24.\101\ Small banks are evaluated 
under the small bank lending test, in final Sec.  __.29(a)(2),\102\ or, 
at the bank's option, the Retail Lending Test in final Sec.  __.22.
---------------------------------------------------------------------------

    \100\ In the proposal, the Intermediate Bank Community 
Development Test, referred to as the ``intermediate bank community 
development evaluation,'' is in proposed Sec.  __.29(b).
    \101\ See final Sec.  __.30(a)(1).
    \102\ In the proposal, the Small Bank Lending Test, referred to 
as the ``status quo small bank lending test,'' is in proposed Sec.  
__.29(a).
---------------------------------------------------------------------------

Comments Received
    The agencies received numerous comments on the proposed ``small 
bank,'' ``intermediate bank,'' and ``large bank'' definitions. Given 
that the current and proposed definitions are interconnected, the 
agencies believe it is appropriate to discuss the comments 
collectively.
    Many commenters expressed general support for the proposal to 
increase the asset-size thresholds for small, intermediate, and large 
banks. Many of these commenters indicated that the proposed thresholds 
are reasonable and would represent appropriate burden relief for banks 
that would qualify as small or intermediate banks under the proposed 
definitions. Several commenters stated that the proposed asset-size 
thresholds are appropriate to ensure that smaller banks with more 
limited staff and other resources are not subjected to the same 
performance expectations or data collection and reporting requirements 
as larger banks. Several other commenters supported the proposed asset-
size thresholds based not only on other regulatory burden they 
anticipate under the proposal but also on the principle that community 
banks already experience significant regulatory burden unrelated to the 
CRA. Another commenter approved of the increased asset-size thresholds 
on the basis that they would permit smaller banks to expand to meet the 
needs of their communities without necessarily subjecting themselves to 
new CRA requirements that the commenter stated were likely to have 
onerous costs.
    Many commenters specifically expressed support for increasing the 
asset-size threshold for a small bank to $600 million. These commenters 
noted that the asset-size threshold would apply to approximately the 
same percentage of banks as were classified as small banks when the 
agencies' amended their CRA regulations in 2005. Several other 
commenters explained that the asset-size threshold increases would be a 
timely and welcome adjustment because of changes in the banking 
industry and the unprecedented growth of bank balance sheets and excess 
liquidity that has resulted from Federal Government stimulus in 
response to the COVID-19 pandemic. Another commenter indicated that 
raising the asset-size threshold as proposed was a timely action on the 
part of the agencies due to recent trends in inflation that are beyond 
banks' control. One commenter stated that the current asset-size 
thresholds are too low and reflected prior conditions.
    Many other commenters expressed opposition to the proposed asset-
size threshold increases and advocated for the agencies to maintain the 
current thresholds. Some of these commenters stated that the proposed 
changes were inappropriate because reclassified banks would be subject 
to less rigorous performance standards and diminished agency oversight, 
which would minimize transparency and accountability and reduce those 
banks' CRA obligations and reinvestment. Other commenters noted that 
raising the asset-size thresholds would result in missed opportunities 
for reclassified banks to expand and improve their CRA activity under 
more rigorous performance standards. These commenters also asserted 
that the proposed changes to the asset-size thresholds are not 
justified because banks already perform successfully under the current, 
lower thresholds for small, intermediate small, and large banks.
    Many commenters focused on the number of banks that would be 
reclassified into a smaller asset-size category and the adverse effect 
this reclassification could have on community development financing, 
with a few commenters stating that increasing the small bank asset-size 
threshold would reduce the amount of community development activity, 
especially in smaller and more rural communities. Some commenters 
highlighted the agencies' statement in the proposal that approximately 
778 current intermediate small banks would be reclassified as small 
banks and 216 current large banks would be reclassified as intermediate 
banks.\103\ These commenters expressed their belief that the 
reclassified banks would no longer be held accountable (or would

[[Page 6594]]

be held accountable to a lesser degree) for community development 
financing activity. Many of these commenters suggested that this loss 
of accountability would cause significant reductions in community 
development financing, with some commenters citing estimated annual 
losses of $1 billion to $1.2 billion. These commenters argued that, if 
these forecasted losses in community development financing are remotely 
accurate, the change in asset-size thresholds would amount to a 
significant failure on the part of the agencies. Many commenters 
indicated that although the impact of reduced community development 
financing would be experienced in low- and moderate-income communities 
nationwide, the losses are likely to be most acute in less populated 
communities, such as rural, micropolitan, and small-town areas, where a 
substantial number of the reclassified banks are located. A few 
commenters specified that any loss of community development financing 
could adversely affect the availability of affordable housing and bank 
responsiveness to other important community needs.
---------------------------------------------------------------------------

    \103\ See 87 FR 33884, 33924 (June 3, 2022).
---------------------------------------------------------------------------

    Several commenters explained that reductions in community 
development financing as a result of asset-size threshold changes could 
adversely affect CDFIs by diminishing bank-CDFI relationships, and the 
flow of capital from banks to CDFIs--especially CDFIs located in 
smaller or rural communities. Noting that the agencies stated in the 
proposal that raising the asset-size thresholds would impact only two 
percent of bank assets in the banking system, some commenters indicated 
that a reclassified bank may be the only lender or one of a small 
number of banks with any presence in a geographic area.
    Some commenters stated that reclassifying some current large banks 
as intermediate banks could negatively impact the availability of 
banking services in low- and moderate-income and rural communities 
because the proposed Retail Services and Products Test and Community 
Development Services Test would only apply to large banks. Several 
other commenters stated that reclassifying a large bank as an 
intermediate bank would effectively eliminate agency evaluation of 
applicable service considerations such as the operation of bank 
branches in their communities.
    A few commenters expressed concerns about the impact of the 
agencies' proposal to revise asset-size thresholds on racial or ethnic 
minority communities. A commenter stated that a number of Black 
communities would be significantly adversely impacted by the 
reclassification of certain large banks as intermediate banks and 
certain intermediate small banks as small banks. The commenter asserted 
that these changes would reduce these banks' incentives to engage with 
Black communities, given the specific performance tests that would be 
applicable to small banks and intermediate banks under the agencies' 
proposal. Another commenter raised concerns that small banks and 
intermediate banks would not be subject to a retail services test. In 
the commenter's view, an evaluation of retail services is critical to 
ensure that bank branches are located in both low- and moderate-income 
communities and minority communities.
    A few commenters stated that raising the large bank asset-size 
threshold could result in diminished bank investment in New Markets Tax 
Credits (NMTC) and other community tax credit investments given that, 
under the proposal, intermediate and small banks would not have 
corresponding community development requirements. These commenters also 
indicated that relieving banks of these requirements could negatively 
impact overall demand for community tax credit investments, for which 
the majority of investors are CRA-motivated banks.
    Many of the commenters opposing the proposed asset-size threshold 
increases asserted that regulatory relief for banks was not a 
sufficient justification for changes that would adversely impact local 
communities. Several commenters argued that the potential burden on 
banks from being classified as a larger institution would not outweigh 
the need for accountability and equity. Another commenter indicated 
that the agencies did not produce estimates or data indicating that the 
proposed regulatory approach would be so prohibitively burdensome that 
significant increases in asset-size thresholds were necessary.
    Several other commenters stated that the agencies' proposal should, 
at a minimum, provide for the same range of community development 
financing activity for all current intermediate small banks and large 
banks as under the current CRA regulations. A commenter asserted that 
the proposal goes backwards with no justification for how the reduction 
in compliance burden for banks reclassified as smaller banks would 
offset the loss of reinvestment activity from a public benefits 
perspective. Some commenters added that the impacted banks are engaging 
in community development under the current asset-size thresholds 
without any apparent deleterious impacts. Other commenters asserted 
that maintaining the current asset-size thresholds would be more 
consistent with the agencies' goal of strengthening the CRA framework.
    A few commenters suggested that the current asset-size thresholds 
could remain in place and continue to be adjusted for inflation. A 
commenter indicated that, based on the application of inflation 
adjustments to the current asset-size thresholds, the proposed small 
bank asset-size threshold was too large in comparison. The commenter 
explained that if the agencies' proposed asset-size thresholds for 
small, intermediate, and large banks were adjusted for inflation, the 
asset-size thresholds would be approximately $375 million for small 
banks and approximately $1.5 billion for large banks.
    A commenter opposed the proposed asset-size threshold changes on 
the grounds that the thresholds for intermediate and large banks are 
arbitrary and not based on any relevant data or analysis. The commenter 
also asserted that the proposed intermediate bank threshold is 
similarly unsupported and would subject reclassified intermediate banks 
to considerably increased compliance costs without commensurate 
benefit. Another commenter stated that the agencies did not provide 
documentation supporting the increase in the proposed asset-size 
thresholds.
    Alternate asset-size thresholds. Many commenters recommended that 
the agencies adopt asset-size thresholds for small, intermediate, and 
large banks that are higher than those proposed. These commenters 
suggested asset-size thresholds of $750 million to $5 billion for 
intermediate banks and from $2.5 billion to $20 billion for large 
banks. Commenters asserted that higher asset-size thresholds are 
necessary to provide regulatory relief and limit the significant 
compliance burdens that the agencies' proposal would otherwise impose 
on smaller banks. A commenter stated that increasing the small bank 
asset-size threshold to $750 million would avoid placing unnecessary 
regulatory burden on smaller mission-driven institutions. Another 
commenter stated that regulatory burden considerations justified a 
variety of small bank asset-size thresholds of up to $3 billion. 
Another commenter stated that it lacked the financial and human 
resources to monitor performance under the proposed Retail Lending Test 
and requested a significantly higher asset-size threshold for large 
banks. Other commenters suggested asset-size

[[Page 6595]]

thresholds for large banks ranging from $3.3 billion to $20 billion, 
based on compliance burden as well as inflation adjustments.
    A few commenters specifically drew attention to smaller banks' 
resource capacities in advocating for higher asset-size thresholds. A 
commenter suggested an asset-size threshold of $750 million for small 
banks and an asset-size threshold of $3 billion for large banks based 
on resource capacity. Another commenter expressed support for a large 
bank asset-size threshold of $3 billion. Several other commenters 
recommended an asset-size threshold of $1 billion for small banks and 
an asset-size threshold of $5 billion for large banks to better reflect 
resource capacity and the ability to comply with the proposed 
performance test requirements. A commenter suggested that a $1 billion 
asset-size threshold for small banks would prove beneficial to many 
community banks located in rural areas with few low- and moderate-
income census tracts. A few commenters suggested that asset-size 
thresholds of $1 billion and $10 billion for small and large banks, 
respectively, would better reflect bank capacity and compliance 
resource availability. Another commenter stated that an asset-size 
threshold cap on intermediate banks of $3 billion would be a better 
representation of the median large bank in its State and region. One 
commenter argued that setting the asset-size thresholds for small banks 
and intermediate banks at $1 billion and $3 billion, respectively, 
would provide significant regulatory relief for smaller banks and free 
up resources for the agencies to focus on the largest banks and banks 
with poor CRA performance. Similarly, another commenter stated that any 
bank with assets between $1 billion and $15 billion should be 
classified as an intermediate bank to reduce regulatory burden.
    A commenter cited rapid growth in bank balance sheets due to bank 
consolidation and monetary and fiscal policy as reasons to further 
raise the small and intermediate bank asset-size thresholds, to a small 
bank threshold of $750 million and a large bank threshold of $2.5 
billion. Another commenter cited similar reasons in support of a $1 
billion asset-size threshold for small banks. Another commenter 
suggested a small bank asset-size threshold ranging anywhere between $2 
billion and $5 billion and a large bank asset-size threshold of $10 
billion due to the growth in bank balance sheets.
    Further, some commenters stated that the asset-size thresholds 
should better reflect the distribution of small, intermediate, and 
large banks when these categories were originally established. Many 
commenters stated that, to maintain a similar percentage distribution 
of banks in the intermediate bank category to the distribution of 
intermediate small banks when that category was established in 2005, an 
intermediate bank should be any bank with assets between $600 million 
and $3.3 billion. Another commenter agreed that the agencies should 
attempt to maintain a similar percentage distribution of intermediate-
sized institutions as in 2005. The commenter also indicated that a 
large bank threshold of $5 billion would likewise achieve this outcome. 
A different commenter suggested that any bank with assets between $1 
billion and $5 billion should be categorized as an intermediate bank to 
adjust for inflation since the asset-size thresholds were originally 
set.
    Some commenters noted that setting the intermediate bank asset-size 
threshold at $10 billion would serve to eliminate the proposal's 
distinction between two tiers of large banks.\104\ For example, a 
commenter stated that a $10 billion asset-size threshold for large 
banks would eliminate the confusion associated with the agencies' 
proposal to designate two tiers of large banks in which only the 
largest large banks would have comprehensive data collection and 
reporting requirements. Another commenter suggested that the agencies 
create an additional ``large community bank'' evaluation tier for banks 
with $2 billion to $10 billion in assets; alternatively, the commenter 
suggested that the agencies expand the intermediate bank tier to banks 
with assets of $10 billion or less.
---------------------------------------------------------------------------

    \104\ The proposed and final rule apply certain aspects of the 
final rule to large banks with assets greater than $10 billion. See 
the section-by-section analysis discussion of Sec. Sec.  __.22 and 
__.42.
---------------------------------------------------------------------------

    Similarly, several commenters stated that the agencies should 
consider raising the asset-size threshold for large banks because the 
proposal is based on an incorrect perception that a bank with assets 
slightly over $2 billion is the peer of a significantly larger regional 
bank with $50 billion in assets--or an even larger institution with a 
nationwide presence. A few commenters also noted that financial 
regulators often consider a bank with less than $10 billion in assets a 
``community bank'' for supervisory purposes. A few other commenters 
concurred that banks with assets between $2 billion and $10 billion are 
typically considered to be community banks. Another commenter, 
recommending a large bank asset-size threshold of $5 billion, asserted 
that raising the asset-size threshold for large banks would minimize 
unfair comparison of larger intermediate-size institutions with 
significantly larger banks. One other commenter suggested raising the 
intermediate bank asset-size threshold so that more banks would have 
the option of being evaluated under the status quo community 
development test, as the agencies proposed for intermediate banks 
(referred to in the proposal as the intermediate bank community 
development evaluation).
    A few commenters suggested that the agencies conform increased 
asset-size thresholds with other existing thresholds. A commenter 
stated that the agencies should set the asset-size threshold for small 
banks at $750 million to conform with the U.S. Small Business 
Administration's (SBA) size standard for small banks.\105\ The 
commenter also stated that the asset-size threshold for intermediate 
banks should be increased to $2.5 billion, an amount that would more 
closely approximate the Board's threshold of $3 billion to distinguish 
between small and large bank holding companies. Several commenters 
stated that the small bank asset-size threshold should be $1 billion, 
to be consistent with the proposed definition of ``community bank'' in 
the 2012 FDIC Community Banking Study.\106\ A few other commenters 
suggested that large banks should have assets of $10 billion or more to 
maintain consistency with regulatory definitions in the Dodd-Frank Act. 
Another commenter suggested that the agencies follow the National 
Credit Union Administration's (NCUA) position that institutions that it 
supervises are ``large'' when they have greater than $15 billion in 
assets.
---------------------------------------------------------------------------

    \105\ See infra note 113.
    \106\ See FDIC, ``Community Banking Study'' (Dec. 2012), https://www.fdic.gov/resources/community-banking/report/2012/2012-cbi-study-full.pdf.
---------------------------------------------------------------------------

Final Rule
    The agencies considered commenters' concerns and recommendations 
related to the proposed asset-size thresholds. As a part of that 
process, the agencies observed that commenters did not coalesce around 
a particular asset-size framework that would address their respective 
concerns related to the proposed asset-size framework. In fact, the 
opposite was true, as commenters' recommendations as to how to 
structure the asset-size framework were varied and frequently unique. 
The agencies conclude that the myriad comments and recommendations 
reflect an absence of

[[Page 6596]]

consensus around an asset-size framework that would address all, or a 
majority of, the commenters' concerns. The agencies continue to believe 
that the proposed framework strikes the appropriate balance between 
recognizing the capacity differences between banks of varying size and 
maintaining a strong CRA evaluation framework that benefits communities 
served by banks of all sizes and capacities.
    The agencies also considered commenter input that the proposed 
asset-size thresholds are arbitrary and not based on relevant data 
analysis. The agencies believe increasing the asset-size threshold for 
small banks to $600 million is appropriate based on an analysis of 
industry asset data, current CRA asset-size thresholds, supervisory 
experience with those thresholds, and bank asset-size standards 
employed by other agencies. First, as discussed in the proposal, the 
agencies analyzed Call Report and the FDIC's Summary of Deposits data 
to estimate how the proposed asset-size thresholds would redistribute 
banks throughout the proposed categories. The agencies estimated that 
the proposed change to the small bank asset threshold would result in 
approximately 778 banks, representing two percent of all deposits, 
transitioning from the current intermediate-small bank category to the 
proposed small bank category. The agencies further estimated that the 
proposed increase in the large bank asset-size threshold would result 
in approximately 216 banks representing approximately two percent of 
all deposits transitioning from the current large bank category to the 
proposed intermediate bank category.\107\ The agencies communicated the 
findings of this analysis as a part of the proposal to ensure that the 
public was apprised of the potential redistribution of banks across the 
proposed framework.\108\ Second, the agencies, over the multi-decade 
period since the CRA was enacted, have developed supervisory experience 
related to the asset-size thresholds and an understanding of the 
capacity of banks in each class of bank to engage in CRA activity, and 
incorporated that understanding into the consideration of the proposed 
asset-size thresholds. Based on this supervisory experience, the 
agencies calibrated the level of CRA requirements to bank size, 
consistent with the statutory purpose and the agencies' objective of 
encouraging banks to meet the credit needs of their communities. Third, 
the agencies considered adopting the SBA's ``small bank'' definition, 
but ultimately elected to adopt the $600 million asset-size threshold 
because it is better aligned with the CRA's policy goals, and the 
agencies believe that banks with assets between $600 and $850 million 
have the capacity to engage in community development activity.
---------------------------------------------------------------------------

    \107\ The agencies based these estimates on average assets from 
2020 and 2021 Call Report data and the FDIC's 2021 Summary of 
Deposits data. These statistics included some banks with no CRA 
obligations, such as banker's banks.
    \108\ See 87 FR 33884, 33924 n. 162 (June 3, 2022).
---------------------------------------------------------------------------

    The agencies believe that the asset-size framework in the final 
rule strengthens the agencies' implementation of the CRA statute and 
furthers the CRA statute's emphasis on assessing the records of banks 
of all asset sizes in meeting the credit needs of their entire 
communities, including low- and moderate-income neighborhoods. The 
final rule also implements the CRA statutory provisions that focus 
specifically on MDIs, WDIs, and LICUs.\109\ As discussed above, CRA and 
fair lending laws such as ECOA and the Fair Housing Act are mutually 
reinforcing. Specifically, under the CRA, the agencies assess banks' 
records of helping meet the credit needs of the entire community,\110\ 
while fair lending laws serve to identify and address lending 
discrimination for protected classes, such as race and ethnicity.
---------------------------------------------------------------------------

    \109\ See 12 U.S.C. 2903(b) and 2907(a).
    \110\ For more information and discussion regarding the 
agencies' consideration of comments recommending adoption of 
additional race- and ethnicity-related provisions in this final 
rule, see section III.C of this SUPPLEMENTARY INFORMATION.
---------------------------------------------------------------------------

    Under the final rule, intermediate banks and small banks may 
receive additional consideration at the institution level for 
activities with MDIs, WDIs, and LICUs, which, as noted, reflects CRA 
statutory provisions. For example, under the final rule a small or 
intermediate bank can receive consideration for a capital investment, 
loan participation or other venture with an MDI. An intermediate bank 
or small bank that opts into the Retail Services and Products Test may 
receive CRA consideration for bank credit products and programs that 
are conducted in cooperation with MDIs and Special Purpose Credit 
Programs as examples of credit products and programs that are 
responsive to the needs of the communities in which the bank operates, 
including the needs of low- and moderate-income individuals, families, 
and households; small businesses; and small farms. The final rule also 
retains the current prohibition against banks, including intermediate 
banks and small banks, delineating facility-based assessment areas in a 
manner that reflects illegal discrimination or that arbitrarily 
excludes low- and moderate-income census tracts; and retains the 
current provision regarding discriminatory or other illegal credit 
practices that can adversely affect a bank's CRA performance.
    Further, both intermediate banks and small banks continue to have 
retail lending requirements. Under the final rule, intermediate banks 
are evaluated under the Retail Lending Test in final Sec.  __.22, and 
either the Intermediate Bank Community Development Test in final Sec.  
__.30(a)(2) or, at the bank's option, the Community Development 
Financing Test in final Sec.  __.24.\111\ Likewise, under the final 
rule, small banks are evaluated under the Small Bank Lending Test, in 
final Sec.  __.29(a)(2) or, at the bank's option, the Retail Lending 
Test in final Sec.  __.22.\112\
---------------------------------------------------------------------------

    \111\ See the section-by-section analysis of final Sec.  __.30.
    \112\ See the section-by-section analysis of final Sec.  __.29.
---------------------------------------------------------------------------

    Additional bank asset-size categories. A few commenters suggested 
that the agencies create a new category for banks with assets much 
higher than the proposed $2 billion large bank asset-size threshold and 
apply the most demanding performance tests or data reporting and 
collection requirements solely to those banks. According to commenters, 
including a category for the largest banks would help the agencies to 
better tailor CRA requirements for smaller large banks. A commenter 
explained that the agencies could impose the most demanding 
requirements on ``super large'' banks with greater than $50 billion in 
assets. Similarly, another commenter suggested the creation of a ``mega 
bank'' category for banks with assets greater than $100 billion on 
which the agencies could impose unique performance test structures and 
standards. Another commenter questioned why the agencies did not apply 
the large bank requirements exclusively to banks with greater than $100 
billion in assets, a decision that according to the commenter, would 
capture 75 percent of total industry assets. One other commenter 
recommended that the agencies combine the proposed intermediate bank 
and large bank categories, so that there would only be categories for 
small and large banks in the final rule.
    The agencies considered the commenters' concerns but are not 
adopting additional asset-size categories

[[Page 6597]]

for banks with assets significantly greater than the proposed asset-
size threshold for large banks--e.g., ``super large'' or ``mega bank'' 
categories for institutions with assets over $50 billion and $100 
billion, respectively. Applying certain aspects of the large bank 
performance test only to very large banks in the manner suggested by 
commenters would reduce the number of banks subject to certain aspects 
of the performance tests and could thereby discourage CRA activity by 
some banks. Similarly, the agencies did not adopt commenters' 
suggestion to eliminate the intermediate bank category in the final 
rule. The agencies believe that the three size categories of banks in 
the final rule effectively balance bank capacity with the obligation of 
a bank to meet the needs of its community. Removing an asset-size 
category would reduce tailoring of the CRA performance tests based on 
bank capacity. Depending on which asset-size category were removed, for 
example, more banks might be classified as small banks, potentially 
countering the agencies' goal of encouraging banks with a meaningful 
capacity to engage in community development activities, or more 
performance tests would apply to banks that potentially lack the 
capacity to meet those tests' parameters, increasing regulatory burden.
    SBA size standards for small banks. The agencies specifically 
requested feedback on whether they should adopt an asset-size threshold 
for small banks that differs from the SBA's then small bank asset-size 
standard of $750 million.\113\ Several commenters supported the 
agencies conforming to the SBA's small bank asset-size standard, with 
some specifically stating that consistency across Federal agencies 
should be maintained wherever possible. In contrast, some commenters 
found the SBA's small bank asset-size standard of $750 million too 
high, for the same reasons provided by commenters who found the 
proposed size standards of $600 million too high, as discussed above.
---------------------------------------------------------------------------

    \113\ The SBA's applicable asset-size standards are set forth in 
13 CFR 121.201, Sector 52--Finance and Insurance, Subsector 522--
Credit Intermediation and Related Activities (specifically, North 
American Industry Classification System (NAICS) codes 522110 and 
522180). At the time of the proposed rule's publication date, the 
SBA's small bank asset-size threshold was $750 million. The SBA 
revised this asset-size standard, as of December 19, 2022, from $750 
million to $850 million in assets, determined by averaging the 
assets reported on the depository institution's four quarterly 
financial statements for the preceding year. See 87 FR 69118, 69128 
(Nov. 17, 2022).
---------------------------------------------------------------------------

    The agencies recognize that consistency across Federal agencies is 
generally desirable, but the agencies believe that deviating from the 
SBA's small bank asset-size standard is appropriate to meet the CRA's 
statutory purpose. In particular, applying the SBA's $850 million small 
bank asset-size standard in the CRA framework would significantly 
increase the number of banks that would be classified as small banks. 
This might, in turn, result in less community development activity 
relative to the current CRA regulations or proposal because fewer banks 
would be evaluated under the status quo community development 
test.\114\ Such a development would be counter to the CRA statute's 
purposes and the agencies' CRA modernization objectives.
---------------------------------------------------------------------------

    \114\ Based on an analysis of current bank size characteristics, 
the agencies estimate that the $600 million small bank asset-size 
threshold would result in approximately 609 banks that are required 
to comply with the CRA rule--representing approximately 13 percent 
of all banks--transitioning to the small bank category. However, if 
the agencies were to incorporate an $850 million asset-size standard 
in the CRA regulations, the agencies estimate that this would lead 
to approximately 957 current intermediate small banks that are 
required to comply with the CRA rule, representing approximately 21 
percent of all banks, transitioning from the current intermediate 
small bank category to the small bank category. Estimates are based 
on year-end assets from 2021 and 2022 Call Report data.
---------------------------------------------------------------------------

    Inflation adjustments to asset-size thresholds. Several commenters 
expressed support for the agencies' proposal to adjust the asset-size 
thresholds for small, intermediate, and large banks annually for 
inflation. However, a few commenters expressed concerns. A commenter 
stated that, although the proposed inflation adjustments may seem 
reasonable, they could have the unintended consequence of decreasing 
investments in low- and moderate-income communities when banks are 
reclassified to a smaller asset-size category. A few other commenters 
stated that inflation adjustments tied to the CPI-W do not take into 
account major changes, including consolidation, that have occurred in 
the banking industry over the past decade.
    The agencies considered the commenters' feedback and elected to 
maintain the proposed annual inflation adjustment methodology in the 
final rule. The agencies believe the proposed methodology, whereby 
asset-size thresholds would be adjusted annually for inflation based on 
the annual percentage change in the CPI-W, is preferable due to its 
alignment with the current CRA regulations' annual inflation 
adjustments to the asset-size thresholds. With respect to commenters' 
concerns about unintended consequences associated with banks moving 
into lower asset-size categories, the agencies recognize that this is a 
potential outcome associated with employing an annual inflation 
adjustment to the asset-size thresholds. However, the agencies believe 
the benefits of employing an annual inflation adjustment mechanism 
outweigh this concern, because it mitigates the risk of needing to 
employ large or unpredictable increases to realign the asset-size 
thresholds with conditions in the banking industry. Further, utilizing 
ad hoc adjustments to the asset-size thresholds, which would be less 
predictable and less stable, could mean more movement of banks from one 
size category to another from year-to-year, which inherently creates 
uncertainty for banks and stakeholders. Moreover, if the agencies 
declined to include an annual inflation adjustment mechanism, a 
scenario could develop where institutions would graduate into higher 
size categories due to inflation regardless of whether their financial 
condition or capabilities to engage in CRA activity have changed. 
Finally, the agencies note that the annual asset-size threshold 
adjustment methodology is not designed to account for industry changes 
such as consolidation. Rather, the methodology is designed to ensure 
that the asset-size thresholds evolve with economic conditions.
    Asset-size threshold alternatives. A few commenters cautioned 
against the agencies placing too much reliance on asset-size thresholds 
to determine which performance tests apply to a particular bank. These 
commenters stated that the agencies should consider various factors 
such as a bank's business model, risk profile, areas of specialization, 
communities served, assessment area sizes, presence in an assessment 
area, staffing levels, and technology limitations. A few other 
commenters suggested that, under an ``alternate prong'' in the large 
bank definition, the agencies should designate a bank as a large bank 
if it makes a certain amount of loans in an evaluation period, even if 
its asset size would otherwise qualify it as a small or intermediate 
bank. These commenters asserted that this alternate prong would account 
for situations where a bank claims to be the ``true lender'' for loans 
that it makes with support from a third party.
    The agencies considered commenter feedback that the final rule 
should include alternative formulations to determine which performance 
tests apply to a bank. The agencies believe that alternative 
formulations for the baseline determination of which performance tests 
apply to a bank, including adding factors such as risk

[[Page 6598]]

profile, areas of specialization, technology limitations, and others, 
would increase the complexity of the final rule and its administration 
without meaningfully furthering the agencies' CRA objectives. 
Therefore, the agencies are maintaining asset size as the sole factor 
for purposes of categorizing most institutions in the final rule. 
However, as discussed throughout this SUPPLEMENTARY INFORMATION, the 
agencies have incorporated performance context information into 
performance test metrics and benchmarks, as well as express 
consideration of qualitative factors in evaluating a bank's 
performance, which include, among others, business model.\115\ In 
addition, the agencies have retained a distinct evaluation approach for 
limited purpose banks,\116\ as well as the option for banks to be 
evaluated under a strategic plan.\117\
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    \115\ See, e.g., final Sec. Sec.  __.21(d) and __.22(g) and the 
accompanying section-by-section analyses.
    \116\ See final Sec. Sec.  __.12 (definition of ``limited 
purpose bank'') and __.26 and the accompanying section-by-section 
analyses.
    \117\ See final Sec.  __.27 and the accompanying section-by-
section analysis.
---------------------------------------------------------------------------

    Asset-size threshold calculations. A commenter requested 
clarification regarding how the agencies propose to determine a bank's 
asset size. The commenter noted that the proposal defines a small bank 
as a bank that had average assets of less than $600 million in either 
of the prior two calendar years, based on the assets reported on its 
four quarterly Call Reports for each of those calendar years. The 
commenter requested that the agencies clarify whether a bank must have 
average assets of less than $600 million at each quarter-end versus the 
current method that considers year-end values.
    After considering this comment, the agencies have decided to retain 
the asset-size calculation methodology in the current CRA regulations, 
which provides that asset size is calculated as of the end of a 
calendar year without reference to quarterly Call Report figures.\118\ 
This methodology is simpler than the proposed formula, it is widely 
understood,\119\ and retaining it will minimize complexity in the final 
rule.
---------------------------------------------------------------------------

    \118\ As a result of retaining the current year-end asset-size 
calculation, the agencies estimate that the number of small banks 
will decrease from 3252 (NPR asset-size calculation methodology) to 
3219 banks, the number of intermediate banks will increase from 883 
(NPR asset-size calculation methodology) to 889, and the number of 
large banks will increase from 492 (NPR asset-size calculation 
methodology) to 519. Numbers are for banks that are required to 
comply with the CRA regulation; estimates are based on year-end 
assets from 2021 and 2022 Call Report data.
    \119\ See current 12 CFR __.12(u)(1).
---------------------------------------------------------------------------

    For the reasons discussed above, the agencies are adopting the 
proposed definitions of ``small bank,'' ``intermediate bank,'' and 
``large bank'' in the final rule, with two substantive changes. First, 
the agencies are adding the clause, ``excluding a bank designated as a 
limited purpose bank \120\ pursuant to Sec.  __.26,'' to each of the 
three definitions to clarify that a bank designated as a limited 
purpose bank that also falls into one of the asset-size categories is 
evaluated as a limited purpose bank and not a small, intermediate, or 
large bank, with the attendant requirements of the performance tests 
that would otherwise be applicable to such a bank.\121\ Second, the 
agencies have changed the asset-size calculation methodology to reflect 
assets held at year-end, instead of at each quarter-end, as proposed. 
The agencies have also made minor technical wording changes.
---------------------------------------------------------------------------

    \120\ As discussed below, in the definition of ``limited purpose 
bank,'' the agencies have combined limited purpose banks and 
wholesale banks into one category, ``limited purpose banks.''
    \121\ For limited purpose bank evaluations, see final Sec. Sec.  
__.21(a)(4) and __.26 and the accompanying section-by-section 
analyses.
---------------------------------------------------------------------------

    Accordingly, in the final rule, ``small bank'' means a bank, 
excluding a bank designated as a limited purpose bank pursuant to Sec.  
__.26, that had assets of less than $600 million as of December 31 in 
either of the prior two calendar years. ``Intermediate bank'' means a 
bank, excluding a bank designated as a limited purpose bank pursuant to 
Sec.  __.26, that had assets of at least $600 million as of December 31 
in both of the prior two calendar years and less than $2 billion as of 
December 31 in either of the prior two calendar years. ``Large bank'' 
means a bank, excluding a bank designated as a limited purpose bank 
pursuant to Sec.  __.26, that had assets of at least $2 billion as of 
December 31 in both of the prior two calendar years. For all three 
definitions, the agencies adjust and publish the asset-size thresholds 
annually, based on the year-to-year change in the average of the CPI-W, 
not seasonally adjusted, for each 12-month period ending in November, 
with rounding to the nearest million.
    As indicated above, and in the proposal, the agencies believe that 
these asset-size thresholds appropriately balance the agencies' 
objectives of meeting the CRA's purpose of encouraging banks to meet 
the credit needs of their communities and recognizing differences in 
bank capacity based on asset size.
    In accordance with the Small Business Act \122\ and its 
implementing regulations,\123\ the agencies sought and received 
approval from the SBA to deviate from the SBA's asset-size standard 
applicable to small depository institutions--i.e., small banks.
---------------------------------------------------------------------------

    \122\ 15 U.S.C. 632(a)(2)(C).
    \123\ 13 CFR 121.903.
---------------------------------------------------------------------------

Branch
Current Approach and the Agencies' Proposal
    The agencies proposed to update the current definition of 
``branch'' without materially changing the substantive meaning of this 
term. The current CRA regulations define ``branch'' to mean a staffed 
banking facility authorized as a branch, whether shared or unshared, 
including, for example, a mini-branch in a grocery store or a branch 
operated in conjunction with any other local business or nonprofit 
organization.\124\ Under the proposal, ``branch'' would mean a staffed 
banking facility, whether shared or unshared, that is approved or 
authorized as a branch by the appropriate Federal financial supervisory 
agency and that is open to, and accepts deposits from, the general 
public.
---------------------------------------------------------------------------

    \124\ See current 12 CFR __.12(f).
---------------------------------------------------------------------------

    As noted in the proposal, the agencies did not intend for the 
removal of the list of examples from the definition to change or narrow 
the meaning of the term ``branch'' and believed that these examples did 
not fully reflect the breadth of shared space locations that might 
exist, particularly as new bank business models emerge in the future. 
In addition, the agencies proposed to add the language ``open to, and 
accepts deposits from, the general public'' to the definition of 
``branch'' to underscore that this definition would capture new bank 
business models, with different types of staffed physical locations, 
when those locations are open to the public and collect deposits from 
customers. Similarly, the agencies added that a branch must be approved 
or authorized as a branch by the agency to clarify that the agencies 
have varying processes for branch designation and that the name that a 
bank assigns to a facility is not determinative of whether an agency 
considers it a ``branch'' for CRA purposes. The agencies did not view 
these revisions as a change from the current standards.
    For the reasons stated below, the agencies are adopting the 
proposed definition of ``branch'' in the final rule.
Comments Received
    The agencies received several comments concerning the proposed 
definition of ``branch.'' A commenter recommended that the agencies 
adopt a

[[Page 6599]]

flexible definition of ``branch'' that can adjust with changes in the 
industry. Other commenters offered views on what the agencies should 
and should not consider a branch for purposes of delineating a 
facility-based assessment area. A commenter requested that the agencies 
clarify whether the proposed definition of ``branch'' (and ``remote 
service facility,'' discussed below) would include a financial 
institution taking deposits at a school or community organization 
facility. Another commenter recommended stating explicitly, either in 
the regulation or in guidance, that a staffed physical location in a 
shared space in which a financial institution has partnered with a 
nonprofit organization is a branch. This commenter also suggested that 
the agencies specify that any examples of shared physical locations in 
the regulation are illustrative and not exhaustive. Another commenter 
requested that a trust office be specifically excluded from the 
definition of ``branch'' if the office is not open to or does not 
accept deposits from the general public.
Final Rule
    After reviewing the comments received on this definition, the 
agencies are adopting the definition of ``branch'' as proposed. 
Accordingly, ``branch'' means a staffed banking facility, whether 
shared or unshared, that the appropriate Federal financial supervisory 
agency approved or authorized as a branch and that is open to, and 
accepts deposits from, the general public. The agencies believe the 
proposed definition of ``branch'' provides adequate flexibility to 
adapt to the continuous evolution of the banking industry by relying on 
the agencies' authority to approve and authorize branches. As the 
banking industry evolves, the agencies have the authority to adjust 
their rules, regulations, and guidance to accommodate industry 
developments.
    The agencies decline to opine on whether the scenarios presented by 
the commenters would qualify as a branch under the definition, because 
branching decisions are analyzed on a case-by-case basis and subject to 
the agencies' respective statutory authority, regulations, and 
guidance, which may be modified in the future and render some or all of 
the examples contained in the list inaccurate.
    The agencies do not believe that trust offices that are not open to 
the public or do not accept deposits from the general public need to be 
explicitly excluded from the definition of ``branch,'' because a trust 
office exhibiting those characteristics would likely not satisfy the 
elements of the definition of ``branch'' in the final rule. However, as 
discussed above, branching decisions are fact-specific inquiries, so 
the agencies are not opining on whether trust offices are generally 
excluded under the definition of ``branch'' in the final rule.
Census Tract
    The current rule defines ``geography'' to mean a census tract 
delineated by the U.S. Bureau of the Census in the most recent 
decennial census.\125\ To simplify and clarify the CRA regulations, the 
agencies proposed to use the term ``census tract'' in place of the term 
``geography,'' without changing the substantive meaning. As proposed, 
``census tract'' would mean a census tract delineated by the U.S. 
Census Bureau in the most recent decennial census. In addition, the 
agencies proposed to substitute the word ``census tract'' for the word 
``geography'' wherever ``geography'' appears in the regulatory text.
---------------------------------------------------------------------------

    \125\ See current 12 CFR __.12(k) (``Geography means a census 
tract delineated by the United States Bureau of the Census in the 
most recent decennial census.'').
---------------------------------------------------------------------------

    The agencies did not receive any comments concerning the proposed 
``census tract'' definition and are adopting the definition as proposed 
with one change. The agencies are removing the phrase ``in the most 
recent decennial census'' from the definition in the final rule to 
conform this definition to current agency practice. The U.S. Census 
Bureau periodically updates census tract boundaries and numbering 
during the years between decennial censuses, and the Federal Financial 
Institutions Examination Council (FFIEC) compiles these changes to 
provide one update between decennial censuses, after five years. Under 
current practice, the agencies have been using the census tract 
boundaries and numbering posted on the FFIEC website. This practice 
balances between the benefit of using updated census tract definitions 
between decennial censuses and the benefit of having a substantial 
period of stability (five years) between adjustments to census tract 
delineations and numbering. The agencies believe that the revised 
definition would allow for the current practice of using inter-
decennial changes to census tract delineations, which would not be 
possible under the proposed language because the definition would be 
confined to the census tract delineations included in the decennial 
census.
    Accordingly, the final rule defines ``census tract'' to mean a 
census tract delineated by the U.S. Census Bureau.
    The U.S. Census Bureau publishes census tract data and information 
at census.gov.\126\
---------------------------------------------------------------------------

    \126\ See U.S. Census Bureau, ``TIGER/Line Shapefiles,'' https://www.census.gov/cgi-bin/geo/shapefiles/index.php.
---------------------------------------------------------------------------

Closed-End Home Mortgage Loan
    For a discussion of the definition of ``closed-end home mortgage 
loan,'' see the discussion below for Mortgage-Related Definitions.
Combination of Loan Dollars and Loan Count
    To provide clarity and consistency, and to simplify the text of the 
CRA regulations, the agencies are adopting a new definition for 
``combination of loan dollars and loan count,'' not included in the 
proposal, that means, when applied to a particular ratio, the average 
of: (1) the ratio calculated using loans measured in dollar volume; and 
(2) the ratio calculated using loans measured in number of loans. This 
term is employed in calculations for the Retail Lending Test in final 
Sec.  __.22, as provided in final appendix A; the calculations for the 
Community Development Financing Test in final Sec.  __.24, as provided 
in final sections II and IV of appendix B, and the Community 
Development Services Test in final Sec.  __.25, as provided in final 
section IV of appendix B; and the Retail Services and Products Test in 
final Sec.  __.23, as provided in final appendix C. These calculations 
are discussed in more detail in the section-by-section analysis of 
Sec. Sec.  __.22 through __.25.
    For the Retail Lending Test in particular, the combined loan 
dollars and loan count approach for various calculations better tailors 
the Retail Lending Test to accommodate individual bank business models. 
The agencies determined that use of this combination helps to account 
for differences across product lines, bank strategies, and geographic 
areas, relative to an approach that uses only loan dollars or only loan 
count. Loan size can vary among different product lines (e.g., home 
mortgage loans versus automobile loans), and this approach seeks to 
balance the value of dollars invested in a community with the number of 
borrowers served. In particular, the agencies believe that both loan 
dollars and loan count reflect different aspects of how a bank has 
served the credit needs of a community. For example, in the agencies' 
supervisory experience, employing a combination of loan dollars

[[Page 6600]]

and loan count recognizes the continued importance of home mortgage 
lending to low-income and moderate-income communities, which has been a 
focus of the CRA, while also accounting for the importance of typically 
smaller dollar small business, small farm, and automobile lending to 
low- and moderate-income communities. The loan dollars represent the 
total amount of credit provided, while the loan count represents the 
number of borrowers served. The agencies believe this is a balanced 
approach that ensures consideration of lending that would be 
significant to the bank by either dollar or number.
    Specifically, the agencies believe that use of this term will 
improve understanding and readability of the following calculations in 
the Retail Lending Test: (1) the retail lending assessment area 80 
percent exemption threshold, as provided in final paragraph II.a.1 of 
appendix A; (2) the outside retail lending area 50 percent exemption 
threshold for intermediate banks, as provided in final paragraph II.a.2 
of appendix A; (3) the 15 percent major product line threshold for 
facility-based assessment areas and outside retail lending areas, as 
provided in final paragraph II.b.1 of appendix A; (4) the standard for 
determining whether a bank is a majority automobile lender, as provided 
in final paragraph II.b.3 of appendix A; (5) weighted performance 
conclusions for major product lines in facility-based assessment areas, 
retail lending assessment areas, and outside retail lending areas to 
develop corresponding area performance conclusions, as provided in 
final paragraph VII.b of appendix A; and (6) weighted average 
performance scores for different areas in which banks are evaluated to 
develop performance test conclusions for States, multistate MSAs, and 
the institution, as provided in final paragraph VIII.b.2 of appendix A.
    Similarly, the agencies believe that, for purposes of consistency 
throughout the final rule and to provide clarity, it is appropriate to 
incorporate the term into the calculations related to the Community 
Development Financing Test in final Sec.  __.24 and the Community 
Development Services Test in final Sec.  __.25, as provided in final 
appendix B, as well as the Retail Services and Products Test in final 
Sec.  __.23, as provided in final appendix C. As with the Retail 
Lending Test in final Sec.  __.22, this definition helps to improve 
understanding and readability in the calculations for the: (1) 
weighting of benchmarks in final paragraph II.o of appendix B; (2) 
combined score for facility-based assessment area conclusions and the 
metrics and benchmarks analyses and the impact and responsiveness 
reviews in final paragraph II.p of appendix B; (3) the weighting of 
conclusions in final section IV of appendix B; and (4) the weighting of 
conclusions in final paragraph c of appendix C.
Community Development
    The current CRA regulations include a detailed definition of 
``community development.'' \127\ The agencies proposed to move this 
definition, with substantive additions and clarifications, to a 
separate new section, proposed Sec.  __.13, Community Development 
Definitions, and to define this term in Sec.  __.12 by cross-
referencing to proposed Sec.  __.13. The agencies did not receive any 
comments on the proposed definition of ``community development'' and 
adopt it as proposed in the final rule. Final Sec.  __.13, as discussed 
in the section-by-section analysis of Sec.  __.13, describes activities 
that constitute community development, as proposed, but is retitled 
``Consideration of community development loans, community development 
investments, and community development services.''
---------------------------------------------------------------------------

    \127\ See current 12 CFR __.12(g).
---------------------------------------------------------------------------

Community Development Financial Institution
    The agencies proposed to add the definition of ``Community 
Development Financial Institution (CDFI)'' to the CRA regulations. This 
term would have the same meaning given to that term in section 
103(5)(A) of the Riegle Community Development and Regulatory 
Improvement Act of 1994 (RCDRIA) (12 U.S.C. 4701 et seq.).\128\ The 
agencies proposed this definition to promote clarity in the CRA 
regulations and consistency across Federal programs addressing CDFIs, 
particularly the CDFI Fund established by RCDRIA.\129\
---------------------------------------------------------------------------

    \128\ Section 103(5)(A) of RCDRIA defines ``CDFI'' to mean a 
person (other than an individual) that: (1) has a primary mission of 
promoting community development; (2) serves an investment area or 
targeted population; (3) provides development services in 
conjunction with equity investments or loans, directly or through a 
subsidiary or affiliate; (4) maintains, through representation on 
its governing board or otherwise, accountability to residents of its 
investment area or targeted population; and (5) is not an agency or 
instrumentality of the United States, or of any State or political 
subdivision of a State. See 12 U.S.C. 4702(5)(A).
    \129\ See U.S. Dept. of the Treasury, ``Community Development 
Financial Institutions Fund,'' https://www.cdfifund.gov/about; see 
also 12 U.S.C. 4703.
---------------------------------------------------------------------------

    The agencies did not receive any comments concerning the proposed 
definition of ``Community Development Financial Institution'' and are 
adopting the definition as proposed in the final rule with several 
technical and clarifying edits. First, the agencies are replacing the 
phrase ``has the same meaning given to that term'' with ``means an 
entity that satisfies the definition.'' Second, the agencies are 
changing the cross-reference to the RCDRIA to the more specific 
``Community Development Banking and Financial Institutions Act of 
1994,'' which is title I, subtitle A of RCDRIA. Third, in conjunction 
with the revised cross-reference to the Community Development Banking 
and Financial Institutions Act of 1994, the agencies have revised the 
citation from ``12 U.S.C. 4701 et seq.'' to ``12 U.S.C. 4702(5).'' 
Finally, in order to clarify that references to CDFIs in the final rule 
pertain to those entities that are determined to be CDFIs by the U.S. 
Department of the Treasury's CDFI Fund, the definition has been amended 
by adding the clause ``and is certified by the U.S. Department of the 
Treasury's Community Development Financial Institutions Fund as meeting 
the requirements set forth in 12 CFR 1805.201(b).'' This definitional 
change affirms the agencies' intent to ensure that, beyond MDIs, WDIs, 
and LICUs, the entities with which a bank may engage for automatic 
consideration of loans, investments, and services have undergone the 
U.S. Department of the Treasury's CDFI certification process and meet 
requirements for maintaining that certification. The agencies consider 
this a critical guardrail to ensuring that community development on an 
inclusive community basis is the focus of bank loans, investments, and 
services in cooperation with these CDFIs. See discussion of CDFIs in 
the section-by-section analysis of Sec.  __.13.
    Accordingly, the final rule defines ``Community Development 
Financial Institution (CDFI)'' to mean an entity that satisfies the 
definition in section 103(5)(A) of the Community Development Banking 
and Financial Institutions Act of 1994 (12 U.S.C. 4702(5)) and is 
certified by the U.S. Department of the Treasury's Community 
Development Financial Institutions Fund as meeting the requirements set 
forth in 12 CFR 1805.201(b).
Community Development Investment
    The agencies proposed to replace the term ``qualified investment'' 
in the current CRA regulations \130\ with the term ``community 
development

[[Page 6601]]

investment.'' \131\ The current CRA regulations define ``qualified 
investment'' to mean ``a lawful investment, deposit, membership share, 
or grant that has as its primary purpose community development.'' \132\ 
The agencies believe the term ``community development investment'' is 
better aligned with the other types of community development activities 
discussed in the proposal--i.e., community development loans and 
community development services. (The definitions for these terms are 
discussed below). The agencies based the proposed ``community 
development investment'' definition on the current ``qualified 
investment'' definition and incorporated several additions. First, the 
proposed ``community development investment'' definition clarified that 
a lawful investment includes a legally binding commitment to invest 
that is reported on Schedule RC-L of the Call Report if its primary 
purpose is community development. Second, the proposed definition 
expressly included a ``monetary or in-kind donation'' if its primary 
purpose is community development in order to increase certainty and 
clarity as to what activities would qualify under the definition. 
Finally, the agencies added a cross-reference to proposed Sec.  
__.13(a), Community Development Definitions.
---------------------------------------------------------------------------

    \130\ See current 12 CFR __.12(t).
    \131\ As discussed, the change in the final rule from 
``qualified investment'' to ``community development investment'' is 
a change in nomenclature only; for purposes of simplifying the 
discussion, this SUPPLEMENTARY INFORMATION hereafter refers to 
``qualified investments'' under the current rule as ``community 
development investments.''
    \132\ Id.
---------------------------------------------------------------------------

    The agencies did not receive any comments concerning the proposed 
definition of ``community development investment'' and are adopting the 
definition as proposed, with technical edits to conform to the changes 
made to Sec.  __.13 in the final rule and adjust punctuation. 
Specifically, the agencies are changing ``has a primary purpose of 
community development'' to ``supports community development'' and 
revising the cross-reference to ``Sec.  __.13(a)'' to ``Sec.  __.13.'' 
A payment to a third party that is not an affiliate to perform 
community development service hours qualifies as a ``monetary or in-
kind donation'' under the definition of ``community development 
investment'' in Sec.  __.12.
Community Development Loan
    The current CRA regulations define ``community development loan'' 
to mean a loan that: (1) has as its primary purpose community 
development; and (2) except in the case of a wholesale or limited 
purpose bank, has not been reported or collected by the bank or an 
affiliate for consideration in the bank's assessment as a home 
mortgage, small business, small farm, or consumer loan, unless the loan 
is for a multifamily dwelling (as defined in Sec.  1003.2(n) of this 
title); and benefits the bank's assessment area(s) or a broader 
statewide or regional area(s) that includes the bank's assessment 
area(s).\133\
---------------------------------------------------------------------------

    \133\ See current 12 CFR __.12(h).
---------------------------------------------------------------------------

    The agencies proposed several revisions to this definition to add 
greater specificity and to reflect consideration of community 
development loans and retail loans under the proposed CRA evaluation 
framework. First, the proposed definition included the clause, ``a 
legally binding commitment to extend credit, such as a standby letter 
of credit,'' to clarify that these types of commitments could be 
considered ``community development loans'' if their primary purpose is 
community development pursuant to proposed Sec.  __.13(a). Second, the 
agencies removed the reference to assessment areas because this part of 
the current definition caused uncertainty as to whether an otherwise 
eligible activity would qualify. Finally, the proposed definition 
reflected the proposed CRA framework's consideration of certain loans 
solely under the proposed Retail Lending Test, with an option for 
certain intermediate banks to have a home mortgage loan, a small 
business loan, or a small farm loan considered as either a retail loan 
or a community development loan.
    Specifically, the agencies proposed to define ``community 
development loan'' to mean a loan, including a legally binding 
commitment to extend credit, such as a standby letter of credit, that: 
(1) has a primary purpose of community development, as described in 
Sec.  __.13(a); and (2) has not been considered by the bank, an 
operations subsidiary or operating subsidiary of the bank or an 
affiliate of the bank under the Retail Lending Test as an automobile 
loan, closed-end home mortgage loan, open-end home mortgage loan, small 
business loan, or small farm loan unless (1) the loan is for a 
multifamily dwelling (as defined in 12 CFR 1003.2(n)); or (2) in the 
case of an intermediate bank that is not required to report a home 
mortgage loan, a small business loan, or a small farm loan, the bank 
may opt to have the loan considered under the Retail Lending Test in 
Sec.  __.22, or under the intermediate bank community development 
performance standards in Sec.  __.29(b)(2), or, if the bank opts in, 
the Community Development Financing Test in Sec.  __.24.\134\
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    \134\ See proposed Sec.  __.12.
---------------------------------------------------------------------------

    The agencies did not receive any comments concerning the proposed 
``community development loan'' definition and are adopting the 
definition in the final rule with changes to reflect revisions to the 
final rule regarding consideration of certain home mortgage loans, 
small business loans, and small farm loans as community development 
loans. First, the agencies are changing ``has a primary purpose of 
community development'' to ``supports community development'' and 
revising the cross-reference from ``Sec.  __.13(a)'' to ``Sec.  __.13'' 
to conform to the changes made to Sec.  __.13 in the final rule. Next, 
the agencies removed proposed paragraph (2) and added text intended to 
clarify that a one-to-four family home mortgage loan for rental housing 
with affordable rents in nonmetropolitan areas under Sec.  __.13(b)(3) 
(as discussed in the section-by-section analysis of final Sec.  
__.13(b)(3)) may be considered in a bank's CRA evaluation under both 
the Retail Lending Test in Sec.  __.22, if applicable, and under the 
applicable community development tests in the final rule. Under the 
final definition of ``community development loan,'' a small business 
loan or a small farm loan that has a community development purpose, as 
described in Sec.  __.13, may also be considered in a bank's CRA 
evaluation under both the Retail Lending Test in Sec.  __.22, if 
applicable, and under the applicable community development test in the 
final rule. For example, as discussed in the section-by-section 
analysis of final Sec.  __.13(c)(3), certain loans to small businesses 
and small farms may fall within the economic development category of 
community development.
    The changes regarding consideration of certain home mortgage loans, 
small business loans, and small farm loans as community developments 
loans are discussed in more detail in the section-by-section analyses 
of Sec.  __.13(b) and (c).
    Accordingly, the final rule defines ``community development loan'' 
as a loan, including a legally binding commitment to extend credit, 
such as a standby letter of credit, that supports community 
development, as described in Sec.  __.13. A community development loan 
does not include any home mortgage loan considered under the Retail 
Lending Test in Sec.  __.22, with the exception of one-to-four family

[[Page 6602]]

home mortgage loans for rental housing with affordable rents in 
nonmetropolitan areas under Sec.  __.13(b)(3).
Community Development Services
Current Approach and the Agencies' Proposal
    The agencies proposed to replace the current term ``community 
development service,'' with the term, ``community development 
services,'' and revise the definition. The current CRA regulations 
define ``community development service'' to mean a service that: (1) 
has as its primary purpose community development; (2) is related to the 
provision of financial services; and (3) has not been considered in the 
evaluation of the bank's retail banking services under Sec.  
__.24(d).\135\ Under current guidance, activities related to the 
provision of financial services include services of the type generally 
provided by the financial services industry, which often involves 
informing community members about obtaining or using credit.\136\ 
Further, community development service includes, but is not limited to, 
serving on the board of directors for a community development 
organization, serving on a loan committee, developing or teaching 
financial literacy curricula for low- and moderate-income individuals, 
providing technical assistance on financial matters to a small 
business, and providing services reflecting a bank employee's 
professional expertise at the bank (e.g., human resources, information 
technology, legal).\137\ Personal charitable activities provided by an 
employee or director outside the ordinary course of their employment do 
not qualify for community development consideration.\138\ Instead, 
services must be performed in the capacity of a representative of the 
bank.\139\
---------------------------------------------------------------------------

    \135\ Under current 12 CFR __.24(d), the agencies evaluate ``the 
availability and effectiveness of a bank's systems for delivering 
retail banking services. . . .'' See also Q&A Sec.  __.24(d)--1 and 
--2; Q&A Sec.  __.24(d)(3)--1 and --2; and Q&A Sec.  __.24(d)(4)--1.
    \136\ See Q&A Sec.  __.12(i)--1.
    \137\ See Q&A Sec.  __.12(i)--3.
    \138\ See Q&A Sec.  __.12(i)--2.
    \139\ Id.
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    The agencies proposed to replace the current term ``community 
development service,'' with the term, ``community development 
services'' and revise the definition. Specifically, the agencies 
proposed to define ``community development services'' to mean 
``activities described in Sec.  __.25(d).'' The agencies, generally, 
proposed in Sec.  __.25(d) to incorporate the existing definition of 
community development services while codifying existing guidance on the 
meaning of ``related to the provision of financial services.'' Proposed 
Sec.  __.25(d) defined community development services as: (1) 
activities that have a primary purpose of community development, as 
defined in proposed Sec.  __.13(a)(1); (2) volunteer activities 
performed by bank board members or employees; and (3) activities 
related to the provision of financial services as described in proposed 
Sec.  __.25(d)(3), unless otherwise indicated in proposed Sec.  
__.25(d)(4).\140\ Proposed Sec.  __.25(d)(2) excluded volunteer 
services performed by bank board members or employees of the bank who 
are not acting in their capacity as representatives of the bank. 
Proposed Sec.  __.25(d)(3) provided that activities related to the 
provision of financial services are generally activities that relate to 
credit, deposit, and other personal and business financial services, 
and included a non-exhaustive list of examples. Proposed Sec.  
__.25(d)(4) provided that banks may receive community development 
services consideration for volunteer activities undertaken in 
nonmetropolitan areas that otherwise meet the criteria for one or more 
of the community development definitions, as described in Sec.  __.13, 
even if unrelated to financial services. The agencies reasoned that 
banks operating in nonmetropolitan areas may have fewer opportunities 
to provide community development services related to the provision of 
financial services. Proposed Sec.  __.25(d)(4) provided that examples 
of qualifying activities not related to financial services include, but 
are not limited, to assisting an affordable housing organization to 
construct homes; volunteering at an organization that provides 
community support such as a soup kitchen, a homeless shelter, or a 
shelter for victims of domestic violence; and organizing or otherwise 
assisting with a clothing drive or a food drive for a community service 
organization.
---------------------------------------------------------------------------

    \140\ See proposed Sec.  __.25(d).
---------------------------------------------------------------------------

Comments Received
    The agencies received numerous comments concerning the proposed 
definition of ``community development services'' that are discussed 
below.
    Community development purpose for community development services. A 
few commenters stressed that the final rule should require community 
development services to have or be related to a community development 
purpose.
    Related to the provision of financial services. As described above, 
proposed Sec.  __.25(d)(3) provided that ``[a]ctivities related to the 
provision of financial services'' are those that relate to credit, 
deposit, and other personal and business financial services and 
included the following non-exhaustive list of examples: serving on the 
board of directors of an organization that has a primary purpose of 
community development; providing technical assistance on financial 
matters to nonprofit, government, or tribal organizations or agencies 
supporting community development activities; providing support for 
fundraising to organizations that have a primary purpose of community 
development; providing financial literacy education as described in 
proposed Sec.  __.13(k); or providing services reflecting other areas 
of expertise at the bank, such as human resources, information 
technology, and legal services.
    A few commenters supported the inclusion of volunteer activities 
reflecting expertise of the employee, such as human resources, legal 
services, and information technology. A few other commenters 
specifically noted that activities related to the provision of 
financial services should include financial literacy or financial 
education. One of these commenters also suggested the provision of 
financial services should include volunteering at Volunteer Income Tax 
Assistance sites managed by nonprofit organizations.
    Performed on behalf of the bank. Regarding the proposed exclusion 
of volunteer activities by bank board members or employees of the bank 
who are not acting in their capacity as representatives of the bank, a 
commenter requested clarification that the proposed exclusion would not 
require the volunteer to act as an agent of the bank when serving on a 
community organization's board of directors. This commenter believed 
that if the volunteer must act as an agent, it could create a conflict 
of interest. Another commenter stated that banks should only receive 
CRA credit for volunteer activities performed during bank business 
hours.
    Volunteer activities in nonmetropolitan areas. The agencies 
received many comments on the proposed expansion to allow CRA 
consideration for volunteer service hours in nonmetropolitan areas that 
are unrelated to the provision of financial services. Only a few 
commenters supported the provision as proposed. A majority of 
commenters on this topic opposed the inclusion of volunteer activities 
unrelated to the provision of

[[Page 6603]]

financial services in any location. A few commenters disputed the 
premise stated in the proposal that there are insufficient volunteer 
opportunities in nonmetropolitan areas, and one commenter urged the 
agencies to collect data to verify the premise before expanding to 
include services unrelated to the provision of financial services in 
nonmetropolitan areas. Several other commenters stated that although 
nonfinancial volunteer activities benefit communities, the inclusion of 
such services loses sight of the CRA's intent to provide financial 
services to underserved communities. These commenters believed that the 
CRA should increase services related to the provision of financial 
services and should not include all types of volunteer activities.
    A few commenters supported the provision to include volunteer 
activities unrelated to the provision of financial services in all 
areas, not just nonmetropolitan areas. These commenters highlighted the 
benefit general volunteerism provides to low- and moderate-income 
communities and stressed that there is need in both metropolitan and 
nonmetropolitan areas. A few commenters said that limiting the 
provision of services unrelated to financial services to only 
nonmetropolitan areas would restrict community organizations from 
directing the service hours where needed. Another commenter believed 
the restriction would be inappropriate at this time because community 
organizations continue to experience challenges in recruiting 
volunteers as a result of the COVID-19 pandemic. Other commenters said 
the expansion to consider volunteer activities unrelated to the 
provision of financial services in all communities could help reduce 
the number of CRA ``hot spots.'' A commenter conveyed that some bank 
employees are not well positioned for or comfortable providing services 
related to the provision of financial services. Another commenter 
questioned the delineation of nonmetropolitan versus metropolitan areas 
because the delineation would exclude certain rural areas that are on 
the outskirts of metropolitan areas.
    A commenter stated bank employees volunteering services unrelated 
to financial services be given CRA consideration in all communities, at 
least in instances when it involves helping an affordable housing 
organization build homes for homeownership. In support of this 
position, the commenter highlighted the connection between the creation 
of affordable housing built for homeownership and expanding credit and 
homeownership opportunities for low- and moderate-income communities.
    If the agencies allow CRA consideration for volunteer service hours 
in nonmetropolitan areas that are unrelated to the provision of 
financial services, a few commenters offered other requirements or 
limitations to the evaluation of these service hours, such as weighting 
the provision of financial services more heavily than those unrelated 
to financial services; granting pro rata consideration for services 
unrelated to the provision of financial services based on the percent 
of low- and moderate-income recipients; establishing a limit for 
receiving CRA consideration for services unrelated to financial 
services; establishing a separate metric; limiting the expansion to 
those community development services that satisfy basic needs like 
shelter, safety, and food; or requiring the bank to show it made a 
demonstrated effort to provide the provision of financial services 
before it may receive credit for services unrelated to financial 
services.
Final Rule
    In response to commenter feedback and for the reasons described 
below, the agencies are adopting a definition of ``community 
development services'' in Sec.  __.12 that includes substantive changes 
as well as technical and conforming edits. Specifically, the final rule 
defines ``community development services'' to mean the performance of 
volunteer services by a bank's or affiliate's board members or 
employees, performed on behalf of the bank, where those services: (1) 
support community development, as described in Sec.  __.13; and (2) are 
related to the provision of financial services, which include credit, 
deposit, and other personal and business financial services, or 
services that reflect a board member's or employee's expertise at the 
bank or affiliate, such as human resources, information technology, and 
legal services. The agencies agree with commenters that a community 
development purpose is fundamental to eligibility as a community 
development service. Thus, with non-substantive conforming edits, the 
agencies are adopting the proposed requirement that a community 
development service must support community development as described in 
Sec.  __.13.
    The agencies removed the examples of what qualifies as ``related to 
the provision of financial services'' from the final definition. 
Instead, the agencies believe the examples are more appropriate for 
future agency guidance. In addition, the agencies will consider these 
examples as they develop the illustrative list described in final Sec.  
__.14. The agencies note that the removal of examples of community 
development services from the ``community development services'' 
definition in the final rule should not be interpreted as a statement 
on what qualifies or does not qualify as relating to the provision of 
financial services. The examples provided in the proposal and restated 
in the preceding discussion would still be considered ``related to the 
provision of financial services.''
    Further, the agencies determined that references to specific 
programs, like the suggestion to identify Volunteer Income Tax 
Assistance sites as related to the provision of financial services, in 
the text of the regulation could be overly limiting and possibly 
inconsistent with the durability of the rule over time. Free tax 
preparation is likely to qualify as ``related to the provision of 
financial services'' and may receive community development service 
consideration if it otherwise meets the definition of community 
development services.
    In response to commenter feedback that the proposed exclusion--
excluding volunteer services performed by bank board members or 
employees of the bank who are not acting in their capacity as 
representatives of the bank--could be misinterpreted to require or 
establish an agency relationship, the agencies removed the exclusion. 
Instead, the agencies require that the services must be ``performed on 
behalf of the bank.'' The agencies do not intend to require that an 
employee or director must be acting as a bank's agent in the legal 
sense of the term, nor do the agencies intend to suggest that 
volunteering on behalf of the bank necessarily creates an agency 
relationship.
    The agencies also considered the comment that banks should only 
receive CRA credit for volunteer activities performed during bank 
business hours. The agencies believe that the nature of community 
development services may vary depending on community needs and seek to 
give banks flexibility to address those needs regardless of the timing 
of projects and other community development-related activities. Thus, 
consistent with the proposal, the final rule provides that a service 
may still qualify as ``volunteer'' where the service is performed 
during an employee's off-duty hours if that service otherwise meets the 
``community development services'' definition. Conversely, volunteer 
activities conducted by an employee or board member in their

[[Page 6604]]

personal capacity are generally not considered performed on behalf of 
the bank if the activity is not sponsored or organized by the bank.
    A service can also be considered ``volunteer'' for purposes of the 
``community development services'' definition even if an employee is 
paid in the normal course of employment. For example, volunteer hours 
could include those hours associated with a bank employee performing an 
economic development service activity, such as completing tax returns 
for small businesses, during the employee's work hours. Even though the 
bank pays the employee in the regular course of employment, the bank 
essentially donates those hours because the bank employee is performing 
economic development for the small business, rather than performing 
that employee's regular bank duties.
    The agencies have not adopted the proposal to include volunteer 
activities unrelated to the provision of financial services in 
nonmetropolitan areas. The agencies believe that volunteer service 
hours, even if unrelated to financial services, can provide a 
meaningful benefit in nonmetropolitan areas, but have determined that, 
by focusing on activities related to the provision of financial 
services, this provision is more consistent with the CRA's statutory 
focus and also emphasizes activities that examiners have competency and 
expertise to evaluate. The removal of this proposed expansion in 
nonmetropolitan areas also is intended more generally to address 
commenter requests that the agencies reduce the final rule's 
complexity.
    Finally, the agencies made conforming edits to clarify that service 
hours performed by the employees or board members of a bank's affiliate 
may qualify as community development services, as provided for in final 
Sec.  __.21(b).
Consumer Loan
Current Approach
    The current CRA regulations define ``consumer loan'' to mean a loan 
to one or more individuals for household, family, or other personal 
expenditures, but does not include a home mortgage, small business, or 
small farm loan. Further, ``consumer loan'' includes the following 
categories of loans: (1) a motor vehicle loan, which is a consumer loan 
extended for the purchase of and secured by a motor vehicle; (2) a 
credit card loan, which is a line of credit for household, family, or 
other personal expenditures that is accessed by a borrower's use of a 
credit card, as this term is defined in 12 CFR 1026.2; (3) an other 
secured consumer loan, which is a secured consumer loan that is not 
included in one of the other categories of consumer loans; and (4) an 
other unsecured consumer loan, which is an unsecured consumer loan that 
is not included in one of the other categories of consumer loans.\141\
---------------------------------------------------------------------------

    \141\ See current 12 CFR __.12(j).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to modify the ``consumer loan'' definition to 
refine its scope, simplify and clarify it, and align it with revisions 
to related Call Report definitions as well as proposed revisions to the 
CRA regulations. Specifically, the proposed definition replaced the 
term ``home mortgage'' with ``home mortgage loan'' (both a closed-end 
home mortgage loan, and an open-end home mortgage loan) and a 
``multifamily loan'' to use terms included in the proposal, discussed 
below. The proposal also modified the reference to ``motor vehicle 
loan'' to ``automobile loan,'' and specified that an automobile loan 
includes new or used passenger cars or other vehicles, providing 
examples, such as a minivan, a pickup truck, a sport-utility vehicle, a 
van, or a similar light truck for personal use, as defined in Schedule 
RC-C of the Call Report. The agencies proposed this change to conform 
with the proposal to add a definition for ``automobile loan'' to the 
CRA regulations, discussed above, and to align the term with the 
definition of ``automobile loan'' in Schedule RC-C of the Call Report. 
The proposed ``consumer loan'' definition also added ``other revolving 
credit plan,'' to mean a revolving credit plan that is not accessed by 
credit card. This change conforms to Call Report revisions, which now 
distinguishes between revolving and non-revolving credit rather than 
secured and unsecured credit. The proposal also combined the ``other 
secured consumer loan'' and ``other unsecured consumer loan'' 
categories into the ``other consumer loan'' category to simplify the 
definition.
Comments Received
    The agencies received several comments related to the proposed 
``consumer loan'' definition. A commenter supported the agencies' 
inclusion of an automobile loan as a consumer loan. The commenter 
believed that including automobile loans as a type of consumer loan is 
important for areas where employment and economic opportunities are 
significant distances from where individuals reside, and public 
transportation may not be available or reliable. Another commenter 
supported the proposed definition of ``automobile loan,'' likewise in 
the definition of ``consumer loan,'' because it eliminates uncertainty 
around direct versus indirect loan inclusion.
    A commenter suggested that the agencies define ``unsecured personal 
loans,'' as they do with credit cards, separately from the general 
category of ``other secured and unsecured loans,'' because unsecured 
personal loans are a fairly uniform credit class.
Final Rule
    The agencies are adopting the proposed definition of ``consumer 
loan'' in the final rule with several edits designed to simplify the 
definition and avoid the possibility of future misalignment of the 
definition with the Call Report. Specifically, ``consumer loan'' in the 
final rule means a loan to one or more individuals for household, 
family, or other personal expenditures and that is one of the following 
types of loans: (1) automobile loan as reported in Schedule RC-C of the 
Call Report; (2) credit card loan, as reported as ``credit card'' in 
Schedule RC-C of the Call Report; (3) other revolving credit plan, as 
reported in Schedule RC-C of the Call Report; and (4) other consumer 
loan, as reported in Schedule RC-C of the Call Report.
    For clarity, the agencies have elected to refer only to these loans 
as reported in Schedule RC-C of the Call Report for each category of 
loan covered in the definition. Referring only to loans reported in 
schedule RC-C of the Call Report better aligns the categories of loans 
with how banks report those classes of loans on the Call Report. As a 
result, ``automobile loan,'' ``credit card loan,'' ``other revolving 
credit plan,'' and ``other consumer loan'' are now described as those 
loans reported in Schedule RC-C of the Call Report and do not include 
specific examples.\142\ The agencies appreciate commenter concerns 
about any generality associated with the term ``other secured and 
unsecured loans,'' labeled ``other consumer loans'' in the proposal. 
The final definition of ``consumer loan'' is designed to address those 
concerns not only with the addition of the new category of ``other 
revolving credit plan,'' but also with references to the loans reported 
in Schedule RC-C. To provide additional clarity about the scope of the 
term ``consumer loan,'' the agencies also revised the definition to

[[Page 6605]]

make the list of categories of loans considered consumer loans 
exhaustive. With this change, the agencies made a technical edit to no 
longer exclude home mortgage loans, multifamily loans, small business 
loans, and small farm loans because these loans would not otherwise 
fall within the final definition of ``consumer loan.''
---------------------------------------------------------------------------

    \142\ The agencies note that the Call Report uses the term 
``credit card'' and not ``credit card loan.''
---------------------------------------------------------------------------

County
    The agencies proposed adding a definition for ``county'' and 
defining it to mean any county or statistically equivalent entity as 
defined by the U.S. Census Bureau. The agencies proposed this 
definition to increase clarity and consistency in the CRA regulations 
by aligning the term with the scope of the applicable U.S. Census 
Bureau definition.\143\
---------------------------------------------------------------------------

    \143\ See U.S. Census Bureau, ``Glossary,'' https://www.census.gov/glossary/?term=County%20and%20equivalent%20entity 
(defining ``county and equivalent entity'').
---------------------------------------------------------------------------

    The agencies did not receive any comments concerning this proposed 
definition and are adopting the definition with one conforming change 
and one technical change. The agencies are revising the definition to 
include the phrase, ``county equivalent,'' to provide additional 
clarity and further align the definition of ``county'' in the CRA 
regulations with the applicable terms used by the U.S. Census Bureau. 
The U.S. Census Bureau utilizes the term ``county equivalents'' to 
refer to those geographic areas comparable to counties--i.e., parishes 
in Louisiana, boroughs, independent cities in certain States, Census 
Areas, cities in Alaska; municipios in Puerto Rico, districts and 
islands in American Samoa, municipalities in the Commonwealth of the 
Northern Mariana Islands, islands in the U.S. Virgin Islands, the 
District of Columbia, and Election Districts in Guam.\144\ The agencies 
believe the addition of ``county equivalent'' clarifies that the 
definition of ``county'' captures those areas that are geographically 
comparable to counties, but are not identified as such, and that these 
areas will receive the same treatment under the CRA regulations.
---------------------------------------------------------------------------

    \144\ See U.S. Census Bureau, ``Geographic Levels,'' https://www.census.gov/programs-surveys/economic-census/guidance-geographies/levels.html.
---------------------------------------------------------------------------

    The agencies are also referring to these terms as used by the U.S. 
Census Bureau, instead of as defined, and including a cross-reference 
to the authority of the U.S. Census Bureau to more accurately provide a 
source for these terms.
    Accordingly, the definition of ``county'' in the final rule means 
any county, county equivalent, or statistically equivalent entity as 
used by the U.S. Census Bureau pursuant to title 13 of the U.S. Code. 
The agencies have made conforming changes throughout the final rule to 
remove references to ``county equivalent'' that are now unnecessary.
Deposit Location
    The agencies proposed to add a definition of ``deposit location'' 
to the CRA regulations as a clarifying corollary to the proposed 
definition of ``deposits.'' Specifically, the agencies proposed to 
define ``deposit location'' to mean: (1) for banks that collect and 
maintain deposits data as provided in proposed Sec.  __.42, the census 
tract or county, as applicable, in which the consumer resides, or the 
census tract or county, as applicable, in which the business is located 
if it has a local account; (2) for banks that collect and maintain, but 
that do not report, deposits data as provided in proposed Sec.  __.42, 
the census tract or county, as applicable, in which the consumer 
resides, or the census tract or county, as applicable, in which the 
business is located if it has a local account except that, for purposes 
of the Market Volume Benchmark and for all community development 
financing benchmarks, the county of the bank branch to which the 
deposits are assigned in the FDIC's Summary of Deposits data; and (3) 
for banks that do not collect and maintain deposits data as provided in 
proposed Sec.  __.42, the county of the bank branch to which the 
deposits are assigned in the Summary of Deposits.
    Some commenters stated that the definition of ``deposit location'' 
for banks that collect and maintain deposits data under the proposal is 
vague. A commenter noted that the proposed definition would leave 
significant questions unresolved, including what it means for a 
business to be ``located'' in a place and whether a business can be 
``located'' in multiple places.
    The agencies are adopting the definition of ``deposit location'' 
with revisions consistent with the revisions to the definition of 
``deposits,'' discussed below, as well as revisions to address 
commenter concerns. Specifically, the definition in the final rule 
removes the category of banks that collect and maintain, but do not 
report, deposits data. As explained in the discussion of the 
``deposits'' definition, this category is no longer necessary. The 
agencies also agree with commenters' suggestions that the proposed 
definition could be clarified, and does not clearly indicate where 
deposits are located. Therefore, the agencies are removing the 
references to census tracts and counties from the part of the 
definition that applies to banks that collect, maintain, and report 
deposits data as provided in Sec.  __.42, and replacing them with ``the 
address on file with the bank for purposes of the Customer 
Identification Program required by 31 CFR 1020.220 or another 
documented address at which the depositor resides or is located.'' The 
agencies also made a clarifying change to replace the terms 
``consumer'' and ``business'' used in the proposal with ``depositor'' 
and a technical change to replace ``branch'' with ``facility'' to refer 
to the term used in the FDIC's Summary of Deposits.
    Accordingly, the final rule provides that ``deposit location'' 
means: (1) for banks that collect, maintain, and report deposits data 
as provided in Sec.  __.42, the address on file with the bank for 
purposes of the Customer Identification Program required by 31 CFR 
1020.220 or another documented address at which the depositor resides 
or is located; and (2) for banks that do not collect, maintain, and 
report deposits data as provided in Sec.  __.42, the county of the bank 
facility to which the deposits are assigned in the FDIC's Summary of 
Deposits data.
Depository Institution
    The final rule includes a new definition for ``depository 
institution,'' not included in the proposal, to mean any institution 
subject to CRA, as described in 12 CFR 25.11, 228.11, and 345.11. The 
agencies are adopting this definition as a technical clarification to 
effectuate their intent that ``bank'' or ``banks'' in certain 
provisions of the proposal was meant to include institutions evaluated 
by any of the agencies under part 25, 228, or 345.\145\ For example, in 
the Community Development Financing Test, the

[[Page 6606]]

benchmarks would include the lending, investments, and deposits of all 
banks in the applicable geographic area regardless of regulator. The 
final rule replaces those references to the term ``bank'' with the term 
``depository institution'' or ``large depository institution,'' 
discussed below. The agencies also made other conforming edits to 
integrate these terms into the final rule.\146\
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    \145\ The agencies integrated the term ``depository 
institution'' or ``large depository institution'' into the final 
rule in final Sec. Sec.  __.21(b)(1) (consideration of affiliate 
activities); __.22(g)(1) (Retail Lending Test additional factors); 
__.23(b)(2)(i)(B) (Retail Services and Products Test benchmark); 
__.24(b)(2)(i) and (ii), (c)(2)(ii); (d)(2)(ii); and (e)(2)(ii) and 
(iv) (benchmarks related to the Community Development Financing 
Test); __.26(f)(2)(ii) and (iv) (benchmarks related to the Community 
Development Financing Test for Limited Purpose Banks); __.27(c)(4) 
(consideration of affiliate activities for strategic plans); 
__.42(h) (aggregate disclosure statements); __.44 (public notice by 
banks); the Market Volume Benchmark in appendix A, paragraph I.b; 
appendix B, paragraph I.a (numerator and denominator for final Sec.  
__.24 and final Sec.  __.26 calculations); and the benchmarks in 
appendix B, as applicable. Throughout the remainder of this 
SUPPLEMENTARY INFORMATION the agencies use the terms ``banks'' and 
``large banks'' to simplify the discussion. When discussing the 
above provisions, certain references to ``banks'' or ``large banks'' 
are references to all ``depository institutions'' or ``large 
depository institutions,'' as applicable.
    \146\ For example, the agencies replaced references to the 
common rule text sections with specific pin cites to all three 
agencies final regulations as appropriate.
---------------------------------------------------------------------------

Deposits
The Agencies' Proposal
    The agencies proposed to add a definition of ``deposits'' to the 
CRA regulations to support and clarify the proposal to use deposits 
data for several evaluation metrics, benchmarks, and weights under the 
proposed performance tests. This definition would be based on whether a 
bank had to collect, maintain, or report deposits data. As discussed 
further in the section-by-section analysis of Sec.  __.42, the agencies 
proposed to require large banks with assets greater than $10 billion to 
collect, maintain, and report county-level deposits data based on the 
county in which the depositor's address is located to allow for more 
precise measurement of a bank's local deposits by county.\147\ For 
these banks, the agencies proposed a definition of ``deposits'' based 
on deposits in domestic offices of individuals, partnerships, and 
corporations, and of commercial banks and other depository institutions 
in the United States as defined in Schedule RC-E of the Call Report, 
which constitute the majority of deposit dollars captured overall in 
the Call Report categories of Deposits in Domestic Offices. The 
proposed definition excluded U.S. Government deposits, State and local 
government deposits, domestically held deposits of foreign governments 
or official institutions, or domestically held deposits of foreign 
banks or other foreign financial institutions.
---------------------------------------------------------------------------

    \147\ See proposed Sec.  __.42(a)(7) and (b)(5); see also final 
Sec.  __.42(a)(7) and (b)(3) and the accompanying section-by-section 
analysis.
---------------------------------------------------------------------------

    For banks that collect and maintain, but that do not report, 
deposits data as provided in proposed Sec.  __.42, the proposal 
provided that ``deposits'' would have the same meaning as for banks 
that must report deposits data except that, for purposes of the Retail 
Lending Test's Market Volume Benchmark and for all community 
development financing benchmarks, ``deposits'' would have the same 
meaning as in the FDIC's Summary of Deposits Reporting Instructions.
    For banks that do not collect and maintain deposits data as 
provided in proposed Sec.  __.42, the proposal provided that 
``deposits'' would have the same meaning as in the FDIC's Summary of 
Deposits Reporting Instructions.
Comments Received
    Several commenters stated that the agencies should exclude 
corporate deposits from the definition of ``deposits'' and recommended 
defining ``deposits'' as the sum of total deposits intended primarily 
for personal, household, or family use, as reported on Schedule RC-E of 
the Call Report, items 6.a, 6.b, 7.a(1), and 7.b(1). One of the 
commenters made the same comment with specific reference to large 
banks. Another commenter explained that including corporate deposits in 
the proposed definition of ``deposits'' could reduce incentives for 
banks to address the community development needs of underserved 
communities, particularly rural communities, where few corporate 
deposits are attributed. This commenter also expressed concern that 
including corporate deposits could lead to distorted or inconsistent 
results due to fluctuations in corporate deposits that could in turn 
lead to CRA focus and resource challenges for banks. Another commenter 
explained that using the suggested items in the Call Report would more 
accurately reflect a bank's capacity to engage in qualifying activities 
for individuals, small businesses, and small farms, because the items 
collect information on deposits maintained primarily for personal, 
household, or family use. The commenter further explained that use of 
these suggested items would also eliminate the potential for large 
corporate deposits to skew the allocation of deposits across different 
geographies, thereby better capturing the amount of deposits collected 
from specific assessment areas. Another commenter supported this 
position, referencing the proposal's potential to exacerbate CRA hot 
spots in urban centers where deposits are concentrated, fluctuations in 
the working capital needs of corporate depositors, and the potential 
challenges of assigning a location for corporate deposits in locations 
spanning multiple geographies. If not removed, the commenter warned 
that corporate deposits could distort the calculation of the retail 
lending volume screen, the calculation of the Community Development 
Financing Metric, and the weighting of banks' performance conclusions 
across assessment areas.
    Other commenters stated that the agencies should broaden the 
definition of ``deposits'' to include deposits from limited liability 
companies (LLCs) and trusts, and not just individuals, partnerships, 
and corporations. One of these commenters noted that LLC deposits are 
domestic deposits in substance and another commenter suggested that the 
definition be broadened to include deposits from all entities. The 
commenters stated that the agencies should specifically include these 
deposits in the final rule for clarification.
    One of these commenters also requested the agencies clarify that 
the ``deposits'' definition does not include deposits from foreign 
persons or entities that are made in U.S. branches. The commenter 
explained that these deposits do not come from a bank's assessment area 
and are not related to the CRA's purpose of returning money to the 
community. The commenter also expressed concern that including these 
types of deposits in the definition may incentivize some banks to keep 
the funds outside of the United States entirely.
    Another commenter indicated that the agencies should include State 
and local government deposits in the definition because banks can lend 
against these deposits and some State and local jurisdictions have 
developed public policies designed to promote reinvestment goals by 
tying their deposits to bank community performance. The organization 
stated that CRA rules should not undermine these local efforts by 
lowering the reinvestment bar for banks with which State and local 
governments do business.
Final Rule
    The agencies are adopting the proposed definition of ``deposits'' 
in the final rule with substantive revisions and technical changes. 
Specifically, the agencies are collapsing the three categories of 
institutions under the proposed definition--(1) banks that collect, 
maintain, and report deposits data; (2) banks that collect and 
maintain, but do not report, deposits data; and (3) banks that do not 
collect and maintain deposits data--into two categories. Thus, under 
the final rule, the definition would address: (1) banks that collect, 
maintain, and report deposits data; and (2) banks that do not collect, 
maintain, and report that data. The agencies elected to simplify the 
definition of ``deposits'' in response to comments about both the 
overall

[[Page 6607]]

complexity of the proposal and the complexity of the provisions related 
to deposits data collection and reporting. Further, because the final 
rule provides that institutions that collect and maintain deposits 
data, whether required or opting to do so, must also report deposits 
data, the category for banks that collect and maintain but do not 
report is unnecessary. By removing this category, the agencies believe 
the final rule provides a less complex and more workable definition. 
The agencies are also making a technical change to refer to deposits as 
reported in the FDIC's Summary of Deposits as required under 12 CFR 
304.3(c), instead of referring to the instructions, to more accurately 
provide a source for this term. The agencies have also replaced 
``U.S.'' with ``United States.''
    The agencies have declined to remove corporate deposits from the 
``deposits'' definition because the agencies believe that utilizing 
both personal and corporate deposits results in a more comprehensive 
representation of the community that an institution serves. The 
agencies understand concerns that including corporate deposits in the 
proposed ``deposits'' definition could reduce incentives for banks to 
address the community development needs of underserved communities, 
because, for example, reporting banks could have higher proportions of 
their deposits in other areas and, under the Community Development 
Financing Test, commensurately higher expectations for activity in 
those areas. However, the agencies believe that other aspects of the 
rule will encourage banks to focus more on these areas. Specifically, 
under Sec.  __.15, the agencies consider whether an institution serves 
geographic areas with low levels of community development financing. 
Further, ``targeted census tracts'' are used in the final rule to 
consider whether certain place-based community development activities 
qualify, and the definition of this term, discussed below, includes 
underserved communities. Lastly, the agencies are addressing the 
concern related to CRA hot spots where deposits are concentrated by 
evaluating bank community development financing and retail lending 
outside of facility-based assessment areas.\148\
---------------------------------------------------------------------------

    \148\ See final Sec. Sec.  __.17 through __.19 and the 
accompanying section-by section analyses.
---------------------------------------------------------------------------

    The agencies also declined to modify the ``deposits'' definition to 
include deposits from LLCs and trusts. The agencies note that because 
LLCs are a form of corporation, they are captured under corporate 
deposits on the Call Report.\149\ Further, institutions holding trust 
account deposits have a fiduciary obligation to invest those deposits 
in accordance with the trust's instructions. As a result, those 
deposits are generally not available to be reinvested into the 
community and should not be included in ``deposits.''
---------------------------------------------------------------------------

    \149\ See Call Report, Schedule RC-E.
---------------------------------------------------------------------------

    The agencies also decided not to exclude deposits from foreign 
persons or entities that are made in U.S. branches. The exclusions in 
the deposit definition are limited to whole categories in the Call 
Report definition of deposit. Excluding foreign individuals or 
companies would exclude only a partial category in the Call Report. 
This partial exclusion would increase burden because these categories 
are known and understood by the industry and, the agencies believe, 
would not offer significant benefit. Second, as explained in the 
proposal, the agencies elected to exclude State and local government 
deposits, along with foreign government deposits, because these 
deposits are sometimes subject to restrictions and may be periodically 
rotated among different banks causing fluctuations in the level of 
deposits over time.\150\ These government entities make up one whole 
category under the Call Report definition. This determination is based 
on the agencies' supervisory experience, which also considered that 
restricted funds may also misrepresent a bank's ability to reinvest 
funds in the local community.
---------------------------------------------------------------------------

    \150\ See 87 FR 33884, 33995 (June 3, 2022).
---------------------------------------------------------------------------

    The agencies have elected to maintain deposits data collection from 
banks with assets greater than $10 billion and decline to expand this 
collection requirement to other banks. The agencies believe the 
collection of deposits data is important, but that data collection 
should be limited to large banks with assets greater than $10 billion 
due to the burden associated with this requirement.\151\ Further, the 
agencies have declined to expand the use of the FDIC's Summary of 
Deposits data to all banks because of the limitations of Summary of 
Deposits data. In particular, Summary of Deposits data is tied to a 
bank's branches. As banks' business models continue to evolve, there is 
the possibility that branches will be less representative of the 
communities that banks serve. As a result, Summary of Deposits data may 
also be less representative of the communities a bank serves. The 
agencies note, however, that banks that opt into deposits data 
collection and maintenance must report these data.\152\
---------------------------------------------------------------------------

    \151\ For additional discussion of this issue, see the 
discussion on deposits in the section-by-section analysis of Sec.  
__.42.
    \152\ See final rule Sec.  __.42(b)(3)(i) and the section-by-
section analysis of Sec.  __.42.
---------------------------------------------------------------------------

    Accordingly, the definition of ``deposits'' in the final rule 
provides that: (1) for banks that collect, maintain, and report 
deposits data as provided in Sec.  __.42, ``deposits'' means deposits 
in domestic offices of individuals, partnerships, and corporations, and 
of commercial banks and other depository institutions in the United 
States as defined in Schedule RC-E of the Call Report; deposits does 
not include U.S. Government deposits, State and local government 
deposits, domestically held deposits of foreign governments or official 
institutions, or domestically held deposits of foreign banks or other 
foreign financial institutions; and (2) for banks that do not collect, 
maintain, and report deposits data as provided in Sec.  __.42, 
``deposits'' means a bank's deposits as reported in the FDIC's Summary 
of Deposits as required under 12 CFR 304.3(c).
Digital Delivery System
    The final rule includes a new definition for ``digital delivery 
systems,'' not included in the proposal, to mean a channel through 
which banks offer retail banking services electronically, such as 
online banking or mobile banking. The agencies are adopting this 
definition to clarify the agencies' intended meaning of this term, 
which is to reflect the common understanding of this term. This term is 
used in Sec.  __.23, Retail Services and Products Test. For additional 
discussion of digital delivery systems, see the section-by-section 
analysis of Sec.  __.23.
Dispersion of Retail Lending
    The agencies proposed to add a definition of ``dispersion of retail 
lending'' to Sec.  __.12 in support of the proposal to assess a bank's 
retail lending performance in a facility-based assessment area based 
not only on a bank's Retail Lending Volume Screen (see proposed Sec.  
__.22(c)) and geographic and borrower distribution metrics (see 
proposed Sec.  __.22(d)), but also in consideration of several other 
factors, including the dispersion of retail lending in the facility-
based assessment area to determine whether there are gaps in lending in 
the facility-based assessment area that are not explained by 
performance context. Specifically, the agencies proposed to define 
``dispersion of retail lending'' to mean how geographically diffuse or 
widely spread such lending is across

[[Page 6608]]

census tracts of different income levels within a facility-based 
assessment area, retail lending assessment area, or outside retail 
lending area.
    The agencies did not receive any comments on this definition. 
However, after further review, the agencies have elected not to adopt a 
definition of ``dispersion of retail lending'' in Sec.  __.12 because 
this term is used only once, in Sec.  __.22. Instead, the agencies have 
incorporated this concept into Sec.  __.22(g) of the final rule.
Distressed or Underserved Nonmetropolitan Middle-Income Census Tract
    In the current CRA regulations, the definition of ``community 
development'' includes activities that revitalize or stabilize 
``distressed or underserved nonmetropolitan middle-income geographies'' 
as designated by the agencies based on: (1) rates of poverty, 
unemployment, and population loss; or (2) population size, density, and 
dispersion. Further, this provision states that activities revitalize 
and stabilize geographies designated based on population size, density, 
and dispersion if they help to meet essential community needs, 
including the needs of low- and moderate-income individuals.\153\
---------------------------------------------------------------------------

    \153\ See current 12 CFR __.12(g)(4)(iii).
---------------------------------------------------------------------------

    The agencies proposed to include a definition of ``distressed or 
underserved nonmetropolitan middle-income census tract'' in Sec.  
__.12, based on the language in the current definition of ``community 
development,'' with certain edits. Specifically, the agencies proposed 
to add clarity and consistency by incorporating additional detail from 
the Interagency Questions and Answers into the proposed 
definition.\154\ The agencies also proposed technical and conforming 
changes, such as replacing the term ``geography'' with the term 
``census tract,'' reflecting the change to this term discussed above, 
and restructuring the definition. As proposed, ``distressed or 
underserved nonmetropolitan middle-income census tract'' would mean a 
census tract publicly designated as such by the agencies and compiled 
in a list published annually by the FFIEC. The agencies would designate 
a nonmetropolitan middle-income census tract as distressed if it is in 
a county that has: (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. The 
agencies would designate a nonmetropolitan middle-income census tract 
as underserved if it meets the 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 census tract 
is likely to have difficulty financing the fixed costs of meeting 
essential community needs, based on the Urban Influence Codes 
established by the U.S. Department of Agriculture's (USDA) Economic 
Research Service numbered ``7,'' ``10,'' ``11,'' or ``12.'' \155\
---------------------------------------------------------------------------

    \154\ See Q&A Sec.  __.12(g)(4)(iii)--1.
    \155\ See U.S. Dept. of Agriculture, ``Urban Influence 
Codes,''https://www.ers.usda.gov/data-products/urban-influence-codes/.
---------------------------------------------------------------------------

    The agencies did not receive any comments on the proposed 
definition of ``distressed or underserved nonmetropolitan middle-income 
census tract,'' and are adopting the definition as proposed with two 
technical changes, referencing the official name of the Board, and 
replacing the word ``migration'' with ``population.''
Distribution of Retail Lending
    The agencies proposed to add a definition of ``distribution of 
retail lending'' to Sec.  __.12 to increase clarity and consistency 
regarding the evaluation of a bank's retail lending under the proposed 
Retail Lending Test. As proposed, ``distribution of retail lending'' 
would refer to how retail lending is apportioned among borrowers of 
different income levels, businesses or farms of different sizes, or 
census tracts of different income levels. The agencies did not receive 
any comments on this definition. However, after further review, the 
agencies have elected not to adopt this definition in the final rule 
because the distribution analysis is explained extensively in the 
Retail Lending Test in the final rule.\156\
---------------------------------------------------------------------------

    \156\ See final Sec.  __.22 and appendix A and accompanying 
section-by-section analysis.
---------------------------------------------------------------------------

Evaluation Period
    The agencies proposed to add a definition of ``evaluation period'' 
to increase clarity and consistency in the CRA regulations. 
Specifically, proposed Sec.  __.12 defined ``evaluation period'' to 
mean the period of time between CRA examinations, generally in calendar 
years, in accordance with the agency's guidelines and procedures. The 
agencies received no comments concerning the proposed definition of 
``evaluation period.'' Accordingly, the agencies are adopting this term 
in the final rule with several technical changes designed to enhance 
the clarity and accuracy of the definition. Specifically, the agencies 
revised the phrase ``period of time'' to ``the period'' and moved the 
clause ``generally in calendar years'' so that it now follows ``the 
period,'' and replaced the phrase ``time between CRA examinations'' 
with ``during which a bank conducted the activities that the [Agency] 
evaluates in a CRA examination.'' Accordingly, ``evaluation period,'' 
in the final rule means the period, generally in calendar years, during 
which a bank conducted the activities that the agency evaluates in a 
CRA examination, in accordance with the agency's guidelines and 
procedures.
Facility-Based Assessment Area
    As discussed above, the agencies proposed to replace the term 
``assessment area'' in Sec.  __.12 with the terms ``facility-based 
assessment area,'' ``retail lending assessment area,'' and ``outside 
retail lending area.'' The agencies proposed to define ``facility-based 
assessment area'' to mean a geographic area delineated in accordance 
with Sec.  __.16.\157\ Section __.16 describes the bases for 
delineating this type of assessment area. For information regarding 
facility-based assessment area delineation requirements in the final 
rule, see the section-by-section analysis of Sec.  __.16.
---------------------------------------------------------------------------

    \157\ Similarly, as discussed above, the current CRA regulations 
define ``assessment area'' to mean ``a geographic area delineated in 
accordance with Sec.  __.41''--the section of the current CRA 
regulations that describes the bases for delineating an assessment 
area. See current 12 CFR __.12(c).
---------------------------------------------------------------------------

    A commenter suggested clarifying that an ATM not owned and operated 
exclusively by a bank would not trigger a new facility-based assessment 
area, consistent with the current regulation. The agencies agree that a 
non-proprietary remote service facility, such as a network ATM, does 
not constitute a bank facility because such ATMs are owned and operated 
by a third party and are not operated exclusively for the bank. 
Further, a bank participating in such an ATM network may have limited 
control over where an ATM is located. Therefore, such ATMs would not by 
themselves trigger a new facility-based assessment area.
    For the reasons stated above, the agencies are adopting the 
``facility-based assessment area'' definition as proposed in the final 
rule with a minor wording change. Specifically, the agencies replaced 
the phrase ``in accordance with'' with ``pursuant to'' in the final 
rule.

[[Page 6609]]

High Opportunity Area
The Agencies' Proposal
    The agencies proposed to add a definition of ``High Opportunity 
Area'' to mean: (1) an area designated by the U.S. Department of 
Housing and Urban Development (HUD) as a ``Difficult Development Area'' 
(DDA); or (2) an area designated by a State or local Qualified 
Allocation Plan as a High Opportunity Area, and where the poverty rate 
falls below 10 percent (for metropolitan areas) or 15 percent (for 
nonmetropolitan areas).
    As discussed further in the section-by-section analysis of Sec.  
__.15, the agencies proposed to define ``High Opportunity Area'' in 
relation to the proposal to conduct an impact review of community 
development activities.\158\ One of the proposed factors that the 
agencies would consider in assessing the impact and responsiveness of a 
community development activity would be whether the activity 
``[d]irectly facilitate[s] the acquisition, construction, development, 
preservation, or improvement of affordable housing in High Opportunity 
Areas.'' \159\ The proposed definition would align with the Federal 
Housing Finance Agency's (FHFA) definition of ``High Opportunity 
Areas,'' \160\ and was intended to demarcate areas where efforts to 
increase affordable housing could be especially beneficial for low- and 
moderate-income individuals.
---------------------------------------------------------------------------

    \158\ See proposed Sec.  __.15.
    \159\ See proposed Sec.  __.15(b)(6).
    \160\ See FHFA, ``Overview of the 2020 High Opportunity Areas 
File'' (2020), https://www.fhfa.gov/DataTools/Downloads/Documents/Enterprise-PUDB/DTS_Residential-Economic-Diversity-Areas/DTS_High%20Opportunity_Areas_2020_README.pdf.
---------------------------------------------------------------------------

    The agencies solicited comment on whether the proposed approach to 
use the FHFA's definition of ``High Opportunity Areas'' is appropriate, 
and whether there are other options for defining High Opportunity 
Areas.
Comments Received
    Most commenters that provided input on this definition supported 
the proposal to align the ``High Opportunity Areas'' definition with 
the FHFA's definition, for example, because the high cost of housing in 
otherwise low poverty areas can absorb significant resources from large 
portions of the population. A commenter observed that low poverty rates 
are an important component of identifying high opportunity areas. This 
commenter supported limiting the variability of definitions promulgated 
in State Qualified Allocation Plans but suggested there may also be 
other relevant opportunity or social vulnerability indices. Another 
commenter suggested the agencies clarify the definition to allow for 
variation in terminology used from State to State.
    Some commenters offered various suggestions for expanding the 
``High Opportunity Areas'' definition, such as to include Qualified 
Census Tracts to allow communities concerned about displacement of low- 
and moderate-income residents the ability to access CRA-motivated 
financing. Another commenter recommended expanding the definition to 
include Empowerment Zone and Enterprise Communities, transit-oriented 
areas, and census tracts where 40 percent or more of the homes meet the 
definition of affordable housing, and a different commenter suggested 
the definition should be expanded to include certain climate resilience 
factors. Another commenter stated that, in addition to aligning with 
the FHFA definition, the agencies should permit flexibility in how 
financial institutions identify affordable housing needs, gaps, and 
opportunities, utilizing data analytics tools.
    A few commenters opposed the proposed ``High Opportunity Areas'' 
definition. Some of these commenters opposed using the FHFA's 
definition because it would include DDAs, which these commenters 
asserted were created to permit higher levels of housing tax credit 
subsidies in areas with high construction, land, and utility costs and 
are not directly related to higher income areas with low rates of 
poverty. Another commenter expressed some concern about including DDAs 
and suggested that the agencies consider eliminating DDAs or adding 
criteria to ensure that in-scope DDAs include features supporting 
economic mobility, such as strong transit connectivity of the housing 
to schools and childcare facilities, health facilities, employment 
centers, and green space. Similarly, another commenter stated that the 
proposed FHFA definition is limited to quantifiable poverty measures 
and State Qualification Allocation Plan definitions but may not address 
a more holistic view of ``opportunity,'' and suggested that 
incorporating service[hyphen]enriched housing could be a good 
counterbalance. A commenter also stated that the FHFA definition may be 
too restrictive for some communities and recommended that the agencies 
be open to other options where high cost of living relative to local 
wages and income demonstrates a need.
Final Rule
    The agencies are adopting the definition of ``High Opportunity 
Areas'' in the final rule with substantive revisions. As discussed 
above, the agencies intended the proposed definition of ``High 
Opportunity Area'' to align with the FHFA's definition of ``High 
Opportunity Area.'' However, the FHFA maintains a ``High Opportunity 
Areas File'' that designates the specific census tracts that qualify as 
high opportunity areas for purposes of residential economic diversity 
activities.\161\ In consideration of the fact that the FHFA maintains a 
``High Opportunity Areas File,'' the agencies believe it is prudent to 
defer to the FHFA's interpretation of its regulation and guidance in 
the identification of ``High Opportunity Areas.'' \162\ Further, the 
agencies believe reliance on the FHFA's identification of ``High 
Opportunity Areas'' will eliminate any potential ambiguity in the 
definition.
---------------------------------------------------------------------------

    \161\ See FHFA, ``Overview of the 2023 High Opportunity Areas 
File,'' https://www.fhfa.gov/DataTools/Downloads/Documents/Enterprise-PUDB/DTS_Residential-Economic-Diversity-Areas/DTS_High_Opportunity_Areas_2023.pdf.
    \162\ See 12 CFR 1282.1, 1282.36(c)(3).
---------------------------------------------------------------------------

    For these reasons, the agencies have modified the proposed 
definition of ``High Opportunity Area'' to mean an area identified by 
the FHFA for purposes of the Duty to Serve Underserved Markets 
regulation in 12 CFR part 1282, subpart C. This definition generally 
includes geographic areas where the cost of residential development is 
high \163\ and affordable housing opportunities can be limited.
---------------------------------------------------------------------------

    \163\ See, e.g., HUD, Office of Policy Development and Research, 
``Qualified Census Tracts and Difficult Development Areas'' (2022), 
https://www.huduser.gov/portal/datasets/qct.html.
---------------------------------------------------------------------------

    While the agencies considered commenters' concerns about the 
definition and suggestions for alternatives, the agencies continue to 
believe the ``High Opportunity Area'' definition included in the final 
rule provides the best option for the purposes of the impact and 
responsiveness factor in Sec.  __.15(b)(7) because, as defined by FHFA, 
these areas are intended to capture areas that provide strong 
opportunities for low- and moderate-income individuals, families, and 
households. The definition captures both DDAs and also areas designated 
as High Opportunity Areas where the poverty rate is low. The agencies 
agree that increasing affordable housing opportunities in these areas 
helps to provide low- or moderate-income individuals, families, and 
households with more choices to live in neighborhoods with economic

[[Page 6610]]

opportunities. The agencies considered various alternative options, 
including commenter suggestions to expand the definition to other types 
of geographic areas or exclude DDAs from the definition but continue to 
believe the definition provides a clear set of standards related to 
where additional affordable housing may be both needed and hard to 
develop and is in alignment with an already in-use Federal agency 
definition with readily available geographic classifications.
Home Mortgage Loan
    For a discussion of the definition of ``home mortgage loan,'' see 
the discussion for Mortgage-Related Definitions in this section-by-
section analysis of Sec.  __.12.
Income Level
    To increase clarity, the agencies proposed non-substantive and 
minor structural revisions to the current definition of ``income 
level'' \164\ and, as in other definitions, to replace the term 
``geography'' with the more precise term ``census tract.'' 
Specifically, the agencies proposed that ``income level'' include the 
following definitions:
---------------------------------------------------------------------------

    \164\ See current 12 CFR __.12(m).
---------------------------------------------------------------------------

     Low-income would mean: (1) for individuals within a census 
tract, an individual income that is less than 50 percent of the area 
median income; or (2) for a census tract, a median family income that 
is less than 50 percent of the area median income.
     Moderate-income would mean: (1) for individuals within a 
census tract, an individual income that is at least 50 percent and less 
than 80 percent of the area median income; or (2) for a census tract, a 
median family income that is at least 50 percent and less than 80 
percent of the area median income.
     Middle-income would mean: (1) for individuals within a 
census tract, an individual income that is at least 80 percent and less 
than 120 percent of the area median income; or (2) for a census tract, 
a median family income that is at least 80 percent and less than 120 
percent of the area median income.
     Upper-income would mean: (1) for individuals within a 
census tract, an individual income that is 120 percent or more of the 
area median income; or (2) for a census tract, a median family income 
that is 120 percent or more of the area median income.
Comments Received
    The agencies received several comments on the proposed definition 
of ``income level.'' A commenter requested that the agencies include 
persons with vision loss--and persons with disabilities in general--in 
the CRA regulation's ``low-income'' population, explaining that persons 
with vision loss or other disabilities often experience high 
unemployment, average income that is lower than the general population, 
less access to technology and the internet, and are more likely to be 
persons of color. Another commenter suggested the agencies include 
persons with disabilities in the low- and moderate-income designation 
even if their incomes exceed that designation because of the financial 
vulnerabilities and high costs associated with living with a 
disability, such as the expenses of accessible van conversions, 
assistive technology, and home renovations.
    Another commenter suggested that the agencies revise the income 
levels in an upward direction so that ``low-income'' is less than 60 
percent of area median income, ``moderate-income'' is between 60 
percent and 100 percent of area median income, ``middle-income'' is 
between 100 percent and 125 percent of area median income, and ``upper-
income'' is more than 125 percent of area median income. The commenter 
stated that this upward revision of the income levels could provide 
additional support for middle-class home ownership and assist more 
middle-income households that have lost ground after the COVID-19 
pandemic and due to high inflation and would be consistent with the 
change in the agencies' special designation of distressed or 
underserved nonmetropolitan middle-income census tracts (a designation 
referencing between 80 percent and 120 percent of area median income) 
and in the Federal Housing Enterprises Financial Safety and Soundness 
Act of 1992, which defines low-income as 80 percent of area median 
income and moderate-income as income ``not in excess of area median 
income.''
    Another commenter stated that it welcomes the agencies providing 
more examples on how to identify low- and moderate-income individuals 
and families, and requested that the agencies consider a broader, more 
flexible framework that uses enrollment status in the USDA National 
School Lunch Program and Medicaid as part of the definition of low- and 
moderate-income.
Final Rule
    The agencies are adopting the proposed definition of ``income 
levels'' in the final rule with several revisions to the first prong of 
each income level. Specifically, the agencies removed the reference to 
``census tracts'' because inclusion of the term is unnecessary. The 
agencies also expanded the definition so that it applies to 
individuals, families, and households, instead of only individuals, as 
proposed. The agencies added families and households in recognition of 
the fact that the measurement of income would be incomplete if each 
income levels excluded families or households.
    Accordingly, the agencies are adopting the following definition of 
``income levels'':
     ``Low-income,'' which means: (1) for individuals, 
families, or households, income that is less than 50 percent of the 
area median income; or (2) for a census tract, a median family income 
that is less than 50 percent of the area median income.
     ``Moderate-income,'' which means: (1) for individuals, 
families, or households, an income that is at least 50 percent and less 
than 80 percent of the area median income; or (2) for a census tract, a 
median family income that is at least 50 percent and less than 80 
percent of the area median income.
     ``Middle-income,'' which means: (1) for individuals, 
families, or households, an income that is at least 80 percent and less 
than 120 percent of the area median income; or (2) for a census tract, 
a median family income that is at least 80 percent and less than 120 
percent of the area median income.
     ``Upper-income,'' which means: (1) for individuals, 
families, or households, an income that is 120 percent or more of the 
area median income; or (2) for a census tract, a median family income 
that is 120 percent or more of the area median income.
    The agencies considered the commenters' recommendations and 
suggestions to consider a broader and more flexible framework and to 
revise the income levels upwards but have elected to maintain the 
income levels as proposed in the final rule. The income levels in the 
proposed definition mirror the income levels in the current definition, 
so the income levels standards are well known and understood within the 
banking industry. Further, the agencies believe a framework that relies 
on quantitative income factors provides for the most workable 
definition and minimizes complexity.
Intermediate Bank
    For a discussion of the definition of ``intermediate bank,'' see 
the discussion above for Bank Asset-Size Definitions.
Large Bank
    For a discussion of the definition of ``large bank,'' see the 
discussion above for Bank Asset-Size Definitions.

[[Page 6611]]

Large Depository Institution
    The final rule includes a new definition for ``large depository 
institution,'' not included in the proposal, to mean any depository 
institution, excluding depository institutions designated as limited 
purpose banks or savings associations \165\ pursuant to 12 CFR 
25.26(a), or designated as limited purpose banks pursuant to 12 CFR 
228.26(a) or 345.26(a), that meets the asset size threshold of a large 
bank. The agencies are adopting this definition as a technical 
clarification to effectuate their intent that ``large bank'' in certain 
proposed benchmarks in the Community Development Financing Test 
includes all large banks and savings associations evaluated under 12 
CFR parts 25, 228, and 345. The agencies also made other conforming 
edits to integrate these terms into the final rule.\166\
---------------------------------------------------------------------------

    \165\ As provided in the OCC's agency-specific amendments, 
below, final 12 CFR part 25 generally replaces the term ``bank'' in 
the common rule text with the term ``bank or savings association.'' 
As such, in the definition of ``large depository institution'' the 
phrase ``limited purpose'' modifies both ``banks'' and ``savings 
associations'' and should be read as ``limited purpose banks'' and 
``limited purpose savings associations.'' More generally, any 
modifiers that precede the terms ``bank(s) or savings 
association(s)'' or ``bank(s) and savings association(s)'' modify 
both ``bank(s)'' and ``savings association(s).''
    \166\ See supra note 145.
---------------------------------------------------------------------------

Limited Purpose Bank
    The current CRA regulations define ``limited purpose bank'' to mean 
a bank that offers only a narrow product line (such as credit card or 
motor vehicle loans) to a regional or broader market and for which a 
designation as a limited purpose bank is in effect, in accordance with 
Sec.  __.25(b).\167\ The agencies proposed to revise the illustrative 
list of loan types from ``credit card or motor vehicle loans'' to 
``credit cards, other revolving consumer credit plans, other consumer 
loans, or other non-reported commercial and farm loans'' and to change 
the cross-reference. The agencies proposed this change to more 
specifically identify the types of product lines that might be offered 
by a bank eligible for a ``limited purpose bank'' designation. 
Additionally, the agencies proposed to remove the reference to ``motor 
vehicle loans'' (replaced in the proposal by the proposed term 
``automobile loans,'' as discussed above) as an illustrative type of a 
narrow retail product line, because the agencies proposed to evaluate 
automobile lending under the proposed Retail Lending Test.
---------------------------------------------------------------------------

    \167\ See current 12 CFR __.12(n).
---------------------------------------------------------------------------

    In addition, the current CRA regulations define ``wholesale bank'' 
to mean a bank that is not in the business of extending home mortgage, 
small business, small farm, or consumer loans to retail customers, and 
for which a designation as a wholesale bank is in effect, in accordance 
with Sec.  __.25(b).\168\ To determine whether a bank meets this 
definition, the agencies consider whether a bank holds itself out to 
the retail public as providing such loans; and may consider the bank's 
revenues from extending such loans compared to its total revenue, 
including off-balance sheet activities.\169\ The proposal included the 
same definition as the current rule, with a technical change to the 
cross-reference.
---------------------------------------------------------------------------

    \168\ See current 12 CFR __.12(x).
    \169\ See Q&A Sec.  __.12(x)--1.
---------------------------------------------------------------------------

Comments Received
    The agencies received a number of comments concerning the proposed 
definitions of ``limited purpose bank'' and ``wholesale bank.'' A few 
commenters stated that these definitions should be reevaluated so that 
a bank without a material amount of its balance sheet loan originations 
or loan volume subject to the proposed major product line standard 
could qualify for the designation. A group of commenters supported 
maintaining existing guidance for wholesale and limited purpose banks 
from the Interagency Questions and Answers, with a commenter 
specifically identifying guidance addressing the amount of unrelated 
lending in which a bank may engage while retaining its designation. 
Other commenters expressed concern with designating banks that engage 
in extensive credit card lending as wholesale or limited purpose banks. 
These commenters asserted that the proposal to apply the Community 
Development Financing Test for Wholesale or Limited Purpose Banks to 
wholesale or limited purpose banks (discussed in greater detail in the 
section-by-section analysis of Sec.  __.26) would eliminate the 
possibility of these banks' credit card lending being evaluated; this 
raised concerns for these commenters, who noted that credit card 
lending is an important source of credit to individuals and small 
businesses. Instead, most of these commenters urged the agencies to 
exclude credit card banks from the option to seek a wholesale or 
limited purpose bank designation or otherwise ensure the distribution 
of credit card loans is evaluated pursuant to the proposed Retail 
Lending Test.
Final Rule
    The agencies are adopting a revised ``limited purpose bank'' 
definition and eliminating the ``wholesale bank'' definition in the 
final rule. Specifically, the agencies have revised the ``limited 
purpose bank'' definition to be similar in structure to the current 
``wholesale bank'' definition. To that end, the agencies are changing 
the definition of ``limited purpose bank'' from indicating that these 
banks offer only a narrow product line to indicating that these banks 
do not extend to retail customers the loan types evaluated under the 
final Retail Lending Test. Further, the agencies no longer believe it 
is necessary to impose the limitation that limited purpose banks may 
only operate in a ``regional or broader market.'' The removal of this 
language equips the definition with the ability to accommodate new or 
future market participants, such as fintech banks. Finally, the 
agencies are also adding language to indicate that these banks may 
extend to retail customers--i.e., the retail public, including, but not 
limited to, individuals and businesses \170\--those loan types 
evaluated under the final Retail Lending Test on an incidental and an 
accommodation basis without losing the limited purpose bank 
designation, as requested by some commenters.
---------------------------------------------------------------------------

    \170\ The meaning of retail customers is consistent with current 
guidance for wholesale banks. See Q&A Sec.  __.12(x)--1.
---------------------------------------------------------------------------

    Therefore, the final rule defines a ``limited purpose bank'' as a 
bank that is not in the business of extending closed-end home mortgage 
loans, small business loans, small farm loans, or automobile loans 
evaluated under Sec.  __.22 to retail customers, except on an 
incidental and accommodation basis, and for which a designation as a 
limited purpose bank is in effect, in accordance with Sec.  __.26. 
Because this definition, generally, includes banks considered either 
``limited purpose banks'' or ``wholesale banks'' under the current or 
proposed regulations, a separate definition of ``wholesale bank'' is 
not necessary. Overall, the changes to ``limited purpose bank'' in the 
final rule and the removal of the term ``wholesale bank'' in the CRA 
regulations, are intended to improve clarity, minimize complexity, and 
provide for new and future market participants.
    Because the current and proposed CRA regulations apply the same 
performance test to each bank type, the change in nomenclature does not

[[Page 6612]]

substantively affect the application of performance tests. In other 
words, a wholesale bank under the proposal would have been subject to 
proposed Sec.  __.26; a limited purpose bank (which includes wholesale 
banks under the proposed definition) under the final rule remains 
subject to the performance test in Sec.  __.26. The agencies believe 
that most banks that meet the current definition of a ``wholesale 
bank'' or ``limited purpose bank'' will continue to meet the ``limited 
purpose bank'' definition in the final rule. However, the agencies 
acknowledge that a bank that primarily offers automobile loans (and 
therefore meets the majority-automobile-lender standard discussed 
below) may have qualified as a limited purpose bank under the current 
rule or the proposal but will not qualify as a limited purpose bank 
under the final rule because they are in the business of extending 
loans evaluated under Sec.  __.22 to retail customers.
    The agencies declined to revise the definition of ``limited purpose 
bank'' to exclude consumer credit card banks or evaluate credit card 
banks under the Retail Lending Test, as requested by some commenters. 
First, based on the agencies' supervisory experience, credit card banks 
often have unique business models and do not have extensive branch 
systems. Second, evaluating credit card banks under the Retail Lending 
Test would require significant additional data collection from these 
banks. Credit card underwriting may not rely on a customer's income, 
and banks do not have an obligation to collect and routinely update 
credit card customers' income data. As a result, credit card customer 
data collected from these banks would not be complete and could vary 
widely among banks, posing significant challenges to performing the 
borrower distributions that are central to the Retail Lending Test. The 
agencies recognize, however, the importance of credit card lending to 
low- and moderate-income individuals, small businesses, and small 
farms. For further discussion of the evaluation of credit card and 
other non-automobile consumer loans under the final rule, see the 
section-by-section analyses of Sec. Sec.  __.22(d) (Retail Lending 
Test; major product lines) and __.23 (Retail Services and Products 
Test). In this regard, for example, the agencies note that small 
business credit card lending is included in the small business loan 
product line evaluated under the final Retail Lending Test.
    In response to some commenters' recommendations, the agencies note 
that guidance included in the Interagency Questions and Answers on 
wholesale and limited purpose banks will no longer be relevant guidance 
for the final rule, unless the agencies specifically include this 
guidance in subsequent issuances.
Loan Location
    Under the current CRA regulation, the definition of ``loan 
location'' provides that a consumer loan is located in the geography 
where the borrower resides; a home mortgage loan is located in the 
geography where the property to which the loan relates is located; and 
a small business or small farm loan is located in the geography where 
the main business facility or farm is located or where the loan 
proceeds otherwise will be applied, as indicated by the borrower.\171\ 
The agencies proposed technical revisions to this definition to add 
greater precision and clarity. As discussed above, the agencies 
proposed a conforming change across many definitions to replace the 
term ``geography'' with the more precise term ``census tract.'' 
Additionally, to clarify the point in time when a consumer loan's 
location is assigned, the agencies proposed that the location of a 
consumer loan is based on where the borrower resides at the time the 
consumer submits the loan application. Further, the agencies proposed 
to clarify that a home mortgage loan's location is based on where the 
property securing the loan is located, instead of where the property 
related to the loan is located.
---------------------------------------------------------------------------

    \171\ See current 12 CFR __.12(o).
---------------------------------------------------------------------------

    The agencies did not receive any comments concerning the proposed 
``loan location'' definition and are adopting the definition as 
proposed with the following changes. First, the agencies have replaced 
the term ``consumer'' with the term ``borrower'' in the first prong, to 
conform with the reference to ``borrower'' earlier in the sentence. 
Second, the agencies have included multifamily loan in the second prong 
to clarify the location of multifamily loans, which the agencies 
recognize was not specified in the proposal. Third, the agencies made a 
non-substantive change to the sentence structure of the third prong to 
remove the passive tense in one clause.
    As adopted, the definition of ``loan location'' in the final rule 
provides that: (1) a consumer loan is located in the census tract where 
the borrower resides at the time that the borrower submits the loan 
application; (2) a home mortgage loan or a multifamily loan is located 
in the census tract where the property securing the loan is located; 
and (3) a small business loan or small farm loan is located in the 
census tract where the main business facility or farm is located or 
where the borrower will otherwise apply the loan proceeds, as indicated 
by the borrower.
Loan Production Office
    The current CRA regulations define ``loan production office'' to 
mean a staffed facility, other than a branch, that is open to the 
public and that provides lending-related services, such as loan 
information and applications.\172\ The agencies proposed to remove this 
definition given the limited focus on, and consideration of, loan 
production offices in the agencies' proposal. The agencies did not 
receive any comments concerning the removal of this definition, and the 
agencies are removing this definition in the final rule as proposed.
---------------------------------------------------------------------------

    \172\ See current 12 CFR __.12(p).
---------------------------------------------------------------------------

Low Branch Access Census Tract; Very Low Branch Access Census Tract
    The agencies proposed to define ``low branch access census tract'' 
to mean a census tract with one bank, thrift, or credit union branch, 
and a ``very low branch access census tract'' to mean a census tract 
with no bank, thrift, or credit union branches, within: (1) 10 miles of 
the census tract center of population or within the census tract in 
nonmetropolitan areas; (2) five miles of the census tract center of 
population or within the census tract in a census tract located in an 
MSA but primarily outside of the principal city components of the MSA; 
or (3) two miles of the census tract center of population or within the 
census tract in a census tract located in an MSA and primarily within 
the principal city components of the MSA.
    The agencies proposed to evaluate a bank's branch distribution in, 
among other geographic areas, ``low branch access census tracts or very 
loan branch access census tracts.'' \173\ Upon further consideration of 
comments received on this topic, the agencies have elected to not 
consider the availability of branches in low branch access census 
tracts or very low branch access census tracts in the Retail Services 
and Products Test. For additional discussion, see the section-by-
section analysis of Sec.  __.23, Retail Services and Products Test. As 
a result, the CRA regulations no longer require definitions of ``low 
branch access census tracts'' or ``very low branch access census 
tracts'' and the agencies are adopting the final rule without them.
---------------------------------------------------------------------------

    \173\ See proposed Sec.  __.23(b)(1)(i)(C)(1).
---------------------------------------------------------------------------

Low-Cost Education Loan
    Current Sec.  __.21(e), Low-cost education loans provided to low-
income

[[Page 6613]]

borrowers, provides that, for purposes of that paragraph, ``low-cost 
education loans'' means any education loan, as defined in section 
140(a)(7) of the Truth in Lending Act (15 U.S.C. 1650(a)(7)) (including 
a loan under a State or local education loan program), originated by 
the bank for a student at an ``institution of higher education,'' as 
that term is generally defined in sections 101 and 102 of the Higher 
Education Act of 1965 (20 U.S.C. 1001 and 1002) and the implementing 
regulations published by the U.S. Department of Education, with 
interest rates and fees no greater than those of comparable education 
loans offered directly by the U.S. Department of Education. It further 
provides that such rates and fees are specified in section 455 of the 
Higher Education Act of 1965 (20 U.S.C. 1087e).
    The agencies proposed to add this definition of ``low-cost 
education loan'' to Sec.  __.12, with changes to update a citation, 
applying the definition only to private loans, as provided in section 
140(a)(7) of the Truth in Lending Act (15 U.S.C. 1650(a)(8)), and other 
minor wording changes. This definition was needed for the proposal to 
consider the responsiveness of credit products and programs to the 
needs of low- and moderate-income individuals, including through low-
cost education loans, in the proposed Retail and Products Service 
Test.\174\ As with the current rule, this proposed definition leveraged 
the statutory definitions of related terms.
---------------------------------------------------------------------------

    \174\ See proposed Sec.  __.23(c)(1). This aspect of the 
proposal was intended to incorporate into the CRA regulations the 
statutory requirement that the agencies consider low-cost education 
loans provided to low-income borrowers as a factor in evaluating a 
bank's record of helping to meet the credit needs of its entire 
community. See 12 U.S.C. 2903(d). For further discussion, see the 
section-by-section analysis of Sec.  __.23.
---------------------------------------------------------------------------

    Specifically, the agencies proposed to define ``low-cost education 
loan'' to mean any private education loan, as defined in section 
140(a)(7) of the Truth in Lending Act (15 U.S.C. 1650(a)(8)) (including 
a loan under a State or local education loan program), originated by 
the bank for a student at an ``institution of higher education,'' as 
generally defined in sections 101 and 102 of the Higher Education Act 
of 1965 (20 U.S.C. 1001 and 1002) and the implementing regulations 
published by the U.S. Department of Education, with interest rates and 
fees no greater than those of comparable education loans offered 
directly by the U.S. Department of Education. Such rates and fees are 
specified in section 455 of the Higher Education Act of 1965 (20 U.S.C. 
1087e). The agencies did not receive any comments concerning the 
proposed definition of ``low-cost education loan'' and adopt it as 
proposed in the final rule with one technical change to replace the 
reference to U.S. Department of Education regulations with the 
regulatory citation, 34 CFR part 600.
Low-Income Credit Union
    The agencies proposed to add a definition for ``low-income credit 
union (LICU)'' in support of various proposed provisions related to 
community development. As discussed further in the section-by-section 
analysis of Sec.  __.13, Consideration of community development loans, 
investments, and services, the agencies proposed to create a category 
of ``community development'' that would comprise activities with MDIs, 
WDIs, LICUs, or CDFIs.\175\ In addition, the agencies proposed to 
consider, as a factor in evaluating the impact and responsiveness of 
any community development activity, whether the activity supports an 
MDI, WDI, LICU, or Treasury Department-certified CDFI.\176\
---------------------------------------------------------------------------

    \175\ See proposed Sec.  __.13(j).
    \176\ See proposed Sec.  __.15(b)(3).
---------------------------------------------------------------------------

    The agencies proposed to define LICU as having the same meaning 
given to that term in NCUA's regulations, 12 CFR 701.34. The NCUA's 
regulations provide, in part, that based on data obtained through 
examinations, the NCUA will notify a Federal credit union that it 
qualifies for designation as a LICU if a majority of its membership 
qualify as low-income members.\177\
---------------------------------------------------------------------------

    \177\ See 12 CFR 701.34(a)(1).
---------------------------------------------------------------------------

    The agencies did not receive any comments concerning the proposed 
definition of ``LICU'' and adopt it as proposed in the final rule.
Low-Income Housing Tax Credit
    The final rule includes a new definition for ``Low-Income Housing 
Tax Credit (LIHTC),'' not included in the proposal, to clarify that 
``Low-Income Housing Tax Credit'' in the CRA regulations is a reference 
to a Federal program. This term is utilized in Sec. Sec.  __.13, __.15, 
and __.42. Accordingly, the agencies are adopting a definition of 
``Low-Income Housing Tax Credit (LIHTC)'' in the final rule to mean a 
Federal tax credit for housing persons of low income pursuant to 
section 42 of the Internal Revenue Code of 1986 (26 U.S.C. 42).
Major Product Line
    The final rule includes a new definition for ``major product 
line,'' not included in Sec.  __.12 of the proposal. In the proposal, 
the agencies described the concept of major product line in Sec.  
__.22. In the final rule, instead of including the concept solely in 
Sec.  __.22, the agencies are also adding a definition for ``major 
product line'' in Sec.  __.12 because the term is used outside of Sec.  
__.22 and the agencies recognized it was more appropriate as a defined 
term. However, in the final rule the agencies are modifying what 
constitutes a ``major product line.'' The new definition explains that 
``major product line'' means a product line that the appropriate 
Federal financial supervisory agency evaluates in a particular Retail 
Lending Test Area, pursuant to Sec.  __.22(d)(2) and paragraphs II.b.1 
and II.b.2 to appendix A of the final rule. This definition is intended 
to identify the product lines with the greatest importance to the bank 
and its community and that, accordingly, are subject to evaluation 
under the Retail Lending Test. As described in the section-by-section 
analysis of Sec.  __.22, Retail Lending Test, closed-end home mortgage 
loans, small business loans, and small farm loans are major product 
lines in a facility-based assessment area or outside retail lending 
area if the bank's loans in the respective product line represent at 
least 15 percent of the bank's reported loans and other loans 
considered across all product lines in the same geographic area during 
the evaluation period. This 15 percent standard is calculated based on 
a combination of loan dollars and loan count (see above for a 
discussion of the definition of ``combination of loan dollars and loan 
count''). The same 15 percent standard is used to determine whether 
automobile loans are a major product line in a facility-based 
assessment area or outside retail lending area, if the bank is a 
majority automobile lender for the institution as a whole or opts into 
having its automobile lending evaluated. In addition, closed-end home 
mortgage loans and small business loans are a major product line in a 
particular calendar year for a retail lending assessment area if the 
product line meets or exceeds the threshold requiring delineation of a 
retail lending assessment area pursuant to Sec.  __.17 (i.e., 150 
reported closed-end home mortgage loans, or 400 reported small business 
loans, in each of the prior two calendar years). As discussed in the 
section-by-section analysis of Sec.  __.22, the agencies determined 
that it was not appropriate to include open-end home mortgage loans or 
multifamily loans in the major product line definition in the final 
rule, as the agencies proposed.

[[Page 6614]]

Majority Automobile Lender
    The final rule includes a new definition for ``majority automobile 
lender,'' not included in the proposal, defined to mean a bank for 
which more than 50 percent of its home mortgage loans, multifamily 
loans, small business loans, small farm loans, and automobile loans 
were automobile loans, as determined pursuant to paragraph II.b.3 of 
appendix A. Paragraph II.b.3 of appendix A includes the provisions of 
the final rule that identify the banks for which evaluation of 
automobile lending is mandatory in each facility-based assessment area 
or in an outside retail lending area in which automobile lending 
represents a major product line.
    As described in the section-by-section analysis of Sec.  __.22, a 
bank is considered a majority automobile lender if its automobile loans 
originated and purchased over the combined two-calendar-year period 
preceding the first year of the evaluation period exceeded 50 percent, 
based on a combination of loan dollars and loan count, of the bank's 
lending across specified categories. Specifically, the final rule 
calculates the 50 percent standard based on the following loan 
categories: home mortgage loans; \178\ multifamily loans; small 
business loans; small farm loans; and automobile loans originated and 
purchased overall.
---------------------------------------------------------------------------

    \178\ See the definition of ``home mortgage loan'' in final 
Sec.  __.12.
---------------------------------------------------------------------------

    The agencies intend this new definition to be a clarifying change 
and have added it to make the regulatory text in Sec.  __.22 and 
appendix A less complex and readable.
Metropolitan Area
    The agencies proposed to add a definition of ``metropolitan area'' 
because the term is used throughout the rule to describe areas where 
the agencies will evaluate a bank. Specifically, the agencies proposed 
to define ``metropolitan area'' to mean any MSA, combined MSA, or 
metropolitan division as that term is defined by the Director of the 
Office of Management and Budget (Director of the OMB).\179\
---------------------------------------------------------------------------

    \179\ The CRA statute defines the term ``metropolitan area'' to 
mean ``any primary metropolitan statistical area, metropolitan 
statistical area, or consolidated metropolitan statistical area, as 
defined by the Director of the OMB, with a population of 250,000 or 
more, and any other area designated as such by the appropriate 
Federal financial supervisory agency.'' 12 U.S.C. 2906(e)(2). The 
agencies did not propose to include ``primary metropolitan 
statistical area'' or ``consolidated metropolitan area'' because the 
Director of the OMB no longer uses these terms. The agencies 
exercised their discretion to define this term in the final rule to 
include all MSAs, without regard to whether it has a population of 
250,000 or more.
---------------------------------------------------------------------------

    The agencies did not receive any comments related to the proposed 
``metropolitan area'' definition. However, the agencies are adopting 
this definition with several revisions. First, the agencies are 
removing reference to ``combined MSA'' from the definition because 
``combined MSA'' is not a term defined by the Director of the OMB. 
Second, the agencies are removing reference to ``metropolitan 
division'' from the definition. Metropolitan divisions are parts of 
certain populous MSAs, so the agencies determined that the term is not 
necessary and that it added complexity to separately list both terms in 
the ``metropolitan area'' definition. For example, any county in a 
metropolitan division would also be in an MSA. Finally, the agencies 
are removing the phrase ``as defined by the Director of the Office of 
Management and Budget'' from the definition. As discussed below, the 
term ``MSA'' is defined in the final rule to mean a metropolitan 
statistical area defined by the Director of the OMB. Accordingly, 
``metropolitan area'' in the final rule means any MSA.
Metropolitan Division
    The current CRA regulations define ``metropolitan division'' to 
mean a metropolitan division as defined by the Director of the 
OMB.\180\ The agencies proposed this same definition, with a minor 
technical change. Specifically, the agencies replaced the phrase 
``means a metropolitan division as defined'' with the phrase ``has the 
same meaning given to that term.'' The agencies did not receive any 
comments related to the proposed definition of ``metropolitan 
division,'' and are adopting the definition as proposed in the final 
rule.
---------------------------------------------------------------------------

    \180\ See current 12 CFR __.12(q).
---------------------------------------------------------------------------

Military Bank
    The agencies proposed to add a new definition of ``military bank'' 
in support of proposed Sec.  __.16, which would provide an exception to 
certain facility-based assessment area delineation requirements for 
military banks.\181\ Specifically, the agencies proposed to define 
``military bank'' to mean a bank whose business predominately consists 
of serving the needs of military personnel who serve or have served in 
the Armed Forces (including the U.S. Air Force, U.S. Army, U.S. Coast 
Guard, U.S. Marine Corps, and U.S. Navy) or dependents of military 
personnel, basing this definition on language in the CRA statute.\182\ 
The agencies proposed this definition to increase clarity and 
consistency in the CRA regulations.
---------------------------------------------------------------------------

    \181\ See proposed Sec.  __.16(d). See also the section-by-
section analysis of Sec.  __.16 for further discussion of this 
provision.
    \182\ See 12 U.S.C. 2902(4) (``A financial institution whose 
business predominately consists of serving the needs of military 
personnel who are not located in a defined geographic area may 
define its `entire community' to include its entire deposit customer 
base without regard to geographic proximity.''). The agencies note 
that the statute uses the term ``predominately,'' however, the more 
common spelling is ``predominantly,'' and accordingly, the agencies 
have used that term instead.
---------------------------------------------------------------------------

    A commenter provided input on the proposed definition of ``military 
bank.'' Although expressing support for inclusion of a definition of 
``military bank,'' the commenter expressed concern that the agencies' 
proposed definition is too narrow and recommended that the word 
``predominantly'' be defined to include ``a bank whose most important 
customer group is military personnel or their dependents,'' as in the 
OCC 2020 CRA Final Rule. The commenter noted that this qualification 
should lead to the extension of the ``military bank'' definition to all 
financial institutions with a commitment, mission, or business model to 
serve the military community exclusive of all other communities. The 
commenter also suggested that the definition of ``military bank'' 
should include on-base branches of financial institutions that do not 
otherwise fit within the definition so that branches on military bases 
could benefit from the CRA's geographic assessment area exception 
without extending this treatment to the larger, non-military financial 
institution of which they are part. Further, this commenter expressed 
support for the proposed definition's inclusion of those who serve or 
have served in the Armed Forces or dependents of military personnel. 
Finally, the commenter noted that the definition of ``military bank'' 
should include the U.S. Space Force, established in 2019, in the 
definition's listing of military service branches.
    The agencies have made substantive edits to the proposed definition 
of ``military bank'' in response to these comments. First, the agencies 
agree that ``predominantly'' should be defined to clarify that a 
``military bank'' is a bank whose most important customer group is 
military personnel or their dependents. This added language is 
consistent with the interpretation of ``predominantly'' in the preamble 
to the 1979 CRA rulemaking \183\ and codifies a decades-old 
interpretation that ``predominantly'' is not based on a numerical 
standard.\184\ Additionally, the

[[Page 6615]]

agencies believe this final rule regulatory text comports with the 
language in the CRA statute. Second, the agencies agree with the 
commenter that the new U.S. Space Force should be included in the 
definition as a branch of the U.S. Armed Forces.
---------------------------------------------------------------------------

    \183\ 44 FR 18163, 18164 (Mar. 27, 1979).
    \184\ Id.
---------------------------------------------------------------------------

    The agencies, however, declined to adopt the commenter's suggestion 
that the definition should include on-base branches of financial 
institutions that do not otherwise fit within the definition. The 
agencies believe such revision would be inconsistent with the CRA 
statute's provision regarding military banks, which refers to the 
business of the financial institution as predominantly consisting of 
serving the needs of military personnel, and not branches of a 
financial institution.\185\
---------------------------------------------------------------------------

    \185\ See 12 U.S.C. 2902(4).
---------------------------------------------------------------------------

    For the reasons stated above, the agencies are adopting a 
definition of ``military bank'' to mean a bank whose business 
predominantly consists of serving the needs of military personnel who 
serve or have served in the U.S. Armed Forces (including the U.S. Air 
Force, U.S. Army, U.S. Coast Guard, U.S. Marine Corps, U.S. Navy, and 
U.S. Space Force) or their dependents. A bank whose business 
predominantly consists of serving the needs of military personnel or 
their dependents means a bank whose most important customer group is 
military personnel or their dependents.
Minority Depository Institution
Current Approach and the Agencies' Proposal
    The agencies proposed to add a definition of ``minority depository 
institution (MDI)'' to support the provisions in the proposal related 
to community development. As discussed above, and further in the 
section-by-section analysis of Sec.  __.13(k), the agencies proposed to 
create a category of ``community development'' that would comprise 
activities with MDIs, WDIs, LICUs, or CDFIs.\186\ In addition, the 
agencies proposed to consider, as a factor in evaluating the impact and 
responsiveness of any community development activity, whether the 
activity supports an MDI, WDI, LICU, or Treasury Department-certified 
CDFI.\187\ The proposed definitions also account for a provision in the 
CRA statute providing that the amount of any bank contribution or loss 
in connection with donating, selling on favorable terms, or making 
available on a rent-free basis any branch of the bank located in a 
predominantly minority neighborhood to an MDI or WDI may be a factor in 
determining whether the bank is meeting the credit needs of its 
community, which includes specific definitions of MDI and WDI.\188\
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    \186\ See proposed Sec.  __.13(j).
    \187\ See proposed Sec.  __.15(b)(3) and the accompanying 
section-by-section analysis of Sec.  __.15.
    \188\ See 12 U.S.C. 2907.
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    The agencies structured the proposed ``MDI'' definition to provide 
two avenues through which an institution may qualify as an MDI. The 
agencies pursued this dual track structure to both ensure consistency 
with the CRA statute and incorporate the agencies' current policies for 
determining what institutions qualify as ``minority-owned financial 
institutions'' under 12 U.S.C. 2903(b). First, the agencies determined 
that the proposed ``MDI'' definition should incorporate the statutory 
definition of ``minority depository institution'' to ensure consistency 
with the CRA statute, which applies to certain transactions involving 
branches. Specifically, under 12 U.S.C. 2907 (i.e., the statutory 
provision concerning donating, selling on favorable terms, or making 
certain branches available on a rent-free basis to a minority 
depository institution), ``minority depository institution'' is defined 
as a depository institution (as defined in 12 U.S.C. 1813(c)): (1) more 
than 50 percent of the ownership or control of which is held by 1 or 
more minority individuals; and (2) more than 50 percent of the net 
profit or loss of which accrues to 1 or more minority individuals. The 
agencies note that this definition is required for the narrow set of 
branching activities referenced in 12 U.S.C. 2907.
    More broadly, 12 U.S.C. 2903 states that, in assessing an 
institution's record of helping to meet the credit needs of the entire 
community, the agencies may consider, ``as a factor capital investment, 
loan participation, and other ventures undertaken by the institution in 
cooperation with minority- and women-owned financial institutions and 
LICUs provided that these activities help meet the credit needs of 
local communities in which such institutions and credit unions are 
chartered.'' \189\ Unlike 12 U.S.C. 2907, 12 U.S.C. 2903 does not 
define the terms ``minority-owned financial institution'' or ``women-
owned financial institution.'' Given the absence of statutory 
definitions, the agencies, through their respective supervisory 
authority, have applied criteria for determining which institutions are 
considered minority- or women-owned financial institutions when 
interpreting CRA.\190\ Therefore, the second aspect of the proposed 
``MDI'' definition was designed to capture those institutions that the 
agencies recognize as ``minority-owned financial institutions'' 
pursuant to their current policies.
---------------------------------------------------------------------------

    \189\ 12 U.S.C. 2903(b) (emphasis added).
    \190\ Generally, the agencies have considered institutions that 
qualify under their MDI policies to qualify under section 2903. See 
OCC, News Release 2013-94, ``Comptroller Curry Tells Minority 
Depository Institutions OCC Rules Make It Easier for Minority 
Institutions to Raise Capital,'' ``Policy Statement on Minority 
National Banks and Federal Savings Associations'' (June 13, 2013), 
https://www.occ.gov/news-issuances/news-releases/2013/nr-occ-2013-94.html (permits a bank that no longer meet the minority ownership 
requirement to continue to be considered a minority depository 
institution if it primarily serves the credit and economic needs of 
the community in which it is chartered and serves a predominantly 
minority community); Board, SR 21-6/CA 21-4: ``Highlighting the 
Federal Reserve System's Partnership for Progress Program for 
Minority Depository Institutions and Women's Depository 
Institutions'' (Mar. 5, 2021), https://www.federalreserve.gov/supervisionreg/srletters/SR2106.htm (permits designation as a 
minority depository institution if the majority of a bank's board of 
directors consists of minority individuals and the community that 
the bank serves is predominantly minority); and FDIC, Statement of 
Policy Regarding Minority Depository Institutions, 86 FR 32728, 
32732 (June 23, 2021) (permits designation as a minority depository 
institution if a majority of the bank's board of directors consists 
of minority individuals and the community that the bank serves is 
predominantly minority).
---------------------------------------------------------------------------

    Specifically, the agencies proposed to define an ``MDI,'' for 
purposes other than the specified branch-related transactions under 12 
U.S.C. 2907, as a bank that: (1) meets the definition under 12 U.S.C. 
2907(b)(1); \191\ (2) is a minority depository institution as defined 
in section 308 of the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 (FIRREA) (12 U.S.C. 1463 note); \192\ or (3) is 
considered to be a minority depository institution by the appropriate 
Federal banking agency. This proposed definition is derived in part 
from the definition of ``minority depository institution'' in the

[[Page 6616]]

Emergency Capital Investment Program \193\ enacted as part of the 
Consolidated Appropriations Bill of 2021,\194\ revised to be 
appropriate for the CRA. The agencies stated that using this statutory-
based definition for purposes of CRA promotes further consistency 
across government programs.
---------------------------------------------------------------------------

    \191\ The agencies incorporated section 2907 into this second 
prong of the definition to ensure that banks are not limited to the 
engaging in the specified branch-related activities with 
institutions that meet the statutory definition but are not 
otherwise consistent with the agencies' MDI designation policies.
    \192\ The agencies' MDI designation policies are based on 
section 308 of the FIRREA, and the agencies determined it was 
appropriate to expressly reference that statute in the definition 
for further consistency. Under section 308, ``minority financial 
institution'' means any depository institution that--(A) if a 
privately owned institution, 51 percent is owned by one or more 
socially and economically disadvantaged individuals; (B) if publicly 
owned, 51 percent of the stock is owned by one or more socially and 
economically disadvantaged individuals; and (C) in the case of a 
mutual institution where the majority of the Board of Directors, 
account holders, and the community which it services is 
predominantly minority. Further, under section 308, the term 
``minority'' means any black American, Native American, Hispanic 
American, or Asian American.
    \193\ See 12 U.S.C. 4703a.
    \194\ See Public Law 116-260, 134 Stat. 1182 (Dec. 27, 2020).
---------------------------------------------------------------------------

Comments Received
    A number of commenters addressed the proposed ``MDI'' definition. 
For example, a commenter supported a definition that would include both 
banks owned by minority individuals and minority-operated banks. 
According to the commenter, successful and growing banks need to raise 
outside capital, which could result in the bank no longer meeting the 
minority-owned definition and would therefore have the unintended 
consequence of keeping minority banks small.
    In response to the agencies' question on whether to include 
minority insured credit unions recognized by the NCUA in the ``MDI'' 
definition, most commenters stated that such credit unions should be 
included. In addition, some commenters recommended that State-insured 
MDI credit unions and Puerto Rico's cooperativas also be included in 
this category. Commenters generally noted that such credit unions and 
related entities share the same purpose as MDIs, are insured and 
supervised, and accordingly should be treated the same as MDI banks. A 
commenter stated that this addition could expand the number of MDIs 
available to partner with banks on CRA activities. Although no 
commenters expressed opposition to including MDI credit unions in the 
definition, a commenter did suggest that smaller credit union MDIs 
could be included, but those with more than 50,000 members or more 
should be subject to additional scrutiny to ensure that 51 percent of 
its owners are people of color.
Final Rule
    The agencies are adopting the proposed ``MDI'' definition in the 
final rule with several technical edits. First, in paragraph (1), the 
agencies removed the parenthetical, ``(i.e., donating, selling on 
favorable terms (as determined by the [Agency]), or making available on 
a rent-free basis any branch of the bank, which is located in a 
predominately minority neighborhood).'' This language paraphrased the 
cited statute, 12 U.S.C. 2907(b)(1), and is therefore not necessary. 
Second, the agencies made non-substantive wording changes to the 
definition to improve its structure and readability and to promote 
consistency with the statutes cited in the definition. Accordingly, the 
final rule defines ``minority depository institution (MDI)'' to mean: 
(1) for purposes of activities conducted pursuant to 12 U.S.C. 2907(a), 
``minority depository institution'' as defined in 12 U.S.C. 2907(b)(1); 
and (2) for all other purposes: (i) a ``minority depository 
institution'' as defined in 12 U.S.C. 2907(b)(1); (ii) a ``minority 
depository institution'' as defined in section 308 of the FIRREA (12 
U.S.C. 1463 note); or (iii) a depository institution considered to be a 
minority depository institution by the appropriate Federal banking 
agency. For purposes of this definition, ``appropriate Federal banking 
agency'' has the meaning given to it in 12 U.S.C. 1813(q).
    As also discussed in the section-by-section analysis of Sec.  
__.13(k), the agencies considered but are not including minority credit 
unions in the ``MDI'' definition. Unlike MDIs, which are independently 
reviewed by each agencies' staff, credit unions self-certify MDI status 
and the NCUA does not verify or certify the accuracy of this 
status.\195\ The agencies also note that there is a large overlap 
between minority credit unions and LICUs.\196\ Thus, a large percentage 
of minority credit unions will be eligible under the rule for community 
development consideration based on their LICU status.
---------------------------------------------------------------------------

    \195\ See 80 FR 36356, 36357 (June 24, 2015).
    \196\ See NCUA, ``Minority Depository Institutions Annual Report 
to Congress,'' 2 (2021), https://ncua.gov/files/publications/2021-mdi-congressional-report.pdf (approximately 81% of MDIs also held a 
designation as LICUs as Dec. 31, 2021 (i.e., 412 out of 509 MDIs)).
---------------------------------------------------------------------------

    In response to comments about including banks that are owned by 
minority individuals and minority-operated banks in the ``MDI'' 
definition, the agencies recognize that banks have varied ownership 
structures and need to raise capital and have considered these issues 
when designating MDIs. The proposed and final rule both include as a 
component of the definition of ``MDI'' banks that are considered to be 
minority depository institutions by the appropriate Federal banking 
agency. This component of the definition provides flexibility and 
incorporates each agency's applicable policies regarding the 
designation of MDIs.
Mission-Driven Nonprofit Organization
    The agencies are adding a new definition for ``mission driven 
nonprofit organization,'' not included in the proposal, to support this 
term's use in Sec. Sec.  __.13 and __.42 in the final rule. 
Specifically, the final rule defines ``mission-driven nonprofit 
organization'' to mean an organization described in section 501(c)(3) 
of the Internal Revenue Code of 1986 (26 U.S.C. 501(c)(3)) and exempt 
from taxation under section 501(a) of such Code that benefits or serves 
primarily low- or moderate-income individuals or communities, small 
businesses, or small farms.
    The agencies are adopting this definition primarily to support 
revisions made in the final rule, based on consideration of comments, 
to expand the government plan eligibility criteria in the place-based 
community development categories to include plans, programs, or 
initiatives of mission-driven nonprofit organizations.\197\ The final 
rule also provides services that are conducted with a mission-driven 
nonprofit organization as one example of a qualifying community 
supportive service in Sec.  __.13(d). These aspects of the final rule 
are discussed in greater detail in the section-by-section analysis of 
Sec.  __.13. The final rule also uses the term mission-driven nonprofit 
organization for consistency as an example of detail that could be 
provided about a community development loan or community development 
investment in final Sec.  __.42.
---------------------------------------------------------------------------

    \197\ See final Sec.  __.13(e) through (j).
---------------------------------------------------------------------------

    The agencies included the first part of this definition to 
explicitly state that an organization must be a 501(c)(3) organization 
to qualify as a mission-driven nonprofit organization. Further, the 
definition specifies that these organizations benefit or serve 
primarily low- or moderate-income individuals, small businesses, or 
small farms. The agencies believe that, with these two core components, 
the definition of mission-driven nonprofit organization is 
appropriately tailored to capture entities that are dedicated to 
benefiting and serving low- and moderate-income individuals or 
communities, small businesses, or small farms while being sufficiently 
narrow not to permit a broad expansion of eligibility criteria under 
the place-based community development categories. The agencies also 
believe that this definition is consistent with the types of 
organizations that the agencies proposed would be partners with banks 
in conducting community development.

[[Page 6617]]

For example, the proposal included a discussion of nonprofit 
organizations in reference to the proposed affordable housing category 
of community development in proposed Sec.  __.13(b), as well as in 
relation to community supportive services in proposed Sec.  
__.13(d).\198\
---------------------------------------------------------------------------

    \198\ See proposed Sec.  __.13(b)(2)(ii) and (d)(1); see also 87 
FR 33884, 33896 (June 3, 2022).
---------------------------------------------------------------------------

MSA
    Under the current CRA regulations, the agencies define ``MSA'' to 
mean a metropolitan statistical area as defined by the Director of the 
OMB.\199\ The agencies proposed maintaining this definition but 
changing the defined term from ``MSA'' to ``metropolitan statistical 
area (MSA)'' and with minor technical wording changes. The agencies did 
not receive any comments on this proposed definition. However, after 
further consideration, the agencies are reverting back to the current 
defined term ``MSA'' in the final rule because ``MSA'' is the term 
known and understood by the industry. The agencies are also reverting 
the wording of the definition back to its current form to be consistent 
with the wording of other definitions and making minor technical 
changes to reference OMB delineation and to add OMB authority 
citations. Accordingly, the agencies are defining ``MSA'' to mean a 
metropolitan statistical area delineated by the Director of the Office 
of Management and Budget, pursuant to 44 U.S.C. 3504(e)(3) and (10), 31 
U.S.C. 1104(d), and Executive Order 10253 (June 11, 1951).
---------------------------------------------------------------------------

    \199\ See current 12 CFR __.12(r).
---------------------------------------------------------------------------

Mortgage-Related Definitions
    Under the current CRA regulations, the agencies define ``home 
mortgage loan'' to mean a closed-end mortgage loan or an open-end line 
of credit as defined under 12 CFR 1003.2 (Regulation C), the CFPB's 
HMDA implementing regulations, that is not an excluded transaction 
under 12 CFR 1003.3(c)(1) through (10) and (13).\200\ The agencies 
proposed to amend the current ``home mortgage loan'' definition to 
refer to an ``open-end home mortgage loan'' rather than an ``open-end 
line of credit,'' with no intent to change the meaning. The agencies 
also proposed to remove the cross-reference to the CFPB's Regulation C 
and add new definitions for ``closed-end home mortgage loan'' and 
``open-end home mortgage loan,'' which would have the same meanings 
given to ``closed-end mortgage loan'' and ``open-end line of credit'' 
in 12 CFR 1003.2(d) and (o), respectively, excluding multifamily loans 
as defined in proposed Sec.  __.12.\201\ ``Closed-end home mortgage 
loan'' is defined in 12 CFR 1003.2(d) to mean an extension of credit 
that is secured by a lien on a dwelling and that is not an open-end 
line of credit under the HMDA regulations. ``Open-end line of credit'' 
is defined in 12 CFR 1003.2(o) to mean an extension of credit that is 
secured by a lien on a dwelling and is an open-end credit plan as 
defined in CFPB's Regulation Z, 12 CFR 1026.2(a)(20),\202\ but without 
regard to whether the credit is consumer credit, as defined in 12 CFR 
1026.2(a)(12),\203\ is extended by a creditor, as defined in 12 CFR 
1026.2(a)(17),\204\ or is extended to a consumer, as defined in 12 CFR 
1026.2(a)(11).\205\
---------------------------------------------------------------------------

    \200\ See current 12 CFR __.12(l). Excluded transactions under 
12 CFR 1003.3(c)(1) through (10) and (13) are as follows: (1) a 
closed-end mortgage loan or open-end line of credit originated or 
purchased by a financial institution acting in a fiduciary capacity; 
(2) a closed-end mortgage loan or open-end line of credit secured by 
a lien on unimproved land; (3) temporary financing; (4) the purchase 
of an interest in a pool of closed-end mortgage loans or open-end 
lines of credit; (5) the purchase solely of the right to service 
closed-end mortgage loans or open-end lines of credit; (6) the 
purchase of closed-end mortgage loans or open-end lines of credit as 
part of a merger or acquisition, or as part of the acquisition of 
all of the assets and liabilities of a branch office as defined in 
Sec.  1003.2(c); (7) a closed-end mortgage loan or open-end line of 
credit, or an application for a closed-end mortgage loan or open-end 
line of credit, for which the total dollar amount is less than $500; 
(8) the purchase of a partial interest in a closed-end mortgage loan 
or open-end line of credit; (9) a closed-end mortgage loan or open-
end line of credit used primarily for agricultural purposes; (10) a 
closed-end mortgage loan or open-end line of credit that is or will 
be made primarily for a business or commercial purpose, unless the 
closed-end mortgage loan or open-end line of credit is a home 
improvement loan under Sec.  1003.2(i), a home purchase loan under 
Sec.  1003.2(j), or a refinancing under Sec.  1003.2(p); and (11) a 
transaction that provided or, in the case of an application, 
proposed to provide new funds to the applicant or borrower in 
advance of being consolidated in a New York State consolidation, 
extension, and modification agreement classified as a supplemental 
mortgage under New York Tax Law section 255; the transaction is 
excluded only if final action on the consolidation was taken in the 
same calendar year as final action on the new funds transaction.
    \201\ As discussed further below, the agencies proposed to 
define ``multifamily loan'' as ``a loan for a `multifamily dwelling' 
as defined in 12 CFR 1003.2(n).'' Multifamily dwelling is defined in 
12 CFR 1003.2(n) as ``a dwelling, regardless of construction method, 
that contains five or more individual dwelling units.''
    \202\ ``Open-end credit'' means consumer credit extended by a 
creditor under a plan in which: (1) The creditor reasonably 
contemplates repeated transactions; (2) The creditor may impose a 
finance charge from time to time on an outstanding unpaid balance; 
and (3) The amount of credit that may be extended to the consumer 
during the term of the plan (up to any limit set by the creditor) is 
generally made available to the extent that any outstanding balance 
is repaid. See 12 CFR 1003.2(o) and 100.1026.2(a)(20).
    \203\ ``Consumer credit'' means credit offered or extended to a 
consumer primarily for personal, family, or household purposes. See 
12 CFR 1026.2(a)(12).
    \204\ ``Creditor'' means a person who regularly extends consumer 
credit that is subject to a finance charge or is payable by written 
agreement in more than four installments (not including a down 
payment), and to whom the obligation is initially payable, either on 
the face of the note or contract, or by agreement when there is no 
note or contract. For purposes of Sec. Sec.  1026.4(c)(8) 
(Discounts), 1026.9(d) (Finance charge imposed at time of 
transaction), and 1026.12(e) (Prompt notification of returns and 
crediting of refunds), a person that honors a credit card. For 
purposes of subpart B, any card issuer that extends either open-end 
creditor credit that is not subject to a finance charge and is not 
payable by written agreement in more than four installments. For 
purposes of subpart B (except for the credit and charge card 
disclosures contained in Sec. Sec.  1026.60 and 1026.9(e) and (f), 
the finance charge disclosures contained in Sec. Sec.  1026.6(a)(1) 
and (b)(3)(i) and 1026.7(a)(4) through (7) and (b)(4) through (6) 
and the right of rescission set forth in Sec.  1026.15) and subpart 
C, any card issuer that extends closed-end credit that is subject to 
a finance charge or is payable by written agreement in more than 
four installments. A person regularly extends consumer credit only 
if it extended credit (other than credit subject to the requirements 
of Sec.  1026.32) more than 25 times (or more than 5 times for 
transactions secured by a dwelling) in the preceding calendar year. 
If a person did not meet these numerical standards in the preceding 
calendar year, the numerical standards shall be applied to the 
current calendar year. A person regularly extends consumer credit 
if, in any 12-month period, the person originates more than one 
credit extension that is subject to the requirements of Sec.  
1026.32 or one or more such credit extensions through a mortgage 
broker. See 12 CFR 1026.2(a)(17).
    \205\ ``Consumer'' means a cardholder or natural person to whom 
consumer credit is offered or extended. However, for purposes of 
rescission under Sec. Sec.  1026.15 and 1026.23, the term also 
includes a natural person in whose principal dwelling a security 
interest is or will be retained or acquired, if that person's 
ownership interest in the dwelling is or will be subject to the 
security interest. For purposes of Sec. Sec.  1026.20(c) through 
(e), 1026.36(c), 1026.39, and 1026.41, the term includes a confirmed 
successor in interest. See 12 CFR 1026.2(a)(11).
---------------------------------------------------------------------------

    The agencies proposed to add separate definitions for ``closed-end 
home mortgage loan'' and ``open-end home mortgage loan,'' because, as 
discussed further in the section-by-section analysis of Sec.  __.22, 
given their distinct characteristics, these types of loans would be 
considered separately under the proposed Retail Lending Test. The 
agencies' proposed definitions of these terms are consistent with the 
current ``home mortgage loan'' definition, which cross-references 12 
CFR 1003.2 to define closed-end home mortgage loans and open-end lines 
of credit. The agencies excluded multifamily loans from the definitions 
of ``closed-end home mortgage loan'' and ``open-end home mortgage 
loan'' because the proposal included a separate definition for 
``multifamily loan'' that covers different transactions (as discussed 
below in the section-by-section analysis). This exclusion was

[[Page 6618]]

necessary because, under the proposal, the agencies could consider 
multifamily loans, unlike other closed-end home mortgage loans, under 
the Community Development Financing Test in Sec.  __.24.\206\ The 
agencies also proposed this exclusion of multifamily loans because 
multifamily loans were a distinct category of retail loan which could 
qualify as a major product line under the Retail Lending Test in Sec.  
__.22.
---------------------------------------------------------------------------

    \206\ See proposed Sec.  __.22(a)(5)(ii).
---------------------------------------------------------------------------

    A commenter requested that the excluded transaction language in the 
definition of ``home mortgage loan'' referencing 12 CFR 1003.3(c)(1) 
through (10) and (13) be narrowed to 12 CFR 1003.3(c)(1),\207\ 
(5),\208\ (7) through (10),\209\ and (13).\210\ In particular, the 
commenter objected to the current definition's exclusion of loans 
secured by unimproved land (12 CFR 1003.3(c)(2)), expressing the view 
that this would penalize financial institutions for lending to builders 
or individuals seeking to build in low- and moderate-income 
communities. Similarly, the commenter objected to the exclusion of 
temporary financing (12 CFR 1003.3(c)(3)), such as bridge financing or 
a loan for home construction, asserting that this could undermine a 
financial institution's ability to finance the construction of homes in 
low- and moderate-income communities, even if the financing is only on 
a temporary basis. The commenter objected to excluding from the ``home 
mortgage loan'' definition purchased closed-end home mortgage loans and 
open-end lines of credit, whether as a pool of credits or through an 
acquisition or merger (12 CFR 1003.3(c)(4) and (6)), explaining that 
financial institutions are purchasing whole loans and servicing rights 
and not merely purchasing an investment vehicle, and that purchasing 
loan pools also permits financial institutions to meet the credit needs 
of their communities despite not having the resources to generate these 
loans one transaction at a time.
---------------------------------------------------------------------------

    \207\ See 12 CFR 1003.3(c)(1).
    \208\ See 12 CFR 1003.3(c)(5).
    \209\ See 12 CFR 1003.3(c)(7) through (10).
    \210\ See 12 CFR 1003.3(c)(13).
---------------------------------------------------------------------------

    The agencies decline to revise the excluded transactions language. 
As under the current CRA regulations, the agencies intend to leverage 
HMDA data in the final rule, i.e., data reported pursuant to 12 CFR 
part 1003, which allows for sufficient data for analysis while not 
increasing the data collection or reporting burden on these banks, as 
part of the CRA evaluation framework. If the agencies narrowed the 
number of excluded transactions as requested by the commenter, HMDA 
reporters would be required to produce additional data that exceeds 
their current HMDA reporting obligations, which would both increase 
burden for banks and add complexity to CRA examinations.
    Further, the agencies note that the exclusion of purchased closed-
end home mortgage loans and open-end lines of credit from the ``home 
mortgage loan'' definition does not mean that they are not considered 
under the CRA regulations. For a more detailed discussion of the CRA 
regulations' consideration of purchased loans, see the section-by-
section analysis of final Sec.  __.22, Retail Lending Test.
    After consideration of commenters' concerns and recommendations and 
further review of the proposed definitions in light of other aspects of 
the final rule, the agencies are adopting the definitions of ``home 
mortgage loan,'' ``closed-end home mortgage loan,'' and ``open-end home 
mortgage loan'' with technical changes. First, the agencies have moved 
the HMDA exclusions from the definition of ``home mortgage loan'' to 
the definitions of ``closed-end home mortgage loan'' and ``open-end 
home mortgage loan,'' where the exclusions are more appropriately 
located. Second, the agencies have removed the specific paragraph 
designations in the cross-references to the HMDA definitions so that 
they now read ``12 CFR 1003.2'' instead of 12 CFR 1003.2(d) and (o) so 
that these cross-references remain accurate if the CFPB modifies this 
section in the future. Accordingly, under the final rule:
     ``home mortgage loan'' means a closed-end home mortgage 
loan or an open-end home mortgage loan as these terms are defined in 
final Sec.  __.12;
     ``closed-end home mortgage loan'' has the same meaning 
given to the term ``closed-end mortgage loan'' in 12 CFR 1003.2, 
excluding loan transactions set forth in 12 CFR 1003.3(c)(1) through 
(10) and (13) and multifamily loans as defined in final Sec.  __.12; 
and
     ``open-end home mortgage loan'' has the same meaning as 
given to the term ``open-end line of credit'' in 12 CFR 1003.2, 
excluding loan transactions set forth in 12 CFR 1003.3(c)(1) through 
(10) and (13) and multifamily loans as defined in final Sec.  __.12.
Multifamily Loan
    The agencies proposed to add a new definition of ``multifamily 
loan'' and define it to mean a loan for a ``multifamily dwelling'' as 
defined in 12 CFR 1003.2(n) in the CFPB's Regulation C, which 
implements HMDA. Multifamily dwelling is defined in 12 CFR 1003.2(n) to 
mean a dwelling, regardless of construction method, that contains five 
or more individual dwelling units. The agencies intended the proposed 
definition to correspond to the proposal to treat multifamily loans 
separately from closed-end and open-end home mortgage loans, given 
their distinct characteristics. The proposal for considering 
``multifamily loans'' is discussed in detail in the section-by-section 
analyses of Sec. Sec.  __.22 (Retail Lending Test) and __.13(b) 
(affordable housing category of community development).
    The agencies did not receive any comments on this definition and 
are adopting it as proposed, with two changes. First, the agencies are 
replacing ``loan'' with ``an extension of credit that is secured by a 
lien'' in the final rule to make this term consistent with HMDA. 
Second, the agencies have removed the specific paragraph designations 
in the cross-references to the CFPB's definition so that it now reads 
``12 CFR 1003.2'' instead of ``12 CFR 1003.2(n).'' Accordingly, 
``multifamily loan'' is defined in the final rule to mean an extension 
of credit that is secured by a lien on a ``multifamily dwelling'' as 
defined in 12 CFR 1003.2.
Multistate MSA
    The agencies proposed to add a new definition of ``multistate 
metropolitan statistical area (multistate MSA)'' and define it to have 
the same meaning given to that term by the Director of the OMB. As 
discussed in detail in the section-by-section analysis of Sec.  __.28, 
under the proposal, the agencies would assign conclusions for a bank's 
performance under each applicable performance test and ratings for a 
bank's overall CRA performance across performance tests at the State, 
multistate MSA, and institution levels.\211\ The agencies did not 
receive any comments related to the proposed ``multistate metropolitan 
statistical area'' definition.
---------------------------------------------------------------------------

    \211\ See, e.g., proposed Sec.  __.28 and appendices C, D, and 
E.
---------------------------------------------------------------------------

    The agencies are adopting a definition of this term in the final 
rule with technical changes. First the agencies revised the definition 
to remove the cross-reference to the OMB definition and instead are 
defining the term to mean an MSA that crosses a State boundary, which 
is the agencies' intended meaning of this term. The agencies made this 
revision to reflect the fact that ``multistate metropolitan statistical 
area'' is not a term defined by the Director of the OMB. Instead, the

[[Page 6619]]

Director of OMB defines the term ``MSA,'' and the final rule defines 
``MSA'' by cross-referencing to this OMB definition. Second, consistent 
with the change discussed above under the definition of ``MSA,'' the 
agencies are replacing ``metropolitan statistical area'' with ``MSA.'' 
Thus, the resulting defined term will be ``multistate MSA'' instead of 
``multistate metropolitan statistical area.'' Accordingly, ``multistate 
MSA'' is defined in the final rule to mean an MSA that crosses a State 
boundary.
Nationwide Area
    The agencies proposed to add a new definition for ``nationwide 
area'' to support the proposal to evaluate a bank's community 
development financing activities in a ``nationwide area,'' as discussed 
below in the section-by-section analyses of Sec. Sec.  __.24 through 
__.27; the proposal to evaluate large banks' and certain intermediate 
banks' retail lending performance in ``outside retail lending areas,'' 
as discussed in the section-by-section analysis of Sec.  __.18, which 
would include the ``nationwide area'' outside of a bank's assessment 
areas; the proposal's impact and responsiveness review, as discussed in 
the section-by-section analysis of Sec.  __.15; and the proposal's data 
collection, maintenance, and reporting requirements, as discussed in 
the section-by-section analysis of Sec.  __.42. Specifically, the 
agencies proposed that ``nationwide area'' would mean ``the entire 
United States and its territories.''
    The agencies received one comment requesting clarity on what the 
agencies meant by the term ``nationwide area,'' recommending that the 
agencies define this term to include the broader regional areas beyond 
defined multistate MSAs. In this way, the commenter theorized that 
banks could receive credit for financing activities like affordable 
housing in a particular region of the United States that cover multiple 
States but where that region is not a defined multistate MSA. This 
commenter misunderstands the scope of the proposed ``nationwide area'' 
definition. ``Nationwide area'' includes the entirety of the United 
States and its territories, and is not limited to multistate areas. The 
allocation of community development financing activities, including how 
an activity that benefits more than one State but not the entire nation 
will be attributed, is discussed in the section-by-section analysis of 
Sec.  __.24. Thus, the agencies are adopting the definition of 
``nationwide area'' as proposed in the final rule.
Native Land Area
The Agencies' Proposal
    The agencies proposed to add a new definition of ``Native Land 
Area'' to provide clarity in support of the proposal's encouragement of 
activities that address the significant and unique community 
development challenges in these areas. The proposal sought to encourage 
these activities through the proposed establishment of a category of 
community development for qualifying activities in Native Land 
Areas,\212\ discussed in the section-by-section analysis of Sec.  
__.13(j), and by considering the impact and responsiveness of a bank's 
community development activities that benefit Native communities, such 
as community development activities in Native Land Areas under Sec.  
__.13(j),\213\ discussed in the section-by-section analysis of Sec.  
__.15(b)(8).
---------------------------------------------------------------------------

    \212\ See proposed Sec.  __.13(l).
    \213\ See proposed Sec.  __.15(b)(7).
---------------------------------------------------------------------------

    Native American land ownership is complex, and lands can have a 
complicated and intermingled mix of land ownership status involving 
various statutes, regulations, titles, and restrictions.\214\ The 
agencies intended the proposed ``Native Land Area'' definition to be 
responsive to stakeholder feedback provided during outreach prior to 
the issuance of the proposal indicating support for a geographic 
definition broader than the definition of Indian country under 18 
U.S.C. 1151, and to include lands such as Hawaiian Home Lands, as well 
as other lands typically considered Native and tribal lands with unique 
political status under established Federal Indian law. The proposed 
``Native Land Area'' definition leveraged other Federal and State 
designations of Native and tribal lands, as well as the OCC 2020 CRA 
Final Rule, and included areas typically considered by the Bureau of 
Indian Affairs (BIA) and the U.S. Census Bureau as Native geographic 
areas. Accordingly, the proposed ``Native Land Area'' definition 
included all geographic areas delineated as U.S. Census Bureau American 
Indian/Alaska Native/Native Hawaiian (AIANNH) Areas and/or BIA Land 
Area Representations. For example, the proposed definition included 
State American Indian reservations established through a governor-
appointed State liaison that provides the names and boundaries for 
State-recognized American Indian reservations to the Census Bureau.
---------------------------------------------------------------------------

    \214\ See, e.g., Congressional Research Service, ``Tribal Land 
and Ownership Statuses: Overview and Selected Issues for Congress'' 
(July 2021), https://sgp.fas.org/crs/misc/R46647.pdf.
---------------------------------------------------------------------------

    Specifically, under the proposal, ``Native Land Area'' would mean: 
(1) all land within the limits of any Indian reservation under the 
jurisdiction of the U.S. Government, as described in 18 U.S.C. 1151(a); 
(2) all dependent Indian communities within the borders of the United 
States whether within the original or subsequently acquired territory 
thereof, and whether within or without the limits of a State, as 
described in 18 U.S.C. 1151(b); (3) all Indian allotments, the Indian 
titles to which have not been extinguished, including rights-of-way 
running through the same, as defined in 18 U.S.C. 1151(c); (4) any land 
held in trust by the United States for Native Americans, as described 
in 38 U.S.C. 3765(1)(A); (5) reservations established by a State 
government for a tribe or tribes recognized by the State; (6) any 
Alaska Native Village as defined in 43 U.S.C 1602(c); (7) lands that 
have the status of Hawaiian Home Lands as defined in section 204 of the 
Hawaiian Homes Commission Act, 1920 (42 Stat. 108), as amended; (8) 
areas defined by the U.S. Census Bureau as Alaska Native Village 
Statistical Areas, Oklahoma Tribal Statistical Areas, Tribal-Designated 
Statistical Areas, or American Indian Joint-Use Areas; and (9) land 
areas of State-recognized Indian tribes and heritage groups that are 
defined and recognized by individual States and included in the U.S. 
Census Bureau's annual Boundary and Annexation Survey.
Comments Received
    The agencies received many comments concerning the proposed 
``Native Land Area'' definition, discussed below.
    Geographic areas included in the definition. Some commenters 
expressed support for the geographic areas included in the proposed 
definition. For example, a commenter supported such an inclusive list 
given the past and ongoing discrimination against Indigenous people and 
communities. Another commenter recognized the proposal's relatively 
comprehensive list of defined Native American lands, further indicating 
that accurately and comprehensively identifying Native lands is 
difficult because of the fragmented ownership of Native lands arising 
from historical Federal land allotment policies. This commenter also 
recommended that the agencies provide a single source file made 
available once the definition is agreed on. Another commenter expressed 
support for ensuring that all Native people in

[[Page 6620]]

Alaska and Hawaii would be covered under the definition.
    In contrast, some commenters recommended broadening the definition 
to include additional geographic areas. Several other commenters 
supported the ability for tribes to designate lands eligible for CRA 
qualification, with some supporting the inclusion of ``unceded'' lands, 
i.e., lands without a formal agreement with the government and 
controlled by non-tribal interests but that tribes consider 
historically Native lands, as part of the definition in light of prior 
Federal dispossession policies. Another commenter suggested that the 
definition should be connected to census geographies.
    Several other comments recommended that the ``Native Land Area'' 
definition should include Native American Pacific Islands including 
Guam, American Samoa, and the Commonwealth of the Mariana Islands. A 
few commenters expressed support for adding tribal fee lands citing the 
loss of tribal lands due to earlier Federal policies aimed at 
dispossessing tribes, with one commenter stating that this would be 
consistent with the current Federal policy of encouraging tribal self-
determination and with principles of tribal sovereignty. This commenter 
also noted that the process of gaining Federal trust status for tribal 
fee lands (which would then meet the definition of ``Native Land Area'' 
pursuant to proposed Sec.  __.12, addressing lands held in trust) is 
expensive and time consuming.
    Geographic areas outside of the proposed definition. Many 
commenters supported broadening the ``Native Land Area'' definition to 
include activities benefiting Native individuals and communities 
outside of proposed geographic areas. Several commenters asserted that 
activities benefiting Native Americans should qualify anywhere and 
cited that the majority of American Indian, Alaska Native, and Native 
Hawaiian people live outside the Native Land Areas covered by the 
proposed definition. A group of commenters further stated that the 
proposed definition would limit the ability of Native CDFIs, tribal 
governments, and other entities to secure CRA-qualified investments to 
support Native communities residing within their respective service 
areas but outside of the proposed ``Native Land Area'' definition. A 
commenter supported including service areas adjacent to reservations, 
where a large number of tribal members live or tribal programs are 
distributed, to help facilitate better community revitalization 
activities. However, alternatively, a commenter asserted that 
qualification for activities should not extend past designated 
geographic areas.
    Alternative approaches for designating geographic areas. A 
commenter suggested that, rather than focusing on activities in Native 
Land Areas, the agencies consider a metric-based determination for 
where activities could qualify, in conjunction with Native-led 
organizations and CDFIs, that would consider capital access in Native 
American communities. This commenter suggested that the agencies 
additionally include a weighting factor for banks investing in rural 
and remote Native American communities that might not have any credit 
or capital access. In support of these ideas, the commenter indicated 
that some populations covered in the ``Native Land Area'' definition 
have access to credit and successful economic development 
opportunities, while some Native American communities not in Native 
Land Areas as defined under the proposal do not. Another commenter 
asserted that the definition of ``Native Land Area'' should use an 
alternative geographic criterion for qualifying activities, instead 
including qualification for activities in census tracts with a greater 
than 40 percent Native American population and earning less than 100 
percent of the average median family income.
Final Rule
    The agencies are adopting the ``Native Land Area'' definition as 
proposed with a few technical changes. First, the agencies have revised 
paragraph (4) of the definition to include any land held in trust by 
the United States for tribes or Native Americans or tribally-held 
restricted fee land. This change more clearly effectuates the agencies' 
intent in the proposal to include in the definition both individually- 
and tribally-owned restricted fee lands as well as land held in trust 
by the United States for both tribes and individuals. This change also 
aligns the definition with available BIA data, which covers both 
individually-held and tribally-held restricted fee and trust 
lands.\215\ The agencies are also removing the cross-reference to ``38 
U.S.C. 3765(1)(A)'' in paragraph (4) as redundant.\216\ Finally, the 
agencies are making a technical change to paragraph (6), which covers 
Alaska Native villages, to use the term defined in the cited statute; 
as a result, the final rule references ``Any Native village, as defined 
in 43 U.S.C. 1602(c), in Alaska.''
---------------------------------------------------------------------------

    \215\ See Bureau of Indian Affairs, Branch of Geospatial 
Support, ``General Information for Geospatial Questions'' (Sept. 5, 
2023), https://biamaps.geoplatform.gov/faq.html.
    \216\ See 38 U.S.C. 3765(1)(A).
---------------------------------------------------------------------------

    The ``Native Land Area'' definition in the final rule is intended 
to align with existing and established Federal Indian law regarding 
lands and communities with unique political status. The final rule is 
also intended to be responsive to stakeholder feedback received at all 
stages of this rulemaking, indicating support for a comprehensive 
geographic definition of ``Native Land Areas.'' The final definition 
focuses on lands and communities that, as noted by commenters, have 
generally experienced little or no benefits from bank access or 
investments.
    The agencies have carefully considered commenters' suggestions for 
expanding the geographic areas included in the definition, and are 
sensitive to the many complexities underlying the development of a 
``Native Land Area'' definition, including the impacts of varying 
historical policies regarding land ownership and political status.\217\ 
However, the agencies are concerned that substantively expanding the 
``Native Land Area'' definition could inadvertently create new 
precedent by incorporating lands without a similar unique political 
status as those lands included under the definition, and further could 
be impracticable where data is not currently collected, reported, or 
readily available. The agencies believe it is important for 
stakeholders and examiners to have access to and utilize a consistent 
and comparable data set.
---------------------------------------------------------------------------

    \217\ See, e.g., U.S. Dept. of Interior, ``Land Buy-Back Program 
for Tribal Nations,'' https://www.doi.gov/buybackprogram/fractionation (discussing fractionation resulting from Federal 
allotment policies); Congressional Research Service, ``Tribal Land 
and Ownership Statuses: Overview and Selected Issues for Congress'' 
(July 2021), https://sgp.fas.org/crs/misc/R46647.pdf (discussing 
historical land policies).
---------------------------------------------------------------------------

    The agencies also decline to expand the ``Native Land Area'' 
definition to incorporate areas outside of the proposed geographic 
areas where Native individuals may also reside, or to use alternative 
metrics for defining Native Land Areas. The agencies are concerned 
about precedential impact, as well as the practicality of 
implementation, such a change would have, particularly with a highly 
dispersed population. Further, complex land ownership structures 
associated with the lands falling within the final definition can make 
economic development in those lands particularly difficult, which the 
agencies believe support a more specific focus on those lands. The 
agencies note that activities benefiting Native individuals and

[[Page 6621]]

communities outside a designated Native Land Area may qualify for CRA 
consideration under another community development purpose as provided 
in Sec.  __.13. (For a detailed discussion of these community 
development categories under the final rule, see the section-by-section 
analysis of Sec.  __.13.) For example, a loan to support the 
development of a multifamily housing project to benefit low- and 
moderate-income tribal individuals outside of a Native Land Area would 
qualify for consideration under Sec.  __.13(b) (affordable housing) if 
a portion of the project's housing units are affordable.\218\ The 
agencies also note that the final rule incorporates various impact and 
responsiveness review factors under Sec.  __.15 for examiners to 
consider in evaluating a bank's community development activities. This 
includes an impact and responsiveness factor for areas with low levels 
of community development financing and activities serving low-income 
individuals and families that may apply to activities benefiting Native 
Americans living adjacent to or otherwise outside a Native Land 
Area.\219\
---------------------------------------------------------------------------

    \218\ See final Sec.  __.13(b)(1) and (2), discussed in the 
section-by-section analysis of these provisions below.
    \219\ See final Sec.  __.15(b)(2) and (7), discussed in the 
section-by-section analysis of these provisions below.
---------------------------------------------------------------------------

    Finally, as noted in the proposal, robust, publicly available data 
files (``shapefiles''), defining the boundaries of the geographic areas 
adopted in the final rule are actively maintained by the U.S. Census 
Bureau and BIA, respectively.\220\ The agencies anticipate making this 
data readily available to stakeholders as part of the agencies' 
regulatory implementation efforts, which, among other benefits, the 
agencies anticipate will facilitate stakeholders' ability to engage 
with confidence in CRA-eligible activities and enhance the transparency 
of the agencies' consideration of those activities.
---------------------------------------------------------------------------

    \220\ See U.S. Census Bureau, ``AIANNH shapefile,'' https://www2.census.gov/geo/tiger/TIGER2021/AIANNH/; Bureau of Indian 
Affairs, ``BIA Tract Viewer,'' https://biamaps.geoplatform.gov/BIA-opendata/.
---------------------------------------------------------------------------

    In adopting the ``Native Land Area'' definition, the agencies 
sought to maintain consistency with established categories of Native 
Land Areas. On balance, the agencies believe the final rule's 
definition is as comprehensive as feasible to ensure alignment with 
current Federal Indian law and to support the rule with durable, 
publicly available data sources. This, in turn, will make identifying 
Native Land Areas practicable for stakeholders and facilitate their 
ability to engage in and track CRA-eligible activities.
New Markets Tax Credit
    As a clarification, the final rule includes a definition for ``New 
Markets Tax Credit (NMTC),'' not included in the proposed rule, to mean 
a Federal tax credit pursuant to section 45D of the Internal Revenue 
Code of 1986 (26 U.S.C. 45D). The final rule uses this term in Sec.  
__.15(b)(10) as one of the impact and responsiveness factors and in 
Sec.  __.42(a)(5)(ii) as part of the data collection of community 
development loans and community development investments, including 
whether the community development loan or community development 
investment is an investment in a project financed by NMTCs. The 
proposal used this term in proposed Sec.  __.42 but did not define it.
Nonmetropolitan Area
    The agencies proposed no changes to the current ``nonmetropolitan 
area'' \221\ definition, which would continue to mean any area that is 
not located in an MSA. The agencies did not receive any comments 
concerning the ``nonmetropolitan area'' definition and are adopting it 
as proposed in the final rule.
---------------------------------------------------------------------------

    \221\ See current 12 CFR __.12(s).
---------------------------------------------------------------------------

Open-End Home Mortgage Loan
    For a discussion of the definition of ``open-end mortgage loan,'' 
see the discussion above for Mortgage-Related Definitions.
Operations Subsidiary or Operating Subsidiary
    The Board proposed to add a definition of ``operations subsidiary'' 
to its CRA regulations, and the OCC and FDIC proposed to add a 
definition of ``operating subsidiary'' to their respective CRA 
regulations. The agencies each proposed their own definitions because 
of differences in their supervisory authority. The agencies proposed 
these changes to identify those bank affiliates whose activities would 
be required to be attributed to a bank's CRA performance pursuant to 
proposed Sec.  __.21, Performance Tests, standards, and ratings, and 
Sec.  __.28, Assigned conclusions and ratings.\222\
---------------------------------------------------------------------------

    \222\ See proposed Sec.  __.21(c).
---------------------------------------------------------------------------

    Specifically, the Board proposed to define ``operations 
subsidiary'' to mean an organization designed to serve, in effect, as a 
separately incorporated department of the bank performing at locations 
at which the bank is authorized to engage in business, functions that 
the bank is empowered to perform directly.\223\
---------------------------------------------------------------------------

    \223\ See proposed 12 CFR 228.12.
---------------------------------------------------------------------------

    The FDIC proposed to define ``operating subsidiary'' to mean an 
operating subsidiary as described in 12 CFR 5.34.\224\ The OCC proposed 
to define ``operating subsidiary'' to mean an operating subsidiary as 
described in 12 CFR 5.34 in the case of an operating subsidiary of a 
national bank or an operating subsidiary as described in 12 CFR 5.38 in 
the case of a savings association.\225\
---------------------------------------------------------------------------

    \224\ See proposed 12 CFR 345.12.
    \225\ See proposed 12 CFR 25.12.
---------------------------------------------------------------------------

    Regarding comments concerning the definitions of ``operations 
subsidiary'' and ``operating subsidiary,'' a commenter stated that the 
proposed definition of an ``operations subsidiary'' and ``operating 
subsidiary'' appear reasonable. The commenter stated that, generally, 
there should be uniformity in these and other definitions across all 
Federal agencies that receive financial institution data or reports. 
Another commenter recommended that the agencies avoid defining 
operations subsidiary and operating subsidiary too broadly. The 
commenter stated that it is not correct that financial institutions 
universally exercise ``a high level of ownership, control, and 
management'' of all affiliates, which in some circumstances may be 
considered as ``subsidiaries.'' As an example, the commenter stated 
that numerous CDFI banks have nonprofit affiliates that provide 
substantial mission support, but these nonprofit organizations often 
have their own boards of directors, have been capitalized in a variety 
of ways, and control is exercised in different manners as well.
    For the reasons stated below, the Board is adopting the proposed 
definition of ``operations subsidiary,'' and the FDIC and OCC are 
adopting the proposed definitions of ``operating subsidiary.'' The 
agencies believe that the proposed definitions of ``operations 
subsidiary'' and ``operating subsidiary'' are sufficiently consistent 
based on the agencies' respective statutory authorities and mandates. 
In addition, the agencies do not believe these proposed definitions are 
too broad. If an entity meets the definition of affiliate, and not the 
definition of operation subsidiary or operating subsidiary, it will not 
be treated as an operations subsidiary or operating subsidiary under 
the CRA regulations. Further, the agencies elected not to change these 
definitions because the description of these terms in the agencies' CRA 
regulation should

[[Page 6622]]

not differ from the description of these terms in other contexts.
Other Delivery System
    The agencies are adopting a new definition of ``other delivery 
system,'' not included in the proposal, to mean a ``channel, other than 
branches, remote services facilities, or digital delivery systems, 
through which banks offer retail banking services.'' This may include 
telephone banking, bank-by-mail, or bank-at-work.
    For a more detailed discussion of the meaning of other delivery 
system, see the section-by-section analysis of Sec.  __.23(b)(4).
Outside Retail Lending Area
    As discussed above, the agencies proposed to replace the term 
``assessment area'' in Sec.  __.12 with the terms ``facility-based 
assessment area,'' ``retail lending assessment areas,'' and ``outside 
retail lending areas.'' The agencies proposed to define the new term 
``outside retail lending area'' to mean the nationwide area outside of 
a bank's facility-based assessment areas and, as applicable, retail 
lending assessment areas. The agencies proposed this new term as part 
of the proposed Retail Lending Test.\226\ In particular, under the 
proposed Retail Lending Test, the agencies would evaluate the retail 
lending performance of large banks and certain intermediate banks in 
areas outside of facility-based assessment areas and retail lending 
assessment areas, as applicable.
---------------------------------------------------------------------------

    \226\ See proposed Sec.  __.22.
---------------------------------------------------------------------------

    The final rule now includes a new section that describes the bases 
for delineating outside retail lending areas. Therefore, the more 
detailed proposed definition of outside retail lending areas is not 
necessary, and instead the final rule defines ``outside retail lending 
area'' to mean the area delineated pursuant to Sec.  __.18. Comments 
pertaining to the proposed outside retail lending area provisions, as 
well as detailed information regarding the final rule's outside retail 
lending area delineation requirements, are described in the section-by-
section analysis of Sec.  __.18.
Persistent Poverty County
    The agencies included in proposed Sec.  __.15(b)(1) a definition of 
``persistent poverty county'' to mean a county or county-equivalent 
that had poverty rates of 20 percent or more for the past 30 years, as 
measured by the most recent decennial censuses. This definition 
appeared in proposed Sec.  __.15(b) in connection with a list of 
factors (termed ``impact review'' factors in the proposal) relevant for 
evaluating the impact and responsiveness of community development 
activities.
    In the final rule, the agencies are moving the ``persistent poverty 
county'' definition to Sec.  __.12 for ease of reference, as the term 
appears in both final Sec.  __.15(b)(1) (finalized as an impact and 
responsiveness review factor) and the corresponding data collection 
provision in final Sec.  __.42(a)(5) and (6). Further, consistent with 
the revision to the definition of ``county,'' discussed above, 
``county-equivalents'' has been removed from the definition of 
``persistent poverty county'' in the final rule. Lastly, the agencies 
are replacing the phrase ``as measured by the most recent decennial 
censuses'' with reference to a list of counties designated by the 
Board, FDIC, and OCC and published by the FFIEC. Among other things, 
this change will provide for statistical reliability while also 
allowing for regular data updates as conditions change. For a more 
detailed discussion of the definition of ``persistent poverty county,'' 
comments received on the definition, and the final impact and 
responsiveness review factor associated with this term, see the 
section-by-section analysis of Sec.  __.15(b).
    Accordingly, the agencies are adopting a definition of ``persistent 
poverty county'' in the final rule that means as a county that has had 
poverty rates of 20 percent or more for 30 years, as publicly 
designated by the Board, FDIC, and OCC, compiled in a list, and 
published annually by the FFIEC.
Product Line
    The agencies are adopting a new definition of ``product line'' in 
the final rule, not included in the proposal. The final rule defines 
``product line'' to mean a bank's loans in one of the following, 
separate categories in a particular Retail Lending Test Area: (1) 
closed-end home mortgage loans; (2) small business loans; (3) small 
farm loans; and (4) automobile loans, if a bank is a majority 
automobile lender or opts to have its automobile loans evaluated 
pursuant to Sec.  __.22. As discussed in greater detail in the section-
by-section analysis of Sec.  __.22, the definition of ``product line'' 
is intended to increase clarity regarding identifying those bank 
product lines that may potentially be subject to evaluation under the 
Retail Lending Test, as applicable.
Remote Service Facility
    The Board's and OCC's current CRA regulations define the term 
``automated teller machine (ATM)'' to mean an automated, unstaffed 
banking facility owned or operated by, or operated exclusively for, the 
bank at which deposits are received, cash dispersed, or money 
lent.\227\ The FDIC's CRA regulation instead contains a definition for 
``remote service facility,'' which has the same definition as the 
Board's and OCC's definition of ATM but also includes a list of 
examples, specifically, automated teller machine, cash dispensing 
machine, point-of-sale terminal, or other remote electronic facility. 
The proposal would replace the Board's and OCC's ``ATM'' definitions 
with a definition of ``remote service facility'' that would include 
ATMs and update the FDIC's existing definition of ``remote service 
facility.\228\
---------------------------------------------------------------------------

    \227\ See current 12 CFR 25.12(d) and 228.12(d).
    \228\ See current 12 CFR 245.12(d).
---------------------------------------------------------------------------

    Specifically, the proposal defined ``remote service facility'' to 
mean an automated, virtually staffed, or unstaffed banking facility 
owned or operated by, or operated exclusively for, a bank, such as an 
ATM, interactive teller machine, cash dispensing machine, or other 
remote electronic facility at which deposits are received, cash 
dispersed, or money lent. The agencies believed the proposed definition 
better reflects changes in the way that banks deliver banking services.
    The agencies requested feedback as to whether the proposed ``remote 
service facility'' definition includes sufficient specificity for the 
types of facilities and circumstances under which banks would be 
required to delineate facility-based assessment areas, or whether other 
changes to the CRA regulations are necessary to better clarify when the 
delineation of facility-based assessment areas would be required. A 
commenter suggested that the ``remote service facility'' definition 
should include ATMs that are not owned or operated by, or operated 
exclusively for financial institutions, noting the importance of low- 
and moderate-income individuals' access to independent ATMs. Several 
commenters recommended that deposit-taking remote service facilities 
should include any bank partnerships with third parties involving 
remote or virtual banking services, with another commenter suggesting 
ATM networks operated by a third party. The agencies have declined to 
explicitly incorporate remote services facilities that are not owned or 
operated by, or operated exclusively for, a bank into the ``remote 
service facility'' definition because of the tenuous connections of 
these ATMs to a bank. The agencies do not believe that a non-
proprietary remote service

[[Page 6623]]

facility, such as a network ATM, constitutes a bank facility because 
such ATMs are owned and operated by a third party. Further, a bank 
participating in such an ATM network may have limited control over 
where an ATM is located. The agencies note that the current definition 
of ``ATM'' requires that the ATM be owned or operated by, or operated 
exclusively for, the bank.\229\
---------------------------------------------------------------------------

    \229\ See current 12 CFR __.12(d) (definition of ``automated 
teller machine (ATM)'').
---------------------------------------------------------------------------

    Therefore, the agencies are adopting the proposed definition of 
``remote service facility'' in the final rule with two clarifying 
changes. First, the definition now provides that a remote service 
facility must be open to the general public. The agencies believe this 
substantive change clarifies that this definition only captures those 
remote deposit facilities that benefit the credit needs of the bank's 
local community by having a public facing presence. Second, the 
definition in the final rule now provides that deposits are 
``accepted'' instead of ``received.'' This change was made to describe 
the facility's interaction more accurately with the public.
    Accordingly, the final rule provides that ``remote service 
facility'' means an automated, virtually staffed, or unstaffed banking 
facility owned or operated by, or operated exclusively for, a bank, 
such as an automated teller machine (ATM), interactive teller machine, 
cash dispensing machine, or other remote electronic facility, that is 
open to the general public and at which deposits are accepted, cash 
dispersed, or money lent.
Reported Loan
    To enhance clarity in the final rule, the agencies are adding a new 
definition of ``reported loan,'' not included in the proposal, defined 
to mean: (1) a home mortgage loan or a multifamily loan reported by a 
bank pursuant to HMDA, as implemented by 12 CFR part 1003; or (2) a 
small business loan or a small farm loan reported by a bank pursuant to 
Sec.  __.42. This term is primarily used in the Retail Lending Test 
(final Sec.  __.22 and appendix A) to specify where only reported loans 
are used in certain benchmarks. In addition, the term is used in 
defining when a retail lending assessment area must be delineated 
pursuant to final Sec.  __.17. For a detailed discussion of the Retail 
Lending Test, see the section-by-section analysis of final Sec.  __.22 
(also addressing appendix A), and for a discussion of retail lending 
assessment areas, see the section-by-section analysis of Sec.  __.17.
    The agencies have included an amendment to transition the 
definition of ``reported loan'' to reference small business loans and 
small farm loans reported by a bank pursuant to the CFPB Section 1071 
Final Rule after the section 1071 data is available.\230\
---------------------------------------------------------------------------

    \230\ Specifically, the transition amendments included in this 
final rule will amend the definitions of ``reported loan'' to mean a 
small business loan or small farm loan reported by a bank pursuant 
to subpart B of 12 CFR part 1002. The agencies will provide notice 
of the effective date of these transition amendments in the Federal 
Register after section 1071 data is available.
---------------------------------------------------------------------------

Retail Banking Products
    The final rule includes a new definition of ``retail banking 
products,'' not included in the proposed rule, to clarify the agencies' 
intended meaning of the term in final Sec.  __.23 (Retail Services and 
Products Test). Specifically, the final rule defines ``retail banking 
products'' to mean credit and deposit products or programs that 
facilitate a lending or depository relationship between the bank and 
consumers, small businesses, or small farms. For additional discussion 
of retail banking products, see the section-by-section analysis of 
Sec.  __.23.
Retail Banking Services
    The agencies proposed to add a new definition of ``retail banking 
services'' to increase clarity and consistency in the CRA regulations, 
particularly with respect to the proposed Retail Services and Products 
Test.\231\ The agencies proposed to define ``retail banking services'' 
to mean retail financial services provided by a bank to consumers, 
small businesses, and small farms, and to include a bank's systems for 
delivering retail financial services. The agencies did not receive any 
comments concerning the proposed ``retail banking service'' definition 
and are adopting the definition as proposed in the final rule with a 
non-substantive wording change.
---------------------------------------------------------------------------

    \231\ See proposed Sec.  __.23.
---------------------------------------------------------------------------

Retail Lending Assessment Area
    As discussed above, the agencies proposed to replace the term 
``assessment area'' in Sec.  __.12 with the terms ``facility-based 
assessment area,'' ``retail lending assessment areas,'' and ``outside 
retail lending areas.'' The agencies proposed to define the term 
``retail lending assessment area'' to mean a geographic area, separate 
and distinct from a facility-based assessment area, delineated in 
accordance with Sec.  __.17. The agencies proposed this new term as 
part of the proposed Retail Lending Test.\232\
---------------------------------------------------------------------------

    \232\ See proposed Sec.  __.22.
---------------------------------------------------------------------------

    The agencies did not receive any comments specific to the proposed 
definition of ``retail lending assessment area.'' However, the agencies 
received numerous comments regarding the retail lending assessment area 
approach, which are discussed in the section-by-section analysis of 
Sec.  __.17. To be consistent with the ``facility-based assessment 
area'' and ``outside retail lending area'' definitions in the final 
rule, the agencies are revising the ``retail lending assessment area'' 
definition in the final rule. Specifically, the agencies are removing 
the phrase ``separate and distinct from a facility-based assessment 
area'' and replacing ``in accordance with'' with ``pursuant to.'' 
Accordingly, the final rule defines ``retail lending assessment area'' 
to mean ``a geographic area delineated pursuant to Sec.  __.17.'' 
Detailed information regarding the final rule's retail lending 
assessment area delineation requirements is included in the section-by-
section analysis of Sec.  __.17.
Retail Lending Test Area
    In the final rule, the agencies are adding a new definition of 
``Retail Lending Test Area,'' not included in the proposal, to mean a 
facility-based assessment area, a retail lending assessment area, or an 
outside retail lending area. The agencies believe this definition will 
increase the final rule's consistency and improve its readability with 
respect to referencing retail lending assessment areas, facility-based 
assessment areas, and outside retail lending areas, both individually 
and collectively, for purposes of the Retail Lending Test.
Retail Loan
    In relation to the proposed Retail Lending Test,\233\ the agencies 
proposed to add a new definition of ``retail loan'' to mean, for 
purposes of the Retail Lending Test in Sec.  __.22, an automobile loan, 
closed-end home mortgage loan, open-end home mortgage loan, multifamily 
loan, small business loan, or small farm loan. For all other purposes, 
retail loan would mean a consumer loan, home mortgage loan, small 
business loan, or small farm loan. The agencies did not receive any 
comments concerning this proposed definition. However, after further 
review, the agencies have elected not to adopt a definition of ``retail 
loan'' in Sec.  __.12 in the final rule. Instead, the agencies are 
adopting a definition of ``product line'' in the final rule, which

[[Page 6624]]

references loan categories relevant to the Retail Lending Test.
---------------------------------------------------------------------------

    \233\ See proposed Sec.  __.22.
---------------------------------------------------------------------------

Small Bank
    For a discussion of the definition of ``small bank,'' see the 
discussion above for Bank Asset-Size Definitions.
Small Business and Small Farm
Current Approach and the Agencies' Proposal
    The agencies proposed to add definitions of ``small business'' and 
``small farm,'' as they are not defined in the current CRA regulations. 
Instead, the current CRA regulations define ``community development'' 
to be activities that promote economic development by financing 
businesses or farms that meet the size eligibility standards of the 
SBA's Development Company or Small Business Investment Company programs 
(13 CFR 121.301) or have gross annual revenues of $1 million or less. 
The current regulations also consider the borrower distribution of 
small business loans and small farm loans to businesses and farms with 
gross annual revenues of $1 million or less.
    The proposal would define ``small business'' to mean ``a business 
that had gross annual revenues for its preceding fiscal year of $5 
million or less'' and ``small farm'' to mean ``a farm that had gross 
annual revenues for its preceding fiscal year of $5 million or less.'' 
The agencies proposed these definitions to support the evaluation of 
retail lending under the proposed Retail Lending Test \234\ and 
community development loans and investments supporting small businesses 
and small farms that would be evaluated under the proposed Community 
Development Financing Test.\235\ These proposed definitions were 
consistent with the definitions for ``small business'' proposed by the 
CFPB in its section 1071 rulemaking.\236\
---------------------------------------------------------------------------

    \234\ See proposed Sec.  __.22.
    \235\ See proposed Sec. Sec.  __.13(c)(2) and (3); __.24; and 
__.26.
    \236\ The CFPB section 1071 regulation does not separately 
define ``small farm,'' rather it includes them as types of small 
businesses identifiable by the of the NAICS codes 111-115. See 88 FR 
35150, 35271, 35295 (May 31, 2023).
---------------------------------------------------------------------------

Comments Received
    The agencies received numerous comments related to the proposed 
``small business'' and ``small farm'' definitions. Some commenters 
expressed support for the proposed definitions, while other commenters 
recommended the agencies adopt the definitions with various changes or 
implement new definitions that incorporate different criteria.
    Specifically, many commenters supported the proposal to adopt size 
standards for small businesses and small farms that would be consistent 
with the proposed small business size standard in the CFPB's section 
1071 rulemaking (i.e., gross annual revenues of $5 million or less for 
the preceding fiscal year). In general, these commenters asserted that 
consistent definitions across regulations and regulators would provide 
for reporting consistency and efficiency with less burden. Several 
other commenters stated that, although they believed that the gross 
annual revenues of $5 million or less proposed by the CFPB was too 
high, they supported aligning the definitions with the CFPB's section 
1071 rulemaking even if the CFPB later adopted the larger size 
threshold in its Section 1071 Final Rule. Some commenters suggested 
that the small business size standard should be as consistent as 
possible with both the CFPB's section 1071 rulemaking and the SBA's 
small business size standards.
    However, other commenters opposed the proposal to align the size 
standards for small businesses and small farms with the proposed small 
business size standard in the CFPB's section 1071 rulemaking. Many of 
these commenters generally stated that the proposed small business and 
small farm size standards are unusually high because the vast majority 
of small businesses have gross annual revenues significantly below $5 
million. Moreover, a few of these commenters stated that CRA's focus 
should be on the credit needs of the smallest businesses, with some 
commenters expressing concern that the proposed $5 million threshold 
would result in capital being redirected to larger businesses. Several 
commenters also emphasized that aligning the ``small business'' and 
``small farm'' definitions with the CFPB's size standard would be 
inappropriate because section 1071 serves a different purpose than the 
CRA; namely, the threshold proposed by the CFPB establishes reporting 
requirements that would facilitate enforcement of fair lending laws. A 
few commenters also stated that it was not prudent for the agencies to 
propose a size standard based on a proposed rule.
    Many commenters that opposed aligning the small business and small 
farm size standards with the CFPB's section 1071 proposed small 
business size standard recommended a range of alternative thresholds 
for consideration. A commenter recommended that the agencies adopt the 
SBA's small business size standards. Another commenter recommended that 
a small business definition should encompass manufacturing businesses 
with 500 or fewer employees and other businesses with gross annual 
revenues up to $8 million. One other commenter argued in favor of an $8 
million gross annual revenues threshold, asserting that this figure is 
the most common size standard threshold for average annual business 
receipts and would capture a majority of small businesses. Another 
commenter recommended that the agencies define ``small business'' and 
``small farm'' based on loan size rather than gross annual revenues but 
did not specify an amount. One other commenter supported a threshold of 
gross annual revenues of $1 million or less because many large banks 
only have system codes for gross annual revenues that indicate whether 
a business is above or below $1 million, but not the actual threshold.
    Other commenters requested clarifications of the definitions of 
``small business'' and ``small farm'' or offered additional comments 
regarding these definitions. A commenter requested clarity on the 
treatment of revenues for affiliated businesses and guarantors, and how 
to calculate the revenues of small businesses or small farms when a 
line of credit is renewed (and updated revenue information is not 
collected). A few other commenters noted that defining small business 
and small farm by reference to gross annual revenues could create 
difficulty at the beginning of a calendar year, when borrowers may not 
have reliable revenue figures for the preceding year. Both commenters 
suggested that banks should be able to use prior-year revenue figures 
under these circumstances. Another commenter stated there should be 
clear guidance on how gross annual revenues should be determined to 
better provide reporting and examination consistency.
    A commenter suggested that the agencies adopt a consistent 
definition of ``small business'' and ``small farm'' across the 
regulation, including for the borrower distribution metrics under the 
Retail Lending Test.\237\ A few commenters pointed out that even if the 
agencies align the ``small business'' and ``small farm'' definitions 
with the CFPB's size standard in its section 1071 rulemaking, there 
would still be opportunity to improve consistency across banking 
regulations because

[[Page 6625]]

these definitions would not be reflected in Call Report requirements.
---------------------------------------------------------------------------

    \237\ Under proposed Sec.  __.22(d)(2)(iii)(D), the agencies 
would review bank lending to, among other borrowers, small 
businesses, and small farms with gross annual revenues of $250,000 
or less and small businesses and small farms with gross annual 
revenues of more than $250,000 but less than or equal to $1 million.
---------------------------------------------------------------------------

Final Rule
    After considering the varied perspectives and recommendations on 
the proposed ``small business'' and ``small farm'' definitions, the 
agencies are adopting the definitions as proposed.\238\ The final rule 
defines ``small business'' to mean a business that had gross annual 
revenues for its preceding fiscal year of $5 million or less and 
``small farm'' to mean a farm that had gross annual revenues for its 
preceding fiscal year of $5 million or less.\239\
---------------------------------------------------------------------------

    \238\ The agencies requested and received permission from the 
SBA to use size standards for small businesses and small farms that 
differ from the SBA's size standards, as required by 15 U.S.C. 
632(a)(2)(C) and 13 CFR 121.903.
    \239\ The final rule's transition amendments will amend the 
definitions of ``small business'' and ``small farm'' to instead 
cross-reference to the definition of ``small business'' in the CFPB 
section 1071 regulation. This will allow the CRA Regulatory 
definitions to adjust if the CFPB increases the threshold in the 
CFPB section 1071 regulatory definition of ``small business.'' This 
is consistent with the agencies' intent articulated in the preamble 
to the proposal and elsewhere in this final rule to conform these 
definitions with the definition in the CFPB section 1071 regulation. 
The agencies will provide the effective date of these amendments in 
the Federal Register once section 1071 data is available.
---------------------------------------------------------------------------

    The agencies declined to use the SBA's small business size 
standards because they believe that these standards would not serve the 
CRA's purposes well. The SBA small business size standards are based on 
gross annual revenues or the average number of employees for a wide 
range of business entities, resulting in over 1,000 North American 
Industry Classification System (NAICS) codes. In addition, the agencies 
also considered the fact that the SBA has recently increased many of 
its size standards and no longer employs a $1 million average annual 
receipts size standard for any industry.\240\ In particular, many of 
the SBA's gross annual revenues standards are much larger than the 
gross annual revenues thresholds included in the proposed ``small 
business'' and ``small farm'' definitions. The SBA's size standards for 
agricultural industries now range from $2.25 million to $34 million, 
and the size standards for non-agricultural industries now range from 
$8 million to $47 million.\241\ Therefore, applying the SBA size 
standards under the CRA regulations would undermine the focus on 
smaller small businesses and farms.
---------------------------------------------------------------------------

    \240\ Through a series of rules that became effective on May 2, 
2022, the SBA implemented revised size standards for 229 industries 
(all using average annual receipts standards) to increase 
eligibility for its Federal contracting and loan programs. See 87 FR 
18607 (Mar. 31, 2022); 87 FR 18627 (Mar. 31, 2022); 87 FR 18646 
(Mar. 31, 2022); 87 FR 18665 (Mar. 31, 2022). The SBA did not reduce 
any size standards--it either maintained or increased the size 
standards for all 229 industries, in many cases with size standard 
increases of 50 percent or more. Effective July 14, 2022, the SBA 
also increased size standards for 22 wholesale trade industries and 
35 retail trade industries. 87 FR 35869 (June 14, 2022). See SBA 
Small Business Size Standards by NAICS Industry, 13 CFR 121.201.
    \241\ See SBA Small Business Size Standards by NAICS Industry, 
13 CFR 121.201.
---------------------------------------------------------------------------

    Further, the agencies believe it is not appropriate to set a lower 
threshold, particularly when considering how the final rule will use 
the terms. A lower size standard may unduly restrict the type of 
lending and investment that the agencies have historically considered 
under economic development (i.e., the current rule considers as loans 
and investments that support businesses and farms that meet the size 
eligibility standards of the SBA's Development Company or Small 
Business Investment Company programs (13 CFR 121.301)).
    In addition, the agencies believe that size standards that draw on 
a single data point--i.e., gross annual revenues of $5 million or less 
in the preceding year--are easy for institutions to understand and 
implement and minimize the data banks are required to collect and 
report. If the agencies adopted definitions that introduced additional 
criteria, as suggested by some commenters--e.g., average number of 
employees, average revenue, or industry codes--institutions would be 
required to collect and report additional data points, which would 
increase banks' collection and reporting burden.
    The agencies also believe that $5 million is the appropriate 
threshold for small businesses and small farms. As discussed above, 
commenters advocated for both lowering the threshold to focus the 
regulations on the smallest small business and raising the threshold to 
capture larger small businesses, but the agencies believe that the 
proposed ``small business'' and ``small farm'' definitions strike a 
proper balance. As such, the definitions in the final rule capture 
entities all along the small business spectrum, from the smallest small 
businesses and farms through larger small businesses and farms.
    Further, a $5 million threshold is consistent with the definition 
of ``small business'' in the CFPB's section 1071 rulemaking. As 
explained in more detail below in the discussion of the definitions of 
``small business loans'' and ``small farm loans,'' leveraging the 
CFPB's ``small business'' definition for purposes of the Retail Lending 
Test will reduce the data collection and reporting burden under the CRA 
regulations because banks will not have to report small business loan 
data to two different agencies with two different thresholds once the 
agencies transition to using section 1071 data.\242\ In addition, as 
also explained below, aligning the CRA's ``small business'' and ``small 
farm'' definitions with the CFPB's ``small business'' definition will 
enable the agencies to expand and improve the analysis of CRA small 
business and small farm lending for all banks subject to the Retail 
Lending Test.
---------------------------------------------------------------------------

    \242\ As discussed in the section-by-section analysis of Sec.  
__.42, the agencies will eliminate the current CRA small business 
and small farm data collection and reporting requirements once the 
agencies transition to using section 1071 data.
---------------------------------------------------------------------------

    The agencies understand that the CFPB's section 1071 rulemaking, 
although finalized, is not yet applicable, and, therefore, the agencies 
will not yet be able to leverage the CFPB's section 1071 rulemaking's 
``small business'' definition for purposes of the Retail Lending Test 
at this time. However, the final rule's ``small business'' and ``small 
farm'' definitions are also necessary for determining which loans, 
investments, or services meet the community development criteria under 
final Sec.  __.13 for purposes of the Community Development Financing 
Test in Sec.  __.24, the Community Development Services Test in Sec.  
__.25, and the Community Development Financing Test for Limited Purpose 
Banks in Sec.  __.25, and for evaluating a bank's retail banking 
services and retail banking products under the Retail Services and 
Products Test in final Sec.  __.23. As explained above, the current 
regulations do not explicitly define ``small business'' and ``small 
farm,'' and defining ``small business'' and ``small farm'' to mean 
those businesses and farms with $5 million or less in gross annual 
revenues is preferable to using the SBA's small business size 
standards, which can be significantly larger, and would undermine the 
CRA's focus on smaller small businesses and farms. Therefore, to be 
consistent throughout the CRA regulations, the agencies believe it is 
important to include this definition in the final rule.
    With regard to commenters' concerns related to the treatment of 
revenues, the agencies anticipate updating the CRA data collection and 
reporting guidance to reflect the new collection and reporting 
obligations related to the reporting of gross annual revenues. In 
developing that guidance, the agencies will consider the commenters' 
suggestions and recommendations.
    With respect to the commenter's concern regarding the agencies 
proposing a size standard based on the

[[Page 6626]]

CFPB proposed rule under section 1071 of the Dodd-Frank Act (Section 
1071 Proposed Rule),\243\ the agencies note that the $5 million size 
standard for a small business or small farm was included in the 
proposal; the agencies did not cross-reference to the CFPB section 1071 
rulemaking. Therefore, commenters were able to comment on the exact 
threshold proposed.
---------------------------------------------------------------------------

    \243\ See 86 FR 56356 (Oct. 8, 2021).
---------------------------------------------------------------------------

    The agencies appreciate commenters' concern that inconsistencies 
with respect to size standards for small businesses and small farms 
would remain because the CRA definitions would not be reflected in the 
Call Report. However, revisions to Call Report requirements are outside 
the scope of this rulemaking.
Small Business Loan and Small Farm Loan
Current Approach
    The current CRA regulations define ``small business loan'' to mean 
``a loan included in `loans to small businesses,' as defined in the 
instructions for preparation of the Consolidated Report of Condition 
and Income.'' \244\ Likewise, ``small farm loan'' means ``a loan 
included in `loans to small farms,' as defined in the instructions for 
preparation of the Consolidated Report of Condition and Income.'' \245\ 
The current approach captures loans of $1 million or less to 
businesses, and loans of $500,000 or less to farms, as reported in the 
Call Report.\246\
---------------------------------------------------------------------------

    \244\ See current 12 CFR __.12(v).
    \245\ See current 12 CFR __.12(w).
    \246\ See Call Report, Schedule RC-C, Part II.
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to retain these definitions with two 
technical changes. First, the proposed ``small business loan'' and 
``small farm loan'' definitions included a provision indicating that 
the proposed ``small business loan'' and ``small farm loan'' 
definitions should be read independently from the ``small business'' 
and ``small farm'' definitions. This distinction is relevant because, 
until the agencies transition to using small business lending data 
derived from the CFPB Section 1071 Final Rule, the CRA regulations need 
to continue to use the current rule's ``small business loan'' and 
``small farm loan'' definitions in evaluating bank performance under 
the proposed Retail Lending Test in Sec.  __.22. The agencies indicated 
in the proposal that once section 1071 data on small business loans 
become available, the agencies will transition to ``small business 
loan'' and ``small farm loan'' definitions that are consistent with the 
definition of ``small business'' in the CFPB Section 1071 Final Rule.
    Second, the agencies proposed to substitute ``Consolidated Report 
of Condition and Income'' in each definition for the shorter term, 
``Call Report,'' which would have the same meaning and be established 
as the term used throughout the regulation earlier in the regulatory 
text. (See the ``assets'' definition discussion above.)
    With these technical changes, the agencies proposed to define 
``small business loan'' to mean, notwithstanding the definition of 
``small business'' in Sec.  __.12, a loan included in ``loans to small 
businesses'' as defined in the instructions for preparation of the Call 
Report, and ``small farm loan'' to mean notwithstanding the definition 
of ``small farm'' in Sec.  __.12, a loan included in ``loans to small 
farms'' as defined in the instructions for preparation of the Call 
Report.''
Comments Received
    The agencies received numerous comments related to the proposed 
``small business loan'' and ``small farm loan'' definitions. Some 
commenters expressed support for the proposed definitions and intended 
transition to the CFPB section 1071 rulemaking definition of ``small 
business,'' while other commenters recommended the agencies adopt 
definitions with various changes or implement entirely new definitions 
that incorporate different criteria.
    Specifically, a few commenters stated that using the proposed small 
business size standard in the CFPB's section 1071 rulemaking will 
provide a more accurate picture of lending to small entities than the 
current threshold, which measures lending based on loan size as opposed 
to business revenue size.
    However, other commenters opposed the proposed changes to the 
``small business loan'' and ``small farm loan'' definitions and 
recommended continuing using the Call Report definitions, with a 
commenter stating that retaining these definitions is necessary to 
ensure that smaller dollar loans are targeted to businesses with 
capital gaps. Another commenter recommended continuing to use the 
current Call Report definitions of ``loans to small businesses'' and 
``loans to small farms,'' and reevaluating after a full year of section 
1071 data are available. Some commenters contended that the proposed 
threshold would impose considerable new data collection and reporting 
requirements for community banks that elect to be evaluated under the 
proposed Retail Lending Test.
    Another commenter proposed a hybrid approach that would define 
``small business loan'' to include both: (1) a loan to a business with 
gross annual revenues of $1 million or less; and (2) a commercial loan 
in an amount of $1 million or less. Some commenters suggested using 
certain size standards adopted by the SBA and USDA to encourage lending 
to socially disadvantaged businesses and farms owned by persons of 
color. Another commenter questioned whether the ``small business loan'' 
and ``small farm loan'' definitions include loans made to individuals 
because of the use of the term ``revenue'' as opposed to ``income.'' 
This commenter claimed that the exclusion of small business and small 
farm loans to individuals would cause underreporting and could 
negatively affect a bank's Retail Lending Test results, metrics, 
benchmarks, and possibly other areas. Further, the commenter suggested 
the ``small business loan'' and ``small farm loan'' definitions should 
include renewals and credit limit increases, as set forth in the 
Interagency Questions and Answers.\247\
---------------------------------------------------------------------------

    \247\ See Q&A Sec.  __.42(a)-5.
---------------------------------------------------------------------------

    Another commenter suggested that the agencies should not give CRA 
consideration for all loans to businesses that meet the SBA standards 
for small businesses. This commenter reasoned that the SBA standards 
for employee size represent too high a threshold to meaningfully 
segment the small business lending market.
Final Rule
    The agencies appreciate the commenters' varied perspectives and 
recommendations related to the proposed ``small business loan'' and 
``small farm loan'' definitions. However, after consideration of these 
comments, the agencies are adopting the ``small business loan'' and 
``small farm loan'' definitions as proposed in the final rule, with 
technical changes, and have included amendments to transition to 
``small business loan'' and ``small farm loan'' definitions leveraged 
off of the CFPB section 1071 regulation's ``small business'' definition 
once section 1071 data is available.\248\ Specifically, the final rule 
provides that ``small business loan'' and ``small farm loan'' mean 
those loans included in ``loans to small businesses'' or ``loans to 
small farms'' as

[[Page 6627]]

reported in Schedule RC-C of the Call Report. The agencies are 
referring to these terms as reported in the Call Report, instead of as 
defined in the instructions, to more accurately provide a source for 
these terms. As indicated above, maintaining the current rule's 
definitions of ``small business loan'' and ``small farm loan'' based on 
the Call Report is necessary until the agencies transition to using 
section 1071 data.
---------------------------------------------------------------------------

    \248\ The final rule's transition amendments will amend the 
definitions of ``small business loan'' and ``small farm loan'' to 
mean a loan to a small business or small farm, respectively, as 
defined in Sec.  __.12 of the CRA regulations. The agencies will 
provide notice of the effective date of this amendment in the 
Federal Register once section 1071 data is available.
---------------------------------------------------------------------------

    Further, transitioning to section 1071 data will enable the 
agencies to use borrower and geographic distribution metrics and 
benchmarks that provide more insight into banks' performance relative 
to the demand for small business loans in a given geographic area. It 
also will allow for an analysis that uses an expanded data set 
measuring loans to small businesses of different revenue sizes, 
including--importantly--to the businesses and farms with gross annual 
revenues of $250,000 or less, as discussed in the section-by-section 
analysis of Sec.  __.22, the Retail Lending Test. In sum, these 
definitions will enable the agencies to expand and improve the analysis 
of CRA small business and small farm lending for all banks, as 
applicable, since section 1071 data will also enable expanded analysis 
for intermediate and small banks that are subject to reporting pursuant 
to the CFPB's section 1071 rulemaking. Further, because a large 
business may obtain small dollar loans, and a small business may obtain 
large dollar loans, the agencies believe the size of a business 
obtaining the loan is a better factor than the size of the loan to a 
business for determining whether a loan is made to a small business 
that warrants CRA consideration.
    For the same reasons as noted in the ``small business'' and ``small 
farm'' definitions discussion, the agencies do not find it appropriate 
to adopt definitions of ``small business loan'' or ``small farm loan'' 
based on the SBA's small business size standards. As noted above, the 
SBA currently employs varying small business standards which are based 
on various factors, including industry, average annual receipts, and 
average number of employees. As a result, capturing all loans to 
businesses that qualify as small businesses under the SBA's standards 
would necessitate the collection and reporting of additional data, 
including NAICS codes to determine the industry in which a business 
operates, average employee headcount, and average receipts over a 
multi-year period. This would impose increased compliance and 
operational burden and costs in negotiating what, for many or most 
banks, would be a complicated overlay on their lending activity (e.g., 
use of NAICS codes) that could reduce efficiencies in their small 
business and small farm lending programs.
    In response to comments about the inclusion of loans to individuals 
as small business loans or small farm loans based on income of the 
individual as opposed to business revenues and how renewals and other 
credit limit increases are considered, the agencies intend to continue 
historical practices with respect to these issues. Specifically, 
pursuant to Call Report instructions and certain limitations, loans to 
sole proprietorships for commercial or agricultural purposes are 
included in the ``small business loan'' and ``small farm loan'' 
definitions, respectively. Banks have historically reported the gross 
annual revenues relied on in making credit decisions. This reporting 
included affiliate revenues when relied on, but never combined 
individual income with business revenues even if the bank relied on the 
individual income of a sole proprietor in making the credit decision. 
The agencies continue to believe this is appropriate, because 
irrespective of whether the bank relied on individual income in making 
a credit decision, it keeps the focus on the size of the business for 
purposes of considering the loan under the performance tests. 
Therefore, under the final rule, banks will report only the gross 
annual revenues of the business benefiting from the loan proceeds.\249\
---------------------------------------------------------------------------

    \249\ The agencies intend to make one change from the current 
guidance regarding the treatment of affiliate revenues, pursuant to 
the final rule and any guidance issued, gross annual revenue 
reporting will be limited to the business revenues of the benefiting 
business regardless of whether affiliate revenues are considered in 
a credit decision to more accurately identify the size of a business 
under the performance tests.
---------------------------------------------------------------------------

    It is also notable that once the transition to section 1071 data is 
complete, the small business loan data used for the Retail Lending Test 
will capture business credit transactions that are secured by real 
estate. For example, section 1071 data will capture business loans 
secured by an applicant's primary residence or residential investment 
property as collateral for inventory financing or working capital. Such 
loans would not be captured under HMDA because they do not involve a 
home purchase, home improvement, or refinancing and would not be 
captured in the Call Report definition of ``loans to small businesses'' 
because they are secured by residential real estate.
    For the reasons discussed above, the agencies are adopting in the 
final rule a definition of ``small business loan'' that means, 
notwithstanding the definition of ``small business'' in this section, a 
loan included in ``loans to small businesses'' as defined in the 
instructions for preparation of the Call Report. Similarly, the 
agencies are adopting in the final rule a definition of ``small farm 
loan'' that means, notwithstanding the definition of ``small farm'' in 
this section, a loan included in ``loans to small farms'' as defined in 
the instructions for preparation of the Call Report. Amendments 
included in the final rule will transition these definitions to reflect 
the final rule's definitions of ``small business'' and ``small farm,'' 
which leverages the definition of ``small business'' in the CFPB's 
section 1071 rulemaking, once small business data reported pursuant to 
that rulemaking becomes available and the agencies announce an 
effective date for this transition in the Federal Register.
State
    To increase clarity and consistency in the CRA regulations, the 
agencies proposed to add a definition of ``State'' to mean a U.S. State 
or territory, and the District of Columbia. The agencies did not 
receive any comments on this definition and are adopting the definition 
as proposed in the final rule.
Targeted Census Tract
    The agencies proposed to add a definition of ``targeted census 
tract'' for purposes of certain community development categories in 
proposed Sec.  __.13. As proposed, this term would mean: (1) a low-
income census tract or a moderate-income census tract; or (2) a 
distressed or underserved nonmetropolitan middle-income census tract. 
This definition was intended to reflect the current CRA regulations 
regarding community development activities now categorized as 
revitalization and stabilization activities,\250\ as well as 
accompanying guidance in the Interagency Questions and Answers 
regarding relevant geographic areas for these activities.\251\ The 
agencies did not receive any comments concerning the proposed 
definition of ``targeted census tract'' and adopt it as proposed in the 
final rule.
---------------------------------------------------------------------------

    \250\ See current 12 CFR __.12(g)(4).
    \251\ See generally 81 FR 48506, 48526-48528 (July 25, 2016).
---------------------------------------------------------------------------

Tribal Government
    The final rule includes a new definition for ``tribal government,'' 
not included in the proposal, to clarify the agencies' intended meaning 
of ``tribal government'' where referenced in the

[[Page 6628]]

final rule (see, e.g., community development categories in proposed and 
final Sec.  __.13 and the accompanying section-by-section analysis). As 
discussed above, the proposed and final community development place-
based categories, including activities in Native Land Areas, include as 
eligibility criterion that activities be ``conducted in conjunction 
with a Federal, State, local, or tribal government plan, program, or 
initiative.'' \252\ However, the proposal did not define ``tribal 
government,'' although the agencies sought feedback on various aspects 
of the government plan criterion. Some commenters addressed the types 
of entities that should be included in the government plan requirement, 
including tribal governments, associations, and other designees. A 
commenter expressed support for defining ``tribal government'' to mean 
the recognized governing body of any Indian, or Alaska Native tribe, 
band, nation, pueblo, village, community, component band, or component 
reservation, individually identified (including parenthetically) in the 
list most recently published pursuant to section 104 of the Federally 
Recognized Indian Tribe List Act of 1994.\253\
---------------------------------------------------------------------------

    \252\ See final Sec.  __.13(j)(2)(i).
    \253\ See Public Law 103-454, 108 Stat. 4791 (Nov. 2, 1994).
---------------------------------------------------------------------------

    Based on comments and on further consideration, the agencies 
believe that a definition of ``tribal government'' will provide needed 
clarity and certainty for banks and other stakeholders seeking to 
determine whether activities meet the required eligibility criterion. 
Accordingly, the final rule defines ``tribal government'' to mean the 
recognized governing body of any Indian, or Alaska Native tribe, band, 
nation, pueblo, village, community, component band, or component 
reservation, individually identified (including parenthetically) in the 
list most recently published pursuant to section 104 of the Federally 
Recognized Indian Tribe List Act of 1994 (25 U.S.C. 5131). As with the 
definition of ``Native Land Areas,'' this definition is derived from 
and intended to align with existing Federal Indian law.
Wholesale Bank
    As detailed in the ``limited purpose bank'' definition discussion 
above, the agencies are adopting the single term, ``limited purpose 
bank,'' and eliminating the ``wholesale bank'' definition in the final 
rule. This change is intended to improve clarity, minimize complexity, 
and provide for new and future market participants.
Women's Depository Institution
    The agencies proposed to define ``women's depository institution 
(WDI)'' as having the same meaning given to that term in 12 U.S.C. 
2907(b)(2). The cross-referenced provision of the CRA statute defines 
``WDI'' to mean a depository institution, as defined in the FDI Act, 
with: (1) more than 50 percent of the ownership or control of which is 
held by 1 or more women; (2) more than 50 percent of the net profit or 
loss of which accrues to 1 or more women; and (3) a significant 
percentage of senior management positions of which are held by women. 
The agencies did not include an alternate definition of WDI because 
their policies with respect to designating WDI's vary. The FDIC does 
not specifically designate or define WDIs under its MDI policy 
statement, however, it does recognize WDIs for purposes of the CRA. The 
Board defines WDI consistent with the CRA statute and institutions that 
meet the definition are eligible to access resources under the Federal 
Reserve System's Partnership for Progress program.\254\ The OCC, in 
contrast, considers WDIs to be MDIs under its MDI Policy Statement, 
and, therefore, women-owned institutions that do not meet the statutory 
definition of WDI in section 2907 would be considered MDIs if the 
institution otherwise meets the requirements of the OCC's MDI Policy 
Statement.
---------------------------------------------------------------------------

    \254\ See Board, SR 21-6/CA 21-4: ``Highlighting the Federal 
Reserve System's Partnership for Progress Program for Minority 
Depository Institutions and Women's Depository Institutions'' (Mar. 
25, 2021), https://www.federalreserve.gov/supervisionreg/srletters/SR2106.htm.
---------------------------------------------------------------------------

    The agencies did not receive any comments on the proposed 
definition of WDI and are adopting the definition as proposed with non-
substantive revisions for conformity with the structure of other 
definitions in final Sec.  __.12. Accordingly, under the final rule, 
``Women's depository institution (WDI)'' means ``women's depository 
institution'' as defined in 12 U.S.C. 2907(b)(2).

Section __.13 Consideration of Community Development Loans, Community 
Development Investments, and Community Development Services

Current Approach and the Agencies' Proposal
    The current CRA regulations define ``community development'' as 
comprising four broad categories: affordable housing, community 
services, economic development, and revitalization and 
stabilization.\255\ The agencies proposed to update the community 
development definition in current Sec.  __.12 by creating a new Sec.  
__.13 that would define community development as including eleven 
different categories of activities and would establish standards for 
when community development activities would receive full and partial 
consideration. Proposed Sec.  __.13 incorporated aspects of the current 
Interagency Questions and Answers into the regulation and established 
specific eligibility standards for a broad range of community 
development activities. Proposed Sec.  __.13 was also designed to 
provide more clarity regarding the kinds of activities the agencies 
consider to be community development, as well as regarding eligibility 
for community development consideration.
---------------------------------------------------------------------------

    \255\ See current 12 CFR __.12(g).
---------------------------------------------------------------------------

Comments Received
    Commenters provided general feedback on the agencies' proposal to 
adopt a definition of community development with eleven categories of 
activities, as well as on the specific proposed categories (which are 
discussed in the section-by-section analysis of each individual 
category below). Many commenters were generally supportive of the 
proposal, with several noting that the proposed approach for defining 
community development would provide more clarity for all stakeholders 
on the types of activities that qualify and the eligibility 
requirements for different activity types. Several commenters were 
particularly supportive of adding new categories to the current 
community development definition, such as the proposed categories for 
disaster preparedness and climate resiliency activities, activities 
with MDIs, WDIs, LICUs, and CDFIs, and activities in Native Land Areas. 
Other commenters noted that proposed changes to the community 
development definition would increase the responsiveness of banks to 
community needs and expressed the view that the changes would help to 
more effectively target community development activities.
    In contrast, a few commenters opposed the proposed changes to the 
community development definition. Commenter feedback included: that the 
activities that could be considered under the new categories could be 
considered under the four existing categories of community development; 
concern that the new community development categories were too rigid 
and complex, including that it would be difficult to obtain the data 
needed to show activities meet the new requirements; and that the 
definition of

[[Page 6629]]

community development would lead to a narrowing of what could qualify, 
which might result in fewer or less impactful activities in low- and 
moderate-income communities. Additionally, several commenters provided 
suggestions for additional categories of activities that should be 
considered under community development, such as equitable media, 
activities focused on arts and culture, broadband and digital 
inclusion, activities benefiting military communities, and activities 
that are designed to support individuals with disabilities.
Final Rule
    The agencies are adopting proposed Sec.  __.13, with revisions from 
the proposal and retitled as ``Consideration of community development 
loans, community development investments, and community development 
services.'' The final rule updates the current definition of community 
development to provide banks with additional clarity regarding the 
loans, investments, and services that the agencies have determined 
support community development that is responsive to the needs of low- 
and moderate-income individuals and communities, certain distressed or 
underserved nonmetropolitan areas, and small businesses and small 
farms.
    Consistent with the structure of the proposal, final Sec.  __.13 
adopts standards for when community development loans, community 
development investments, and community development services will 
receive full and partial consideration (final Sec.  __.13(a)), and 
replaces the current definition of community development with the 
following eleven categories:
    Section __.13(b) Affordable housing;
    Section __.13(c) Economic development;
    Section __.13(d) Community supportive services;
    Section __.13(e) Revitalization or stabilization;
    Section __.13(f) Essential community facilities;
    Section __.13(g) Essential community infrastructure;
    Section __.13(h) Recovery of designated disaster areas;
    Section __.13(i) Disaster preparedness and weather resiliency;
    Section __.13(j) Revitalization or stabilization, essential 
community facilities, essential community infrastructure, and disaster 
preparedness and weather resiliency in Native Land Areas;
    Section __.13(k) Activities with MDIs, WDIs, LICUs, or CDFIs; and
    Section __.13(l) Financial literacy.
    Final Sec.  __.13(a) has been revised to clarify the standards 
within each category for determining full or partial consideration. 
Final Sec.  __.13(b) through (l) have also been revised to address 
comments, improve clarity, and promote greater internal consistency. 
Revisions to these categories are discussed in greater detail in the 
corresponding section-by-section analyses below.
    The final rule incorporates aspects of the guidance that is 
currently provided in the Interagency Questions and Answers and 
provides more specificity, relative to the current rule, on the kinds 
of activities that the agencies consider to be community development. 
By building on the current rule and expanding the categories of 
community development, the agencies believe that final Sec.  __.13 will 
emphasize activities that are responsive to community needs, and 
especially the needs of low- and moderate-income individuals, families, 
and households and small businesses and small farms. Further, the 
agencies believe that the final rule will provide increased 
transparency and consistency by providing stakeholders with a better 
upfront understanding how loans, investments, and services supporting 
community development can receive consideration. Overall, the agencies 
believe that the final rule will reduce uncertainty and facilitate 
banks' ability to identify community development opportunities.
    In adopting final Sec.  __.13, the agencies considered comments 
regarding each proposed category of community development, and on 
appropriate standards for providing full and partial consideration for 
community development activities. These comments and the final rule are 
discussed below in the section-by-section analyses of Sec.  __.13(a) 
through (l). In addition, the agencies are adopting a variety of 
clarifying and conforming technical edits across final Sec.  __.13. For 
example, across all community development categories, the agencies are 
revising the term ``low- and moderate-income individuals'' to ``low- 
and moderate-income individuals, families, and households'' for 
consistency across the various paragraphs in Sec.  __.13, to provide 
more clarity and to comprehensively include the beneficiaries of 
different community development activities. Similarly, where 
appropriate, the final rule replaces ``activities'' with ``loans, 
investments, and services,'' consistent with revisions made elsewhere 
in the regulation to more accurately capture the distinction between 
community development activities, and a bank's loans, investments, and 
services that support those activities (for which CRA consideration is 
granted).
    The agencies considered commenter feedback that revising community 
development to include eleven categories could be too rigid or complex, 
and comments that activities under proposed Sec.  __.13(b) through (l) 
could be included under the four existing community development 
categories. The agencies believe, however, that additional community 
development categories, with specific eligibility requirements for 
each, will provide stakeholders with better clarity. Additionally, as 
previously noted and consistent with the proposal, the final rule 
incorporates existing guidance into the definition, which represents an 
evolution towards a more comprehensive and transparent regulation. The 
agencies note that, while banks subject to the rule are permitted to 
qualify loans, investments, and services under any applicable community 
development category, and that some activities may meet the criteria of 
multiple categories, activities may count only once for the purposes of 
calculating the Community Development Financing Metric.
    The agencies also appreciate comments suggesting additional 
categories for inclusion under community development and note that 
these are generally discussed in the section-by-section analyses of 
final Sec.  __.13(b) through (l). The agencies have considered these 
comments but believe that the adopted categories most clearly and 
specifically align with the scope of community development under the 
CRA regulations. The agencies note that loans, investments, and 
services supporting additional activities suggested by commenters could 
still receive consideration if they otherwise meet the required 
criteria under any category included in final Sec.  __.13.
    Finally, the agencies believe that the establishment in final Sec.  
__.14 of an illustrative list of qualifying community development 
activities and of a confirmation process, available if a bank wants to 
request review in advance, will help to provide additional clarity and 
transparency for banks regarding the consideration of community 
development loans, investments, and services. For more information, see 
the section-by-section analysis of Sec.  __.14.

[[Page 6630]]

Section __.13(a) Full and Partial Credit for Community Development 
Loans, Community Development Investments, and Community Development 
Services

Current Approach
    Under the current CRA rule, a bank may, depending on its size and 
business model, be evaluated for its community development lending, 
investments, and services under the lending, investment, or service 
tests, as applicable.\256\ To be eligible for CRA community development 
consideration, a loan, service, or investment must have community 
development as its primary purpose.\257\
---------------------------------------------------------------------------

    \256\ See, e.g., current 12 CFR __.22 through __.26.
    \257\ See current 12 CFR __.12(h)(1) (for community development 
loans), (i)(1) (for community development services), and (t) (for 
community development or ``qualified'' investments).
---------------------------------------------------------------------------

    The Interagency Questions and Answers explain that a loan, 
investment, or service is considered to have a primary purpose of 
community development ``when it is designed for the express purpose 
of'' the following:
     ``Revitalizing or stabilizing low- or moderate-income 
areas, designated disaster areas, or underserved or distressed 
nonmetropolitan middle-income areas;''
     ``Providing affordable housing for, or community services 
targeted to, low- or moderate-income persons;'' or
     ``Promoting economic development by financing small 
businesses or small farms that meet the requirements set forth in 12 
CFR __.12(g).'' \258\
---------------------------------------------------------------------------

    \258\ See Q&A Sec.  __.12(h)-8. The referenced requirements for 
small businesses and small farms are that they ``meet the size 
eligibility standards of the Small Business Administration's 
Development Company or Small Business Investment Company programs 
(12 CFR 121.301) or have gross annual revenues of $1 million or 
less.'' 12 CFR __.12(g)(3).
---------------------------------------------------------------------------

    The Interagency Questions and Answers explain that the agencies use 
one of two approaches to determine whether an activity is ``designed 
for an express community development purpose.'' An activity meets the 
primary purpose standard, and the entire activity may be eligible for 
CRA considerations if:
     ``[A] majority of the dollars or beneficiaries of the 
activity are identifiable to one or more of the enumerated community 
development purposes;'' \259\ or
---------------------------------------------------------------------------

    \259\ Q&A Sec.  __.12(h)-8.
---------------------------------------------------------------------------

     Less than a majority of the dollars or benefits is 
identifiable to one or more community development purposes, but: (1) 
``the express, bona fide intent of the activity . . . is primarily one 
or more of the enumerated community development purposes''; (2) ``the 
activity is specifically structured . . . to achieve the expressed 
community development purpose''; and (3) the activity accomplishes, or 
is reasonably certain to accomplish, the community development purpose 
involved.'' \260\
---------------------------------------------------------------------------

    \260\ Id. Q&A Sec.  __.12(h)-8 specifies that the ``express, 
bona fide intent'' of the activity may be ``as stated, for example, 
in a prospectus, loan proposal, or community action plan.'' Id.
---------------------------------------------------------------------------

    Even where those standards have not been met, loans, investments, 
or services involving the provision of mixed-income housing that 
incudes affordable housing may be deemed to have a primary purpose of 
community development as specified in the Interagency Questions and 
Answers.\261\ Specifically, at a bank's option, these activities may be 
considered to have a primary purpose of community development and be 
eligible for CRA credit on a pro rata basis; a bank may receive pro 
rata consideration for the portion of the activity that helps to 
provide affordable housing to low- or moderate-income individuals.\262\ 
For example, a bank could receive CRA consideration for 20 percent of 
the dollar amount of a loan or investment for a mixed-income 
development, if 20 percent of the units are set aside for affordable 
housing for low- or moderate-income individuals.\263\
---------------------------------------------------------------------------

    \261\ See id.
    \262\ See id.
    \263\ See id.
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to define the standards for determining 
whether a community development activity has a ``primary purpose'' of 
community development to clarify eligibility criteria for different 
community development loans, investments, or services (proposed Sec.  
__.13(a)). To this end, proposed Sec.  __.13(a)(1) established specific 
standards based on the interagency guidance described above \264\ for 
eleven categories of community development. These categories were 
listed in proposed Sec.  __.13(a)(2) and described in detail in 
proposed Sec.  __.13(b) through (l). With the proposed categories, the 
agencies intended to reflect an emphasis on activities that are 
responsive to community needs, especially the needs of low- and 
moderate-income individuals and communities and small businesses and 
small farms.
---------------------------------------------------------------------------

    \264\ See id.
---------------------------------------------------------------------------

    Specifically, proposed Sec.  __.13(a) stated that ``[a] bank may 
receive community development consideration for a loan, investment, or 
service that has a primary purpose of community development.'' The 
agencies proposed several ways in which an activity could be determined 
to have a primary purpose of community development.\265\ First, under 
proposed Sec.  __.13(a)(1)(i), if a majority of the dollars, applicable 
beneficiaries, or housing units of the activity were identifiable to 
one or more of the community development purposes listed in proposed 
Sec.  __.13(a)(2), then the activity would meet the requisite primary 
purpose standard and would receive full CRA credit.
---------------------------------------------------------------------------

    \265\ See proposed Sec.  __.13(a)(1).
---------------------------------------------------------------------------

    Second, and alternatively, under proposed Sec.  __.13(a)(1)(i)(A), 
where an activity supported rental housing purchased, developed, 
financed, rehabilitated, improved, or preserved in conjunction with a 
Federal, State, local, or tribal government (see proposed Sec.  
__.13(b)(1)), and fewer than 50 percent of the housing units supported 
by that activity were affordable, the activity would be considered to 
have a primary purpose of community development only in proportion to 
the percentage of total housing units in the development that were 
affordable.
    Third, under proposed Sec.  __.13(a)(1)(i)(B), where an activity 
involved low-income housing tax credits to support affordable housing 
under proposed Sec.  __.13(b), the activity would be considered to have 
a primary purpose of community development for the full value of the 
investment, even if fewer than 50 percent of the housing units 
supported by that activity were affordable.
    Finally, under proposed Sec.  __.13(a)(1)(ii), a loan, investment, 
or service would be considered to have a primary purpose of community 
development if the express bona fide intent of the activity was one or 
more of the proposed community development purposes and the activity 
was specifically structured to achieve, or was reasonably certain to 
accomplish, the community development purpose.
    Pro rata consideration for other community development activities. 
Although the proposal did not specify any other application of partial 
credit, the agencies sought feedback on whether such consideration 
would be appropriate for other community development activities (for 
example, financing broadband infrastructure, health care facilities, or 
other essential infrastructure and community facilities). If so, the 
agencies also sought feedback on whether the activity should be 
eligible for partial consideration only if a minimum percentage of the

[[Page 6631]]

community development purpose it supported served low- or moderate-
income individuals or census tracts or small businesses and small 
farms, such as 25 percent. Further, if partial consideration were 
provided for certain types of community development activities, the 
agencies sought feedback on whether to require a minimum percentage 
standard greater than 51 percent to receive full consideration--such as 
a threshold between 60 and 90 percent.
Comments Received
    The agencies received several comments generally supporting the 
proposed standard for determining whether an activity has a ``primary 
purpose'' of community development. For example, one commenter offered 
the general comment that it found the proposed clarifications to the 
primary purpose standard to be helpful and clear. As discussed in this 
section, many comments focused on the specific components of the 
proposed primary purpose standard and provided responses to the 
questions on which the agencies requested feedback.
    A majority of dollars, applicable beneficiaries or housing units 
are identifiable to one or more of the community development categories 
(proposed Sec.  __.13(a)(1)(i)). Many commenters supported the 
agencies' proposal to determine that an activity has a primary purpose 
of community development if a majority of dollars, applicable 
beneficiaries or housing units of the activity are identifiable to one 
or more community development purposes set out in proposed Sec.  
__.13(a)(2). A few commenters supported this aspect of the proposal 
without changes, while others asserted that CRA credit generally should 
not be granted unless the majority of beneficiaries are low- or 
moderate-income people and communities, or people and communities of 
color and indigenous people and communities.
    The express, bona fide intent of the activity is one or more of the 
community development categories and the activity is specifically 
structured to achieve, or is reasonably certain to accomplish, the 
community development purpose (proposed Sec.  __.13(a)(1)(ii)). A few 
commenters expressed concern with the agencies' proposal to determine 
that an activity has a primary purpose of community development if the 
express, bona fide intent of the activity is one or more of the 
community development categories or the activity is specifically 
structured to achieve, or is reasonably certain to accomplish, the 
community development purpose. One of these commenters suggested that 
this could lead to abuses where only a small percentage of dollars are 
dedicated to community development. To mitigate this potential problem, 
the commenter suggested eliminating this basis for determining whether 
an activity has a primary purpose of community development or, 
alternatively, pairing this consideration with a minimum threshold for 
the percentage of the activity that corresponds with community 
development, such as 40 percent, below which no consideration would be 
available.
    Another commenter asserted that the agencies should revise this 
prong to retain only the proposed language regarding whether ``[t]he 
express, bona fide intent of the activity is one or more of the 
community development purposes.'' This commenter stated that that 
language regarding the activity being ``specifically structured to 
achieve'' the community development purpose was redundant in light of 
the ``intent'' requirement. The commenter further expressed the view 
that determining whether an activity is ``reasonably certain to 
accomplish'' a community development purpose would result in bank and 
examiner speculation regarding the results of an activity. According to 
this commenter, the resulting uncertainty of both the ``specifically 
structured to achieve'' and ``reasonably certain to accomplish'' 
components of this proposed standard could be confusing and discourage 
innovative community development activities.
    Affordable housing-related provisions (proposed Sec.  
__.13(a)(1)(i)(A) and (B)). Many commenters addressed the two proposed 
clarifications to the primary purpose standard for affordable rental 
housing. As described above, these included: (1) a provision allowing 
for pro rata consideration of activities in conjunction with a Federal, 
State, local, or tribal government plan, program, initiative, tax 
credit, or subsidy, when fewer than 50 percent of housing units 
supported by the activity are affordable (proposed Sec.  
__.13(a)(1)(i)(A)); and (2) a provision allowing for full consideration 
of any affordable housing activity involving low-income housing tax 
credits (proposed Sec.  __.13(a)(1)(i)(B)).
    Subsidized affordable rental housing (proposed Sec.  
__.13(a)(1)(i)(A)). Many commenters supported providing pro rata 
consideration for affordable rental housing activities based on the 
percentage of housing units that are affordable. Several commenters 
supporting pro rata consideration for affordable housing cited the 
benefits of mixed-income housing for sustaining needed services and 
amenities in low- and moderate-income communities and for low- and 
moderate-income residents, as well as for promoting economic stability 
for low- and moderate-income individuals and communities. A commenter 
also noted that in rural areas, mixed-income housing is needed to 
accommodate projects of a sufficient scale to achieve development and 
operating efficiencies.
    Some commenters expressed the view that the pro rata consideration 
proposal was too narrow. In this regard, commenter suggestions included 
changes to the proposal to enhance incentives for investments and loans 
in affordable housing, e.g., that the agencies should afford full 
credit for subsidized affordable housing if 20 percent of the units 
were affordable, a level some commenters stated would align with the 
eligibility thresholds of certain other Federal affordable housing 
programs. A few commenters noted, however that, when less than 20 
percent of the units are affordable, affordability may be incidental to 
the project and immaterial to financing. Commenter feedback also 
included the view that properties developed without government funding 
should receive pro rata consideration if the percentage of units 
affordable to low- or moderate-income households were 50 percent or 
lower, and full consideration if the percentage of units affordable to 
low- or moderate-income households were greater than 50 percent.
    A few commenters conveyed that the proposal for pro rata 
consideration was too broad. In this regard, for example, a commenter 
expressed concern that the proposal could lead to providing CRA 
consideration for projects that do not preserve long-term affordability 
for low- or moderate-income individuals. Instead, the commenter stated 
that pro rata consideration should be limited to affordable housing 
projects that are: (1) owned by mission-driven affordable housing 
nonprofit organizations or public entities; (2) restricted to remain 
affordable at the lesser of 80 percent of area median income or HUD's 
Small Area Fair Market Rent; \266\ and (3) subject to compliance 
monitoring by a public entity. One commenter urged caution with pro 
rata consideration for affordable housing, stating that displacement 
pressure associated with new market rate housing in a low- and 
moderate-income community could

[[Page 6632]]

offset the benefit of providing the additional affordable units. 
Another commenter suggested that banks should not receive credit for 
affordable housing lending if the percentage of affordable units falls 
meets only the minimum required under a local inclusionary ordinance.
---------------------------------------------------------------------------

    \266\ See, HUD, Office of Policy Development and Research, 
``Small Area Fair Market Rents,'' https://www.huduser.gov/portal/datasets/fmr/smallarea/index.html.
---------------------------------------------------------------------------

    LIHTCs (proposed Sec.  __.13(a)(1)(i)(B)). Many of the commenters 
addressing the affordable housing component of the primary purpose 
standard strongly supported the proposal to provide full consideration 
for activities that involve LIHTCs to support affordable housing. A few 
commenters referenced the important role that LIHTC-financed projects 
have in addressing the need for affordable housing and noted that the 
LIHTC program drives most privately financed construction and 
rehabilitation of affordable housing. Other commenters asserted that 
the statutory and regulatory restrictions of the LIHTC program ensured 
that these activities were in the interest of public welfare.
    Several commenters, however, suggested changes to this component. 
Some commenters stated that banks should receive full consideration for 
investments in mixed-income LIHTC projects, noting that the tax credits 
for investments under the LIHTC program is already prorated based on 
the percentage of units that are affordable. However, these commenters 
urged that lending to these projects should be prorated, asserting that 
lending to mixed-income LIHTC projects could include significant 
financing for market-rate housing, and expressed the view that banks 
should not get community development credit for this portion.
    Several commenters suggested that full consideration for affordable 
housing projects should apply more broadly to include other types of 
affordable housing, in addition to LIHTC projects. A few commenters 
recommended that full consideration be given for investments through 
nonprofit organizations with a mission or primary purpose of providing 
affordable housing, regardless of the purpose of the underlying 
collateral. One of these commenters asserted that bank investments 
supporting affordable housing projects through community-based 
development organizations (CBDOs) with a history of serving the needs 
of low- and moderate-income people and communities should also receive 
full consideration. This commenter maintained that full consideration 
for these projects would be warranted regardless of the income levels 
targeted by the project because CBDOs have the ``mission and 
experience'' to consider community mixed-income housing needs. Another 
commenter questioned why full consideration would not also be extended 
to all affordable housing developed with Federal housing subsidies, 
such as HUD's HOME Investment Partnerships Program (HOME) or project-
based section 8 rental assistance.
    Pro rata consideration for other community development categories. 
As noted previously, the agencies sought commenter perspectives on 
whether a partial consideration framework should be extended to some, 
or all, community development categories, in addition to affordable 
rental housing. Some commenters supported limiting partial 
consideration to only affordable housing. These commenters noted 
several common reasons for this, including the documented benefits of 
mixed-income housing for low- and moderate-income individuals and 
communities; the additional financing challenges for affordable housing 
compared to other types of projects; and the concern that expanding 
partial consideration beyond housing could divert limited resources 
away from projects that target low- and moderate-income individuals or 
communities. One commenter stated that approximately one-third of the 
national population is low- and moderate-income, so many activities 
could receive approximately that amount of credit if pro rata 
consideration were based on the population of low- and moderate-income 
individuals, without specifically targeting this population. This 
commenter asserted that any percentage of low- and moderate-income 
beneficiaries set for pro rata consideration would have therefore have 
to be substantially higher than the share of the low- and moderate-
income population to demonstrate that the activity had the actual 
intent of serving that population, at which point the level would 
approach the existing 50 percent threshold. Thus, the commenter 
believed that there is little to be gained and much to be lost in 
offering partial consideration outside of affordable housing 
activities, where income mixing is often part of an intentional 
strategy or necessary condition for creating new affordable homes.
    Other commenters supported allowing partial credit for certain 
types of larger-scale community development projects that might benefit 
low- or moderate-income individuals and communities. In general, these 
commenters noted that some projects might not be limited to a specific 
geographic area and would still benefit low- and moderate-income people 
and communities within the area affected. One commenter suggested that 
providing pro rata credit for a wider range of community development 
activities would acknowledge the complexities of delivering services to 
a large geographic area and could incentivize more financing in 
economically struggling or rural areas.
    The community development activity most often cited by commenters 
urging more extensive partial consideration was expanding access to 
broadband, with commenters noting the critical need for these services 
that are lacking in many rural and low- and moderate-income 
communities. Examples of other community development activities 
referenced by commenters for partial credit included: (1) 
infrastructure and community facilities; (2) projects that increase 
access to transportation, health care or renewable energy; or (3) 
projects that help to revitalize vacant and abandoned land or 
buildings. One commenter expressed general opposition to partial 
consideration but conveyed support for exceptions for projects in rural 
areas, using access to broadband as an example.
    Several commenters suggested that, if partial consideration is 
provided, certain guardrails should be in place to ensure that low- or 
moderate-income individuals and communities benefit. One commenter 
stated that partial consideration should be allowed only for activities 
that specifically target low- and moderate-income areas, and that 
merely benefiting these areas was not sufficient. A few commenters 
similarly expressed concerns about granting partial credit for 
activities that support community development but do not intentionally 
target benefits to low- and moderate-income people and communities; 
specifically they recommended that, for activities supporting community 
facilities and essential infrastructure to qualify for partial credit, 
the primary beneficiaries of the project should be low- and moderate-
income persons or residents of low- and moderate-income communities. 
Another commenter supported partial credit for infrastructure projects 
that benefit ``rural and other socially disadvantaged communities,'' 
citing as an example the educational benefits to low- and moderate-
income populations afforded by access to broadband. However, this 
commenter stated that no credit should be given to projects that would 
happen even without the incentive of CRA credit and that do not have a 
demonstrable benefit for low- or moderate-income communities. This

[[Page 6633]]

commenter further recommended that partial CRA credit be given in 
proportion with the demonstrated impact on low- and moderate-income 
communities, suggesting that this might be based on the income levels 
of the census tracts a project spans. Finally, a commenter suggested 
that partial consideration could be warranted for community development 
activities other than support for affordable housing, as communities 
might have other community development needs but recommended, however, 
that the community development activities, among other criteria: (1) 
``significantly improve'' factors impacting the health of residents in 
low- and moderate-income communities; (2) be undertaken with a U.S. 
Treasury-certified CDFI; (3) be widely supported by the community; and 
(4) ``contribute directly'' to a range of potential community benefits.
    Numerous other commenters favored expansion of partial 
consideration for all community development categories. Several 
commenters asserted that partial consideration would encourage banks to 
expand the geographic reach of their community development activities 
and encourage more community development activity that benefits low- 
and moderate-income individuals and communities. One commenter 
expressed the view that extending partial consideration to all 
community development categories would not dilute community development 
resources for low- or moderate-income communities and asserted that 
partial credit could incentivize more large-scale projects addressing 
infrastructure needs beyond affordable housing. Another commenter added 
that a partial credit framework would appropriately account for the 
complexities that can be associated with bringing services to 
geographically dispersed populations. Similarly, several commenters 
stated that partial consideration of community development activities 
would be particularly beneficial in rural areas, where the population 
is more widely dispersed and there are fewer low- or moderate-income 
tracts and individuals. One commenter expressed support for partial 
consideration for all community development activities but indicated 
that the ``majority'' standard for primary purpose should also be 
retained,\267\ since some banks might not have the capacity to document 
partial consideration levels with more specificity.
---------------------------------------------------------------------------

    \267\ See proposed Sec.  __.13(a)(1)(i). See also Q&A Sec.  
__.12(h)-8.
---------------------------------------------------------------------------

    Threshold for partial consideration. Many commenters who supported 
partial consideration for activities in some or all community 
development categories also thought that a minimum threshold for the 
percentage of the activity that serves low- or moderate-income 
individuals and geographic areas or small businesses and small farms 
should apply for a bank to be eligible to receive partial consideration 
for the activity. Numerous commenters suggested a minimum threshold 
ranging from 10 percent to over 50 percent for partial consideration 
eligibility, with a minimum of 25 percent being the threshold most 
frequently suggested. For example, a commenter suggested that a 
threshold of 10 percent would be appropriate, allowing for projects 
with complex development and construction markets, including higher-
income markets.
    A number of commenters asserted that no minimum threshold should be 
required for partial consideration eligibility, as long as some benefit 
of the activity to low- or moderate-income individuals or communities 
or small businesses or small farms could be documented. For example, a 
commenter stated that excluding loans or investments that do not meet a 
50 percent threshold presents an incomplete picture of a bank's overall 
community development activities. This commenter further asserted that 
a pro rata framework for all community development activities would 
further the CRA goals of expanding lending and investment in low- and 
moderate-income communities because all of a bank's community 
development efforts would count.
    Finally, regarding when full consideration of an activity should be 
given, some commenters expressed the view that, for an activity to 
receive full credit, the percentage of benefits to low- or moderate-
income individuals or communities or small businesses and small farms 
should be higher than 51 percent (see discussion of comments on the 
``majority'' standard above). The thresholds suggested by these 
commenters ranged from 60 percent to 80 percent for full consideration. 
For example, one commenter recommended a 75 percent threshold and 
cautioned against activities that do not in fact serve communities but 
sustain poverty over the long term, such as, among other examples, 
infrastructure projects that cause affordable housing losses. This 
commenter also urged the agencies to consider a standard based on 
whether the activity is supported or requested by the community itself. 
Another commenter suggested that a 60 percent threshold would strike an 
appropriate balance between incentivizing a focus on low- and moderate-
income needs and allowing for a range of projects that could benefit a 
wider range of residents, such as in a mixed-income community.
Final Rule
    The agencies are finalizing the proposal to clarify eligibility 
criteria for different community development activities, with several 
changes and restructuring. The agencies carefully considered comments 
received regarding standards for determining whether an activity has 
the primary purpose of a community development. Based on the agencies' 
review of the comments and supervisory experience, the agencies 
concluded that ``primary purpose'' does not accurately describe when a 
bank will receive full or partial credit and resulted in some confusion 
in this regard. Thus, under the final rule, the agencies are modifying 
the proposal that focused on a primary purpose standard by adopting 
specific standards for full and partial consideration of community 
development activities, to clarify when activities will receive such 
consideration. To streamline the regulation, the agencies are 
eliminating the list of community development categories in proposed 
Sec.  __.13(a)(2) and instead adding new language in final Sec.  
__.13(a) that a bank may receive community development consideration 
for a loan, investment, or service that supports one of eleven 
categories of community development described in final Sec.  __.13(b) 
through (l), as outlined above. The agencies also reorganized proposed 
Sec.  __.13(a) into two distinct sections: final Sec.  __.13(a)(1), 
which details the circumstances in which a bank receives full credit; 
and final Sec.  __.13(a)(2), which details the circumstances in which a 
bank receives partial credit for a community development loan, 
investment, or service.
    Also as noted above, the agencies are replacing ``primary purpose'' 
terminology and setting forth a framework consistent with the current 
and proposed primary purpose standard, but delineated for each category 
of community development to convey more clearly and transparently the 
parameters for community development loans, investments, and services 
to receive full or partial credit, as discussed in more detail below in 
the section-by-section analysis of final Sec.  __.13(a)(1) and (2).
    Overall, the agencies believe that the final rule provides 
meaningful clarification of the standards for consideration of 
community development loans, investments, and services, in response to 
comments and

[[Page 6634]]

on further deliberation by the agencies. The section-by-section 
analysis below provides additional detail.
Section __.13(a)(1) Full credit
    The agencies are adopting final Sec.  __.13(a)(1) to identify four 
circumstances under which a bank will receive credit for the entire 
community development loan, investment, or service. More specifically, 
banks will receive full credit for these types of activities if they:
     Meet the majority standard in Sec.  __.13(a)(1)(i);
     Meet the bona fide intent standard in Sec.  
__.13(a)(1)(ii);
     Involve an MDI, WDI, LICU, or CDFI as provided in Sec.  
__.13(a)(1)(iii); or
     Involve LIHTCs as provided in Sec.  __.13(a)(1)(iv).
    The agencies intend with this reorganization to address comments 
seeking clarification about standards for community development 
consideration. By categorizing and clarifying the types of community 
development activities that receive full credit, the agencies are 
emphasizing activities that are responsive to community needs.
Section __.13(a)(1)(i) Majority Standard
    Similar to proposed Sec.  __.13(a)(1)(i), the agencies are 
finalizing a majority standard with additional criteria that more 
specifically address how the standard is applied with respect to each 
of the community development categories. Final Sec.  __.13(a)(1)(i)(A), 
states that any loan, investment, or service must support community 
development under one or more of the categories outlined in final Sec.  
__.13(b) through (l). Further, final Sec.  __.13(a)(1)(i)(B) provides 
that the loan, investment, or service must meet one or more of the 
other criteria established under the majority standard that correspond 
to each of the community development purposes. Specifically, under 
Sec.  __.13(a)(1)(i)(B)(1), for a community development loan, 
investment or service that supports any of the categories of affordable 
housing under final Sec.  __.13(b)(1) through (3) to meet the majority 
standard, the majority of the housing units supported by the bank's 
loan, investment or service must be affordable to low- or moderate-
income individuals. The agencies believe that, for these categories of 
community development, the housing unit standard for measuring whether 
the majority standard is met (or the appropriate proportion of partial 
credit) is objective and consistent with the impact that the project 
will have on the community. Regarding other categories of community 
development, final Sec.  __.13(a)(1)(i)(B)(2) through (6) provide that 
a loan, investment, or service meets the majority standard if the 
majority of beneficiaries are, or the majority of dollars benefit or 
serve, the following:
     Low- and moderate-income individuals, with respect to 
affordable housing and community supportive services pursuant to final 
Sec.  __.13(b)(4) and (5) and (d), respectively; \268\
---------------------------------------------------------------------------

    \268\ See final Sec.  __.13(a)(1)(i)(B)(2).
---------------------------------------------------------------------------

     Small businesses and small farms, with respect to economic 
development pursuant to final Sec.  __.13(c); \269\
---------------------------------------------------------------------------

    \269\ See final Sec.  __.13(a)(1)(i)(B)(3).
---------------------------------------------------------------------------

     Residents of targeted census tracts, with respect to 
revitalization or stabilization, essential community facilities, 
essential community infrastructure, and disaster preparedness and 
weather resiliency pursuant to final Sec.  __.13(e) through (g) and 
(i); \270\
---------------------------------------------------------------------------

    \270\ See final Sec.  __.13(a)(1)(i)(B)(4).
---------------------------------------------------------------------------

     Residents of designated disaster areas with respect to 
recovery of designated disaster areas pursuant to final Sec.  __.13(h); 
\271\
---------------------------------------------------------------------------

    \271\ See final Sec.  __.13(a)(1)(i)(B)(5).
---------------------------------------------------------------------------

     Residents of Native Land Areas, with respect to 
revitalization or stabilization, essential community facilities, 
essential community infrastructure, and disaster preparedness and 
weather resiliency in Native Land Areas pursuant to final Sec.  
__.13(j).\272\
---------------------------------------------------------------------------

    \272\ See final Sec.  __.13(a)(1)(i)(B)(6).
---------------------------------------------------------------------------

    Lastly, final Sec.  __.13(a)(1)(i)(B)(7) provides that loans, 
investments, and services supporting community development under final 
Sec.  __.13(b)(l) meet the majority standard if they primarily support 
financial literacy.
    The agencies considered comments that suggested establishing a 
threshold greater than a majority (i.e., over 50 percent) (ranging from 
60 to 80 percent) to receive full credit for a community development 
activity. However, the agencies believe that the majority standard, 
which has a longstanding history in the current rule, appropriately 
identifies those activities that primarily have a community development 
purpose, while acknowledging that many important community development 
initiatives and projects are not solely dedicated to the community 
development purposes in final Sec.  __.13(b) through (l).
    While a few commenters suggested that the majority standard should 
be applied to beneficiaries that are racial and ethnic minorities in 
addition to those elements that were identified in the proposal, the 
agencies did not add these beneficiaries to the majority standard, 
although the agencies expect that the clarified majority standard will 
better facilitate banks meeting the community development needs of 
their entire communities. For more information and discussion regarding 
the agencies' consideration of comments recommending adoption of 
additional race- and ethnicity-related provisions in this final rule, 
see section III.C of this SUPPLEMENTARY INFORMATION.
Section __.13(a)(1)(ii) Bona Fide Intent Standard
    Consistent with proposed Sec.  __.13(a)(l)(ii), the agencies are 
adopting final Sec.  __.13(a)(l)(ii), with restructuring and a 
technical change from the proposal. The final rule confirms loans, 
investments, and services that meet the bona fide intent standard 
receive full community development credit. A loan, investment, or 
service meets the bona fide intent standard if:
     The housing units, beneficiaries, or proportion of dollars 
necessary to meet the majority standard are not reasonably 
quantifiable; \273\
---------------------------------------------------------------------------

    \273\ See final Sec.  __.13(a)(1)(ii)(A).
---------------------------------------------------------------------------

     The loan, investment, or service has the express, bona 
fide intent of one or more of the community development purposes in 
final Sec.  __.13(b) through (l); \274\ and
---------------------------------------------------------------------------

    \274\ See final Sec.  __.13(a)(1)(ii)(B).
---------------------------------------------------------------------------

     The loan, investment, or service is specifically 
structured to achieve one or more of the community development purposes 
in final Sec.  __.13(b) through (l).\275\
---------------------------------------------------------------------------

    \275\ See final Sec.  __.13(a)(1)(ii)(C).
---------------------------------------------------------------------------

    In addition to reorganizing final Sec.  __.13(a)(l)(ii) from the 
proposal for clarity and to confirm that a bank may receive full credit 
for meeting the bona fide intent standard, the agencies are clarifying 
that the bona fide intent standard applies when the ``housing units, 
beneficiaries, or proportion of dollars necessary to meet the majority 
standard are not reasonably quantifiable.'' For example, this standard 
could be appropriate when considering a loan to an organization that 
has a bona fide intent of serving low- or moderate-income individuals 
but does not track data on the income of every individual served, such 
that demonstrating an activity meets the majority standard would be 
highly challenging. Additionally, the agencies removed the language in 
the proposal that the activity must also be

[[Page 6635]]

``reasonably certain to accomplish'' a community development purpose. 
The agencies appreciated the commenter concern that the ``reasonably 
certain to accomplish'' criterion could produce uncertainty and 
inconsistency in application, based on conjectures regarding the 
outcomes of the activity. However, the agencies are retaining the 
criterion that an activity must be ``specifically structured to 
achieve'' a community development purpose, which the agencies believe 
helps to ensure that any activities that do not meet the majority 
standard appropriately receive consideration under the bona fide intent 
standard, as an activity focused on a community development purpose.
    The agencies also considered the commenter suggestion that the bona 
fide intent standard should be removed from the final rule, but based 
on supervisory experience, believe that this would eliminate from 
consideration numerous beneficial initiatives that have a community 
development purpose, but do not meet the majority standard in final 
Sec.  __.13(a)(l)(i). Further, the agencies believe the three required 
criteria for the bona fide intent standard will help to eliminate any 
potential abuse in the application of this standard. With the revisions 
to the language regarding the bona fide intent standard, the agencies 
believe that the standard is a balanced approach to encouraging 
community development activities, while eliminating from consideration 
any activities that are not predominantly focused on a community 
development purpose.
Section __.13(a)(1)(iii) Community Development Related to MDIs, WDIs, 
LICUs, and CDFIs
    As the proposal did not specifically address how the primary 
purpose consideration would be applied with respect to a loan, 
investment, or service to an MDI, WDI, LICU, or CDFI that supports 
community development under proposed Sec.  __.13(a)(2)(ix) and (j), the 
agencies added and are finalizing Sec.  __.13(a)(l)(iii) to clarify 
that activities conducted in conjunction with these four types of 
entities are eligible for full credit. As discussed in more detail in 
the section-by-section analysis of final Sec.  __.13(k), community 
development under final Sec.  __.13(k) (renumbered from proposed Sec.  
__.13(j)) differs somewhat from the other types of community 
development under final Sec.  __.13(b) through (j) and (l) in that the 
credit a bank receives is based exclusively on the entity to which the 
bank is providing the loan, investment, or service, rather than looking 
at a measurable benefit using the corresponding dollars, beneficiaries, 
or housing units associated with the activity. The provision of full 
credit to these types of activities is also consistent with how the 
agencies currently consider loans, investments, and services that 
support MDIs, WDIs, and LICUs.\276\
---------------------------------------------------------------------------

    \276\ See current Sec.  __.21(f) and Q&A Sec.  __.21(f)-1.
---------------------------------------------------------------------------

Section __.13(a)(1)(iv) Community Development Related to LIHTC-Financed 
Projects
    The agencies are adopting proposed Sec.  __.13(a)(1)(i)(B), 
renumbered as final Sec.  __.13(a)(1)(iv), with certain revisions for 
clarity. This provision clarifies the agencies' intent, consistent with 
the current CRA framework, that a loan, investment or service involving 
a project financed by LIHTCs under final Sec.  __.13(b)(1) will receive 
full community development credit. Under proposed Sec.  
__.13(a)(1)(i)(B), full consideration was limited to only investments 
in projects financed by LIHTCs. Many commenters supported providing 
full community development credit for all activities that involve 
LIHTCs to finance affordable housing. Therefore, in response to these 
commenters and considering past supervisory practice, the agencies 
adopted final Sec.  __.13(a)(1)(iv), to state that a loan, investment 
or service involving LIHTCs to finance the development of affordable 
housing under final Sec.  __.13(b)(1) will receive full community 
development credit.
    The agencies considered commenter concerns that lending to mixed 
income housing projects that include units financed by LIHTCs could 
also include financing for market-rate housing that does not benefit or 
serve low- and moderate-income individuals. However, the agencies 
determined that granting full credit for these loans under Sec.  
__.13(a)(1)(iv) is appropriate for ensuring certainty regarding 
existing approaches to financing LIHTC projects, as full credit for 
these loans is consistent with current guidance.\277\ The agencies also 
considered that projects developed with LIHTCs have the expressed 
intent of providing affordable housing, regardless of the percentage of 
affordable units that are supported, and believe that providing credit 
for LIHTC-related lending aligns with the statutory purpose of 
encouraging banks to meet the credit needs of their communities, 
including low- and moderate-income populations.\278\
---------------------------------------------------------------------------

    \277\ See Q&A Sec.  __.12(t)-4.
    \278\ For further discussion of final rule provisions regarding 
LIHTCs, see the section-by-section analysis of Sec.  __.15(b)(10) 
(impact and responsiveness review factor for investments in LIHTC).
---------------------------------------------------------------------------

    The agencies also considered comments suggesting that full credit 
for loans, investments, or services should be extended to all 
affordable housing developed with Federal housing subsidies or to all 
affordable housing projects developed through CBDOs with a history of 
serving low- and moderate-income populations. The agencies recognize 
the importance of all Federal housing programs in financing affordable 
housing and the important role that CBDOs play in developing affordable 
housing. However, on further review of these suggestions, the agencies 
have determined that loans, investments, and services for projects 
financed by Federal housing subsidies or developed by CBDOs should not 
automatically receive full consideration because the scope and target 
of these subsidies and projects may vary greatly. While the agencies 
believe that most of the affordable housing projects developed in 
conjunction with Federal subsidies and CBDOs will likely warrant 
consideration as a community development activity, the agencies believe 
that they should be considered individually, and not universally 
provided full credit; rather, given the wide variety of subsidies and 
projects, the corresponding loans, investments, and services will be 
more appropriately considered under the full or partial credit criteria 
in final Sec.  __.13(a)(1) and (2), as applicable to these types of 
projects.
Section __.13(a)(2) Partial Credit
    Partial consideration for affordable housing. A second category 
implemented as part of the restructuring reflected in final Sec.  
__.13(a) includes loans, investments, and services that will receive 
partial credit. The agencies are adopting proposed Sec.  
__.13(a)(l)(i)(A), renumbered as final Sec.  __.13(a)(2), and reworded 
for clarity. Final Sec.  __.13(a)(2) memorializes current interagency 
guidance related to the provision of mixed-income housing with an 
affordable housing set-aside required by a Federal, State, or local 
government.\279\ Under this construct, a bank will receive partial 
credit for any loan, investment, or service that supports affordable 
housing under final Sec.  __.13(b)(1) and does not meet the majority 
standard under final Sec.  __.13(a)(1)(i). This partial credit will

[[Page 6636]]

be calculated in proportion to the percentage of total housing units in 
any development that are affordable to low- or moderate-income 
individuals. For example, if a bank makes a $10 million loan to finance 
a mixed-income housing development in which 10 percent of the units 
will be set aside as affordable housing for low- and moderate-income 
individuals according to a local government set-aside requirement, the 
bank may elect to treat $1 million of such loan as a community 
development loan. This provision will provide flexibility for banks to 
engage in affordable housing even if rental housing purchased, 
developed, financed, rehabilitated, improved, or preserved in 
conjunction with a Federal, State, local, or tribal government 
affordable housing plan, program, initiative, tax credit, or subsidy 
does not include a majority of housing units that are affordable to 
low- or moderate-income individuals.
---------------------------------------------------------------------------

    \279\ See Q&A Sec.  __.12(h)-8.
---------------------------------------------------------------------------

    The final rule is intended to be responsive to the numerous 
commenters that supported the proposal to provide pro rata 
consideration for affordable rental housing based on the percentage of 
housing units that are affordable. While commenter suggestions included 
that banks receive full credit for subsidized affordable housing that 
represented at least 20 percent of the bank's financing, the agencies 
believe that such treatment could inappropriately dilute the 
consideration of community development loans and investments by 
providing significant amounts of credit for housing that is not 
affordable to low- and moderate-income people. The agencies have also 
decided not to provide partial credit to loans or investments in 
affordable housing projects that are developed without government 
support if less than 50 percent of the units are affordable. This type 
of affordable housing may not have protections to preserve the housing 
as affordable to low- and moderate-income individuals during the term 
of the loan or investment, which are typical of government-supported 
affordable housing.
    As mentioned previously, the agencies considered comments 
suggesting that partial credit for affordable housing was too broad and 
should be limited to provide partial credit only for those projects 
that maintain at least 20 percent of the units as affordable. However, 
the agencies do not believe that such a limitation is necessary. The 
final rule restricts partial consideration to only rental housing in 
conjunction with a government affordable housing plan, program, 
initiative, tax credit, or subsidy pursuant to Sec.  __.13(b)(1), which 
will help ensure that there is an intent of providing affordable 
housing and will limit the consideration of housing units that may be 
incidental. The agencies believe it is appropriate to defer to the 
Federal, State, local, or tribal government to set minimum standards 
for participating in affordable housing programs, plans, initiatives, 
tax credits, or subsidies that are responsive to their respective 
communities.
    The agencies also contemplated the suggestion that banks should not 
receive credit for lending for affordable housing if the housing is 
associated with a local inclusionary zoning ordinance and provides only 
the minimum amount of affordable housing required. While the agencies 
acknowledge the compulsory nature of these ordinances and concerns with 
providing community development credit for loans and investments that 
support this housing, the agencies believe that affordable housing 
associated with inclusionary zoning should be included. The agencies 
recognize that inclusionary zoning represents an important tool 
utilized by local jurisdictions to create and preserve affordable 
housing for low- and moderate-income individuals, especially in higher-
income areas. In addition, under the final rule, if affordable housing 
provided through these programs does not meet the majority standard, 
the credit afforded to a bank is limited to only the percentage of 
units that are considered affordable.
    Partial consideration for other community development categories. 
As discussed above, the agencies received a wide range of comments in 
response to the request for feedback on whether partial credit should 
be extended to some, or all, community development categories, in 
addition to affordable housing. After consideration of these comments, 
the agencies are adopting final Sec.  __.13(a)(2) without extending 
partial credit to other categories of community development. The 
agencies share commenter concerns that expanding partial consideration 
beyond mixed-income rental housing could divert limited community 
development resources away from the projects that target low- or 
moderate-income people and communities, as well as small businesses and 
small farms. To this end, the agencies are not adopting suggestions 
that the final rule provide partial credit for certain larger-scale 
community development projects that have the potential to impact low- 
or moderate-income individuals and communities but are not primarily 
targeted to these populations. Unless these projects are associated 
with LIHTCs or are conducted with MDIs, WDIs, LICUs, or CDFIs, the 
agencies believe that these projects should receive credit only when 
they meet the majority or bona fide intent standards. The full and 
partial credit criteria in Sec.  __.13(a) serve as sufficient 
guardrails to ensure that low- or moderate-income individuals and 
communities, as well as other underserved segments of the community 
identified in community development categories in Sec.  __.13(b) 
through (l), benefit.
    The agencies also considered feedback from some commenters that 
supported some degree of expansion of the partial credit standard with 
certain qualifications, limitations, and additional criteria. However, 
the agencies determined that the consistent and transparent application 
of an expansion with these qualifications would be untenable, such as 
limiting partial credit to projects that would only happen without CRA 
recognition or that are widely supported by the community. The agencies 
also considered suggestions to allow partial consideration with a 
minimum threshold for the percentage (ranging from 10 to 50 percent and 
most often cited as 25 percent) of the activity that served low- or 
moderate-income individuals and geographic areas, small businesses, and 
small farms. The agencies carefully considered the many varying views 
on extending a partial credit framework to other community development 
categories, and the suggested thresholds for doing so. On balance, the 
agencies believe that applying the majority and bona fide intent 
standards to other categories of community development affords the 
consistency and clarity that can foster a predictable and transparent 
framework for bank partnerships and engagement in community development 
within the communities they serve. For the reasons discussed above, the 
agencies believe that government-related mixed-income affordable 
housing is distinguishable from other types of community development in 
ways that make a partial credit framework appropriate for facilitating 
bank involvement in these projects, consistent with government 
assessments of the affordable housing needs of their communities. 
Further, the agencies note that banks will receive full credit for any 
loan, investment, or service that is not entirely dedicated to a 
community development purpose, as long as it meets the majority or bona 
fide intent standard pursuant to Sec.  __.13(a)(1).
    As mentioned previously, several commenters suggested the expansion 
of partial credit consideration for

[[Page 6637]]

broadband, noting that the need for this infrastructure is particularly 
critical in many rural and low- and moderate-income communities. The 
agencies have considered these comments but determined that outside of 
affordable housing, it is difficult to single out unique treatment for 
specific activities. Therefore, the agencies have decided to retain the 
final rule as proposed, and all activities beyond affordable housing 
will have to meet the majority or bona fide intent standard pursuant to 
pursuant to Sec.  __.13(a)(1). The agencies recognize that a need for 
broadband exists in rural and low- or moderate-income communities and 
seek to address this need under Sec.  __.13(g), the community 
development category for essential community infrastructure, which 
allows consideration for infrastructure activities, including those 
expanding broadband access, that benefit or serve targeted census 
tracts (which includes low-income, moderate-income, or distressed or 
underserved middle-income nonmetropolitan tracts) and meets other 
specified criteria. For further discussion, including additional 
comments on broadband access and other types of essential community 
infrastructure, see the section-by-section analysis of Sec.  __.13(g). 
The agencies intend that consideration for activities under several 
community development categories, including revitalization or 
stabilization, essential community facilities, essential community 
infrastructure, and disaster preparedness and weather resiliency \280\ 
that benefit or serve residents of targeted census tracts, including 
distressed and underserved nonmetropolitan middle-income census tracts, 
will help to address commenters' concern that partial credit is 
necessary to ensure that the community development needs of rural 
areas, which are often more widely dispersed and have fewer low- or 
moderate-income tracts and individuals, are met.
---------------------------------------------------------------------------

    \280\ See final Sec.  __.13(e) through (i).
---------------------------------------------------------------------------

Section __.13(b) Affordable Housing

    In proposed Sec.  __.13(b), the agencies proposed a definition for 
affordable housing that included four components: (1) affordable rental 
housing developed in conjunction with Federal, State, local, and tribal 
government programs; (2) multifamily rental housing with affordable 
rents; (3) activities supporting affordable low- or moderate-income 
homeownership; and (4) purchases of mortgage-backed securities that 
finance affordable housing. The agencies intended the proposed 
definition to clarify the eligibility of affordable housing as well as 
to recognize the importance of promoting affordable housing for low- or 
moderate-income individuals.\281\ Specifically, the agencies stated 
their belief that the proposal would, first, add greater clarity around 
the many types of subsidized activities that currently qualify for CRA 
consideration.\282\ Second, the agencies sought to provide clear and 
consistent criteria in order to qualify affordable low- or moderate-
income multifamily rental housing that does not involve a government 
plan, program, initiative, tax credit, or subsidy (also referred to in 
the agencies' proposal as ``naturally occurring affordable housing'' or 
``affordable multifamily rental housing'').\283\ Third, the agencies 
stated their intention to ensure that activities that support 
affordable low- and moderate-income homeownership are sustainable and 
beneficial to low- or moderate-income individuals and communities.\284\ 
Finally, the agencies, through the proposal, sought to appropriately 
consider qualifying mortgage-backed security investments, so as to 
emphasize community development financing activities that are most 
responsive to low- or moderate-income community needs.\285\
---------------------------------------------------------------------------

    \281\ 87 FR 33884, 33892 (June 3, 2022).
    \282\ See id. at 33894.
    \283\ See id. at 33895.
    \284\ See id. at 33897.
    \285\ See id.
---------------------------------------------------------------------------

    Comments on the overall structure of the agencies' affordable 
housing proposal varied, with some commenters commending the breadth of 
housing activities included in the proposal, while others viewed the 
proposal as too narrow or rigid, or questioned whether the proposal 
would add burden on banks that may constrain banks' capacities to meet 
affordable housing needs.
    Commenters also provided feedback on specific aspects of the 
affordable housing community development category proposal, including 
feedback on which affordable housing activities should be required to 
meet an agency-determined affordability standard, which affordability 
standard or standards the agencies should adopt, and what, if any, 
geographical considerations should be factored in when determining 
whether affordable housing activities should be eligible for community 
development consideration.
    For the reasons discussed in this section, the agencies have 
adopted an approach to defining the affordable housing category of 
community development that aligns closely with the agencies' proposal, 
as well as key aspects of current practice and interpretations under 
the CRA. Importantly, in response to commenter feedback, the agencies 
are adopting modifications to the affordable housing community 
development category to ensure that the criteria are sufficiently 
flexible to account for a variety of housing models that address 
community needs. The final rule adds a component for consideration of 
activities that finance one-to-four family rental housing with 
affordable rents in nonmetropolitan areas. In addition, the final rule 
incorporates revisions designed to clarify the eligibility of rental 
housing in conjunction with a government affordable housing program, 
initiative, tax credit or subsidy. The final rule also revises and 
clarifies the affordability standard for naturally occurring affordable 
housing, clarifies the requirements for affordable owner-occupied 
housing activity, and revises and clarifies the requirements for 
purchases of mortgage-backed securities.
Current Approach
    The current CRA regulations define ``community development'' to 
include ``affordable housing (including multifamily rental housing) for 
low- or moderate-income individuals.'' \286\ The agencies have stated 
in the Interagency Questions and Answers that, for housing to be 
considered community development, low- or moderate-income individuals 
must benefit or be likely to benefit from the housing.\287\ In this 
regard, the Interagency Questions and Answers provide that, for 
example, consideration for a ``project that exclusively or 
predominately houses families that are not low- or moderate-income 
simply because the rents or housing prices are set according to a 
particular formula'' would not be appropriate.\288\
---------------------------------------------------------------------------

    \286\ 12 CFR __.12(g)(1).
    \287\ See Q&A Sec.  __.12(g)(1)-1.
    \288\ See id.
---------------------------------------------------------------------------

    Under the current regulation, single-family (i.e., one-to-four 
family) home mortgage loans are generally considered as part of the 
large bank and small bank lending tests, but may be considered as 
community development loans under the community development test for 
intermediate small banks that do not report such loans under HMDA (at 
the bank's option and if for affordable housing).\289\ Multifamily 
affordable

[[Page 6638]]

housing loans may qualify for both retail lending and community 
development consideration if those loans also meet the definition of a 
``community development loan.'' \290\ Housing that is financed or 
supported by a government affordable housing program or a government 
subsidy is considered subsidized affordable housing and is generally 
viewed as qualifying under affordable housing if the government program 
or subsidy has a stated purpose of providing affordable housing to low- 
or moderate-income individuals. Multifamily housing with affordable 
rents that is not financed or supported by a government affordable 
housing program or a government subsidy, is generally considered 
unsubsidized affordable housing (and is also referred to in this 
SUPPLEMENTARY INFORMATION as naturally occurring affordable housing). 
Such housing can qualify as affordable housing under the current 
definition of ``community development'' if the rents are affordable to 
low- or moderate-income individuals, and if low- or moderate-income 
individuals benefit, or are likely to benefit, from this housing.\291\ 
Current interagency guidance mentions certain information that 
examiners may consider in making this determination.\292\
---------------------------------------------------------------------------

    \289\ See current 12 CFR __.22(b)(1) (lending test) and __.26 
(small bank performance standards). See also Q&A Sec.  __.12(h)-2 
(consideration of retail loans for small institutions) and Q&A Sec.  
__.12(h)-3 (home mortgage loan consideration for intermediate small 
banks).
    \290\ See Q&A Sec.  __.42(b)(2)-2; see also Q&A Sec.  __.12(h)-2 
and -3 (regarding multifamily loan consideration for intermediate 
small banks).
    \291\ See Q&A Sec.  __.12(g)(1)-1.
    \292\ See id. (providing, for example, that for projects where 
the income of the occupants cannot be verified, ``examiners will 
review factors such as demographic, economic, and market data to 
determine the likelihood that the housing will `primarily' 
accommodate low- or moderate-income individuals'').
---------------------------------------------------------------------------

    Regarding affordability, no specific standard exists under the 
current regulatory framework for determining when a property or unit is 
considered affordable to low- or moderate-income individuals, for 
either multifamily or single-family housing.\293\ One approach used by 
some examiners is to calculate an affordable rent based on what a 
moderate-income renter could pay if they allocated 30 percent of their 
income to rent. Alternatively, some examiners use HUD's Fair Market 
Rents as a standard for measuring affordability.\294\
---------------------------------------------------------------------------

    \293\ See, e.g., Q&A Sec.  __.12(g)(1)-1.
    \294\ See HUD, Office of Policy Development and Research, ``Fair 
Market Rents,'' https://www.hud.gov/program_offices/public_indian_housing/programs/hcv/landlord/fmr.
---------------------------------------------------------------------------

    Purchases of mortgage-backed securities qualify as affordable 
housing activity if they demonstrate a primary purpose of community 
development.\295\ Specifically, the security must contain a majority of 
single-family mortgage loans to low- or moderate-income borrowers, or 
of loans financing multifamily affordable housing, to qualify as an 
investment with a primary purpose of affordable housing.\296\
---------------------------------------------------------------------------

    \295\ See Q&A Sec.  __.12(t)-2.
    \296\ See id.
---------------------------------------------------------------------------

Overall Affordable Housing Category Structure
The Agencies' Proposal
    The NPR stated in proposed Sec.  __.13(a)(2)(i) that loans, 
investments, or services that ``promote . . . [a]ffordable housing that 
benefits low- or moderate-income individuals'' would have the requisite 
community development purpose for CRA consideration. This provision 
cross-referenced proposed Sec.  __.13(b) for greater detail about which 
activities qualify as ``affordable housing that benefits low- or 
moderate-income individuals.'' To this end, the agencies proposed four 
types of activities that would qualify under the affordable housing 
category of community development: (1) affordable rental housing 
developed in conjunction with Federal, State, local, and tribal 
government programs; (2) multifamily rental housing with affordable 
rents; (3) activities supporting affordable low- or moderate-income 
homeownership; and (4) purchases of mortgage-backed securities that 
finance affordable housing.
    The agencies sought feedback on what changes, if any, should be 
made to ensure that the proposed affordable housing category is clearly 
defined and appropriately inclusive of activities that support 
affordable housing for low- or moderate-income individuals, including 
activities that involve complex or novel solutions such as community 
land trusts, shared equity models, and manufactured housing.
Comments Received
    Structure of affordable housing category. Many commenters provided 
feedback on the overall structure of the proposed affordable housing 
category of community development. Several commenters suggested that 
the agencies should not distinguish between government-subsidized and 
naturally occurring affordable housing. These commenters supported 
combining the first and second components of the proposed affordable 
housing category into one, with a universally applied affordability 
standard. In this regard, some commenters suggested that creating 
separate affordable housing standards based on the presence or absence 
of government support would be mistaken and urged the agencies to 
establish a uniform standard that would apply to all affordable 
multifamily housing--other than housing financed with LIHTCs--
regardless of whether it has government support. These commenters 
proposed focusing on rent affordability as a percent of area median 
income, or the HUD Fair Market Rents standard, and a combination of 
other criteria such as: location in low- or moderate-income census 
tracts or in census tracts where the median renter is low- or moderate-
income; nonprofit or CDFI ownership or control; documented occupancy by 
low- or moderate-income individuals; or an owner commitment to maintain 
the affordability of housing units for low- or moderate-income 
individuals for at least five years. These commenters also asserted 
that the agencies should include a requirement to periodically confirm 
the continued affordability of housing activities that receive 
community development consideration.
    Scope of affordable housing category. Many commenters urged the 
agencies to provide additional support for difficult-to-finance housing 
projects by narrowing the agencies' proposal. For example, one 
commenter expressed the view that, by incorporating a wide variety of 
housing models, the proposed affordable housing category could reward 
banks that gravitate to easier-to-finance projects, versus projects for 
which banks may need further incentives to provide financing. Other 
commenters, for example, suggested that the agencies should prioritize 
consideration of activities that finance owner-occupied homes over 
investor-owned housing, with one of these commenters conveying that the 
agencies should evaluate any investor-related lending to determine 
whether it helps to build wealth for minority consumers or, 
alternatively, displaces them. This commenter also asserted that the 
agencies needed to comprehensively analyze banks' multifamily lending 
to provide consideration for beneficial activities and to impose 
sanctions for adverse behavior, such as financing landlords who are 
harassing and displacing tenants. Along those same lines, several 
commenters emphasized that the agencies should scrutinize banks' 
multifamily lending programs, including those conducted in partnership 
with third-party non-bank institutions, for illegal practices. Another 
commenter asserted that insufficient regulation of low-income housing 
tax credit investments has contributed, nationally, to over-

[[Page 6639]]

concentration and racial and ethnic segregation of low-income housing 
tax credit projects in minority communities, and that the agencies 
should address this dynamic in the final rule.
    A variety of commenters addressed the agencies' request for 
feedback on what changes, if any, the agencies should consider to 
ensure that the proposed affordable housing category of community 
development is clearly and appropriately inclusive of activities that 
support affordable housing for low- or moderate-income individuals. 
Many commenters requested that the agencies add provisions specific to 
community land trusts, shared equity models, land banks, accessory 
dwelling units (ADUs), and manufactured housing to the proposed 
affordable housing category. In support of this view, a commenter 
asserted that adding these housing initiatives would help strengthen 
communities and reduce social barriers such as unemployment, lack of 
education, and limited transportation. Another commenter recommended 
that the agencies specifically include supportive housing that provides 
both affordable housing and wrap-around services for people with 
complex medical needs. Commenters further requested that the agencies 
allow a guidance line of credit, which is a form of credit pre-approval 
from a lender, to be eligible for CRA consideration, as this financing 
method is used by nonprofit organizations in the affordable housing 
space.
    Other general comments on affordable housing category. Some 
comments touched on affordable housing in conjunction with other 
community development activities. Commenter feedback included requests 
that the agencies: promote co-development of disaster preparedness and 
climate resiliency activities with affordable housing and other 
activities to mitigate the risk of displacement; provide more support 
specifically for government-subsidized housing; and provide more 
quantitative and qualitative consideration of the value of low-income 
housing tax credit and NMTC syndications and sponsorship activities.
Final Rule
    The agencies are adopting final Sec.  __.13(b), which establishes 
criteria for consideration of affordable housing activities, 
substantially as proposed but with targeted revisions discussed in the 
section-by-section analysis that follows. Overall, the agencies are 
adopting a final rule that maintains the multi-pronged approach to the 
affordable housing category. As part of this, the agencies have decided 
to retain in the final rule separate prongs for government-related 
programs, including subsidized affordable housing, and naturally 
occurring affordable housing. Under this approach, the agencies can 
better tailor the standards for each affordable housing prong. 
Moreover, for information and discussion regarding the agencies' 
consideration of comments recommending adoption of additional race- and 
ethnicity-related provisions in this final rule, see section III.C of 
this SUPPLEMENTARY INFORMATION.
Section __.13(b)(1) Rental Housing in Conjunction With a Government 
Affordable Housing Plan, Program, Initiative, Tax Credit, or Subsidy
The Agencies' Proposal
    In proposed Sec.  __.13(b)(1), the agencies proposed that a rental 
housing unit be considered affordable housing if it is purchased, 
developed, financed, rehabilitated, improved, or preserved in 
conjunction with a Federal, State, local, or tribal government 
affordable housing plan, program, initiative, tax credit, or subsidy 
with a stated purpose or the bona fide intent of providing affordable 
housing for low- or moderate-income individuals. The agencies intended 
this proposed provision to cover a broad range of government-related 
affordable multifamily and single-family rental housing activities for 
low- or moderate-income individuals, including low-income housing tax 
credits.
    To qualify under this component of the affordable housing category, 
a government-related affordable housing plan, program, initiative, tax 
credit, or subsidy would have needed ``a stated purpose or bona fide 
intent of supporting affordable rental housing for low- or moderate-
income individuals.'' \297\ The agencies did not propose a separate 
affordability standard for this prong and would rely upon the 
affordability standards set in each respective government affordable 
housing plan or program.
---------------------------------------------------------------------------

    \297\ Proposed Sec.  __.13(b)(1).
---------------------------------------------------------------------------

    The agencies sought feedback on whether additional requirements 
should be included to ensure that activities qualifying under this 
category of community development support housing that is both 
affordable to and occupied by low- or moderate-income individuals. In 
this regard, the agencies sought feedback on whether to include in this 
component a specific rent affordability standard based on 30 percent of 
80 percent of area median income, or a requirement that programs must 
verify that occupants of affordable units are low- or moderate-income 
individuals or families. The agencies also sought feedback on whether 
activities involving government-sponsored programs that have a stated 
purpose or bona fide intent to provide affordable housing that serves 
middle-income individuals, in addition to low- or moderate-income 
individuals, should qualify under this prong in certain circumstances. 
For example, the agencies sought feedback on government-sponsored 
programs that support housing affordable to middle-income individuals 
if the housing is located in nonmetropolitan counties or in high 
opportunity areas.\298\
---------------------------------------------------------------------------

    \298\ See proposed Sec.  __.12.
---------------------------------------------------------------------------

Comments Received
    Many commenters offered general views on the proposed standards of 
the first component of the affordable housing category. Some commenters 
believed the proposed component was overly broad, expressing concerns: 
that government programs and tax credits do not always benefit low-
income individuals and people of color and, therefore, the agencies 
should reconsider the presumption that any government plan benefits 
local communities; that the agencies should address the over-
concentration and racial and ethnic segregation of low-income housing 
tax credit projects in minority communities by imposing additional 
requirements for low-income housing tax credit investments to be 
eligible for community development consideration; that it is not clear 
how a plan can require and enforce affordable housing; and that the 
component should be removed entirely, asserting that it is overly 
restrictive and could hinder bank investments.
    Several commenters asked the agencies to broaden the proposed 
government-related rental housing standard by permitting activities 
that are ``consistent with'' or ``in alignment with'' government 
program guidelines, so that such guidelines could be considered but not 
required. Other commenter feedback included: support for an automatic 
presumption that activities with State or Federal low-income housing 
tax credits or other affordable housing tax credits or incentives 
qualify for community development consideration; and requests that the 
agencies recognize activities undertaken in conjunction with additional 
program sponsors such as community-focused entities with a stated 
mission and record of providing affordable housing and Tribally 
Designated Housing Entities (TDHEs).

[[Page 6640]]

    Stated purpose or bona fide intent of providing affordable housing 
for low- or moderate-income individuals. Some commenters supported the 
agencies' proposal to require that government plans, programs, 
initiatives, tax credits, or subsidies must have a ``stated purpose or 
bona fide intent'' of providing affordable housing for low- or 
moderate-income individuals in order for associated bank activities to 
receive community development consideration. In this regard, a 
commenter noted that the proposal allows State and local governments to 
tailor their affordable housing programs to meet the specific needs of 
their constituents.
    Other commenters expressed a variety of concerns about the ``stated 
purpose or bona fide intent'' standard, including: that the standard 
would not adequately target activities that benefit low- or moderate-
income households; and that government programs should not need to have 
a stated purpose or bona fide intent of providing affordable housing to 
low- or moderate-income individuals.
    Affordability standard. Some commenters supported the agencies' 
proposal to not include an affordability standard in proposed Sec.  
__.13(b)(1) and recommended that the agencies refrain from establishing 
any affordability standards for this component.
    However, the majority of commenters that addressed this component 
of the proposal supported establishing an affordability standard that 
would be based on 30 percent of 80 percent of area median income for 
rents. This affordability standard would be separate from the 
affordability standard proposed for naturally occurring affordable 
housing (which is addressed in the section-by-section analysis of final 
Sec.  __.13(b)(2)). Commenter feedback also included suggestions that 
the agencies: establish a lower affordability threshold in order to 
serve a lower income population; utilize hybrid approaches whereby the 
agencies adopt an area median income-based threshold for all units and 
require that a portion of the units serve lower income populations, 
such as very low-income individuals; and use the HUD Fair Market Rents 
standard to establish affordability standards.
    Verification of low- or moderate-income status. Commenters 
expressed differing views about the use of verification measures to 
ensure the low- and moderate-income status of renter occupants of 
housing units. Some commenters supported the inclusion of verification 
measures in the government-related rental housing component of the 
final rule to ensure that low- and moderate-income individuals occupy a 
majority of the affordable units in government-related housing. For 
example, several commenters suggested that a majority standard was not 
enough, and that 100 percent of the units should be occupied by low- or 
moderate-income individuals in order to qualify under Sec.  
__.13(b)(1). A different commenter supported verifying the income of 
occupants in circumstances where funding did not occur under government 
housing programs with income guidelines. However, several other 
commenters stated that additional verification of occupant income would 
be unnecessary, given that it is reasonable to assume government 
programs would collect and verify this information.
    Expanding the proposal to cover certain affordable housing to 
middle-income individuals. Many commenters expressed views regarding 
whether the agencies should expand CRA consideration in the affordable 
housing category to include activities in conjunction with government-
related rental housing in certain geographic areas that is affordable 
to middle-income individuals. Some commenters opposed such an 
expansion, indicating that CRA resources should be targeted to low- or 
moderate-income families, not middle-income families. For example, a 
few commenters opposed providing consideration for middle-income 
housing, noting that the low- or moderate-income housing needs in high 
opportunity areas are immense and raised a concern that giving 
consideration for middle-income housing in such areas would dilute the 
incentive to meet those needs.\299\ Some commenters expressed concern 
that consideration in the affordable housing category for lending that 
benefits middle- or high-income households would result in banks 
receiving CRA consideration for financing developments that could price 
low- and moderate-income families out of their current communities.
---------------------------------------------------------------------------

    \299\ The term ``high opportunity area'' has not been uniformly 
defined within the housing industry. The agencies proposed to define 
a ``high opportunity area'' as (1) An area designated by HUD as a 
``Difficult Development Area''; or (2) An area designated by a State 
or local Qualified Allocation Plan as a High Opportunity Area, and 
where the poverty rate falls below 10 percent (for metropolitan 
areas) or 15 percent (for nonmetropolitan areas).
---------------------------------------------------------------------------

    Among the commenters that supported expanding CRA consideration to 
government-related rental housing activities that provide affordable 
housing to middle-income individuals, most qualified their 
recommendation by stating that such activities should be limited to 
high opportunity areas, rural and nonmetropolitan counties, high-cost 
markets, or a combination thereof. Citing the need for rental housing 
affordable to middle-income individuals in high opportunity areas and 
nonmetropolitan areas, one commenter urged the agencies to further 
explore and consider providing CRA consideration for affordable housing 
that serves individuals and families with a range of incomes. Another 
commenter suggested that government programs serving middle-income--as 
well as low- and moderate-income--individuals in rural and 
nonmetropolitan areas should be included. A different commenter 
suggested that CRA consideration may be appropriate in nonmetropolitan 
and rural areas where median income measurements can distort market 
characteristics in a way that is unique to rural areas, and that 
partial credit could be considered for housing benefiting middle-income 
people if the housing is developed or maintained by a CBDO with a 
history of serving the needs of low- and moderate-income people and 
places.
    Some commenters urged consideration for housing where the cost of 
rent is up to HUD's Fair Market Rents standard in the relatively few, 
particularly unaffordable markets where Fair Market Rents exceeds the 
affordability standard of 30 percent of 80 percent of area median 
income. One commenter suggested that housing for middle-income 
individuals should be considered where there is a documented need by 
the local government or housing agencies due to the high cost of 
housing in the area compared to local wages. Another commenter 
suggested that activities in middle-income census tracts and low- to 
moderate-income adjacent tracts should be considered. Other commenters 
recommended that the agencies use a high-cost areas standard rather 
than a high opportunity areas criterion.
Final Rule
    The agencies are adopting final Sec.  __.13(b)(1) with some 
substantive and technical revisions. Under final Sec.  __.13(b)(1), 
rental housing for low- or moderate-income individuals that is 
purchased, developed, financed, rehabilitated, improved, or preserved 
in conjunction with a Federal, State, local, or tribal government 
affordable housing plan, program, initiative, tax credit, or subsidy 
will receive consideration under the affordable housing category. This 
component is intended to enable consideration of the full range of 
government-related affordable rental

[[Page 6641]]

housing activities for low- and moderate-income individuals, including 
programs, plans, initiatives, tax credits, and subsidies pertaining to 
both multifamily and single-family properties. The examples in the 
following discussion demonstrate how this affordable housing component 
is designed to add greater clarity concerning the many types of 
government-related rental housing activities that qualify for 
consideration.
    The final rule retains the requirement set out in the NPR that an 
activity be conducted ``in conjunction with'' a government plan, 
program, initiative, tax credit, or subsidy to ensure that there is a 
direct link between activities that are given consideration under this 
affordable housing prong and government-sponsored programs or 
initiatives. While the agencies have not adjusted the ``in conjunction 
with'' language in the final rule to expand the proposed standard as 
requested by some commenters, the agencies believe that the range of 
covered activities is broad. For example, consistent with the agencies' 
proposal, qualification under this component of the final rule includes 
activities with rental properties receiving low-income housing tax 
credits or subsidized by government programs that provide affordable 
rental housing for low- or moderate-income individuals, such as 
project-based section 8 rental assistance and the HOME Investment 
Partnerships Program. In addition, this component includes Federal, 
State, local, and tribal government affordable housing plans, programs, 
initiatives, tax credits, or subsidies that support affordable housing 
for low- or moderate-income individuals. Examples include affordable 
multifamily housing programs offered by State housing finance agencies 
and affordable housing trust funds managed by a local government to 
support the development of affordable housing for low- or moderate-
income individuals. Qualification under this component also includes 
affordable rental units for low- or moderate-income individuals created 
as a result of local government inclusionary zoning programs, which 
often provide requirements or incentives for developers to set aside a 
portion of housing units within a property for occupancy by low- or 
moderate-income individuals.
    Stated purpose or bona fide intent of providing affordable housing 
for low- or moderate-income individuals. As also discussed in the 
section-by-section analysis of final Sec.  __.13(a), the final rule 
removes the specific requirement within proposed Sec.  __.13(b)(1) that 
a government plan, program, initiative, tax credit, or subsidy must 
have a ``stated purpose or bona fide intent of providing affordable 
housing for low- or moderate-income individuals.'' The agencies are 
making this change in part to avoid potential confusion regarding how 
the activities eligible for consideration under this component differ 
from activities that qualify for consideration under the bona fide 
intent standard in final Sec.  __.13(a)(1)(ii). Additionally, the 
agencies have considered commenter feedback that there are government 
plans, programs, initiatives, tax credits, and subsidies that provide 
access to rental housing for low- and moderate-income individuals but 
that do not have a stated mission of providing affordable housing for 
low- and moderate-income individuals. Removal of this specific 
requirement is intended to affirm that activities conducted in 
conjunction with such government plans, programs, initiatives, tax 
credits, or subsidies nonetheless may be considered under this 
component of the affordable housing category. Regarding commenter 
suggestions that certain government programs, including a low-income 
housing tax credit program, may not benefit, or may negatively affect, 
low-income or minority communities, the agencies believe that it is 
appropriate to recognize and defer to the expertise and priorities of 
Federal, State, and local government entities responsible for the 
design and implementation of affordable housing programs, plans, 
initiatives, tax credits, and subsidies. For more information and 
discussion regarding the agencies' consideration of comments 
recommending adoption of race- and ethnicity-related provisions in this 
final rule, see section III.C of this SUPPLEMENTARY INFORMATION.
    Affordability standard. While the NPR sought feedback on whether to 
include an affordability standard for activities under Sec.  
__.13(b)(1), the final rule implements the proposed approach without 
applying a uniform affordability standard. Instead, the final rule 
accommodates the various affordability standards across government 
affordable housing plans, programs, and initiatives. Consistent with 
concerns expressed by many commenters, the agencies are of the view 
that assessing affordability using the standards set in the applicable 
government program helps to ensure that the affordability determination 
reflects local needs and priorities that accommodate unique economic 
conditions, particularly in high-cost and rural areas. In addition, the 
agencies believe that adopting a uniform affordability standard in this 
context could create undue complexity by requiring additional 
evaluation to determine whether some loans, investments, or services 
supporting rental housing in connection with government programs could 
receive consideration under other components of the affordable housing 
category. Accordingly, under final Sec.  __.13(b)(1), any loan, 
investment, or service supporting rental housing in conjunction with a 
government program will be eligible for consideration. The agencies 
note that in determining the amount of credit the bank will receive 
under final Sec.  __.13(a), the agencies will defer to the government 
program's affordability standard. To illustrate, if a government 
program defines affordability as rent that does not exceed 40 percent 
of a low- or moderate-income renter's income, the agencies would 
consider the percentage of units with rents that do not exceed 40 
percent of a low- or moderate-income renter's income to determine under 
final Sec.  __.13(a) whether the project meets the majority standard. 
For more information on the majority standard and partial credit under 
CRA, see the section-by-section analysis of Sec.  __.13(a).
    Verification of low- or moderate-income status. As with the 
proposal, the final rule does not require, for activities under final 
Sec.  __.13(b)(1), verification that a majority of occupants of 
affordable units are low- or moderate-income individuals. The agencies 
considered feedback on this issue and note that community development 
consideration will be based on the pro rata share of affordable units 
pursuant to final Sec.  __.13(a) unless a majority of the units are 
affordable to low- or moderate-income individuals. See the section-by-
section analysis of Sec.  __.13(a). Ultimately, the agencies will be 
able to determine eligibility under final Sec.  __.13(b)(1) by 
leveraging information demonstrating that the housing is in conjunction 
with a government plan, program, initiative, tax credit, or subsidy, 
and the rent amounts being charged to renters.
    Housing affordable to middle-income individuals. As previously 
stated, the agencies sought feedback on whether activities involving 
government programs that have a stated purpose or bona fide intent to 
provide affordable housing serving low-, moderate-, and middle-income 
individuals should qualify for affordable housing consideration in 
certain circumstances, such as when these activities are located in 
high opportunity areas or nonmetropolitan geographic areas.

[[Page 6642]]

While the agencies recognize that there are government programs that 
target affordable housing for middle-income individuals, the agencies 
have decided not to adopt a provision that would extend Sec.  
__.13(b)(1) to include housing affordable solely to middle-income 
individuals in certain geographic areas. Consistent with the proposal, 
and as discussed further in the section-by-section analysis of final 
Sec.  __.13(a)(2), bank support for projects and programs that include 
housing that is affordable to low-, moderate-, and middle-income 
individuals would be eligible for pro rata consideration based on the 
portion of the project affordable to low- and moderate-income 
individuals.
    The agencies acknowledge feedback from some commenters raising 
concerns about the limited supply of affordable housing in high 
opportunity areas and nonmetropolitan areas and expressing the view 
that consideration of support for housing affordable to middle-income 
individuals could provide additional flexibility for banks to identify 
opportunities to address community needs. However, the agencies are 
persuaded by commenter concerns that broadening this category could 
reduce the emphasis on activities that directly contribute to housing 
for low- and moderate-income individuals, for whom housing options in 
high opportunity areas and nonmetropolitan areas are equally important 
and may be more difficult to attain.
    Under current CRA interagency guidance, examiners have flexibility 
to consider a bank's lending and investments in high-cost areas, 
including those activities that address the housing needs of middle-
income individuals in addition to low- or moderate-income 
individuals.\300\ In developing the final rule, the agencies considered 
whether this flexibility should be incorporated into the evaluation of 
multifamily rental housing activities in conjunction with a government 
plan, but decided to retain the proposed rule's focus on housing units 
that are affordable to low- and moderate-income individuals. The 
agencies considered that additional regulatory provisions would be 
needed to designate high-cost markets and to ensure that low- and 
moderate-income individuals are also likely to benefit from the housing 
(generally consistent with standards for affordable housing in high-
cost market under current guidance) \301\ and found these requirements 
would add undue complexity to the final rule while also adding 
significant uncertainty in terms of how this would impact affordable 
housing opportunities for low- and moderate-income individuals. 
Relatedly, the agencies considered that the structure of the Community 
Development Financing Metric would not distinguish between housing 
affordable to low- and moderate-income individuals, as opposed to 
middle-income households in high-cost markets, and have considered 
concerns that including all of these activities in the metric could 
impact the degree to which activities focus on housing affordable to 
low- and moderate-income individuals who likely also face acute housing 
needs in such high-cost areas. The agencies further considered the role 
of the impact and responsiveness review and whether it could address 
such complexities; however, the agencies determined that such an 
approach would be uncertain and that the more appropriate approach, on 
balance, was to focus this component on housing affordable to low- and 
moderate-income households. The agencies note that government 
affordable housing programs may benefit low-, moderate-, and middle-
income individuals, even in high-cost markets. Accordingly, for an 
activity to receive full consideration under the final rule, the 
majority of the housing units must be affordable to low- or moderate-
income individuals. If the housing units that are affordable to low- 
and moderate-income individuals represent less than a majority of the 
housing units, then the activity will receive pro rata consideration 
under the final rule.
---------------------------------------------------------------------------

    \300\ See Q&A Sec.  __.12(g)-3.
    \301\ See id. (noting, for example, that with respect to loans 
or investments addressing a middle-income credit shortage due to 
housing costs, the agencies consider ``whether an institution's loan 
to or investment in an organization that funds affordable housing 
for middle-income people or areas, as well as low- and moderate-
income people or areas, has as its primary purpose community 
development''). See also Q&A Sec.  __.12(g)(1)-1 (``The concept of 
`affordable housing' for low- or moderate-income individuals does 
hinge on whether low- or moderate-income individuals benefit, or are 
likely to benefit, from the housing. It would be inappropriate to 
give consideration to a project that exclusively or predominately 
houses families that are not low- or moderate income simply because 
the rents or housing prices are set according to a particular 
formula.'')
---------------------------------------------------------------------------

    For nonmetropolitan areas, the agencies considered--as expressed by 
some commenters--that these geographies may have limited opportunities 
for affordable housing. However, the agencies have determined that, as 
in other geographies, the best approach in nonmetropolitan areas is to 
focus on units affordable to low- or moderate-income individuals under 
this component of affordable housing. As discussed above, under the 
alternative approach of allowing housing affordable to middle-income 
individuals in nonmetropolitan areas, bank activities for affordable 
housing could consist of activities solely or mostly focused on housing 
affordable to middle-income individuals, with an eliminated or reduced 
focus on housing affordable to low- or moderate-income individuals in 
these communities. Accordingly, under the final rule, activities in 
conjunction with government programs in nonmetropolitan areas that may 
include middle-income renters such as the USDA Section 515 Rural Rental 
Housing or Multifamily Guaranteed Rural Rental Housing programs could 
be eligible for consideration to the extent such activities create 
units affordable to low- and moderate-income individuals. In addition, 
the agencies note the addition of a component focused on affordable 
single-family rental housing in nonmetropolitan census areas, as 
discussed further in the section-by-section analysis of Sec.  
__.13(b)(3).
    While the agencies have declined to expand consideration of rental 
housing activities in conjunction with a government affordable housing 
plan, program, initiative, tax credit, or subsidy that targets middle-
income individuals, the agencies believe that including an impact and 
responsiveness factor that supports affordable housing in High 
Opportunity Areas in final Sec.  __.15(b)(7) will support encouragement 
of affordable housing in geographic areas where the cost of residential 
development is high and affordable housing opportunities can be 
limited. Additional impact and responsiveness factors, such as the 
geographic impact and responsiveness factors discussed in the section-
by-section analysis of Sec.  __.15(b)(1) through (3), may also help 
encourage more affordable housing in nonmetropolitan areas. These and 
other impact and responsiveness factors are discussed further in the 
section-by-section analysis of final Sec.  __.15.
Section __.13(b)(2) Multifamily Rental Housing With Affordable Rents
The Agencies' Proposal
    Proposed Sec.  __.13(b)(2) provided criteria to define affordable 
low- or moderate-income multifamily rental housing that does not 
involve a government program, initiative, tax credit, or subsidy (also 
referred to as naturally occurring affordable housing in this 
SUPPLEMENTARY INFORMATION). With the proposed criteria in Sec.  
__.13(b)(2), the agencies sought to provide clear and consistent 
standards

[[Page 6643]]

to identify naturally occurring affordable housing that may receive 
affordable housing consideration under the CRA. First, under this 
component, the agencies proposed that the rent for the majority of the 
units in a multifamily property could not exceed 30 percent of 60 
percent of the area median income for the metropolitan area or 
nonmetropolitan county. Second, the agencies proposed that naturally 
occurring affordable housing would also be required to satisfy one or 
more of the following additional eligibility criteria in order to 
increase the likelihood that units benefit low- or moderate-income 
individuals: (1) the housing is located in a low- or moderate-income 
census tract; (2) the housing is purchased, developed, financed, 
rehabilitated, improved, or preserved by a nonprofit organization with 
a stated mission of, or that otherwise directly supports, providing 
affordable housing; (3) there is an explicit written pledge by the 
property owner to maintain rents affordable to low- or moderate-income 
individuals for at least five years or the length of the financing, 
whichever is shorter; or (4) the bank provides documentation that a 
majority of the residents of the housing units are low- or moderate-
income individuals or families.
Comments Received
    Overall, commenters supported the inclusion of naturally occurring 
affordable housing in the affordable housing category. Many commenters 
generally expressed the view that naturally occurring affordable 
housing is an important part of the affordable housing ecosystem and 
serves many low- or moderate-income individuals.
    Several commenters supported the inclusion of naturally occurring 
affordable housing-related activity but expressed concerns that the 
proposal as written would be either too restrictive or too lenient to 
provide assurance that the activity would actually support affordable 
housing for low- or moderate-income individuals. One commenter that 
opposed the inclusion of naturally occurring affordable housing in the 
affordable housing category asserted that doing so would divert CRA-
eligible capital from traditional income-restricted, subsidized 
affordable housing that provides permanently affordable apartments to 
low- or moderate-income families, while another expressed concern that 
the proposal would not provide sufficient protection to residents in 
gentrifying areas and suggested additional affordability restrictions. 
Commenters who were concerned with the requirements being too 
restrictive expressed, for example, that the proposed standards would 
not account for any of the naturally occurring affordable housing in 
their local markets.
Final Rule
    The agencies are adopting in final Sec.  __.13(b)(2) a component 
for naturally occurring affordable housing with some substantive 
revisions. Specifically, as described in detail in the section-by-
section analyses that follow, the final rule recognizes that 
multifamily rental housing purchased, developed, financed, 
rehabilitated, improved, or preserved can be considered under final 
Sec.  __.13(b)(2) if for the majority of units, the monthly rent as 
underwritten by the bank, reflecting post-construction or post-
renovation changes, does not exceed 30 percent of 80 percent of the 
area median income and if the housing also meets one or more of the 
criteria in final Sec.  __.13(b)(2)(ii). The agencies believe that 
naturally occurring affordable housing provides a meaningful 
contribution to the stock of available affordable housing and believe 
that the criteria discussed in more detail below will help to address 
commenter concerns that including consideration for such housing will 
divert resources from other types of affordable housing projects.
    As noted previously, some commenters urged the agencies to 
implement a single category for all affordable rental housing, 
including housing that is developed in conjunction with a government 
affordable housing plan, program, initiative, tax credit, or subsidy 
and naturally occurring affordable housing. Upon consideration of 
commenter feedback, the agencies have determined to retain a separate 
component in the final rule for multifamily rental housing that has 
rents affordable to low- and moderate-income individuals. Naturally 
occurring affordable housing is not already subject to the requirements 
of a government plan, program, initiative, tax credit, or subsidy, and 
the agencies believe that by including adequate affordability criteria 
and the additional criteria in Sec.  __.13(b)(2)(ii), the final rule 
will help to ensure that activities qualifying under this prong will 
meaningfully benefit low- and moderate-income individuals.
Section __.13(b)(2)(i) Affordability Standard for Multifamily Rental 
Housing With Affordable Rents
The Agencies' Proposal
    The agencies proposed an affordability standard to determine if 
multifamily rental housing had affordable rents and therefore would be 
considered naturally occurring affordable housing. The agencies 
proposed that rents would be considered affordable if the rent for the 
majority of the units in a multifamily property did not exceed 30 
percent of 60 percent of the area median income for the metropolitan 
area or nonmetropolitan county.\302\ This proposed standard would have 
established narrower affordability criteria than what is often used 
today to determine whether rents are affordable for low- or moderate-
income individuals, which is 30 percent of 80 percent of the area 
median income.
---------------------------------------------------------------------------

    \302\ See proposed Sec.  __.13(b)(2).
---------------------------------------------------------------------------

    Under the agencies' proposal, the rent amount used to determine 
whether the affordability standard is met would be the monthly rental 
amounts as underwritten by the bank, reflecting any post-construction 
or post-renovation rents considered as part of the bank's underwriting 
for financing.\303\ The agencies' objective in including this provision 
was to target community development consideration to properties that 
are likely to remain affordable and to minimize the likelihood of 
providing consideration for activities that may result in displacement 
of low- or moderate-income individuals. The agencies intended to 
reinforce these objectives by requiring that a majority of the units 
meet the affordability standard. The agencies sought feedback on 
whether there were alternative ways to ensure that CRA consideration 
for support of naturally occurring affordable housing is targeted to 
properties where rents remain affordable for low- or moderate-income 
individuals.
---------------------------------------------------------------------------

    \303\ See id.
---------------------------------------------------------------------------

Comments Received
    Many commenters addressed the affordability threshold for naturally 
occurring affordable housing under proposed Sec.  __.13(b)(2). The 
majority of commenters on the issue opposed the proposed affordability 
threshold of 30 percent of 60 percent of area median income and 
supported raising the affordability threshold to 30 percent of 80 
percent of area median income. Commenters cited several reasons for 
adopting a higher affordability standard,

[[Page 6644]]

including that doing so would align with other affordable housing 
programs and would better account for affordable housing needed to 
address housing shortages and provide workforce housing. Some 
commenters expressed concern that a 30 percent of 60 percent of area 
median income affordability standard could have a negative impact on 
the availability of debt financing for affordable rental housing. Other 
commenters supported the proposed 30 percent of 60 percent of area 
median income affordability threshold, citing that it would preserve 
resources for low- or moderate-income renters who are most in need of 
housing support. Other commenters suggested that the affordability 
standard should be closer to 30 percent of 30 to 50 percent of area 
median income in high-cost areas. In contrast, some commenters asserted 
that the affordability threshold should be higher and more flexible in 
high-cost markets. Lastly, a few commenters recommended that the 
agencies adopt the HUD Fair Market Rents standard to determine rental 
affordability for naturally occurring affordable housing.\304\
---------------------------------------------------------------------------

    \304\ See HUD, Office of Policy Research and Development, ``Fair 
Market Rents,'' https://www.hud.gov/program_offices/public_indian_housing/programs/hcv/landlord/fmr.
---------------------------------------------------------------------------

    Several commenters expressed support for the proposal that monthly 
rents, for the purposes of determining affordability, be determined as 
underwritten by the bank, reflecting post-construction or post-
renovation changes, as applicable. However, these same commenters noted 
that, to ensure continuing affordability, consideration for prior-year 
financings should be conditioned on periodic documentation that the 
units remain affordable. For example, one commenter suggested that 
examiners should evaluate rent rolls annually to confirm ongoing 
affordability of properties financed in prior years and examination 
cycles.
    The agencies received comments supporting the requirement that a 
majority of units in a naturally occurring affordable housing property 
must meet the affordability standard. One commenter suggested that the 
agencies consider a higher standard for the percent of units that must 
meet the affordability criteria to ensure long term affordability of 
most units. Another commenter expressed concerns that the proposed 
requirement does not adequately incentivize mixed income and 
inclusionary housing. Rather, the commenter suggested the final rule 
should provide pro rata credit based on the percentage of affordable 
units among market rate units in a property.
Final Rule
    Final Sec.  __.13(b)(2)(i) is revised from the proposal and adopts 
an affordability standard stating that naturally occurring affordable 
housing purchased, developed, financed, rehabilitated, improved, or 
preserved will be considered affordable housing under final Sec.  
__.13(b) if, for the majority of the units, the monthly rent as 
underwritten by the bank, reflecting post-construction or post-
renovation changes as applicable does not exceed 30 percent of 80 
percent of the area median income. The affordability standard adopted 
in the final rule does not include the proposed 30 percent of 60 
percent of the area median income affordability standard, which the 
agencies proposed in recognition that, historically, a substantial 
percentage of occupied rental units with affordability between 61 and 
80 percent of area median income were occupied by middle- or upper-
income households.\305\ However, the agencies have determined that the 
proposed affordability standard would have restricted eligibility for 
properties with affordability levels at 80 percent of area median 
income even in cases where many of the units are occupied by low- or 
moderate-income households. Additionally, the agencies are sensitive to 
the concerns expressed by some commenters that the proposed 
affordability standard could have had a negative impact on the 
availability of debt financing for this type of affordable housing. The 
overwhelming majority of commenters favored the adoption of a more 
flexible affordability standard than the proposal, with most commenters 
supporting the use of the 30 percent of 80 percent of area median 
income affordability standard adopted in final Sec.  __.13(b)(2)(i).
---------------------------------------------------------------------------

    \305\ See 87 FR 33884, 33895 (June 3, 2022).
---------------------------------------------------------------------------

    The final rule retains the agencies' proposal to use the monthly 
rental amounts as underwritten by the bank to determine whether the 
rental housing meets the affordability standard. The prong further 
specifies that rent amounts should reflect any post-construction or 
post-renovation changes considered as part of the bank's underwriting 
for providing financing. The agencies' objective in including this 
provision is to target community development consideration to 
properties that are likely to remain affordable and to avoid providing 
consideration for activities that may result in displacement of low- or 
moderate-income individuals.
    Though some commenters suggested that the agencies require 
documentation (such as rent rolls or an annual review of rents) to 
confirm ongoing affordability, the agencies are not adopting an annual 
verification process as part of the final rule. In this context, the 
agencies view evaluation of the loan underwriting, which contains a 
forward-looking assessment of projected rent amounts and rental income, 
along with the requirement to meet one of the four additional criteria, 
described below, as sufficient to promote the agencies' objective of 
ensuring that a bank intends to finance properties where rent remains 
affordable to low- or moderate-income individuals.
    Final Sec.  __.13(b)(2)(i) requires the majority of units in 
naturally occurring affordable housing to meet the affordability 
standard. The prong does not award pro rata consideration for 
activities related to properties in which fewer than 50 percent of 
housing units are affordable. The agencies believe that this 
requirement will help to ensure activities that qualify under this 
prong support housing that is both affordable and likely to be occupied 
by low- and moderate-income individuals. As discussed further in the 
section-by-section analysis of final Sec.  __.13(a) above, this 
majority standard in Sec.  __.13(b)(2) is consistent with similar 
majority criteria for other categories of community development in 
Sec.  __.13(a), which are intended to emphasize activities that are 
responsive to community needs, especially the needs of low- and 
moderate-income individuals and communities.
Section __.13(b)(2)(ii) Additional Eligibility Standards for 
Multifamily Rental Housing With Affordable Rents
The Agencies' Proposal
    The agencies proposed that one of four additional criteria would 
have to be met for multifamily housing to qualify as naturally 
occurring affordable housing under proposed Sec.  __.13(b)(2).\306\ 
These criteria were intended to increase the likelihood that 
multifamily housing under this component of affordable housing would 
benefit low- or moderate-income individuals and that the rents would 
likely remain affordable for low- or moderate-income individuals. 
Specifically, in addition to the requirement that rents for a majority 
of the units meet the affordability standard, multifamily housing would 
have to meet at least one of the following criteria:
---------------------------------------------------------------------------

    \306\ See proposed Sec.  __.13(b)(2)(i) through (iv).

---------------------------------------------------------------------------

[[Page 6645]]

    (1) The housing is located in a low- or moderate-income census 
tract;
    (2) The housing is purchased, developed, financed, rehabilitated, 
improved, or preserved by any nonprofit organization with a stated 
mission of, or that otherwise directly supports, affordable housing;
    (3) The property owner has made an explicit written pledge to 
maintain affordable rents for low- or moderate-income individuals for 
at least five years or the length of the financing, whichever is 
shorter; or
    (4) The bank provides documentation that the majority of the 
housing units are occupied by low- or moderate-income individuals or 
families.\307\
---------------------------------------------------------------------------

    \307\ Proposed Sec.  __.13(b)(2)(i) through (iv).
---------------------------------------------------------------------------

Comments Received
    The agencies received a number of comments on this aspect of the 
proposal, with some commenters objecting generally to the proposed 
additional criteria, suggesting that naturally occurring affordable 
housing should be simplified into a single requirement that the housing 
meet an affordability standard. Comments specific to each of the 
additional eligibility criteria are discussed in the respective 
section-by-section analyses for those sections.
Final Rule
    The agencies are adopting proposed Sec.  __.13(b)(2)(i) through 
(iv) in a revised and reorganized final Sec.  __.13(b)(2)(ii), which 
requires naturally occurring affordable housing to meet one or more 
eligibility criteria in addition to the affordability standard in Sec.  
__.13(b)(2)(i). Specifically, the final rule requires that a project 
meet at least one of the following eligibility criteria: (1) the 
housing is located in a low- or moderate-income census tract; (2) the 
housing is located in a census tract in which the median income of 
renters is low- or moderate-income and the median rent does not exceed 
30 percent of 80 percent of the area median income; (3) the housing is 
purchased, developed, financed, rehabilitated, improved, or preserved 
by any nonprofit organization with a stated mission of, or that 
otherwise directly supports, providing affordable housing; or (4) the 
bank provides documentation that a majority of the housing units are 
occupied by low- or moderate-income individuals or families.
    The agencies have adopted several changes to the proposed 
eligibility criteria based on commenter feedback, as described below. 
The agencies believe that the eligibility criteria adopted in the final 
rule will ensure that naturally occurring affordable housing is likely 
to benefit low- or moderate-income individuals and increase the 
likelihood that rents will remain affordable for low- or moderate-
income individuals. By offering multiple criteria to demonstrate that 
rental housing with affordable rents is likely to benefit low- and 
moderate-income individuals, the agencies sought to provide flexibility 
and balance the objectives of encouraging banks to support naturally 
occurring affordable housing with ensuring that this housing is likely 
to benefit low- and moderate-income individuals.
Section __.13(b)(2)(ii)(A) and (B) Low- or Moderate-Income Census 
Tracts and Low- and Moderate-Renter Median Income Census Tracts
The Agencies' Proposal
    The first proposed additional criterion was that the location of 
the multifamily housing be in a low- or moderate-income census 
tract.\308\ This criterion was based in part on the agencies' 
recognition that verifying tenant income might be infeasible for many 
property owners or developers, whereas median census tract income is 
readily available. This criterion is also consistent with current 
guidance providing that examiners may consider economic and related 
factors associated with a particular geographic area to determine 
whether the housing is likely to benefit low- or moderate-income 
individuals.\309\
---------------------------------------------------------------------------

    \308\ See proposed Sec.  __.13(b)(2)(i).
    \309\ See Q&A Sec.  __.12(g)(1)-1.
---------------------------------------------------------------------------

    The agencies also sought feedback on whether to include a 
geographic criterion to encompass middle- and upper-income census 
tracts in which at least 50 percent of renters are low- or moderate-
income. The agencies considered that affordable rental housing in a 
neighborhood in which the majority of renters are low- or moderate-
income would also be likely to benefit low- or moderate-income 
individuals. Incorporating this standard into the CRA regulation could 
result in multifamily housing in certain middle- and upper-income 
census tracts qualifying as naturally occurring affordable housing 
under proposed Sec.  __.13(b)(2).
    Further, the agencies sought feedback on not including a geographic 
criterion. Under this option, to qualify under this component of 
affordable housing, the multifamily housing would have had to meet one 
of the other criteria in addition to the proposed affordability 
standard of rents not exceeding 30 percent of 60 percent of the area 
median income.
Comments Received
    The agencies received some comments that supported requiring all 
naturally occurring affordable housing to be located in a low- or 
moderate-income census tract. Alternatively, some commenters urged the 
agencies to eliminate this criterion, with viewpoints including: that 
multifamily loans should be evaluated on the affordability of the 
housing and not simply the location of the housing; that this criterion 
could present a risk of providing consideration for units that are not 
serving low- or moderate-income residents soon after the financing 
occurs; and that this criterion could incentivize concentrating 
affordable housing in low- or moderate-income areas.
    Some commenters addressed the agencies' request for comment on 
whether to expand this proposed geographic criterion. Of these, several 
commenters indicated a preference to prioritize other criteria (e.g., 
affordability and low- or moderate-income occupancy) over the location 
of a property. However, other commenters supported qualifying naturally 
occurring affordable housing specifically in census tracts in which the 
majority of renters were low- or moderate-income. One commenter 
supported expansion of the geographic criteria into census tracts in 
which the majority of renters were low- or moderate-income if the 
agencies also increased the required percentage of units in naturally 
occurring affordable housing properties from the proposed 50 percent to 
60 or 67 percent. Some commenters supported qualifying naturally 
occurring affordable housing in other geographic areas, including 
distressed and underserved census tracts, and others supported 
expansion of the geographic criteria to nonmetropolitan and rural 
census tracts.
Final Rule
    In final Sec.  __.13(b)(2)(ii)(A), the agencies are adopting the 
proposed geographic criterion (see proposed Sec.  __.13(b)(2)(i)), that 
the housing be located in a low- or moderate-income census tract, as 
one of the ways of demonstrating that naturally occurring affordable 
housing is likely to benefit low- and moderate-income individuals. This 
approach is consistent with existing guidance, under which examiners 
may review factors such as demographic, economic, and market data in 
surrounding geographies to determine the likelihood that housing will 
``primarily'' accommodate low- or moderate-income individuals. For 
example, examiners look at median

[[Page 6646]]

rents of the assessment area and the project; the median home value of 
either the assessment area, and the project; the median home value of 
either the assessment area, low- or moderate-income geographies, or the 
project; the low- or moderate-income population in the area of the 
project; or the past performance record of the organization(s) 
undertaking the project.\310\ In addition, retaining the geographic 
criterion provides a streamlined option for determining whether housing 
qualifies as naturally occurring affordable housing that is likely to 
benefit low- and moderate-income individuals or families, as census 
tract income data is readily available and verifiable information.
---------------------------------------------------------------------------

    \310\ See Q&A Sec.  __.12(g)(1)-1.
---------------------------------------------------------------------------

    The final rule also adopts a new geographic criterion in final 
Sec.  __.13(b)(2)(ii)(B), indicating that naturally occurring 
affordable housing may qualify for consideration if it is located in a 
census tract in which the median income of renters is low or moderate, 
and the median rent does not exceed 30 percent of 80 percent of the 
area median income. In doing so, the agencies intend to help address 
the concern commenters noted, that restricting naturally occurring 
affordable housing to low- and moderate-income census tracts could 
promote geographic concentrations of poverty, and the agencies 
recognize the importance of locating affordable housing in communities 
of all income levels.
    The agencies acknowledge concern expressed by some commenters that 
naturally occurring affordable housing in middle- and upper-income 
tracts could be more likely to attract higher-income renters and could 
contribute to the involuntary displacement of lower-income renters. The 
agencies evaluated several alternatives to this geographic criterion to 
better ensure that low- and moderate-income renters were likely to 
benefit from this housing and determined that adding the requirement 
that the median rent in the census tracts must not exceed 30 percent of 
80 percent of the area median income would increase the likelihood that 
low- and moderate-income individuals would benefit from the housing. 
Moreover, adding these census tracts increases the number of qualifying 
census tracts (compared to only low- and moderate-income tracts) by 
over 100 percent--adding about 23,000 middle- and upper-income census 
tracts--in addition to the approximately 22,500 low- and moderate-
income census tracts that would be eligible currently.\311\ This 
criterion also aligns with current guidance in the Interagency 
Questions and Answers on the information that may be considered when 
determining the likelihood that the housing will primarily accommodate 
low- or moderate-income individuals or families.\312\
---------------------------------------------------------------------------

    \311\ Based on including census tracts where the median rent is 
below 30 percent of 80 percent of the area median income and where 
the median renter's income is below 80 percent of the area median 
income in the 2015-2019 American Community Survey.
    \312\ See, e.g., Q&A Sec.  __.12(g)(1)-1. Under existing 
guidance, examiners may look at median rents of an assessment area 
and other factors to determine the likelihood that housing will 
primarily accommodate low- and moderate-income individuals.
---------------------------------------------------------------------------

Section __.13(b)(2)(ii)(C) Nonprofit Organizations With a Stated 
Mission of, or That Otherwise Directly Support, Providing Affordable 
Housing
The Agencies' Proposal
    The agencies proposed a second criterion for determining whether 
multifamily housing qualifies as naturally occurring affordable housing 
under proposed Sec.  __.13(b)(2). Specifically, the agencies proposed 
that if housing is purchased, developed, financed, rehabilitated, 
improved, or preserved by any ``nonprofit organization with a stated 
mission of, or that otherwise directly supports, providing affordable 
housing,'' then the activity could be considered naturally occurring 
affordable housing.\313\ The agencies intended this provision to 
encompass organizations that have a mission to serve individuals and 
communities especially vulnerable to housing instability or that 
otherwise target services to low- or moderate-income individuals and 
communities. Multifamily housing that met this criterion in addition to 
the affordability standard in proposed Sec.  __.13(b)(2)(i) would 
qualify as naturally occurring affordable housing under proposed Sec.  
__.13(b)(2) in any census tract, including middle- and upper-income 
census tracts.
---------------------------------------------------------------------------

    \313\ Proposed Sec.  __.13(b)(2)(ii).
---------------------------------------------------------------------------

Comments Received
    Most of the commenters who commented on the second proposed 
criterion for naturally occurring affordable housing supported its 
inclusion and stated that it was well tailored to providing CRA 
consideration for units that meet the purposes of the CRA. A few 
commenters suggested that this criterion should be a requirement for 
CRA consideration for naturally occurring affordable housing. In 
addition, some commenters recommended additional requirements--for 
example, that the nonprofits should be led by people of color, a 
majority of residents should be low- or moderate-income, or the 
property must be compliant with anti-displacement principles.
    Several other commenters opposed the proposed criterion. For 
example, a commenter opposing this criterion stated that it would 
impede banks from garnering community development financing 
consideration because affordable housing often comes from partnerships 
with small developers, as well as nonprofit organizations.
Final Rule
    Under final Sec.  __.13(b)(2)(ii)(C), the agencies are adopting the 
proposed additional eligibility criterion for affordable multifamily 
housing activity in conjunction with a nonprofit organization with a 
stated mission of, or that otherwise directly supports, providing 
affordable housing substantially as proposed (see proposed Sec.  
__.13(b)(2)(ii)). The agencies observe that many of these nonprofit 
organizations serve individuals and communities that are especially 
vulnerable to housing instability or otherwise target services to low- 
or moderate-income individuals and communities. The agencies do not 
anticipate that this criterion will impede community development 
financing consideration for banks working with small property 
developers that are not nonprofit organizations, as this criterion is 
only one of four criteria for qualifying naturally occurring affordable 
housing activities. The agencies also considered commenter 
recommendations for additional requirements, and the agencies do not 
believe such additional requirements are necessary given the agencies' 
view that the proposed criterion is adequate to provide consideration 
for loans, investments, and services supporting housing units that are 
likely to be occupied by low- or moderate-income individuals.
Proposed Sec.  __.13(b)(2)(iii) Written Affordability Pledge
The Agencies' Proposal
    The agencies proposed a third criterion for determining whether 
multifamily housing would qualify as naturally occurring affordable 
housing under proposed Sec.  __.13(b)(2). This criterion would have 
required the property owner's explicit written pledge to maintain rents 
that are affordable for at least five years or for the length of the

[[Page 6647]]

financing, whichever is shorter,\314\ and was intended to address 
concerns about the likelihood of rents in an eligible property 
increasing in the future and potentially displacing low- or moderate-
income households. Multifamily housing that met this criterion in 
addition to the baseline affordable rent standard discussed above would 
qualify as naturally occurring affordable housing under proposed Sec.  
__.13(b)(2) in any census tract, including middle- and upper-income 
census tracts.
---------------------------------------------------------------------------

    \314\ See proposed Sec.  __.13(b)(2)(iii). The agencies noted in 
the NPR their expectation that the length of financing would often 
go beyond the five-year written affordability pledge. The agencies 
further stated that they would scrutinize short-term financing (less 
than five years) to ensure such financing is not a way to avoid the 
affordability commitment. See 87 FR 33884, 33896 n. 72 (June 3, 
2022).
---------------------------------------------------------------------------

Comments Received
    Several commenters supported this proposed criterion. Of those 
commenters, a few supported the proposed five-year time period for the 
affordability pledge. Most commenters addressing this aspect of the 
proposal suggested extending the duration of the pledge--to 10, 15, or 
20 years--or ensuring that the pledge is binding. Other commenter 
sentiment included: that the effectiveness of the criterion would 
depend on the legal enforceability of such a written pledge and the 
ability of an entity to monitor compliance; that this criterion should 
be required of all naturally occurring affordable housing lending and 
should not be optional; and that the pledge should be to keep the rents 
affordable for low- and moderate-income renters for the life of the 
investment or loan. Another commenter suggested that the agencies 
should publish best-practice examples of documents that outline the 
affordability restrictions, time period for those restrictions, and 
applicable tenant protections.
    Some commenters, however, opposed the additional criterion for an 
owner's explicit written pledge altogether on the grounds that it would 
be unappealing to property owners and unrealistic in many markets.
Final Rule
    In the final rule, the agencies have determined to not adopt the 
proposed additional eligibility criterion that would allow 
consideration based on an explicit written pledge by the property owner 
to maintain affordable rents for low- or moderate-income individuals 
for at least five years or the length of the financing, whichever is 
shorter. In proposing this additional eligibility criterion, the 
agencies sought to increase the number of options for demonstrating the 
likelihood that housing will benefit low- and moderate-income persons, 
while recognizing that requiring such a pledge would necessitate 
additional documentation.
    In determining not to adopt this part of the proposal, the agencies 
considered the views of many commenters who supported the written 
affordability pledge proposal, a longer affordability period, or a 
mandatory pledge on the belief that such requirements would help to 
ensure that housing remains affordable and would limit the risk of 
renter displacement due to increasing rents. The agencies also 
considered feedback that the effectiveness of such a pledge would 
depend on its legal enforceability and that enforcing the pledge could 
be impracticable and potentially require an entity to monitor 
compliance.
    The agencies evaluated the proposed additional criterion in light 
of feedback from commenters and determined that, because neither the 
agencies nor the banks would be in a position to effectively oversee 
the enforceability of these pledges, which may not be recorded in the 
public record, the impact of these pledges could be limited. In 
addition, the proposed criterion would have required the pledge to be 
in effect for either five years or the length of the financing, which 
could have had the unintended result of providing consideration for, 
and possibly unintentionally encouraging, one-year loans that would not 
contribute to ongoing affordability. Finally, by retaining the 
criterion that naturally occurring affordable housing be purchased, 
developed, financed, rehabilitated, improved, or preserved by any 
nonprofit organization with a stated mission of, or that otherwise 
directly supports, providing affordable housing, the agencies believe 
that including a pledge criterion would likely be superfluous for 
nonprofit owners, and not a clear means to capture activity that is 
outside other criteria that would apply to naturally occurring 
affordable housing.
Section __.13(b)(2)(ii)(D) Tenant Income Documentation
The Agencies' Proposal
    A fourth additional criterion proposed by the agencies for 
determining whether multifamily housing would qualify as naturally 
occurring affordable housing under proposed Sec.  __.13(b)(2) was that 
the bank provided documentation that the majority of the housing units 
were occupied by low- or moderate-income individuals or 
households.\315\ Multifamily housing that met this criterion in 
addition to the affordability standard in Sec.  __.13(b)(2)(i) would 
qualify as naturally occurring affordable housing under proposed Sec.  
__.13(b)(2) in any census tract, including middle- and upper-income 
census tracts.
---------------------------------------------------------------------------

    \315\ See proposed Sec.  __.13(b)(2)(iv).
---------------------------------------------------------------------------

Comments Received
    Of those commenters who weighed in on the criterion that the bank 
provide documentation that the majority of the housing units were 
occupied by low- or moderate-income individuals or households, most 
supported retaining it as a criterion in the final rule and suggested 
ways that the criterion could be successfully implemented. However, one 
commenter asserted that banks do not have the authority to collect 
tenant income information, while another indicated that the 
documentation could be impossible to obtain if units remain vacant 
after the project is completed. Another commenter suggested that the 
acceptance of Housing Choice Vouchers should be included as a way of 
demonstrating that rents will be affordable for low- and moderate-
income individuals. A few commenters raised objections, stating that 
the proposed criterion is unnecessary, overreaching, and impractical as 
proposed and could lead banks that seek CRA consideration to impose new 
burdensome administrative requirements on multifamily borrowers.
Final Rule
    The final rule adopts Sec.  __.13(b)(2)(iv) as proposed, renumbered 
as final Sec.  __.13(b)(2)(ii)(D), which allows a bank to demonstrate 
the eligibility of multifamily housing by, in addition to meeting the 
affordability standard, providing documentation that a majority of the 
housing units in an unsubsidized multifamily affordable housing project 
are occupied by low- or moderate-income individuals or families. For 
example, in the case of a multifamily rental property with a majority 
of rents set at 30 percent of 80 percent of area median income, the 
activity could receive consideration under this additional criterion 
where the bank can document that the majority of occupants receive 
Housing Choice Vouchers.\316\

[[Page 6648]]

The agencies observe that such documentation would demonstrate that the 
activity was benefiting low- or moderate-income individuals. The 
agencies acknowledge commenters' assertion that tenant income 
documentation might be unobtainable, unnecessary, or impractical. 
However, the agencies ultimately believe this criterion provides a 
useful alternative for banks that are able to obtain such documentation 
through the process of originating or renewing a loan. Banks retain the 
flexibility to demonstrate eligibility using the other criteria in 
final Sec.  __.13(b)(2)(ii)
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    \316\ The housing choice voucher program is the Federal 
Government's major program for assisting very low-income families, 
the elderly, and the disabled to afford decent, safe, and sanitary 
housing in the private market. See 24 CFR part 982 (program 
requirements for the tenant-based housing assistance program under 
section 8 of the United States Housing Act of 1937 (42 U.S.C. 
1437f); the tenant-based program is the housing choice voucher 
program). See also HUD, ``Choice Vouchers Fact Sheet,'' https://www.hud.gov/topics/housing_choice_voucher_program_section_8.
---------------------------------------------------------------------------

Other Comments on Naturally Occurring Affordable Housing
    Commenters offered a variety of suggestions for alternative ways to 
ensure that CRA consideration for naturally occurring affordable 
housing would be targeted to properties where rents remain affordable 
for low- or moderate-income individuals. Some commenters indicated that 
the rule should emphasize one or more of the proposed criteria in 
different combinations, while other commenters offered suggestions for 
criteria that were not expressly contemplated in the proposal. A few 
commenters asserted that the agencies should take steps to limit 
consideration for financing that may not provide long-term affordable 
housing, citing, for example, concern regarding the long-term 
intentions of certain institutional investors and private developers. 
Several commenters requested that the agencies require contracts or 
land use agreements that ensure a specific level and length of 
affordability, especially, at least one commenter noted, for properties 
where a renovation is occurring.
    Some commenters suggested that the agencies create anti-
displacement requirements, quality of housing requirements, or both, in 
order for activities supporting naturally occurring affordable housing 
properties to qualify for CRA consideration. Commenter feedback along 
these lines included: that the agencies should require banks to 
demonstrate that landlord borrowers are complying with tenant 
protection, habitability, local health code, civil rights, credit 
reporting act, unfair, deceptive, or abusive acts and practices, and 
other laws; that the agencies should give credit to banks for adopting 
and adhering to anti-displacement and responsible lending best 
practices in their CRA activities, and downgrade banks for incidents of 
harm and displacement of low- or moderate-income and racial and ethnic 
minority tenants; that incentivizing mixed[hyphen]income housing 
developments with a focus on racial and income integration would help 
address displacement concerns; and that loans to finance rental housing 
should only receive consideration if they are structured to tangibly 
improve the lives of tenants and do not permit landlords to pull money 
away from operations to pay for greater debt service.
Final Rule
    For the reasons stated in the preceding discussion of the 
affordability standard and additional eligibility requirements, the 
agencies are adopting the component for naturally occurring affordable 
housing under final Sec.  __.13(b)(2) with revisions. The agencies are 
not adopting commenter suggestions to restrict CRA consideration for 
financing provided to institutional investors and private developers, 
because the basis for doing so is not clear, especially if the 
affordability requirements of this section are met, and because such 
parties play an important role in adding to the overall supply of 
needed affordable housing. Instead, the agencies are relying on the 
criteria adopted to ensure that the multifamily housing with affordable 
rents is likely to benefit low- or moderate-income individuals. 
Similarly, the agencies considered, but are not requiring contracts or 
land use agreements that ensure a specific level and period of 
affordability, as these would be challenging for a bank to enforce 
efficiently. Additionally, the agencies are not including an additional 
criterion in this component regarding resident displacement and 
responsible lending best practices. The agencies believe that such a 
criterion is less needed in the naturally occurring affordable housing 
context given that such activities will create units or facilitate 
maintenance of existing units of affordable housing, and examiners will 
retain the discretion to consider whether an activity reduces the 
number of housing units affordable to low- or moderate-income 
individuals. The agencies believe the adopted criteria will 
appropriately encourage activities beneficial to low- and moderate-
income individuals and families.
Section __.13(b)(3) One-to-Four Family Rental Housing With Affordable 
Rents in Nonmetropolitan Census Tracts
The Agencies' Proposal
    In the NPR, the agencies sought feedback on whether single-family 
rental housing should be considered under the naturally occurring 
affordable housing category, provided that it meets the same 
combination of criteria proposed for multifamily rental housing.\317\ 
This alternative would have expanded the affordable housing category to 
include single-family rental housing that meets the affordability 
threshold and the additional eligibility criteria under proposed Sec.  
__.13(b)(2)(i) and (ii), respectively. The agencies also sought 
feedback on whether such an alternative should be limited to rural 
geographies, or eligible in all geographies.\318\ In seeking feedback 
on the potential expansion to include unsubsidized single-family 
affordable rental housing, the agencies acknowledged that single-family 
rental housing can be an important source of affordable housing, 
especially in geographies, such as rural communities, where multifamily 
housing is less common.
---------------------------------------------------------------------------

    \317\ See 87 FR 33895.
    \318\ Id.
---------------------------------------------------------------------------

Comments Received
    Many commenters offered views on whether single-family rental 
housing should be considered under the naturally occurring affordable 
housing category, provided such housing meets the requirements of 
proposed Sec.  __.13(b)(2). Some commenters generally opposed expanding 
the naturally occurring affordable housing proposal to include single-
family homes, noting: that this expansion could incentivize investors 
buying single-family homes to serve as investment properties rather 
than encouraging homeownership amongst low- or moderate-income 
individuals and families; that such an expansion could inadvertently 
reinforce racial segregation and concentrated poverty; and that 
permanent home mortgage loans for single-family rental housing were 
already covered as part of the proposed Retail Lending Test.
    Most of the commenters that remarked on this alternative supported 
broadening the eligibility of naturally occurring affordable housing to 
include single-family rental housing in some or all geographies. For 
example, one commenter noted that affordable single-family rentals are 
a critical part of the multipronged approach to address

[[Page 6649]]

affordable housing in this country and should be included in the 
affordable housing category.
    Imposing higher standards for single-family rental housing. 
Although several commenters suggested applying the exact same naturally 
occurring affordable housing criteria to both multifamily and single-
family housing, some commenters suggested that activities relating to 
single-family rentals be held to a higher standard or subject to 
additional restrictions as compared to activities relating to 
multifamily naturally occurring affordable housing. Commenters 
supporting higher standards raised a number of considerations 
including: that single-family rental housing should be limited to homes 
that either are eligible for purchase (e.g., lease-to-own), are 
prioritized for low- or moderate-income families enrolled in first-time 
homeowner programs through HUD, or are part of a State program that 
will remain permanently affordable through a community land trust or 
other vehicle to sustain affordability; that single-family rental 
housing should be limited to housing owned or developed by a nonprofit 
organization; and that, if for-profit ownership and development is 
allowed, there should be mechanisms to ensure that the property is in 
decent physical condition and that bank financing is not supporting 
abusive property owners, landlords, management companies, or investors.
    Other commenters expressed concerns about investor activity. For 
example, a commenter suggested that the agencies restrict CRA 
consideration to properties whose owners own fewer than 50 single-
family rental units unless the owner is a nonprofit with a bona fide 
mission of providing affordable housing. Another commenter recommended 
that, to prevent speculative activity or corporate ownership, the 
agencies could exclude from consideration single-family rental housing 
in any low- or moderate-income or predominantly minority census tract 
in which more than one-third of the single-family housing stock became 
rental housing in last five years.
    Geographic considerations in recognizing affordable single-family 
rental activity. A few commenters addressed the agencies' request for 
comment on whether to limit any inclusion of single-family rental 
properties in the proposed naturally occurring affordable housing 
component to properties located in rural areas. The majority of these 
commenters opposed limiting single-family rentals to rural areas. In 
this regard, a commenter stated that affordable housing is needed 
everywhere and, therefore, the category should not be limited to rural 
communities. A few commenters supported limiting single-family rentals 
to rural areas, noting the large percentage of occupied rental units in 
rural areas that are single-family homes. Another commenter suggested 
eliminating all geographic criteria and allowing single-family rentals 
to receive CRA consideration anywhere.
Final Rule
    The final rule adopts as final Sec.  __.13(b)(3) a component in the 
affordable housing category for single-family rental housing in 
nonmetropolitan areas. The component applies in instances where such 
housing is purchased, developed, financed, rehabilitated, improved, or 
preserved, and the housing meets the affordability criterion in final 
Sec.  __.13(b)(2)(i) and at least one of the additional eligibility 
criteria in final Sec.  __.13(b)(2)(ii). This component is intended to 
address single-family rental housing with affordable rents in 
nonmetropolitan areas. As previously noted, the agencies inquired 
whether the proposed approach to considering naturally occurring 
affordable housing should be broadened to include single-family rental 
housing that meets the requirements in proposed Sec.  __.13(b)(2), and 
if so, whether consideration of single-family rental housing should be 
limited to rural geographies, or eligible in all geographies. In making 
this determination, the agencies have considered the views from 
commenters on this request for feedback.
    Standards for single-family rental housing. Currently, the lack of 
a consistent standard for affordability, combined with unclear methods 
for determining whether low- or moderate-income individuals are likely 
to benefit, leads to inconsistent consideration of unsubsidized 
affordable housing, including single-family rental housing. The 
agencies sought feedback on the potential application of the criteria 
in proposed Sec.  __.13(b)(2)(i) and (ii) to single-family rental 
housing because those criteria aim to provide a consistent methodology 
for determining benefit for low- or moderate-income individuals. After 
considering commenter feedback, the agencies believe that the revised 
criteria for naturally occurring affordable housing for multifamily 
rental housing under Sec.  __.13(b)(2), which include a defined 
affordability standard and a requirement that rents be determined based 
on the amounts used by the bank for purposes of underwriting, are 
suitable for adoption in the single-family nonmetropolitan area rental 
housing context. The agencies carefully considered commenter 
suggestions for a more stringent or more lenient affordability 
standard, and determined that adopting the criteria in final Sec.  
__.13(b)(2) for both multifamily rental housing and single-family 
rental housing in nonmetropolitan areas will provide a clear and 
consistent option that is likely to benefit low- and moderate-income 
individuals and families.
    Geographic considerations in recognizing affordable single-family 
rental activity. Although the agencies considered the assertion by some 
commenters that affordable rental housing is needed in all geographic 
areas, as noted previously, this component supports consideration only 
for single-family rental housing in nonmetropolitan areas. The agencies 
also considered that the composition of the housing stock varies across 
geographies, and that in some areas, such as in certain nonmetropolitan 
areas, it may be difficult to develop affordable multifamily rental 
housing at scale, either in conjunction with a government program or as 
naturally occurring affordable housing. An agency analysis of data from 
the 2016-2020 American Community Survey showed that 22 percent of 
occupied rental units in nonmetropolitan areas are structures with more 
than 4 units, compared to 47 percent of occupied rental units in 
metropolitan areas.\319\ In reaching their determination, the agencies 
believe that the final rule approach appropriately balances adding a 
component specific to affordable single-family rental housing and 
tailoring it to the unique affordable housing needs in nonmetropolitan 
areas. The agencies also considered that not including this component 
could otherwise limit opportunities for affordable housing in 
nonmetropolitan areas.
---------------------------------------------------------------------------

    \319\ Multifamily housing is also less common in rural areas 
where a smaller 12 percent of occupied rental units are in 
structures with more than 4 units according to the same data source. 
Rural areas are conceptually distinct from nonmetropolitan areas, 
however, and this final rule relies upon the nonmetropolitan area 
designation. The Census Bureau uses a distinct methodology of 
designating urban and rural census blocks relative to the Office of 
Management and Budget's methodology for determining if a county is 
within a metropolitan statistical area.
---------------------------------------------------------------------------

    This component is designed to address the single-family affordable 
housing needs in nonmetropolitan areas, including the particular needs 
in rural areas. Accordingly, although the agencies recognize that 
single-family affordable housing is important to

[[Page 6650]]

addressing the affordable housing needs for low- and moderate-income 
individuals in metropolitan areas, the agencies have determined not to 
expand this component to apply to single-family rental housing in 
metropolitan areas. Such units may still be eligible for consideration 
under final Sec.  __.13(b)(1) to the extent that the unit(s) and 
associated loan, investment, or service meet the requirements under 
that component.
Section __.13(b)(4) Affordable Owner-Occupied Housing for Low- or 
Moderate-Income Individuals
The Agencies' Proposal
    Proposed Sec.  __.13(b)(3) provided a component for the affordable 
housing category of community development for ``activities that support 
affordable owner-occupied housing for low- or moderate-income 
individuals.'' This component included activities that: (1) ``directly 
assist low- or moderate-income individuals to obtain, maintain, 
rehabilitate, or improve affordable owner-occupied housing''; or (2) 
``support programs, projects, or initiatives that assist low- or 
moderate-income individuals to obtain, maintain, rehabilitate, or 
improve affordable owner-occupied housing.'' \320\ Owner-occupied 
housing referenced in the agencies' proposal included both single-
family and multifamily owner-occupied housing.
---------------------------------------------------------------------------

    \320\ Proposed Sec.  __.13(b)(3).
---------------------------------------------------------------------------

    Activities under proposed Sec.  __.13(b)(3) would have expressly 
excluded single-family home mortgage loans considered under the Retail 
Lending Test in proposed Sec.  __.22.\321\ Instead, as discussed in the 
agencies' proposal, activities eligible for consideration under 
proposed Sec.  __.13(b)(3) included, for example, construction loan 
financing for a nonprofit housing developer building single-family 
owner-occupied homes affordable to low- or moderate-income individuals; 
financing or a grant provided to a nonprofit community land trust 
focused on providing affordable housing to low- or moderate-income 
individuals; a loan to a resident-owned manufactured housing community 
with homes that are affordable to low- or moderate-income individuals; 
a shared-equity program operated by a nonprofit organization to provide 
long-term affordable homeownership; and financing or grants for 
organizations that provide down payment assistance to low- or moderate-
income homebuyers. Other activities eligible for consideration under 
this proposed component include: activities with a governmental or 
nonprofit organization with a stated purpose of, or that otherwise 
directly supports, providing affordable housing; and activities 
conducted by the bank itself, or with other for-profit partners, 
provided that the activity directly supports affordable homeownership 
for low- or moderate-income individuals.
---------------------------------------------------------------------------

    \321\ See id.
---------------------------------------------------------------------------

    The agencies sought feedback on what conditions or terms, if any, 
should be added to this component to ensure that qualifying activities 
are affordable, sustainable, and beneficial for low- or moderate-income 
individuals and communities.
Comments Received
    Nearly all commenters that commented on the affordable 
homeownership component of the NPR expressed support for CRA 
consideration for such activities. Some of the commenters suggested a 
different definition for this component under which the financing, 
construction, or rehabilitation of owner-occupied homes would qualify 
if: (1) the homes are located in a low- or moderate-income census tract 
or a distressed or underserved middle-income nonmetropolitan census 
tract; and (2) the sales price does not exceed four times the area 
median income. One commenter noted that this definition should 
explicitly include government programs with a ``stated purpose or bona 
fide intent'' of providing affordable housing or housing assistance for 
low-, moderate-, or middle-income individuals.
    Many commenters offered specific suggestions regarding the 
activities that should be eligible for consideration under this 
component. Commenter suggestions included: that the agencies should 
explicitly include financing for the rehabilitation or reconstruction 
of an already owner-occupied home if the owner is a low- or moderate-
income individual; that investments and interests in early buyout loans 
should receive CRA consideration because they enable servicers to work 
with and buy delinquent loans with government insurance or guarantees 
without foreclosing on the properties, thereby allowing residents to 
remain in their homes; and that the agencies should provide CRA 
consideration for the costs of transporting housing materials to remote 
areas.
    A few commenters encouraged the agencies to use this component to 
encourage affordable homeownership for specific populations. For 
example, a commenter suggested that the agencies increase and preserve 
affordable homeownership for low- or moderate-income individuals from 
racial and ethnic groups that were subjected to redlining and other 
discriminatory practices. Similarly, a commenter recommended that the 
agencies emphasize activities that expand homeownership for first-time 
buyers who are individuals with disabilities or represent other 
underserved populations.
    Some commenters encouraged the agencies to include specific 
products or programs in this component of affordable housing. These 
suggestions include first-look homebuyer programs,\322\ home repair 
programs that help homeowners bring homes into building code 
compliance, participation in specific pilot programs offered by the 
Federal National Mortgage Association (Fannie Mae) or the Federal Home 
Loan Mortgage Corporation (Freddie Mac) (collectively, the Government-
sponsored enterprises or the GSEs),\323\ real estate-owned note sales, 
education on and resolution of heirs' property titles, low balance 
loans for homeowners, use of alternative credit models, limited equity 
housing cooperatives, and property tax abatements to assist low- or 
moderate-income owners whose taxes have risen rapidly. Other commenters 
suggested that the agencies provide CRA consideration for activities 
related to lender fee-for-service payments, investment, grants, and 
developing fees for service programming by HUD-certified housing 
counseling agencies. Lastly, some commenters recommended that the 
agencies encourage banks to partner with nonprofit affordable housing 
groups to provide or support affordable homeownership options. These 
commenters explained that nonprofit affordable housing groups--
including developers, owners, counselors, and others--provide products 
and services that are appropriately tailored to low- and

[[Page 6651]]

moderate-income borrowers and help guard against predatory or 
unsustainable homeownership activities.
---------------------------------------------------------------------------

    \322\ For example, Freddie Mac's First Look Initiative offers 
homebuyers and select nonprofit organizations an exclusive 
opportunity to purchase certain homes prior to competition from 
investors. See Freddie Mac, ``Freddie Mac First Look Initiative,'' 
https://www.homesteps.com/homesteps/offer/firstlook.html.
    \323\ GSE pilot programs are designed to target a wide range of 
housing access issues. GSE pilot programs may help renters establish 
and improve their credit scores, defray or decrease the cost of 
security deposits for renters, or take other actions to help renters 
and homeowners. For example, Fannie Mae's Multifamily Positive Rent 
Payment Reporting pilot program is aimed at helping renters build 
their credit history and improve their credit score. See Fannie Mae, 
``Fannie Mae Launches Rent Payment Reporting Program to Help Renters 
Build Credit'' (Sept. 27, 2022), https://www.fanniemae.com/newsroom/fannie-mae-news/rent-payment-reporting-program-launch.
---------------------------------------------------------------------------

Final Rule
    The agencies are adopting proposed Sec.  __.13(b)(3), renumbered as 
final Sec.  __.13(b)(4), with clarifying revisions to provide community 
development consideration for activities that support affordable owner-
occupied housing for low- and moderate-income individuals. 
Specifically, in final Sec.  __.13(b)(4), affordable housing includes 
``assistance for low- or moderate-income individuals to obtain, 
maintain, rehabilitate, or improve affordable owner-occupied housing, 
excluding loans by a bank directly to one or more owner-occupants of 
such housing.'' The agencies believe that adopting this component 
facilitates consideration of a variety of the affordable housing models 
suggested by commenters. The agencies also note that some of the 
activities suggested by commenters, such as use of alternative credit 
scores, special purpose credit programs, and use of other credit 
products that assist low- or moderate-income individuals with 
purchasing a home could be considered responsive credit products under 
the Retail Services and Products Test, described in the section-by-
section analysis of Sec.  __.23. Owner-occupied one-to-four-family home 
mortgage loans, including but not limited to owner-occupied one-to-
four-family home mortgage loans considered under the Retail Lending 
Test in Sec.  __.22, are excluded from consideration under this 
component.
    Relative to the agencies' proposal, the final rule combines the two 
prongs (``direct'' support and support for ``plans, programs, and 
initiatives'') into a single component that covers all forms of 
assistance for affordable homeownership. By creating a single 
component, the agencies seek to streamline the requirement and clarify 
that a bank may receive community development consideration for 
activities that support any qualifying assistance under the component 
regardless of whether the support is provided directly to a low- or 
moderate-income individual or indirectly, through a third-party 
organization. As a result, under the final rule, a down payment grant 
provided by a bank to a low- or moderate-income individual is evaluated 
using the same standards as those standards that apply to a down 
payment grant to a nonprofit organization that provides affordable 
housing assistance to low- or moderate-income individuals. This 
parallel treatment is consistent with the agencies' objectives, 
including the objective seeking to provide greater clarity and 
consistency in the application of the regulations, and the criteria in 
the proposal.
    Assistance for low- or moderate-income individuals to obtain, 
maintain, rehabilitate, or improve affordable owner-occupied housing. 
Under final Sec.  __.13(b)(4), activities that assist low- or moderate-
income individuals to obtain, maintain, rehabilitate, or improve 
affordable owner-occupied housing are considered. The proposal would 
have recognized activity that ``directly'' assists with these 
functions. The agencies removed ``directly'' to better align this 
component with the majority standard outlined in final Sec.  
__.13(a)(1)(i)(B)(1).
    As noted in the proposal, activities under this component could be 
conducted in conjunction with a variety of financing types. For 
example, this component would include activities such as construction 
loan financing for a nonprofit housing developer constructing single-
family owner-occupied homes affordable to low- or moderate-income 
individuals; a grant to a nonprofit organization that provides home 
rehabilitation and weatherization improvements for low- and moderate-
income homeowners; financing or a grant to a nonprofit community land 
trust focused on providing affordable housing to low- or moderate-
income individuals; a loan to a resident-owned manufactured housing 
community with homes that are affordable to low- or moderate-income 
individuals; a shared-equity program operated by a nonprofit 
organization to provide long-term affordable homeownership; and 
financing or grants for organizations that provide down payment 
assistance to low- or moderate-income homebuyers.\324\
---------------------------------------------------------------------------

    \324\ See proposed Sec.  __.13(b)(3).
---------------------------------------------------------------------------

    Furthermore, under this component, eligible activities may include 
those involving assistance to a government agency or nonprofit 
organization that provides access to affordable homeownership, and 
assistance provided by the bank itself, or by other for-profit 
entities. Accordingly, each of the following may qualify for 
consideration under final Sec.  __.13(b): participation in first-look 
homebuyer programs or home repair programs that help homeowners bring 
homes into building code compliance; a down payment grant offered 
directly by a bank to help low- or moderate-income individuals purchase 
a home; an investment in a government bond that finances home mortgage 
loans for low- or moderate-income borrowers; \325\ and activities 
supporting a program that conducts free home repairs or maintenance for 
low- or moderate-income homeowners.
---------------------------------------------------------------------------

    \325\ See Q&A Sec.  __.12(t)-2.
---------------------------------------------------------------------------

    Exclusion of loans by a bank directly to owner-occupants. The 
proposal specifically excluded any home mortgage loans considered under 
the Retail Lending Test in Sec.  __.22. The agencies were concerned 
that, as written, the requirement could suggest that a bank might 
receive consideration for such loans under either performance test, but 
not both. To minimize confusion and to clarify the agencies' intent, 
final Sec.  __.13(b)(4) replaces the reference to the Retail Lending 
Test with language that excludes any loan directly to an owner-
occupant, regardless of whether the loan is considered under the Retail 
Lending Test. Consistent with the proposal, this clarification ensures 
that banks will not receive CRA consideration under both final Sec.  
__.13(b)(4) and final Sec.  __.22 for a single loan.
Section __.13(b)(5) Mortgage-Backed Securities
The Agencies' Proposal
    Under proposed Sec.  __.13(b)(4), the agencies proposed to define 
standards for investments in mortgage-backed securities related to 
affordable housing that qualify for community development 
consideration. Specifically, the agencies proposed that mortgage-backed 
securities would qualify as affordable housing when the security 
contained ``a majority of either loans financing housing for low- or 
moderate-income individuals or loans financing housing that otherwise 
qualifies as affordable housing under [proposed Sec.  __.13(b)].'' 
\326\ This proposed component of affordable housing was intended to be 
generally consistent with current practice and to recognize that 
purchases of qualifying mortgage-backed securities that contain home 
mortgage loans to low- or moderate-income borrowers or that otherwise 
contain loans that qualify as affordable housing are investments in 
affordable housing.
---------------------------------------------------------------------------

    \326\ See Q&A Sec.  __.12(t)-2. See also, e.g., Q&A Sec.  
__.23(b)-2 (indicating that CRA credit for MBS investments is 
conferred only if the MBS is ``not backed primarily or exclusively 
by loans that the same institution originated or purchased.'').
---------------------------------------------------------------------------

    The agencies sought feedback on alternative approaches that would 
create a more targeted definition of qualifying mortgage-backed 
securities. One alternative approach would be to consider investments 
in mortgage-

[[Page 6652]]

backed securities only in proportion to the percentage of loans in the 
security secured by affordable properties. For example, if 60 percent 
of a qualifying mortgage-backed security consists of single-family home 
mortgage loans to low- or moderate-income borrowers, and 40 percent of 
the security consists of loans to middle- or upper-income borrowers, 
the mortgage-backed security would receive consideration only for the 
dollar value of the loans to low- or moderate-income borrowers. 
Additionally, the agencies sought feedback on whether to limit 
consideration of mortgage-backed securities to the initial purchase of 
a mortgage-backed security from the issuer, and not to consider 
subsequent purchases of the security. This change would have been 
intended to reduce the possibility of multiple banks receiving CRA 
consideration for purchasing the same security.
Comments Received
    The majority of commenters recognized the important role mortgage-
backed security purchases play in creating liquidity for the mortgage 
market and enabling banks to originate more loans and favored retaining 
this component of affordable housing. However, many of these commenters 
supported restrictions on the types of eligible securities as well as 
the amount of CRA consideration received relative to other activities. 
Other commenters suggested eliminating consideration for purchases of 
mortgage-backed securities altogether because of the view that such 
investments are low impact or add little value to communities.
    Scope. Some commenters requested that the agencies clarify or 
modify the scope of this component. For example, a commenter sought 
clarification regarding the treatment of purchases of securities 
collateralized by mortgage loans in low- and moderate-income census 
tracts. Separately, several commenters recommended that the proposed 
mortgage-backed securities component include purchases of other 
affordable housing investment vehicles issued by State housing finance 
authorities or municipalities, such as mortgage revenue bonds. In 
contrast, other commenters supported restricting consideration to 
certain types of purchases of mortgage-backed securities, such as loans 
or mortgage-backed securities purchased from a certified CDFI, or loans 
or mortgage-backed securities that meet certain requirements but that 
are not guaranteed by the Federal Government. Other commenters proposed 
limitations that would provide CRA consideration only for the first or 
second purchase of a mortgage-backed security.
    Amount of consideration for mortgage-backed securities. The 
majority of commenters addressing the agencies' request for comment on 
whether to consider investment in mortgage-backed securities only in 
proportion to the percentage of loans in the security secured by 
affordable properties favored the proportional consideration 
alternative. In contrast, a couple of commenters addressing this 
alternative opposed using proportional consideration, asserting that it 
would increase complexity without material benefit to the volume and 
scope of affordable housing activities in low- or moderate-income 
communities. Other commenters suggested a hybrid approach whereby full 
CRA consideration would be granted for investments in mortgage-backed 
securities comprised of 50 percent or more affordable housing loans and 
pro rata credit would be granted for investments in mortgage-backed 
securities comprised of less than 50 percent affordable housing loans. 
Another commenter suggested that the full value of a mortgage-backed 
security only be considered when at least 50 percent of the underlying 
loans were used to finance supportive affordable housing developments.
    Other commenters recommended that CRA consideration for purchases 
of mortgage-backed securities be discounted relative to other community 
development investments. These commenters suggested that mortgage-
backed securities investments be discounted by 50 percent in comparison 
to more traditional lending or investment in qualified CRA activities 
because these securities remain liquid and provide comparably less 
public benefit than other qualifying CRA activities. Similarly, some 
commenters suggested that the agencies limit consideration for 
mortgage-backed securities investments to a percentage of a bank's 
nationwide community development activity, with some of these 
commenters suggesting either a 20 or 25 percent cap. Other commenters 
requested that consideration be limited to the percentage of loans to 
low- or moderate-income individuals.
    Other restrictions or limitations. Finally, several commenters 
suggested that the agencies consider or set a minimum threshold for the 
time period that a bank must hold the mortgage-backed securities on its 
books, such as two or more years. Some commenters also opposed limiting 
mortgage-backed securities consideration to only the initial purchase 
from the issuer, citing that this limitation would add complexity and 
could negatively impact the market for mortgage-backed securities.
Final Rule
    In the final rule, the agencies are adopting the proposal related 
to mortgage-backed securities, renumbered as final Sec.  __.13(b)(5) 
and reorganized to include final Sec.  __.13(b)(5)(i) and (ii), with 
both substantive and clarifying edits. Specifically, the final rule 
includes as a component of affordable housing purchases of mortgage-
backed securities that are collateralized by loans, a majority of which 
are not loans that the bank originated or purchased, and which are 
either home mortgage loans made to low- or moderate-income individuals 
or loans financing multifamily affordable housing that meets the 
requirements of final Sec.  __.13(b)(1). For clarity, the two 
subcategories (home mortgage loans to low- or moderate-income 
individuals and loans secured by multifamily affordable housing) form 
two separate prongs under the overall mortgage-backed security 
component.
    The agencies are also revising final Sec.  __.13(b)(5) to confirm 
that the component only applies to mortgage-backed securities where a 
majority of the underlying loans are not loans that the bank originated 
or purchased. This limitation is consistent with current interagency 
guidance and ensures that banks are not likely to receive consideration 
under both final Sec.  __.13(b)(5) and the Retail Lending Test in final 
Sec.  __.22 for the same loan(s).\327\
---------------------------------------------------------------------------

    \327\ Q&A Sec.  __.23(b)-2.
---------------------------------------------------------------------------

Section __.13(b)(5)(i)
    Section __.13(b)(5)(i). Final Sec.  __.13(b)(5)(i) specifies that 
affordable housing includes purchases of mortgage-backed securities 
where a majority of the underlying loans are not loans that the bank 
originated or purchased and ``[a]re home mortgage loans made to low- or 
moderate-income individuals.'' This provision adopts the proposal to 
consider purchases of mortgage-backed securities that contain a 
majority of ``loans financing housing for low- or -moderate income 
individuals'' (proposed Sec.  __.13(b)(4)). On further review, the 
agencies determined that ``loans financing housing for low- or -
moderate income individuals'' could be read broadly to include single-
family loans and multifamily loans. The agencies intended, however, to 
refer with this language solely to loans secured by

[[Page 6653]]

single-family homes. Thus, final Sec.  __.13(b)(5)(i) refers more 
specifically to ``home mortgage loans made to low- or moderate-income 
individuals.'' As discussed further in the section-by-section analysis 
of Sec.  __.12, ``home mortgage loan'' is defined to mean a ``closed-
end home mortgage loan'' or an ``open-end home mortgage loan,'' which 
are in turn defined to exclude multifamily loans.\328\
---------------------------------------------------------------------------

    \328\ See final Sec.  __.12 (defining ``home mortgage loan,'' 
``closed-end home mortgage loan,'' and ``open-end home mortgage 
loan'').
---------------------------------------------------------------------------

    The agencies also note that final Sec.  __.13(b)(5)(i) only allows 
consideration based on the income of the individuals to whom the loans 
are made and does not allow consideration for mortgage-backed 
securities solely because the underlying loans are secured by property 
in low- and moderate-income census tracts. This approach, which is 
consistent with the agencies' proposal, is intended to maintain the 
component's focus on low- or moderate-income individuals. The agencies 
do not believe that providing consideration for mortgage-backed 
securities where the underlying loans are made to middle- or upper-
income individuals residing in low- or moderate-income census tracts is 
likely to further the agencies' goal of encouraging affordable housing 
lending to low- and moderate-income individuals.
Section __.13(b)(5)(ii)
    Under final Sec.  __.13(b)(5)(ii), the agencies replaced phrasing 
that referred to loans that finance housing that ``otherwise 
qualifies'' as affordable housing with a direct reference to final 
Sec.  __.13(b)(1). This revision clarifies that, as it relates to 
multifamily housing, the agencies intend to provide community 
development consideration only for those mortgage-backed securities 
where a majority of the underlying loans are secured by multifamily 
rental housing purchased, developed, financed, rehabilitated, improved, 
or preserved in conjunction with government affordable housing plans, 
programs, initiatives, tax credits, and subsidies. The agencies believe 
that this clarification will facilitate consistency in evaluating 
mortgage-backed securities. The agencies note that purchases of tax-
exempt bonds issued by Freddie Mac and Fannie Mae, which finance 
affordable housing projects, and tax-exempt bond issuances that finance 
affordable housing projects sponsored by State housing authorities or 
municipalities, may be eligible for community development consideration 
under the final rule, provided that the bond is a mortgage-backed 
security that meets the requirements in final Sec.  __.13(b)(5)(ii).
    Amount of consideration for mortgage-backed securities. Under final 
Sec.  __.13(a) mortgage-backed securities that meet the requirements in 
final Sec.  __.13(b)(5) (i.e., a majority of the underlying loans are 
not loans that the bank originated or purchased, and are either home 
mortgage loans made to low- or moderate-income individuals or loans 
financing multifamily affordable housing that meets the requirements of 
final Sec.  __.13(b)(1)) will be eligible to receive consideration for 
the full value of the security.\329\ The agencies carefully considered 
commenter feedback regarding the amount of consideration that mortgage-
backed securities should be eligible to receive under CRA, including 
ideas for partial consideration of bank investments in mortgage-backed 
securities. On further deliberation, the agencies are not adopting a 
partial consideration framework for bank investments in mortgage-backed 
securities. The agencies believe that the final rule's majority 
approach for mortgage-backed securities will facilitate compliance and 
supervision, as it is less complex than other alternatives suggested 
and considered, and consistent with the majority standard employed in 
most other categories of community development.\330\ While generally 
aligned with current guidance on bank investments in mortgage-backed 
securities noted earlier, the final rule will provide greater clarity, 
transparency, and uniformity in how bank investments in mortgage-backed 
securities are considered under CRA.
---------------------------------------------------------------------------

    \329\ See final Sec.  __.13(a)(1)(i)(A)(2).
    \330\ For discussion of the final rule on full and partial 
credit for community development loans, investments, and services, 
see the section-by-section analysis of final Sec.  __.13(a).
---------------------------------------------------------------------------

    The agencies believe that the requirements in final Sec.  
__.13(b)(5), including the majority requirement, the home mortgage loan 
limitation, and the express tie to final Sec.  __.13(b)(1) for 
multifamily affordable housing, appropriately balance considerations of 
current guidance; the benefits of greater consistency and clarity in 
the treatment of investments in mortgage-backed securities under CRA; 
and the recognition that purchases of mortgage-backed securities 
containing home mortgage loans to low- or moderate-income borrowers or 
loans that finance multifamily affordable housing can improve 
liquidity, in turn supporting more loans to low- and moderate-income 
borrowers and more affordable housing development. The agencies remain 
sensitive to commenter views that mortgage-backed securities are lower 
in impact and responsiveness to community credit needs than other 
qualifying affordable housing activities more directly supporting 
housing for low- or moderate-income individuals. Accordingly, the 
agencies will continue to monitor the impact of including mortgage-
backed securities in the affordable housing category.
    Other restrictions or limitations. After carefully considering 
commenter feedback, the agencies have decided not to limit 
consideration of mortgage-backed securities to the initial purchase of 
a mortgage-backed security from the issuer under this component. The 
agencies sought feedback on limiting consideration to the initial 
purchase in order to emphasize activities that may more directly serve 
low- or moderate-income individuals and communities and to reduce the 
possibility of multiple banks receiving CRA consideration for 
purchasing the same security. However, the agencies believe that this 
potential limitation is mitigated as examiners will be able to use 
information regarding the amount of time a mortgage-backed security was 
owned by the bank to determine the appropriate amount of consideration. 
For more information regarding the agencies' use of performance 
context, see the section-by-section analysis of Sec.  __.21(d).
Complex, Specialized, and Novel Topics in Affordable Housing
    As previously noted, the agencies sought feedback on how to ensure 
that the proposed affordable housing category is clearly defined and 
appropriately inclusive of activities that support affordable housing 
for low- or moderate-income individuals, including activities that 
involve complex, specialized, or novel solutions, such as community 
land trusts, shared equity models, and manufactured housing. The 
agencies considered the wide array of commenter responses that 
identified particular activities that help to further access to 
affordable housing for low- and moderate-income individuals. However, 
the agencies have declined to revise the affordable housing category to 
explicitly list such activities, because the agencies believe that many 
of the activities identified in comments would be eligible for 
community development consideration under the various components of the 
affordable housing category. This outcome is consistent with the 
agencies' objective for the affordable housing category, which is to 
create standards and identify

[[Page 6654]]

characteristics that may be used to evaluate a broad range of 
affordable housing activities and programs, both current and future, 
and identify those that meet the standards for consideration. The 
following is a discussion of the ways in which several activities cited 
by commenters are captured within the various affordable housing 
components or may otherwise receive consideration under the final rule.
    Manufactured housing. In the NPR, the agencies stated that a loan 
to a resident-owned manufactured housing community with homes that are 
affordable to low- or moderate-income individuals could be eligible for 
community development consideration as an activity that supports 
affordable homeownership for low- and moderate-income individuals. As 
noted previously, the agencies also requested feedback about the 
inclusion of manufactured housing in the proposed affordable housing 
category.
    The agencies received several comments related to manufactured 
housing, and commenters provided feedback on a variety of approaches 
for affordable manufactured housing eligibility. For example, some 
commenters supported special consideration of financing for affordable 
manufactured housing that is on tribal land, while other commenters 
supported a broader approach to include all loans that finance 
affordable manufactured housing. Some commenters urged the agencies to 
provide consideration only for resident-owned manufactured housing 
communities or to nonprofit organizations that provide land for 
manufactured housing. In contrast, other commenters urged the agencies 
to include consideration for for-profit manufactured home communities, 
with one commenter suggesting that loans to manufactured housing 
communities with homes that are affordable to low- or moderate-income 
individuals should not be restricted to only resident-owned 
communities, because for-profit entities play an essential role in 
purchasing older communities and making significant infrastructure 
repairs, such as roads, sewer, and water. Another commenter suggested 
that community development consideration should be extended for loans 
to manufactured home dealers that commit to providing more favorable 
financing terms to low- or moderate-income buyers.
    The agencies have considered these comments and recognize that 
manufactured housing can provide important affordable housing options 
for low- and moderate-income individuals and families. Nonetheless, the 
agencies intend and expect that some manufactured housing activity will 
meet the requirements under a component of affordable housing adopted 
in the final rule. For example, an acquisition loan made to a 
manufactured housing community with homes that are affordable to low- 
or moderate-income individuals could help fill a housing gap and may 
qualify under final Sec.  __.13(b)(4) as assistance supportive of 
affordable owner-occupied housing for low- or moderate-income 
individuals.\331\ Alternatively, financing provided to a nonprofit, in 
conjunction with a government program, to develop manufactured housing 
and buy land for use as affordable rental housing for low- and 
moderate-income individuals and families could qualify under final 
Sec.  __.13(b)(1) (rental housing in conjunction with a government 
affordable housing plan, program, initiative, tax credit, or 
subsidy).\332\ As discussed further in the section-by-section analysis 
of final Sec.  __.22(d)(1), below, single-family home mortgage loans 
meeting the HUD code for manufactured housing are generally reportable 
under HMDA, and will therefore receive consideration under the Retail 
Lending Test in final Sec.  __.22.\333\
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    \331\ Final Sec.  __.13(b)(4) is discussed in greater detail in 
the section-by-section analysis of Sec.  __.13(b)(4), below.
    \332\ Final Sec.  __.13(b)(1) is discussed in greater detail in 
the section-by-section analysis of Sec.  __.13(b)(1), below.
    \333\ See HUD Manufactured Home Construction and Safety 
Standards, 24 CFR part 3280.
---------------------------------------------------------------------------

    Shared equity housing programs and community land trusts. In the 
NPR, the agencies stated that a shared-equity program operated by a 
nonprofit organization to provide long-term affordable homeownership 
could be eligible for community development consideration as an 
activity that supports affordable homeownership for low- and moderate-
income individuals.\334\ In addition, the agencies stated that an 
activity that provides financing for the acquisition of land for a 
shared equity housing project that brings permanent affordable housing 
to a community could meet the impact review factor for activities that 
result in a new community development financing product or service 
under the Community Development Financing Test or the Community 
Development Financing Test for Limited Purpose Banks, to the extent 
that it involves a new strategy to meet a community development 
need.\335\
---------------------------------------------------------------------------

    \334\ 87 FR 33884, 33897 (June 3, 2022).
    \335\ See 87 FR 33915.
---------------------------------------------------------------------------

    The NPR also specifically addressed community land trusts, which 
typically operate a specific type of shared-equity program. The 
agencies stated that providing financing to, or a grant for a nonprofit 
community land trust focused on providing affordable owner-occupied 
housing to low- or moderate-income individuals could be eligible for 
community development consideration as an activity that supports 
affordable homeownership for low- and moderate-income individuals.\336\ 
Several commenters noted that activities, such as those conducted in 
coordination with community land trusts, can prevent displacement of 
vulnerable residents.
---------------------------------------------------------------------------

    \336\ See 87 FR 33897.
---------------------------------------------------------------------------

    It is the agencies' view that shared equity housing programs, 
including but not limited to community land trust activities, provide 
opportunities to support long-term affordable housing. Commenters 
generally supported qualification of these activities under the 
affordable housing category, with some commenters noting that such 
activities can make homeownership affordable for low- or moderate-
income individuals who might be otherwise unable to afford to purchase 
a home. The agencies agree that shared equity housing and community 
land trusts are important tools to promote homeownership. Although the 
final rule does not create a separate component or prong for 
qualification of shared equity housing as affordable housing, the 
agencies highlight that loans, investments, and services involving 
shared equity programs and community land trusts may be eligible for 
consideration under final Sec.  __.13(b)(4), when they involve 
assistance for low- or moderate-income individuals to obtain affordable 
owner-occupied housing. As another example, to the extent that a 
community land trust operates rental housing meeting the requirements 
under final Sec.  __.13(b)(1) or (2), loans, investments, and services 
to support such housing would qualify for consideration under the 
applicable component. Moreover, mortgage loans that allow homeowners to 
purchase a home through these programs may be considered under the 
Retail Lending Test in final Sec.  __.22, or under the responsive 
credit product evaluation in the Retail Services and Products Test in 
final Sec.  __.23.\337\
---------------------------------------------------------------------------

    \337\ See final Sec.  __.22.
---------------------------------------------------------------------------

    Accessory dwelling units (ADUs). Several commenters requested 
consideration for banks supporting development of ADUs under the 
affordable housing category. For example, commenters requested

[[Page 6655]]

consideration for loans extended to finance ADUs that are intended to 
help low- and moderate-income homeowners develop an income-producing 
property that could offset the cost of a mortgage or rising property 
taxes, or to encourage affordability by creating additional housing 
supply.\338\ One commenter suggested that the agencies provide 
community development consideration to ADUs and small multifamily 
buildings and asked the agencies to clarify that banks can receive 
consideration for loans to support improvements and repairs to existing 
dwellings, including for small dollar loans and to install 
accessibility features.
---------------------------------------------------------------------------

    \338\ Accessory dwelling units or ADUs are additional living 
quarters on single-family lots that are independent of the primary 
dwelling unit. See HUD, Office of Policy Development and Research, 
``Accessory Dwelling Units: Case Study'' (June 2008), https://www.huduser.gov/portal/publications/adu.pdf.
---------------------------------------------------------------------------

    As adopted under final Sec.  __.13(b), certain activities related 
to ADUs could be considered affordable housing, such as those that 
contribute to the provision of housing affordable to low- and moderate-
income individuals and families. For example, a loan to a nonprofit 
organization that supports the creation of an ADU on the property of a 
low- or moderate-income homeowner could qualify under final Sec.  
__.13(b)(4). Alternatively, a loan or investment in a fund operated in 
conjunction with a government program to support the construction of 
ADUs could qualify under final Sec.  __.13(b)(1), if the resulting ADUs 
were rental housing for low- or moderate-income individuals (and not 
considered under the Retail Lending Test).
    Land banks. The NPR did not specifically address the consideration 
of land banks under the various prongs of the affordable housing 
category, and a number of commenters requested that the agencies 
explicitly address land banks and land bank-related activities in the 
final rule. Commenters stated that land bank-related activities often 
help to address the need for affordable housing for low- and moderate-
income individuals and in low- and moderate-income communities. The 
agencies recognize that land banks, which are typically established by 
a government entity or a nonprofit organization, can help to facilitate 
the development of affordable housing by acquiring and holding land 
until some future time when it can be developed as affordable housing. 
The agencies acknowledge that many of these activities could be 
considered under the affordable housing category if they have the bona 
fide intent and are specifically structured to provide affordable 
housing for low- and moderate-income individuals, and the agencies 
believe that these activities could qualify under several components of 
the affordable housing category under the final rule. For example, a 
loan to a land bank created by a government entity to hold land for the 
development of affordable rental housing could qualify under final 
Sec.  __.13(b)(1). Alternatively, a loan to a land bank operated by a 
nonprofit organization for the purpose of acquiring land on which to 
develop and sell single-family housing to low- and moderate-income 
individuals could qualify under final Sec.  __.13(b)(4).
    Special purpose credit programs. In the proposal, the agencies 
sought feedback on whether special purpose credit programs \339\ should 
be listed as an example of a responsive credit product or program that 
facilitates mortgage and consumer lending targeted to low- or moderate-
income borrowers under the Retail Services and Products Test.\340\ 
Several commenters instead recommended qualification for these 
activities under the affordable housing category of community 
development. In response to these comments, the agencies note that 
under the final rule, special purpose credit programs can be considered 
in the evaluation of responsive credit products and services pursuant 
to final Sec.  __.23(c)(2)(v). In addition, although specific special 
purpose credit programs are not expressly listed as qualifying programs 
under the affordable housing category in final Sec.  __.13(b), the 
agencies recognize that it would be possible for the objectives of 
specific special purpose credit programs to align with one or more 
affordable housing category components, and in such cases, these 
activities may be eligible for consideration within the affordable 
housing category of community development. For example, a grant to a 
nonprofit who is implementing a special purpose credit program that 
provides down payment assistance to low- or moderate-income individuals 
may qualify for consideration under final Sec.  __.13(b)(4).
---------------------------------------------------------------------------

    \339\ See HUD, ``Office of General Counsel Guidance on the Fair 
Housing Act's Treatment of Certain Special Purpose Credit Programs 
That Are Designed and Implemented in Compliance with the Equal 
Credit Opportunity Act and Regulation B'' (Dec. 6, 2021), https://www.hud.gov/sites/dfiles/GC/documents/Special_Purpose_Credit_Program_OGC_guidance_12-6-2021.pdf.
    \340\ 87 FR 33966.
---------------------------------------------------------------------------

    Down payment assistance. In the NPR, the agencies stated that 
financing or grants for organizations that provide down payment 
assistance to low- or moderate-income homebuyers could be eligible for 
community development consideration as an activity that supports 
affordable homeownership for low- and moderate-income individuals under 
proposed Sec.  __.13(b)(3).\341\ Several commenters suggested that the 
agencies provide consideration for activities that provide down payment 
assistance to low- and moderate-income individuals. Nonetheless, the 
agencies note that direct grants and other programs offered by banks 
that help low- and moderate-income homebuyers make a down payment are 
eligible for consideration as an activity that supports affordable 
homeownership for low- and moderate-income individuals under final 
Sec.  __.13(b)(4), as long as the down payment assistance is not 
provided as a loan by the bank directly to the owner-occupant of the 
home.
---------------------------------------------------------------------------

    \341\ See 87 FR 33897.
---------------------------------------------------------------------------

    Other suggested housing programs. Commenters requested that the 
agencies explicitly address many additional activities, including but 
not limited to home repair for low- and moderate-income individuals and 
families, supportive housing models, and first-look homebuyer programs. 
The agencies have considered these recommendations and acknowledge that 
there are many types of investments, loans, and services provided by 
banks in connection with such activities that may qualify under the 
affordable housing category of community development. As previously 
noted, many activities recommended by commenters would qualify under 
one or more of the five affordable housing components adopted in final 
Sec.  __.13(b), when the activity meets the qualifying criteria and 
thereby supports affordable housing for low- and moderate-income 
individuals and families. In addition, to provide increased certainty 
on what community development activities will qualify for CRA 
consideration, pursuant to final Sec.  __.14, the agencies will 
maintain a publicly available, non-exhaustive illustrative list of 
examples of community development activities that qualify for CRA 
consideration, including examples of qualifying affordable housing 
activities. The list will be periodically updated. Final Sec.  __.14 
also provides a formal confirmation process through which any bank 
could request a determination as to whether a proposed community 
development activity would be eligible for CRA consideration.

[[Page 6656]]

Section __.13(c) Economic Development

Current Approach
    Under the current regulation, community development is defined to 
include ``[a]ctivities that promote economic development by financing 
businesses or farms that meet the size eligibility standards of the 
U.S. Small Business Administration Development Company (SBDC) or Small 
Business Investment Company (SBIC) programs or have gross annual 
revenues of $1 million or less.'' \342\ Under the current Interagency 
Questions and Answers, activities qualify as economic development if 
they meet both a ``size'' test and a ``purpose'' test.\343\
---------------------------------------------------------------------------

    \342\ See current 12 CFR__.12(g)(3). See also 13 CFR 120.10 
(SBDC program) and 13 CFR part 107 (SBIC program).
    \343\ See Q&A Sec.  __.12(g)(3)-1.
---------------------------------------------------------------------------

    Size test. An institution's loan, investment, or service meets the 
``size'' test if it finances, directly or through an intermediary, 
businesses or farms that either meet, as noted, the size eligibility 
standards of the SBDC or SBIC programs, or have gross annual revenues 
of $1 million or less.\344\ The term ``financing'' is considered 
broadly and includes technical assistance that readies a business that 
meets the size eligibility standards to obtain financing.\345\
---------------------------------------------------------------------------

    \344\ See id.
    \345\ See id.
---------------------------------------------------------------------------

    Currently, small business loans and small farm loans that meet the 
definition of ``loans to small businesses'' or ``loans to small 
farms,'' based on the Call Report definitions--loans with original 
amounts of $1 million or less to businesses and loans with original 
amounts of $500,000 or less to farms \346\--are generally evaluated as 
retail loans and not as community development loans. Loans that exceed 
these amounts, as applicable, can be considered as community 
development loans if the business or farm borrower either meets the 
size eligibility standards of the SBDC or SBIC programs or has gross 
annual revenues of $1 million or less.
---------------------------------------------------------------------------

    \346\ See current 12 CFR __.12(v) (defining a small business 
loan as a loan included in ``loans to small businesses'' as defined 
in the instructions for preparation of the Call Report). See also 12 
CFR __.12(w) (defining a small farm loan as a loan included in 
``loans to small farms'' as defined in the instructions for 
preparation of the Call Report).
---------------------------------------------------------------------------

    Purpose test. A bank's loans, investments, or services can meet the 
``purpose'' test if they ``promote economic development'' by supporting 
either:
    (1) Permanent job creation, retention, and/or improvement:
     For low- or moderate-income persons, in low- or moderate-
income census tracts, in areas targeted for redevelopment by Federal, 
State, local, or tribal governments;
     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; \347\ or
---------------------------------------------------------------------------

    \347\ See Q&A Sec.  __.12(g)(3)-1.
---------------------------------------------------------------------------

    (2) Federal, State, local, or tribal economic development 
initiatives that include provisions for creating jobs or improving 
access by low- or moderate-income persons to jobs or to job training or 
workforce development programs.\348\
---------------------------------------------------------------------------

    \348\ See id.
---------------------------------------------------------------------------

    The agencies will presume that loans, investments, or services in 
connection with the following specific government programs promote 
economic development, thereby satisfying the purpose test: SBDCs, 
SBICs, USDA Rural Business Investment Companies \349\ (RBICs), New 
Markets Venture Capital Companies,\350\ NMTC-eligible Community 
Development Entities \351\ (CDEs), or CDFIs that finance small 
businesses or small farms.\352\
---------------------------------------------------------------------------

    \349\ See 7 CFR 4290.50.
    \350\ See 13 CFR part 108.
    \351\ See 26 U.S.C. 45D(c).
    \352\ See Q&A Sec.  __.12(g)(3)-1.
---------------------------------------------------------------------------

    Currently, an intermediate small bank that is not required to 
report small business or small farm loans may opt to have its small 
business and small farm loans considered as community development 
loans, as long as they meet the definition of community development. An 
intermediate small bank that opts to have such small business and small 
farm loans considered as community development loans cannot also choose 
to have these loans evaluated under the current lending test.\353\
---------------------------------------------------------------------------

    \353\ See Q&A Sec.  __.12(h)-3.
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed several revisions to the economic development 
category of community development that were intended to provide clarity 
to stakeholders about the activities that qualify under this category 
and to encourage activities supportive of small businesses and small 
farms. Specifically, the agencies proposed that the economic 
development category of community development would comprise three 
types of activities:
     Activities undertaken consistent with Federal, State, 
local, or tribal government plans, programs, or initiatives that 
support small businesses, as defined in the plans, programs, or 
initiatives. This prong expressly included lending to, investing in, or 
providing services to an SBDC, SBIC, New Markets Venture Capital 
Company, qualified CDE, or RBIC (proposed Sec.  __.13(c)(1)).
     Support for financial intermediaries that lend to, invest 
in, or provide technical assistance to businesses or farms with gross 
annual revenues of $5 million or less (proposed Sec.  __.13(c)(2)); or
     Providing technical assistance to support businesses or 
farms with gross annual revenues of $5 million or less, or providing 
services such as shared space, technology, or administrative assistance 
to such businesses or farms or to organizations that have a primary 
purpose of supporting such businesses or farms (proposed Sec.  
__.13(c)(3)).
    Gross annual revenue threshold for small businesses and small farms 
under economic development. The agencies proposed alternative size 
standards for defining small businesses and small farms, as discussed 
in the section-by-section analysis of Sec.  __.12.\354\ Specifically, 
the agencies proposed a gross annual revenue threshold for the 
businesses and farms supported under proposed Sec.  __.13(c)(2) and (3) 
of $5 million or less. For government-related support of small 
businesses and small farms, the size standards of the relevant 
government plan, program, or initiative would apply, with the proposed 
$5 million gross annual revenue threshold applying in the absence of a 
definition in the plan, program, or initiative. As discussed in the 
proposal, the $5 million size standard was intended in part to align 
the meaning of small business and small farm across the CRA regulation, 
including under the proposed Retail Lending Test, with the definition 
of small business under the CFPB's Section 1071 Proposed Rule, 
subsequently adopted in the Section 1071 Final Rule.
---------------------------------------------------------------------------

    \354\ See final Sec.  __.12 (``small business'' and ``small 
farm'' definitions); see also, e.g., final Sec.  __.22(d) and the 
accompanying section-by-section analysis.
---------------------------------------------------------------------------

    Purpose of job creation, retention, and improvement for low- and 
moderate- income individuals under economic development. Under the 
proposal, the current purpose test described above would not be 
required for loans, investments, and services to qualify as supporting 
economic development, as long as the proposed criteria in

[[Page 6657]]

proposed Sec.  __.13(c)(1), (2), or (3) were met. The agencies 
requested feedback on whether the proposed economic development 
category should retain a separate component of economic development to 
consider activities that support job creation, retention, and 
improvement for low- and moderate-income individuals. Moreover, the 
agencies sought feedback on whether activities conducted with 
businesses or farms of any size and that create or retain jobs for low- 
or moderate-income individuals should be considered. Additionally, the 
agencies requested feedback on criteria that could be included to 
demonstrate that the activities satisfied this component and that 
ensure activities are not qualified solely because they offer low wage 
jobs.
    Evaluation of direct loans to small businesses and small farms. As 
discussed in greater detail in the section-by-section analysis of Sec.  
__.22, the agencies proposed that a bank's reported loans to small 
businesses and small farms, regardless of the loan amount, generally 
would be evaluated under the proposed Retail Lending Test.\355\ 
Relatedly, under proposed Sec.  __.13(c), the agencies proposed that 
reported loans directly to small businesses and small farms would not 
be included in the economic development category of community 
development and, therefore, would not be considered in the proposed 
Community Development Financing Test. Consistent with current guidance, 
the agencies proposed that intermediate banks would retain flexibility 
to have certain retail loans--small business, small farm, and home 
mortgage loans--be considered as community development loans. This 
option was proposed to be available to an intermediate bank if those 
loans have a primary purpose of community development and are not 
required to be reported by the bank (under HMDA or CRA).\356\
---------------------------------------------------------------------------

    \355\ See proposed Sec.  __.22(a); see also, e.g., final Sec.  
__.22(d) and the accompanying section-by-section analysis.
    \356\ See proposed Sec.  __.22(a)(5)(iii); compare with Q&A 
Sec.  __.12(h)--3 (small business, small farm, home mortgage, and 
consumer loan consideration for intermediate small banks).
---------------------------------------------------------------------------

    The agencies proposed this approach to reflect the agencies' belief 
that loans to small businesses and small farms are primarily retail 
lending products for banks, and therefore would be more appropriately 
considered under the proposed Retail Lending Test. Under the proposed 
Retail Lending Test, described in detail in the section-by-section 
analysis of Sec.  __.22 below, small business loans and small farm 
loans would be evaluated based on the distribution metrics and would 
not be subject to additional requirements such as the current community 
development criterion for economic development.\357\ Accordingly, the 
proposed revisions to the economic development category of community 
development were designed to emphasize other activities that would 
promote access to financing for small businesses and small farms, as 
discussed in greater detail below. However, as also discussed further 
below, the agencies also sought feedback on whether the proposed 
approach to evaluating direct small business and small farm lending 
solely under the Retail Lending Test would sufficiently recognize 
activities that support job creation, retention, and improvement for 
low- or moderate-income individuals and communities.
---------------------------------------------------------------------------

    \357\ As further discussed in the section-by-section analysis of 
final Sec.  __.42, under the current rule, for each census tract in 
which a bank (other than a small bank) originated or purchased a 
small business or small farm loan, the bank must report the 
aggregate number and amount of the loans with an amount at 
origination of: (1) $100,000 or less; (2) more than $100,000 but 
less than $250,000; and (3) more than $250,000. See current 12 CFR 
__.42(b)(1)(i) through (iii). These banks must also report small 
business and small farm loans to businesses and farms with gross 
annual revenues of $1 million or less (based on the revenue size 
used by the bank in making the credit decision). See current 12 CFR 
__.42(b)(1)(iv). Subject to changes discussed in the proposal 
pertaining to the transition to using section 1071 data, the 
proposed Retail Lending Test distribution metrics would evaluate a 
bank's small business loans and small farm loans to businesses and 
farms with gross annual revenues of less than $1 million. The 
proposal also would evaluate loans to small businesses and small 
farms of more than $250,000 but less than or equal to $1 million, 
and of $250,000 or less. See proposed Sec.  __.22(d); see also final 
Sec.  __.22(e) and the accompanying section-by-section analysis. See 
also, e.g., current 12 CFR __.12(g)(3) and Q&A Sec.  __.12(g)(3)-1.
---------------------------------------------------------------------------

    Under the proposal, for retail loans evaluated under the proposed 
Retail Lending Test, the agencies proposed to transition from the 
current CRA definitions of small business loans and small farm loans to 
the definitions of loans to small businesses and small farms with gross 
annual revenues of $5 million or less--with the focus on the size of 
the small business or small farm, not the size of the loan. Hence, 
whereas currently, as noted, small business and small farm loans are 
generally evaluated under the lending test if they are loans with 
origination amounts of $1 million or less to a business (of any size) 
and loans with origination amounts of $500,000 or less to a farm (of 
any size),\358\ small business and small farm lending evaluated under 
the proposed Retail Lending Test would consider loans of any size, as 
long as they were to businesses or farms with gross annual revenues of 
$5 million or less.
---------------------------------------------------------------------------

    \358\ See 12 CFR __.12(v) (defining a small business loan as a 
loan included in ``loans to small businesses'' as defined in the 
instructions for preparation of the Call Report). See also 12 
CFR__.12(w) (defining a small farm loan as a loan included in 
``loans to small farms'' as defined in the instructions for 
preparation of the Call Report).
---------------------------------------------------------------------------

    As proposed, the transition to this evaluation approach for small 
business and small farm lending would be based on the availability of 
data under the CFPB Section 1071 Final Rule on small business loan data 
collection. In the interim, to evaluate small business and small farm 
loans under the Retail Lending Test, the agencies proposed to use the 
current definitions of small business loan and small farm loan.\359\ 
The agencies sought feedback on this aspect of the proposal and on 
whether to continue considering bank loans to small businesses and 
small farms that currently qualify under the economic development 
criteria as community development loans during the period between when 
the final rule becomes applicable and when the agencies begin to use 
section 1071 data for bank CRA evaluations.
---------------------------------------------------------------------------

    \359\ See 12 CFR __.12(v) (defining small business loan) and (w) 
(defining small farm loan).
---------------------------------------------------------------------------

Comments Received
    Many commenters provided a variety of views on the proposal overall 
and offered feedback on the issues on which the agencies specifically 
requested comment, as discussed in further detail below. Several 
commenters expressed general support for the proposed changes to the 
economic development category and the proposed components. Many 
commenters expressed concerns, however, that the proposed changes to 
the economic development category would limit the activities that would 
have qualified under the current rule for this category and/or limit 
the range of small businesses that could be supported. Generally 
regarding a ``size'' and ``purpose'' test for the economic development 
category of community development, multiple commenters supported 
retaining the current size and purpose tests because, in these 
commenters' view, these tests highlight women- and minority-owned 
businesses. A commenter suggested that the ``size'' test and 
``purpose'' test be retained but that a qualifying activity under the 
economic development category should be required to satisfy only one of 
these tests, not both.
    Comments discussed below address the following topics regarding the 
proposed economic development category of community development: (1) 
proposed size standards for small

[[Page 6658]]

businesses and small farms; (2) the proposal to eliminate the existing 
``purpose'' test for qualifying economic development activities; (3) 
criteria to demonstrate job creation, retention, and improvement; and 
(4) the proposed evaluation of direct loans to small businesses and 
small farms. As relevant, comments on these topics are also included in 
the section-by-section analysis of the individual components of the 
final rule (final Sec.  __.13(c)(1) through (3)).
    Gross annual revenue threshold for small businesses and small farms 
under economic development. Numerous commenters addressed the proposal 
to include a gross annual revenue threshold for businesses and farms 
that could be considered under the economic development category. Some 
commenters generally supported the proposed size threshold of gross 
annual revenues of $5 million or less for businesses and farms, with 
some asserting the proposed size threshold would allow a greater number 
of small businesses to be supported under this category. A few 
commenters supported the $5 million gross annual revenue threshold but 
suggested that support for intermediaries that target the smallest 
businesses (with gross annual revenues of $1 million or less) should 
receive enhanced credit, while another commenter expressly supported 
using the $5 million gross annual revenue threshold for the 
intermediary prong (proposed Sec.  __.13(c)(2)).
    On the other hand, many commenters opposed or expressed concerns 
about the proposed size thresholds for small businesses and small 
farms. Commenters generally expressed concerns that the proposed 
approach would eliminate credit or stifle growth for many businesses, 
including minority-owned businesses and mid-sized companies, and would 
limit or omit many projects that impact low- and moderate-income areas 
or individuals. A commenter asserted that the proposed $5 million gross 
annual revenue threshold failed to account for the significant positive 
impact larger businesses have on job creation, retention, and 
improvement. Some commenters suggested maintaining the current ``size'' 
standards to qualify activities that support small businesses and small 
farms under the economic development category, with some expressing 
concerns that activities directly supporting small businesses that meet 
the size eligibility standards established by the SBA and affiliated 
programs (but that have gross annual revenues of greater than $5 
million), as well as support for the financial intermediaries assisting 
these businesses, would no longer qualify under this proposed economic 
development category. A commenter asserted that setting a specific 
revenue threshold for small businesses fails to recognize differences 
among businesses across different industries and suggested that the 
agencies adopt a business size index and standard like the one used by 
the SBA.\360\ A few commenters asserted that the proposed threshold of 
$5 million in gross annual revenues would be too low. A few other 
commenters expressed concern that the proposal did not provide a clear 
rationale for the proposal to use a $5 million gross annual revenues 
threshold for small businesses and farms supported under the proposed 
economic development category. One commenter recommended that banks of 
any size should be allowed to receive consideration for loans to any 
small business or small farm loan, regardless of gross annual revenue, 
under any category of community development.\361\
---------------------------------------------------------------------------

    \360\ See, e.g., SBA, ``Table of Size Standards'' (effective 
March 17, 2023), https://www.sba.gov/document/support-table-size-standards.
    \361\ This commenter specifically suggested merging the proposed 
economic development category with the proposed revitalization 
category. See proposed Sec.  __.13(e).
---------------------------------------------------------------------------

    Some commenters asserted that the proposed threshold of $5 million 
in gross annual revenues for small businesses and small farms would be 
too high. A commenter suggested that the size standard should be $1 
million gross annual revenues or less, consistent with current CRA 
small business loan reporting, without consideration for the size 
standards established by the SBA and affiliated programs and noted that 
most small, minority-owned, and women-owned businesses have gross 
annual revenues of $1 million or lower. Several commenters indicated 
that a $5 million gross annual revenue threshold would create a 
disincentive for banks to support very small businesses and minority-
owned businesses. Another commenter suggested that a size standard of 
$750,000 in gross annual revenues would target an appropriate business 
size, particularly in rural areas, but also supported retaining the 
flexibility to use the size standards established by the SBA for 
economic development loans.
    A few commenters suggested that, if the agencies adopt the small 
business and small farm gross annual revenue threshold as proposed, 
exceptions should also be adopted. A commenter suggested that 
activities that support minority-owned businesses, including those with 
more than $5 million in gross annual revenues, should also qualify 
without having to document job creation, retention, or improvement. 
Another commenter similarly suggested that any loan or investment in a 
certified minority business enterprise should qualify.
    Purpose of job creation, retention, and improvement for low- and 
moderate- income individuals under economic development. The agencies 
received many comments related to the proposal to eliminate the 
``purpose'' test from the economic development category of community 
development. Some commenters supported the expansion of possible 
eligible loan purposes; for example, a commenter favorable noted that 
the removal of the jobs-focused ``purpose'' test would enable banks to 
receive CRA consideration for making loans to small businesses or farms 
for new equipment or facilities that could support their growth. 
Another commenter asserted that the proposal would allow a greater 
number of small businesses to be supported, expressing the view that 
the ``purpose'' test required by current CRA regulations under the 
economic development definition limited support for some small 
businesses, particularly sole proprietors that generally do not create 
jobs for low- and moderate-income individuals, and therefore do not 
meet the current ``purpose'' test standard. A commenter stressed that 
an important reason to retain the existing ``purpose'' test is that it 
provides consideration for jobs to low- and moderate-income individuals 
and communities as well as areas targeted for revitalization.
    Many commenters supported retaining job creation, retention, and 
improvement as a component of the economic development category. Some 
commenters raised concerns that the proposed approach to evaluate loans 
to small businesses and farms under the Retail Lending Test would not 
sufficiently recognize job creation, retention, and improvement 
benefits for low- and moderate-income individuals. Commenters expressed 
concern that eliminating the current purpose test focused on job 
creation, retention or improvement for low- and moderate-income 
individuals and would disincentivize banks from investing in certain 
funds, programs, and other activities that focus on these objectives. A 
commenter noted that retaining the purpose requirement would improve 
transparency and noted that they did not believe demonstrating that a 
loan's purpose is to create, retain, or improve jobs is difficult. 
Several commenters highlighted that the requirements for qualifying a 
Public Welfare Investment

[[Page 6659]]

(PWI) include demonstrating that the investment is designed 
``primarily'' to promote the public welfare, including the welfare of 
low- or moderate-income communities or families (such as by providing 
housing, services, or jobs) \362\ and that the emphasis on job creation 
should be similarly retained in the economic development category of 
community development under CRA. A few commenters expressed concerns 
about the possibility of materially different standards for community 
development investments versus permissible PWIs.
---------------------------------------------------------------------------

    \362\ See 12 U.S.C. 24(Eleventh) (OCC), 12 U.S.C. 338a (Board), 
12 CFR 345.12(g)(1) through (4), (h)(1), (i)(1), and (t)(1) (FDIC).
---------------------------------------------------------------------------

    Many commenters also suggested that the economic development 
category include consideration for loans and investments to small 
businesses and small farms that demonstrate job creation, retention, 
and improvement not only for low- and moderate-income individuals, but 
also in low- and moderate-income areas and areas targeted for 
redevelopment by Federal, State, local, or tribal governments, 
consistent with current guidance.\363\ Several commenters suggested 
that loans to or investments in any size small business or small farm 
that could demonstrate job creation, retention, or improvement for low- 
and moderate-income individuals should be considered. One of these 
commenters also suggested that additional consideration should be given 
to activities that support businesses owned by persons of color, women 
or veterans, and small family-owned farms. Finally, a commenter 
suggested that if the jobs-focused requirement were not included in the 
economic development category, then it should be considered as part of 
the impact review for the Community Development Financing Test.\364\
---------------------------------------------------------------------------

    \363\ See Q&A Sec.  __.12(g)(3)-1.
    \364\ See proposed Sec. Sec.  __.15 and __.24, discussed in the 
section-by-section analyses of final Sec. Sec.  __.15 and __.24.
---------------------------------------------------------------------------

    In contrast, some commenters viewed a separate component for 
activities supporting job creation, retention, or improvement as 
unnecessary. For example, a commenter thought that the proposed 
approach for considering direct loans to small businesses and small 
farms under the Retail Lending Test was simpler and that other proposed 
components for the economic development category would support job 
creation and retention.
    Criteria to demonstrate job creation, retention, and/or improvement 
for low- or moderate-income individuals. Commenters also provided input 
on criteria that could be included to demonstrate that the purpose of 
an activity is job creation, retention, or improvement for low- or 
moderate-income individuals. Many commenters highlighted the CRA 
Interagency Questions and Answers and noted that banks have 
successfully followed this guidance to provide examiners with 
information that demonstrates the purpose of the activity to be job 
creation, improvement, or retention and that this approach should be 
sufficient. A commenter suggested any documentation about the type of 
job, training offered or outreach to low- and moderate-income 
individuals or areas should be considered.
    Commenters provided suggestions on resources that a bank can use to 
demonstrate that the purpose of an activity is for job creation, 
retention, or improvement for low- or moderate-income individuals. For 
example, suggestions included relying on the recipient's credit 
profile, public websites, such as glassdoor.com, and criteria 
established by the HUD Community Development Block Grant Program.\365\ 
A commenter suggested that if the anticipated or documented wages 
exceed 80 percent of area median income, the location of the job should 
be considered, particularly if the company has committed to hire from a 
low- or moderate-income or underserved area. This commenter did not 
support the development of a prescriptive standard or requirement for 
documentation, however, and suggested that a bank should be allowed to 
demonstrate, with or without documentation from the business, that the 
activity is likely to create or retain jobs.
---------------------------------------------------------------------------

    \365\ See 24 CFR 570.208(a)(4). The comment cited HUD Office of 
Block Grant Assistance, ``Basically CDBG,'' https://files.hudexchange.info/resources/documents/Basically-CDBG-Chapter-3-Nat-Obj.pdf.
---------------------------------------------------------------------------

    Many commenters on this topic offered specific views on criteria 
that could be considered to evaluate the quality of the job. Commenters 
offered suggestions examiners should consider, such as the type of job, 
compensation, access to job training and other support for career 
advancement as well as quality specific factors, such as whether the 
job provides at least three employee benefits including health 
insurance, dental insurance, 401(k) or other retirement plan, sick 
leave, vacation leave, and disability, as well as consideration of 
whether the job offers at least a living wage and cited the ``living 
wage calculator'' developed by the Massachusetts Institute of 
Technology.\366\ A commenter suggested using the same standards for 
assessing job quality as the Community Economic Development Program 
within the Office of Community Services at the U.S. Department of 
Health and Human Services \367\ to ensure that activities are not given 
credit if they offer only low wage jobs.
---------------------------------------------------------------------------

    \366\ See Massachusetts Institute of Technology, ``Living Wage 
Calculator,'' https://livingwage.mit.edu/.
    \367\ See U.S. Dept. of Health & Human Svcs., Office of 
Community Svcs., ``Community Economic Development (CED),'' https://www.acf.hhs.gov/ocs/programs/ced.
---------------------------------------------------------------------------

    Several commenters did not support considering wages provided by 
the job as a measure of job quality. These commenters asserted that all 
jobs are valuable and should be considered regardless of the wages 
offered and indicated that jobs that offer lower wages may still be 
important entry level jobs. Additionally, a commenter noted that jobs 
created by small businesses provide important opportunities in 
historically marginalized communities and stated that the importance of 
creating jobs of all salary levels should be recognized.
    Evaluation of direct loans to small businesses and small farms. 
Commenters had differing views on whether loans made by banks directly 
to small businesses and small farms should be considered under the 
economic development category of community development or should only 
be considered under the Retail Lending Test, as proposed. Some 
commenters raised concerns that the proposed approach to evaluate loans 
to small businesses and farms under the Retail Lending Test would not 
sufficiently recognize job creation, retention, and improvement 
benefits for low- to moderate-income individuals. For example, a 
commenter supported continuing to include loans to small businesses and 
small farms that satisfy the size and purpose tests as community 
development loans, asserting that considering them under the Retail 
Lending Test would fail to incentivize small business lending. Another 
commenter expressed concerns that this approach would limit community 
development activities not associated with government programs, such as 
activities undertaken through nonprofit affiliates of CDFIs, that CDFIs 
can leverage to meet economic development goals without some of the 
challenges of participating in a government program.
    On the other hand, some commenters suggested that a bank should 
have the option of choosing whether to have a loan to a small business 
or small farm

[[Page 6660]]

considered either under the proposed Community Development Financing 
Test or the proposed Retail Lending Test. A commenter recommended that 
the proposed flexibility for intermediate banks to have certain retail 
loans considered community development loans should be extended to 
large banks with under $10 billion in assets. A few commenters 
suggested that, in general, loans to small businesses or small farms 
should be considered under the proposed Community Development Financing 
Test if they have a purpose of community development.
    Some commenters asserted that the proposed approach would 
sufficiently recognize loans to small businesses and small farms and 
that may also support job creation, retention, and improvement for low- 
or moderate-income individuals or communities. A commenter asserted 
that the proposed approach would be more inclusive of all small 
business lending compared to the current approach, noting that only 
loans to small businesses that are greater than $1 million and that 
also satisfy the size and purpose test qualify as community development 
loans. Another commenter expressed the view that removing the 
requirement that activities demonstrate job creation, retention, and 
improvement for low- and moderate-income individuals would incentivize 
banks to provide more support to micro-businesses.
    Commenters provided several other suggestions for how direct 
lending to small businesses and small farms that demonstrates job 
creation, retention or improvement for low- and moderate-income 
individual could be considered if not included in the economic 
development category. A few commenters suggested that the agencies 
include a qualitative review of loans considered under the Retail 
Lending Test to determine whether they demonstrate job creation, 
retention, or improvement for low- and moderate-income individuals and 
communities. Another commenter suggested that only loans to small 
businesses and small farms that demonstrate job creation, retention, or 
improvement for low- and moderate-income individuals or areas should be 
considered under the proposed Retail Lending Test. This commenter 
further recommended that, of those loans, only loans that can 
demonstrate the creation of ``good jobs,'' supporting economic 
mobility, such as those that provide apprenticeships or shared equity, 
should qualify.
    A few commenters suggested that the agencies eliminate the 
exclusion set forth in proposed Sec.  __.24(a)(2)(i) for considering 
retail loans with a community development purpose under the Community 
Development Financing Test with commenters suggesting that this could 
produce unintended results once the agencies replace the CRA definition 
of ``small business loan'' with a definition based on the CFPB's 
Section 1071 Final Rule. One of the commenters explained that many 
community development loans are made to special purpose, startup, or 
nonprofit entities that do not have gross annual revenues of more than 
$5 million. The commenter suggested that the proposed Retail Lending 
Test would incentivize banks to distribute their small business loans 
in a particular way but would not provide incentives for banks to make 
small business loans that satisfy the community development definition, 
which can be especially impactful loans. The commenter further 
explained that there would be no ``double counting'' of small business 
loans if the Community Development Financing Test allowed for certain 
small business loans to qualify as community development loans, since 
the Retail Lending Test and the Community Development Financing Test 
would evaluate different aspects of the same qualifying small business 
loan.
    A commenter suggested that, for direct loans to small businesses 
and small farms, job creation, retention, or improvement should be 
considered as part of a qualitative review under the proposed Retail 
Services and Products Test for large and intermediate banks \368\ and 
suggested that for small banks, this criterion could be considered as 
part of the qualitative review under the Retail Lending Test. Another 
commenter also suggested that for large banks, job creation, retention, 
and improvement could be considered as part of a qualitative review 
under the proposed Retail Services and Products Test, but for 
intermediate and small banks it could be considered as part of a 
qualitative review under the Retail Lending Test.
---------------------------------------------------------------------------

    \368\ Under the proposal, small banks and intermediate banks 
would not be subject to the proposed Retail Services and Products 
Test. See proposed Sec.  __.21(b)(2) and (3). As discussed in the 
section-by-section analysis of Sec.  __.21, the agencies proposed 
that small banks would be evaluated under the performance standards 
for small banks under proposed Sec.  __.29(a), but could opt to be 
evaluated under the Retail Lending Test. See proposed Sec.  
__.21(b)(3); see also final Sec.  __.21(a)(3).
---------------------------------------------------------------------------

Final Rule
Overview
    The agencies are adopting, with revisions, the proposed economic 
development category in Sec.  __.13(c). As finalized, the provisions 
for this category are intended to provide greater clarity, to promote 
activities that support small businesses and small farms, and to 
recognize the role of intermediaries that provide assistance to small 
businesses and small farms.
    Final Sec.  __.13(c) establishes three components for the economic 
development category. For clarity and overall organization of this 
section, the final rule includes section headers for each of these 
three components. Under the final rule, the three components are:
     Government-related support for small businesses and small 
farms (final Sec.  __.13(c)(1)), which includes activities undertaken 
in conjunction or in syndication with Federal, State, local, or tribal 
governments and comprises two subcomponents:
    [cir] Loans, investments, and services other than direct loans to 
small businesses and small farms (final Sec.  __.13(c)(1)(i)); and
    [cir] Direct loans to small businesses and small farm (final Sec.  
__.13(c)(1)(ii)).
     Intermediary support for small businesses and small farms 
(final Sec.  __.13(c)(2)), which provides for support to small 
businesses or small farms through intermediaries.
     Other support for small businesses and small farms (final 
Sec.  __.13(c)(3)), which addresses for other assistance to small 
businesses or small farms, such as financial counseling, shared space, 
technology, or administrative assistance, to small businesses or small 
farms.
    Relative to the proposal, the final rule broadens the scope of 
eligible activities under the economic development category and expands 
the range of small businesses and small farms that could be supported, 
while providing greater clarity to stakeholders regarding the economic 
development category. Each component of the final rule is discussed in 
turn in the section-by-section analysis below.
Section __.13(c)(1) Government-Related Support for Small Businesses and 
Small Farms
The Agencies' Proposal
    Under proposed Sec.  __.13(c)(1), activities ``undertaken 
consistent with Federal, [S]tate, local, or tribal government plans, 
programs, or initiatives that support small businesses or small farms 
as those entities are defined in the plans, programs, or initiatives'' 
would be considered community development loans as discussed in greater 
detail below.\369\ Consistent with current interagency

[[Page 6661]]

guidance,\370\ this proposed provision was intended to encourage 
support for highly responsive activities that are relevant to small 
businesses and small farms, as well as coordination among banks, 
government agencies, and other program participants. The proposed gross 
annual revenue threshold of $5 million or less for qualifying 
businesses or farms would not be required for activities that support 
business or farms through these government plans, programs, or 
initiatives, or through the specified entities. Instead, the size 
standards used by the respective government plans, programs, or 
initiatives to qualify business or farms as small would apply.\371\
---------------------------------------------------------------------------

    \369\ Proposed Sec.  __.13(c)(1).
    \370\ See, e.g., Q&A Sec.  __.12(g)(3)-1 and Q&A Sec.  
__.12(g)(4)(i)-1.
    \371\ See id.
---------------------------------------------------------------------------

    The agencies also proposed to specify that lending to, investing 
in, or providing services to an SBDC, SBIC, New Markets Venture Capital 
Company, qualified CDE, or RBIC would qualify as economic development. 
With certain technical differences, this aspect of the proposal 
generally would memorialize existing guidance which presumes that 
activities with these entities promote economic development.\372\ By 
including this list in the proposed regulation, the agencies intended 
to provide greater clarity and encourage the continued participation 
in, and support of, programs offered through these key providers of 
small business and small farm financing.
---------------------------------------------------------------------------

    \372\ See Q&A Sec.  __.12(g)(3)-1 (stating that ``the agencies 
will presume that any loan or service to or investment in a SBDC, 
SBIC, [RBIC], New Markets Venture Capital Company, New Markets Tax 
Credit-eligible [CDE], or [CDFI] that finances small businesses or 
small farms, promotes economic development'').
---------------------------------------------------------------------------

Comments Received
    Several commenters supported Sec.  __.13(c)(1) as proposed, with 
multiple commenters specifically supporting the agencies' inclusion of 
SBDCs in this component of the economic development category. A few 
commenters supported relying on the size standards used by the 
respective government programs to qualify activities, with a commenter 
noting that the proposal to allow consideration for activities that 
meet the size standards of the applicable government program would 
allow support for some larger businesses and would accommodate some 
level of intentional job creation. Commenter feedback also included a 
suggestion that the agencies include an express ``presumption'' of 
qualification for CRA credit for activities in connection with SBDCs, 
SBICs, RBICs, New Markets Venture Capital Companies, as well as 
Federal, State, local, or tribal government plans or programs.\373\ 
Commenters also suggested that loans and investments should be 
considered if they finance, either directly or through an intermediary, 
businesses or farms that either meet the size eligibility standards of 
the SBDC or SBIC programs or have $5 million in gross annual revenues 
or less.
---------------------------------------------------------------------------

    \373\ As noted earlier in this section-by-section analysis, the 
proposal specifies that ``[e]conomic development activities are: (1) 
Activities undertaken consistent with Federal, State, local, or 
tribal government plans, programs, or initiatives that support small 
businesses or small farms as those entities are defined in the 
plans, programs, or initiatives, . . . including lending to, 
investing in, or providing services to an [SBCD] (13 CFR 120.10), 
[SBIC] (13 CFR 107), New Markets Venture Capital Company (13 CFR 
108), qualified [CDE] (26 U.S.C. 45D(c)), or [RBIC] (7 CFR 
4290.50).'' See also Q&A Sec.  __.12(g)(3)-1.
---------------------------------------------------------------------------

    On the other hand, a commenter objected to the proposal to rely on 
the small business and small farm size standards of the applicable 
government plan, program, or initiative, asserting that government 
programs often do a poor job of targeting businesses owned by low- and 
moderate-income individuals. This commenter urged the agencies to adopt 
a $5 million maximum gross annual revenue threshold for small 
businesses and farms under this component, asserting that this would be 
important for consistency in small business and small farm size 
standards across the regulation.
    A few commenters expressed concerns about the presumption of 
qualifications for SBICs. For example, one of these commenters raised 
doubts as to how well SBICs serve targeted groups and suggested that 
SBICs should not automatically garner CRA credit.
Final Rule
    The agencies are finalizing proposed Sec.  __.13(c)(1) with 
revisions to the proposed activities undertaken with government plans, 
programs or initiatives for specificity and clarity. Final Sec.  
__.13(c)(1) adopts ``Government-related support for small businesses 
and small farms'' as the paragraph header for this component; this 
provision encompasses loans, investments, or services that are 
undertaken in conjunction or in syndication with Federal, State, local, 
or tribal government plans, programs, or initiatives. Such loans, 
investments, or services can be made or provided directly or indirectly 
to or in small businesses or small farms, as described below.
    The final rule under Sec.  __.13(c)(1) replaces the proposed rule 
text referencing activities undertaken ``consistent with'' Federal, 
State, local, or tribal government, plans, programs, or initiatives 
with the phrase ``in conjunction or in syndication with'' these plans, 
programs, or initiatives. In this way, the final rule emphasizes the 
intended link between loans, investments, or services that will qualify 
as economic development under this prong with Federal, State, local, or 
tribal government, plans, programs, or initiatives. The final rule adds 
``in syndication with'' for clarity, to refer to those loans extended 
to a single borrower by a group of entities. The agencies believe that 
qualifying activities in conjunction with or in syndication with 
government plans, programs, or initiatives helps ensure that activities 
are responsive to the credit needs of small businesses and small farms, 
in alignment with the goals of CRA. In this regard, the agencies 
believe that government plans, programs, or initiatives are general 
indicators of community needs, and thus provide a mechanism for 
ensuring that activities are intentional and support the needs of small 
businesses and small farms. In addition, the nexus to government plans, 
programs, and initiatives provides transparency regarding program 
requirements and certainty for qualification, which the agencies 
believe is important for all stakeholders.
    As noted above and as described below, final Sec.  __.13(c)(1) is 
organized into two subcomponents: loans, investments, and services 
other than direct loans to small businesses and small farms (final 
Sec.  __.13(c)(1)(i)); and direct loans to small businesses and small 
farms (final Sec.  __.13(c)(1)(ii)).
Section __.13(c)(1)(i) Loans, Investments, and Services Other Than 
Direct Loans to Small Businesses and Small Farms
    The final rule in Sec.  __.13(c)(1)(i) provides that loans, 
investments, and services, excluding direct loans to small businesses 
and small farms, that are undertaken in conjunction or in syndication 
with Federal, State, local, or tribal governments are eligible for 
consideration as economic development. Consistent with the proposal, 
under final Sec.  __.13(c)(1)(i), loans, investments, and services may 
support small businesses or small farms in accordance with how small 
businesses and small farms are defined in the applicable plan, program, 
or initiative. If the government plan, program, or initiative does not 
identify

[[Page 6662]]

a standard for the size of the small businesses or small farms 
supported by the plan, program, or initiative, the small businesses or 
small farms supported must meet the definition of small business or 
small farm in final Sec.  __.12. Also consistent with the proposal, 
loans to, investments in, or services provided to the following are 
presumed to meet the criteria of final Sec.  __.13(c)(1)(i): SBICs; New 
Markets Venture Capital Companies; qualified CDEs; and RBICs.
    Under final Sec.  __.13(c)(1)(i), for example, an investment in a 
microloan program operated by a local government could be considered 
provided that this activity met the required criteria. The agencies are 
finalizing the provision regarding certain Federal programs to 
memorialize current interagency guidance and, as noted in the proposal, 
provide greater clarity and encourage the continued participation in, 
and support of, plans, programs or initiatives offered through these 
key providers of small business and small farm financing.\374\
---------------------------------------------------------------------------

    \374\ See Q&A Sec.  __.12(g)(3)-1.
---------------------------------------------------------------------------

    The agencies understand that some commenters oppose the express 
presumption of qualification for activities in connection with SBICs 
because of concerns regarding how well SBICs serve certain groups of 
business owners, but the agencies believe that it is important to 
recognize them in the final rule because they offer an opportunity for 
banks to provide an important source of capital to grow small 
businesses.\375\ The agencies note that specifying SBICs and other 
entities in the final rule provides greater clarity and certainty about 
the types of loans, investments and services that may receive 
consideration under this subcomponent.
---------------------------------------------------------------------------

    \375\ See generally, SBA, ``The Small Business Investment 
Company (SBIC) Program Overview'' (Oct. 1, 2018), https://www.sba.gov/sites/sbagov/files/2019-02/2018%20SBIC%20Executive%20Summary.pdf.
---------------------------------------------------------------------------

    The final rule also provides consistency for stakeholders with the 
current framework. As noted, this subcomponent of the economic 
development final rule generally memorializes current interagency 
guidance, which provides that any loan or service to or investment in 
an SBDC, SBIC, RBIC, New Markets Venture Capital Company, NMTC-eligible 
CDE, or CDFI that finances small businesses or small farms, is presumed 
to promote economic development. \376\ As the proposal, final Sec.  
__.13(c)(1)(i) does not mention CDFIs, as activities with CDFIs are 
considered under a separate category of community development in the 
final rule.\377\
---------------------------------------------------------------------------

    \376\ See Q&A Sec.  __.12(g)(3)-1.
    \377\ See final Sec.  __.13(k) and the accompanying section-by-
section analysis.
---------------------------------------------------------------------------

    Size eligibility standard under final Sec.  __.13(c)(1)(i). As 
noted, for this subcomponent of economic development, the agencies are 
adopting a size standard for businesses or farms that are supported by 
government plans, programs, or initiatives that aligns with relevant 
size standards for small businesses and small farms intended to be the 
beneficiaries of the applicable government plan, program, or 
initiative. The size standard could be lower or higher than the $5 
million gross annual revenue threshold that would otherwise apply under 
the category, or it could be expressed in terms of employee size or 
some other measure. However, if the government plan, program, or 
initiative does not define a size standard for small businesses or 
small farms that it supports then the gross annual revenue consistent 
with the small business and small farm definitions in Sec.  __.12 
(gross annual revenue of $5 million or less), would apply.
    The agencies are not adopting a maximum gross annual revenue 
threshold of $5 million for all small businesses and small farms under 
Sec.  __.13(c)(1)(i) because the agencies believe that standards vary 
across different government plans, programs, and initiatives to address 
various community development and small business or farm needs; the 
standards in the final rule are designed to accommodate the ways in 
which these plans, programs, and initiatives may be tailored to respond 
to community needs. The agencies understand that government plans, 
programs, and initiatives will likely identify the standard for the 
size of business or farm supported and believe it is appropriate to 
maintain flexibility. However, for clarity, the final rule provides 
that, in the absence of a size standard established by the government 
program, plan, or initiative, the business or farm supported by the 
government program, plan, or initiative must meet the definition of 
``small business'' or ``small farm'' as defined in Sec.  __.12.
    The agencies considered the feedback provided by commenters 
advocating for a higher or lower threshold for various reasons, 
including views that the proposed approach would eliminate credit or 
stifle growth for many businesses or would create a disincentive for 
banks to support very small businesses and minority-owned businesses. 
The agencies, however, believe the size standards established by the 
government program or as provided in the definition for small business 
and small farms in Sec.  __.12 will capture activities that support a 
broad range of small businesses and small farms, while providing 
clarity. The agencies also note that support for small businesses and 
small farms under final Sec.  __.13(c)(2) and (3) is more targeted, to 
small businesses and small farms with gross annual revenues of $5 
million or less, which the agencies believe will appropriately focus 
those activities on smaller businesses. In addition, the impact and 
responsiveness review under final Sec.  __.15 includes as a review 
factor support for small businesses or small farms with gross annual 
revenues of $250,000 or less.\378\
---------------------------------------------------------------------------

    \378\ See final Sec.  __.15(b)(6) and the accompanying section-
by-section analysis.
---------------------------------------------------------------------------

Section __.13(c)(1)(ii) Direct Loans to Small Businesses and Small 
Farms
    The agencies are adopting a second subcomponent in final Sec.  
_.13(c)(1)(ii) to provide consideration of certain direct loans to 
small businesses and small farms. Specifically, under final Sec.  
__.13(c)(1)(ii), the economic development category of community 
development would include loans by a bank directly to businesses or 
farms, including, but not limited to, loans in conjunction or 
syndicated with an SBDC or SBIC, that meet the following size and 
purpose criteria:
     Size eligibility standard. The loans must be to businesses 
and farms that meet the size eligibility standards of the SBDC or SBIC 
programs or that meet the definition of small business or small farm in 
Sec.  __.12 (final Sec.  __.13(c)(1)(ii)(A)).
     Purpose test. The loans must have the purpose of promoting 
permanent job creation or retention for low- or moderate-income 
individuals or in low- or moderate-income census tracts (final Sec.  
__.13(c)(1)(ii)(B)).
    The agencies considered broad commenter feedback that loans made to 
small businesses and small farms should be considered under economic 
development and that a ``size'' and ``purpose'' test should be retained 
for various reasons. The agencies understand commenter concerns that 
certain loans to small businesses do have a community development 
purpose and should be considered as community development loans. The 
agencies are also sensitive to expressed concerns about the potential 
reduction in qualifying loans if direct lending to small businesses is 
not included in the economic development category of the final rule. As 
stated in the proposal, the

[[Page 6663]]

agencies believe that loans to small business and small farm are 
generally more suitable for consideration under the Retail Lending 
Test. However, the agencies have carefully considered the many comments 
on this issue, and believe there are certain loans to small businesses 
and small farms that would align with the goals of community 
development.
    The first eligibility criterion--that the loans are made in 
conjunction or in syndication with a government plan, program, or 
initiative--is the same standard that applies to activities under final 
Sec.  __.13(c)(1)(i) that are not direct loans to small businesses and 
small farms. As stated previously, the agencies believe that this 
criterion helps to demonstrate that the loans are responsive to 
identified community needs and support articulated community 
development goals. In addition, this criterion will increase certainty 
and transparency by setting a clear standard for determining that an 
activity qualifies as community development. This provision further 
specifies that loans in conjunction or syndication with SBDCs and 
SBICs, and that meet the size and purpose criteria, are considered to 
qualify as economic development under final Sec.  __.13(c)(1)(ii). As 
similarly discussed in the section-by-section analysis of final Sec.  
__.13(c)(1)(i), the agencies believe that noting these programs in the 
rule text provides helpful clarity and transparency, as well as 
assurance that loans in conjunction or syndication with these programs, 
which serve an important role within the ecosystem of small business 
and small farm lending, will continue to qualify as economic 
development under the final rule.
    Size eligibility standard. On consideration of the comments on a 
size eligibility standard for economic development and further 
deliberation, the agencies are adopting a size eligibility standard for 
direct loans to small businesses or small farms that aligns with the 
current CRA framework's size standard, discussed above--namely, the 
size standards of the SBDC or SBIC programs--in addition to including 
loans supporting businesses of gross annual revenues of $5 million or 
less. The agencies believe that adopting these size standards for 
direct lending to small businesses under the economic development 
category of community development will provide consistency with the 
current CRA framework, which will foster certainty and predictability 
for banks engaging in this lending.
    Purpose test. The agencies are also adopting a purpose test to 
qualify certain direct loans to small businesses and small farms under 
final Sec.  __.13(c)(1)(ii)(B). As previously noted, loans that may be 
considered to be economic development under final Sec.  __.13(c)(1)(ii) 
must have the purpose of promoting permanent job creation or retention 
for low- or moderate-income individuals or in low- or moderate-income 
census tracts. The agencies carefully considered commenter feedback on 
a purpose test for qualifying economic development activities. As 
discussed above, many commenters supported retaining job creation, 
retention, and improvement as a component of the economic development 
category. The agencies acknowledge feedback indicating that the current 
purpose test is helpful for encouraging jobs-focused activities, and 
have deliberated further on commenter concerns that the proposed 
approach to evaluate loans to small businesses and farms under the 
Retail Lending Test might not sufficiently recognize job-related 
activities benefiting low- and moderate-income individuals and 
communities. At the same time, the agencies have considered feedback 
that elimination of the purpose test provides greater flexibility and 
opens up the possibility of more activities meeting a wider range of 
small business and small farm credit needs to qualify as economic 
development.
    On balance, the agencies determined it appropriate to retain 
consideration of direct loans to small businesses and small farms, in 
conjunction or syndication with a government plan, program, or 
initiative, and to apply a purpose test to this subcomponent of 
economic development, which is intended generally to align with the 
current purpose test and to be responsive to suggestions and concerns 
raised by commenters. Recognizing the benefits that commenters have 
noted of removing the purpose test from the economic development 
category of community development, however, the agencies are not 
applying the purpose test to final Sec.  __.13(c)(1)(i) or (c)(2) or 
(3).
    In adopting the purpose test for permanent job creation and 
retention for final Sec.  __.13(c)(1)(ii)(B), the agencies sought to 
recognize the contributions of small businesses and small farms in 
communities, particularly with respect to long-term job opportunities 
for low- or moderate-income individuals. In addition to considering 
prior stakeholder feedback and comments on the proposal, the agencies 
considered their own supervisory experience regarding the complexities 
involved under the current purpose test in determining whether small 
business and small farm loans support permanent job creation, 
retention, or improvement for low- or moderate-income individuals and 
low- or moderate-income census tracts. In addition, the agencies 
considered feedback that eliminating the purpose test from the final 
rule on economic development entirely could result in different 
standards for community development investments versus PWIs.\379\
---------------------------------------------------------------------------

    \379\ The agencies have noted comments on the proposal related 
to PWIs, and will continue to be aware of intersections between the 
CRA and PWI frameworks in supervising banks.
---------------------------------------------------------------------------

    The purpose test adopted in final Sec.  __.13(c)(1)(ii)(A) requires 
that the loan proceeds are applied for the purpose of promoting 
permanent job creation or retention for low- or moderate-income 
individuals or in low- or moderate-income census tracts. As noted, 
loans that are made by a bank directly to small businesses or small 
farms in conjunction or in syndication with an SBDC or SBIC 
presumptively qualify under this prong but are not the exclusive loans 
that qualify; other loans that are made in conjunction or in 
syndication with other government programs, plans, or initiatives and 
that meet the size and purpose criteria could also qualify. For 
example, an SBA 7(a) loan \380\ extended for the purpose of purchasing 
new long-term machinery and that would allow a small business to hire 
additional employees could qualify, provided it also met other required 
criteria. A loan to support a facility improvement in conjunction with 
a State loan guarantee program associated with the State Small Business 
Credit Initiative could qualify provide it met all necessary 
criteria.\381\ A working capital loan in conjunction with a State 
program that is for the purpose of retaining employees could qualify 
provided other required criteria are met. However, loans that fund 
general business operations would be less likely to qualify without 
additional information on whether the loan proceeds would be applied 
for the purpose of job creation or retention. The agencies believe that 
the purpose test under the final rule aligns appropriately with the 
current purpose test, with clarifying modifications discussed below, to 
provide continued encouragement of banks in extending

[[Page 6664]]

loans to small businesses and small farms as a community development 
activity.
---------------------------------------------------------------------------

    \380\ See SBA, ``7(a) Loans,'' https://www.sba.gov/funding-programs/loans/7a-loans.
    \381\ See U.S. Dept. of Treasury, ``State Small Business Credit 
Initiative,'' https://home.treasury.gov/policy-issues/small-business-programs/state-small-business-credit-initiative-ssbci.
---------------------------------------------------------------------------

    In keeping with current guidance, the purpose test in the final 
rule focuses on job-related benefits for low- or moderate-income 
individuals and low- or moderate-income census tracts.\382\ Other items 
mentioned in the guidance--areas targeted for redevelopment by Federal, 
State, local, or tribal governments; intermediaries supporting small 
businesses and small farms; and technical assistance to small business 
and small farms--are incorporated elsewhere in the final rule 
provisions regarding community development.\383\
---------------------------------------------------------------------------

    \382\ See Q&A Sec.  __.12(g)(3)-1.
    \383\ See id. See also, e.g., final Sec.  __.13(e) and (j)(2) 
(revitalization or stabilization activities in targeted census 
tracts and in Native Land Areas, respectively), (c)(2) (intermediary 
support for small businesses and small farms), and (c)(3) (other 
assistance for small businesses and small farms).
---------------------------------------------------------------------------

    As explained above, under the current purpose test, a loan for the 
purpose of job improvement could qualify under economic development as 
long the loan met other criteria. The agencies are not adopting ``job 
improvement'' as a factor under the purpose test in this final rule. 
Although the agencies did not receive comments specific only to ``job 
improvement'' in feedback concerning the purpose test or economic 
development in general, based on supervisory experience, the agencies 
believe that difficulties arise in demonstrating and determining 
whether a loan promotes job improvement, presenting challenges to 
establishing predictable and workable standards for both compliance and 
supervision. In addition, the amount of time, resources, and expertise 
needed to fairly evaluate the quality of jobs could be overly 
burdensome for both the bank and examiners. However, job improvement is 
closely tied to workforce development and training programs and the 
agencies believe in the importance of the contributions these programs 
make into communities. Therefore, the final rule provides that 
workforce development or training programs can be considered community 
development as a community supportive service pursuant to Sec.  
__.13(d), discussed in more detail in the section-by-section analysis 
of Sec.  __.13(d).
    Relatedly, the final rule does not incorporate particular standards 
regarding the quality of jobs for low- and moderate-income individuals, 
including wage levels and other wage-related considerations. The 
agencies considered views and suggestions offered by commenters on this 
topic, and have determined that it would be difficult to address job 
quality in the rule in a manner that would effectively and consistently 
account for the many diverse types of small businesses and small farms 
in different industry sectors.
    The agencies believe that the final rule's purpose test, focused on 
job creation and retention, will provide greater clarity relative to 
the current purpose test, thereby facilitating bank lending under this 
subcomponent of the final rule on economic development, and improved 
consistency and transparency in the agencies' evaluations of this 
lending.
Consideration of Loans to Small Businesses and Small Farms Under the 
Retail Lending Test and Community Development Financing Test
    Final Sec.  __.13(c)(1)(ii) recognizes certain direct loans to 
small businesses and small farms that benefit local communities and 
have specific community development goals, but that are not evaluated 
under the Retail Lending Test.\384\ In addition, the final rule 
provides that certain direct loans by banks to small businesses or 
small farms may be considered under both the Community Development 
Financing Test and the Retail Lending Test, if they qualify for 
consideration under both tests. This approach is a change from the 
current rule where, as discussed above, loans to businesses with an 
origination amount of $1 million or less and loans to farms with an 
origination amount of $500,000 or less generally are evaluated only 
under the lending test, while loans that exceed the applicable loan 
amount can be considered as a community development loan if they meet 
the current size and purpose test. However, unlike under the current 
rule, which provides that the same loan cannot be counted as both a 
retail loan and a community development loan, the final rule allows 
small business and small farm loans to qualify under both the Retail 
Lending Test and Community Development Financing Test. This is also 
different from the agencies' proposal, which would have considered 
reported loans made directly to small businesses and small farms under 
the Retail Lending Test.
---------------------------------------------------------------------------

    \384\ For discussion of the standards for evaluating loans under 
the Retail Lending Test, see the section-by-section analysis of 
Sec.  __.22.
---------------------------------------------------------------------------

    The agencies believe that this approach is appropriate because the 
Retail Lending Test and Community Development Financing Test generally 
focus on a different aspect of a bank's direct lending to small 
businesses and small farms: in general, under the Retail Lending Test's 
distribution analysis, the share of loans (based on loan count) to 
small businesses and small farms at different revenue levels is 
considered,\385\ while under the Community Development Financing Test, 
the dollar volume of loans is considered, as well as their impact and 
responsiveness.\386\ With respect to direct loans to small businesses 
and small farms that qualify as economic development under final Sec.  
__.13(c)(1)(ii), the agencies believe that this approach allows for a 
holistic evaluation of bank engagement in this lending.
---------------------------------------------------------------------------

    \385\ See final Sec.  __.22(e) and the accompanying section-by-
section analysis. The agencies note that, consistent with the 
proposal, the dollar volume of small business and small farm lending 
would be considered in the Retail Lending Volume Screen of the final 
rule. See final Sec.  __.22(c) and the accompanying section-by-
section analysis.
    \386\ See final Sec.  __.24 and the accompanying section-by-
section analysis.
---------------------------------------------------------------------------

Section __.13(c)(2) Intermediary Support for Small Businesses and Small 
Farms
The Agencies' Proposal
    Under proposed Sec.  __.13(c)(2), the second component of the 
proposed economic development category would comprise ``[s]upport for 
financial intermediaries that lend to, invest in, or provide technical 
assistance to businesses or farms with gross annual revenues of $5 
million or less.'' This provision was intended to promote and 
facilitate access to capital for smaller businesses and farms. The 
agencies proposed to use the same gross annual revenue standard for 
small businesses and farms in this provision as in other parts of the 
proposal for simplicity and consistency.
    The current regulation and interagency guidance on community 
development activities does not specifically address financial 
intermediaries that increase access to capital for small businesses and 
small farms; proposed Sec.  __.13(c)(2) was intended to respond to 
stakeholder feedback emphasizing, and the agencies' recognition of, the 
importance of these intermediaries. Examples of financial 
intermediaries that the agencies intended this provision to cover 
included a Community Development Corporation that provides technical 
assistance to recently formed small businesses, or a CDFI that provides 
lending to support sustainability of small farms.
Comments Received
    Many commenters provided a range of views on proposed Sec.  
__.13(c)(2),

[[Page 6665]]

including a variety of suggestions for revisions. Some commenters 
expressly supported proposed Sec.  __.13(c)(2) without any further 
suggestions for additions or clarifications. Several commenters 
suggested that CDFIs be considered an eligible financial intermediary 
under this component. Several other commenters raised concerns that the 
removal of the current ``size'' test and ``purpose'' test would result 
in certain financial intermediaries being excluded from the economic 
development category and that this would limit access to capital for 
small businesses. Some of these commenters suggested including support 
for financial intermediaries or loan funds that are not licensed or 
certified by the SBA but that lend to or invest in small businesses 
that meet the size eligibility standards of the SBA's SBIC or SBDC 
programs (which might exceed $5 million in gross annual revenues). 
Another commenter similarly and more specifically requested that the 
agencies include in the definition of economic development financial 
intermediaries that lend to, invest in, or provide technical assistance 
to businesses that: (1) have more than $5 million in gross annual 
revenues but still meet the size eligibility standards of the SBDC or 
SBIC Programs; and (2) support permanent job creation, retention, and/
or improvement for low- and moderate-income individuals, in low- and 
moderate-income areas, or in areas targeted for redevelopment.
    Some commenters who supported retaining job creation, retention, or 
improvement suggested that the final rule should clearly include 
consideration of investments and loans to financial intermediaries that 
support small business and small farms for the demonstrable purposes of 
job creation, retention, or improvement for low- and moderate-income 
individuals. Another commenter suggested that this component should 
also consider loans and investments made to CDFIs to support small 
businesses with less than $5 million gross annual revenues, as these 
also help to create jobs. A commenter suggested that consideration for 
loans and investments to Community Action Agencies \387\ be presumed to 
advance economic development through workforce development, indicating 
that workforce development has been central to the creation and 
function of these entities.\388\ Another commenter suggested that the 
proposal for financial intermediary support should also recognize loans 
and investments made to support projects using NMTCs,\389\ as well as 
activities that support economic development initiatives of 
universities and local chambers of commerce.
---------------------------------------------------------------------------

    \387\ See Economic Opportunity Act of 1964, tit. II, Public Law 
88-452, 78 Stat. 516-24 (1964).
    \388\ See Q&A Sec.  __.12(g)(3)-1 (providing that activities are 
considered to promote economic development if they support 
``Federal, state, local, or tribal economic development initiatives 
that include provisions for creating or improving access by low- or 
moderate-income person to jobs or to job training or workforce 
development programs'').
    \389\ See, e.g., Internal Revenue Service (IRS), LMSB-04-0510-
016, ``New Markets Tax Credits'' (May 2010), https://www.irs.gov/pub/irs-utl/atgnmtc.pdf.
---------------------------------------------------------------------------

    Some commenters emphasized that many financial intermediaries that 
are not certified SBICs, are minority-led and women-led and that such 
entities play an important role in providing access to capital for 
minority- and women-owned businesses. One of these commenters noted 
that many of these companies that fund small businesses in underserved 
communities face challenges becoming SBICs and suggested that the 
agencies provide consideration for non-SBICs that are owned by 
minorities and women as long as these companies adhere to SBIC net 
worth and after-tax income size limits. Another commenter suggested 
that loans to minority-owned small businesses should be presumed to 
promote economic development and receive CRA credit.
    An additional commenter similarly suggested that the agencies 
should clarify that banks can receive credit for economic development 
activities that include investments and loans in a minority-owned small 
business or minority-owned financial intermediaries and that, at a 
minimum, these activities should count for credit if they achieve 
impact outcomes like job creation, retention, or improvement for low- 
to moderate-income persons or areas. Other feedback included concerns 
that, without more clarifications about the intended coverage of 
proposed Sec.  __.13(c)(2), banks would tend to favor activities with 
SBICs under proposed Sec.  __.13(c)(1), and that this would 
disadvantage minority-owned enterprises and first-time fund managers. 
At least one commenter supported coverage of activities with financial 
intermediaries that are not SBICs in the economic development category 
if these activities create, retain or improve jobs. A commenter 
suggested that this prong also include investments in Qualified 
Opportunity Funds that include low- and moderate-income census tracts 
in designated Opportunity Zones.\390\
---------------------------------------------------------------------------

    \390\ See, e.g., IRS, ``Opportunity Zones,'' FS-2020-13 (updated 
Apr. 2022), https://www.irs.gov/newsroom/opportunity-zones 
(discussing both Opportunity Zones and Qualified Opportunity Funds).
---------------------------------------------------------------------------

    On a technical note, a commenter requested that the term 
``support'' in the proposed regulatory text be further clarified to 
mean loans, investments, and services to financial intermediaries. 
Another commenter stated that the proposal did not specifically address 
financial intermediaries that increase access to capital for small 
businesses, asserting that determining business size later in the 
process would be inappropriate. Both industry and community group 
stakeholders have stressed the importance of financial intermediaries, 
such as loan funds, in providing access to financing for small 
businesses that are not ready for traditional bank financing. In 
addition, some commenters recommended clarifying that the size of the 
small business or small farm be determined at the time of the 
investment by the financial intermediary, noting that because the 
purpose of these investments is to support the growth of the business.
Final Rule
    For the reasons discussed below, the agencies are finalizing 
proposed Sec.  __.13(c)(2) to include in the economic development 
category intermediaries that support small businesses and small farms; 
however, the final rule expands the type of intermediaries considered 
under this component and adopts several revisions for clarity and 
consistency with other prongs in the economic development category. 
Additionally, the final rule provides examples of the types of support 
an intermediary can provide to a small business or small farm. 
Specifically, final Sec.  __.13(c)(2) provides that loans, investments, 
or services provided to intermediaries that lend to, invest in, or 
provide assistance, such as financial counseling, shared space, 
technology, or administrative assistance, to small businesses or small 
farms can be considered under economic development.
    The final rule broadens the types of intermediaries that may be 
considered under this category beyond financial intermediaries, by 
removing the word ``financial'' from the description of this category. 
Instead, under the final rule, non-financial intermediaries such as 
business incubators and small business assistance providers can be 
considered along with financial intermediaries such as nonprofit 
revolving loan funds. The agencies intend that the expansion of the 
types of intermediaries that can be included under this component will

[[Page 6666]]

help address commenter concerns about some intermediaries that could be 
covered under the current rule potentially being excluded under the 
proposal, such as those that support primarily support businesses with 
gross annual revenue above $5 million, and better ensure recognition of 
the range of intermediaries providing support for small businesses and 
small farms. The agencies intend that many of the intermediaries that 
could be considered under the current rule would continue to qualify 
under this component if they support small businesses and farms through 
loans, services, and investments. The agencies recognize that there are 
many types of intermediaries, including those that support minority-
owned small businesses, as mentioned by commenters, and that financial 
intermediaries play a critical role in providing access to capital for 
small businesses and small farms when traditional bank financing might 
not be possible. For more information and discussion regarding the 
agencies' consideration of comments recommending adoption of additional 
race- and ethnicity-related provisions in this final rule, see section 
III.C of this SUPPLEMENTARY INFORMATION.
    To address commenter requests for clarification regarding the 
coverage of the proposed financial intermediary prong, the agencies 
note that, consistent with the proposal, the intermediaries under final 
Sec.  __.13(c)(2) are distinct from intermediaries that provide 
government-related support to small businesses and small farms under 
final Sec.  __.13(c)(1)(i); this allows for non-SBIC and other non-
government-related intermediaries to be included in the economic 
development category. The agencies also recognize that intermediaries 
can provide support to businesses or farms of all sizes; however, 
consistent with the proposal, support for intermediaries under final 
Sec.  __.13(c)(2) is focused on intermediary lending to, investments 
in, and services to businesses and farms with gross annual revenues of 
$5 million or less.\391\ The agencies believe that, for non-government-
related aspects of economic development, a gross annual revenue 
threshold of $5 million for supported businesses and farms will foster 
clarity regarding the availability and consistency in application. The 
agencies also believe that this size standard will allow support for a 
wide range of financing, including the smallest businesses. For further 
discussion of the definition of the definition of small business and 
small farm in the final rule, see final Sec.  __.12 (``small business'' 
and ``small farm'') and accompanying section-by-section analysis.
---------------------------------------------------------------------------

    \391\ The standards for banks to receive full credit for these 
loans, investments, and services are discussed further in the 
section-by-section analysis of final Sec.  __.13(a). See, e.g., 
final Sec.  __.13(a)(1)(i)(B)(3).
---------------------------------------------------------------------------

    The final rule also clarifies that ``support'' for intermediaries 
means loans, investments, or services provided to intermediaries that 
lend to, invest in, or provide assistance to small businesses or small 
farms. As noted, in response to commenter concern that the term 
``support'' in the proposal was not clear. Examples of activities that 
could be considered under this category are provided in the final rule 
and include financial counseling, shared space, technology, or 
administrative assistance.
    The agencies did not adopt in the final rule a specific criterion 
for the point in time when the size of the small business or small farm 
should be determined, as suggested by some commenters. However, the 
agencies generally believe that this determination should be based on 
the size of the small business or small farm at the time of the 
activity undertaken by the intermediary.
    The agencies also decline to specify that CDFIs are considered an 
eligible financial intermediary under this prong. The agencies 
recognize that CDFIs are important financial intermediaries, but rather 
than list them as qualified intermediaries for multiple community 
development categories, the agencies have adopted in the final rule 
that a bank will receive community development consideration if a loan, 
investment, or service involves a CDFI as specified under final Sec.  
__.13(k). In addition, the final rule establishes, as an impact and 
responsiveness review factor, consideration of whether a loan, 
investment, or services supports a CDFI.\392\
---------------------------------------------------------------------------

    \392\ For further discussion of the final rule provisions on 
CDFIs, see the section-by-section analysis of final Sec.  __.13(k) 
and final Sec.  __.15(b)(4).
---------------------------------------------------------------------------

    The agencies decline to include in this prong investments in 
Qualified Opportunity Funds that support projects in designated 
Opportunity Zones.\393\ The agencies do not believe that such 
activities are specifically designed or structured to support small 
businesses and small farms and therefore, loans or investments in 
Qualified Opportunity Funds would not likely meet criteria for economic 
development. However, the activity may qualify for community 
development credit under other categories of community development, 
such as revitalization and stabilization under Sec.  __.13(e), so long 
as the activity meets the criteria for the relevant community 
development category.
---------------------------------------------------------------------------

    \393\ See IRS, ``Opportunity Zones,'' FS-2020-13 (Aug. 2020; 
updated Apr. 2022) (discussing both Opportunity Zones and Qualified 
Opportunity Funds), https://www.irs.gov/newsroom/opportunity-zones.
---------------------------------------------------------------------------

Section __.13(c)(3) Other Support for Small Businesses and Small Farms
The Agencies' Proposal
    Proposed Sec.  __.13(c)(3) would have established a third prong of 
the economic development category: ``[p]roviding technical assistance 
to support businesses or farms with gross annual revenues of $5 million 
or less, or providing services such as shared space, technology, or 
administrative assistance to such businesses or farms or to 
organizations that have a primary purpose of supporting such businesses 
or farms.'' This provision would have included services such as 
``shared space, technology, or administrative assistance'' and codified 
current guidance highlighting these services.\394\ The agencies 
proposed this provision in recognition that some small businesses and 
small farms might not be prepared to obtain traditional bank financing 
and might need technical assistance and other services, including 
technical assistance and services provided directly by a bank, to 
obtain credit in the future.
---------------------------------------------------------------------------

    \394\ See Q&A Sec.  __.12(g)(3)-1 (providing that loans, 
investments, or services are considered to ``promote economic 
development'' if they ``support permanent job creation, retention, 
and/or improvement . . . through technical assistance or supportive 
services for small businesses or farms, such as shared space, 
technology, or administrative assistance'').
---------------------------------------------------------------------------

Comments Received
    Commenters on proposed Sec.  __.13(c)(3) broadly supported it. A 
commenter asserted that this component would fill a gap in needed 
services for small businesses and small farms and play a critical role 
in helping a small business and small farm grow and thrive. Another 
commenter suggested including consideration in this economic 
development category for financial literacy training, community-owned 
real estate financing, and financial products and programs for 
immigrant and immigrant-owned businesses.
Final Rule
    For the reasons discussed below, the final rule adopts, with 
clarifying edits, proposed Sec.  __.13(c)(3) to provide clarity 
regarding support for small

[[Page 6667]]

businesses and small farms that is not provided through intermediaries. 
Specifically, final Sec.  __.13(c)(3) states that assistance, such as 
financial counseling, shared space, technology, or administrative 
assistance, provided to small businesses and small farms can be 
considered economic development. To distinguish these activities from 
government-related support and intermediary support, these activities 
are referred to as ``other support for small businesses and small 
farms'' under the final rule, and are intended to include such services 
that are provided directly by a bank.
    The agencies made several clarifying edits to the proposal for this 
component in the final rule. First, the agencies removed ``technical'' 
from the rule text out of recognition that providing access to space or 
technology goes beyond technical assistance and that this term might be 
applied and understood inconsistently. Second, the agencies removed the 
$5 million gross annual revenues when referring to small businesses and 
small farms because these terms are defined in final Sec.  __.12 
(discussed further in the section-by-section analysis of final Sec.  
__.12). Finally, the agencies removed ``primary purpose'' to reference 
the level of support to businesses or farms to be consistent with the 
majority standard as described in final Sec.  __.13(a), discussed 
further in the section-by-section analysis of final Sec.  __.13(a).
    The agencies acknowledge commenter feedback that some small 
businesses and small farms may not be in a position to obtain 
traditional bank financing and, as such, may need assistance to obtain 
credit in the future. The agencies believe that providing CRA 
consideration for assistance that supports small businesses and small 
farms will afford banks with recognition for the positive role they 
play in facilitating small business and small farm credit access. The 
agencies have noted through past experience that banks can play an 
important role in supporting, and directly providing the types of 
assistance that help small businesses and small farms obtain financing, 
which in turn strengthens small businesses and small farms,\395\ 
fostering their growth and durability.
---------------------------------------------------------------------------

    \395\ See, e.g., OCC, ``Community Development Loan Funds: 
Partnership Opportunities for Banks,'' Community Development 
Insights (Oct. 2014), https://www.occ.gov/publications-and-resources/publications/community-affairs/community-developments-insights/pub-insights-oct-2014.pdf; Financial Services Forum, 
``Supporting Historically Underserved Communities,'' https://fsforum.com/our-impact/supporting-underserved-communities.
---------------------------------------------------------------------------

    In response a commenter's suggestion that banks should receive 
consideration for providing financial literacy training, community-
owned real estate financing, and financial products and programs for 
immigrant and immigrant-owned businesses, the agencies note that 
financial counseling is specified as an example of the type of 
assistance that could be considered under final Sec.  __.13(c)(3). 
Additionally, the final rule provides that banks may receive community 
development consideration for other types of financial literacy 
programs under final Sec.  __.13(l), discussed further in the section-
by-section analysis of Sec.  __.13(l). The other items suggested by the 
commenter could also be considered under the economic development 
category, or other community development categories, assuming that the 
activities meet the appropriate criteria.
Evaluation Approach Prior to Section 1071 Data Availability
The Agencies' Proposal and Comments Received
    The agencies sought feedback on whether loans made directly by 
banks to small businesses and small farms that are currently evaluated 
as community development loans should continue to be considered 
community development loans until these loans are assessed as reported 
loans under the Retail Lending Test. Most commenters who opined on this 
question asserted that loans to small businesses and small farms should 
be considered community development loans during this transition 
period. For example, a commenter suggested that current guidance should 
be used to qualify loans to small businesses and small farms under the 
Community Development Finance Test until loans are evaluated as 
reported loans under the proposed Retail Lending Test.\396\ Similarly, 
a few commenters suggested that loans larger than $1 million to small 
businesses and small farms should be considered community development 
loans, as they are currently, until section 1071 data are available, 
and these loans are evaluated as reported loans under the proposed 
Retail Lending Test.\397\ A few commenters suggested that during the 
transition period, banks should have the option of having loans 
evaluated under the proposed Community Development Financing Test or 
under the proposed Retail Lending Test. Another commenter suggested 
that banks should always have the option to report small business loans 
as community development loans if the economic development criteria are 
met.
---------------------------------------------------------------------------

    \396\ Q&A Sec.  __.12(g)(3)-1.
    \397\ Id.
---------------------------------------------------------------------------

    Other commenters expressed concern with allowing banks to receive 
community development credit for loans that will be considered under 
the Retail Lending Test once section 1071 data are available and used 
in CRA evaluations. A commenter suggested that a bank should not be 
allowed to have these loans considered as community development loans 
only if the majority of the bank's examination cycle took place before 
the final rule was implemented. Along the same lines, a commenter 
expressed concern that evaluating loans to small businesses and small 
farms as community development activities until they are assessed as 
reported loans under the Retail Lending Test could allow banks to 
receive credit for the same activity multiple times, and suggested that 
the loans should count only once, unless there is some change or 
expansion of the activity, such as an increased loan amount or new loan 
payment deferment option.
Final Rule
    The agencies appreciate feedback from commenters regarding whether 
to continue to evaluate loans to small businesses and small farms as 
community development loans, if such loans meet the current specified 
criteria, prior to the availability of section 1071 data. The agencies 
considered the comments, including those that suggested providing banks 
the option to select consideration for these loans under either the 
proposed Community Development Financing Test or proposed Retail 
Lending Test during this interim period, or continuing to evaluate the 
loans under current interagency guidance until the CFPB section 1071 
data are available and the reported loans can be evaluated under the 
proposed Retail Lending Test. On further consideration of this issue, 
the agencies have determined that continuing with the current 
evaluation approach or developing an interim approach for evaluating 
loans to small businesses and small farms loans during the interim 
period between the applicability date for final Sec.  __.13(c) and 
availability and use in CRA evaluations of section 1071 data is not 
necessary. As discussed above regarding final Sec.  __.13(c)(1)(ii), 
the final rule provides consideration of certain direct loans to small 
businesses and small farms as community development loans. This 
approach would enable certain government-related direct loans to 
businesses and farms that meet the criteria in final Sec.  
__.13(c)(1)(ii)

[[Page 6668]]

considered under economic development as soon as this provision of the 
final rule becomes effective. The agencies believe that this approach 
will provide greater clarity and reduce potential confusion and 
complexity during the interim period rather than continuing to apply 
current standards for considering loans to small businesses and small 
farms to be community development loans.\398\ The agencies note that, 
except for certain loans to small businesses and small farms as 
explained above, most lending to small businesses and small farms will 
be evaluated under the Retail Lending Test, and that the definitions 
for small business and small farm loans are subject to the final rule's 
transition amendments.\399\
---------------------------------------------------------------------------

    \398\ For a discussion of the final rule's incorporation of 
loans to small businesses and small farms into the economic 
development category of community development, see the section-by-
section analysis of final Sec.  __.13(c)(1)(ii). For a discussion of 
the final rule's consideration of small business and small farm 
lending under the Retail Lending Test, see the section-by-section 
analysis of final Sec.  __.22(d).
    \399\ The final rule's transition amendments will amend the 
definitions of ``small business'' and ``small farm'' to instead 
cross-reference to the definition of ``small business'' in the CFPB 
section 1071 regulation. This will allow the CRA regulatory 
definitions to adjust if the CFPB increases the threshold in the 
CFPB section 1071 regulatory definition of ``small business.'' This 
is consistent with the agencies' intent articulated in the preamble 
to the proposal and elsewhere in this final rule to conform these 
definitions with the definition in the CFPB section 1071 regulation. 
The agencies will provide the effective date of these amendments in 
the Federal Register once section 1071 data are available.
---------------------------------------------------------------------------

    Regarding the concern expressed by a commenter that evaluating 
loans to small businesses and small farms as community development 
until such loans are assessed under the Retail Lending Test would allow 
banks to get credit for the same activity multiple times, the agencies 
acknowledge, as discussed above, that some loans to small businesses 
and small farms that meet the criteria under final Sec.  
__.13(c)(1)(ii) will be considered under both the Retail Lending Test 
and Community Development Financing Test. However, the agencies do not 
believe that this would result in double counting because the final 
rule provides that different aspects of such loans would be considered 
under the applicable test.
Workforce Development and Job Training
    The current regulations do not mention workforce development and 
training programs in the definition of community development \400\ 
(including the economic development category of that definition \401\), 
but the Interagency Questions and Answers provide that loans, 
investments, and services supporting these activities for businesses 
and farms that meet the ``size'' test discussed above are considered to 
``promote economic development.'' \402\ The agencies proposed to 
consider workforce development and job training program activities 
under the community supportive services category of community 
development and this was generally supported by commenters who opined 
on this issue. Therefore, the agencies are adopting workforce 
development and job training as proposed as a community supportive 
services category under final Sec.  __.13(d). See the section-by-
section analysis of community supportive services in final Sec.  
__.13(d) below for additional discussion of the comments received and 
final rule.
---------------------------------------------------------------------------

    \400\ See 12 CFR __.12(g).
    \401\ See 12 CFR __.12(g)(3).
    \402\ See Q&A Sec.  __.12(g)(3)-1.
---------------------------------------------------------------------------

Additional Issues
    The agencies received other comments related to the economic 
development category. A few commenters suggested adding certain types 
of activities to those that could be considered for CRA credit under 
the economic development category. For example, a commenter suggested 
that loan referrals made by banks to CDFIs for small business loans 
should qualify and also suggested that loan referrals made by banks to 
non-bank lenders or fintech companies that have a mission of economic 
development that is consistent with the goals of the CRA should also 
qualify as economic development; this commenter asserted that 
partnerships between traditional and non-traditional lenders could 
increase access to capital for low-income geographic areas.
    A few commenters suggested that if loans to small business and 
small farms are considered under the proposed Retail Lending Test, 
loans to minority-owned small businesses should nonetheless be 
considered separately as a qualifying activity under the economic 
development category of community development. Lastly, a commenter 
stated that the agencies' proposal was innovative but suggested that 
training for nonprofit organizations could be needed, as activities 
that are currently considered as community development might be 
considered under different performance tests.
    The agencies decline to add a prong to the economic development 
category under final Sec.  __.13(c) to provide specific consideration 
for additional types of activities, such as loan referrals made by 
banks to CDFIs or those made by banks to nonbank lenders, as suggested 
by commenters. The agencies understand from commenters that 
partnerships between traditional and nontraditional lenders are 
important because of the potential to increase capital to small 
businesses and small farms. As discussed further in the section-by-
section analysis of final Sec.  __.23(c), such activities may qualify 
for consideration under the Retail Services and Products Test as such 
activities may help facilitate responsive credit products and 
programs.\403\
---------------------------------------------------------------------------

    \403\ See final Sec.  __.23 and the accompanying section-by-
section analysis.
---------------------------------------------------------------------------

    Regarding commenter suggestions that loans to minority-owned small 
businesses should be considered separately as a qualifying activity 
under the economic development category of community development, the 
agencies note that the final rule adopts a provision that certain 
direct loans to small businesses and small farms, which includes direct 
loans made to minority-owned small businesses, will be considered under 
the economic development category. See the section-by-section analysis 
of final Sec.  __.13(c)(1)(ii) above. Additionally, the agencies have 
adopted an impact factor described in final Sec.  __.15 for activities 
that benefit small businesses with gross annual revenue under $250,000, 
which will serve to highlight activities with smaller businesses, which 
would include minority-owned businesses with gross annual revenue under 
$250,000. For more information and discussion regarding the agencies' 
consideration of comments recommending adoption of additional race- and 
ethnicity-related provisions in this final rule, see section III.C of 
this SUPPLEMENTARY INFORMATION.
    The agencies appreciate commenter feedback regarding the potential 
need for examiner training as the proposed approach to the evaluation 
of certain activities that would currently be considered only under 
community development may be considered under a different test or 
multiple tests. The agencies will take this feedback under advisement 
as the agencies develop implementation plans.
Section __.13(d) Community Supportive Services
Current Approach
    The CRA regulations currently define community development to 
include ``community services targeted to low- or

[[Page 6669]]

moderate-income individuals,'' \404\ but the regulations do not further 
define community services. The Interagency Questions and Answers 
provide several examples of community services and characteristics of 
those services to assist institutions in determining whether the 
service is ``targeted to low- or moderate-income individuals.'' \405\ 
Interagency guidance also clarifies that ``investments, grants, 
deposits, or shares in or to . . . [f]acilities that . . . provid[e] 
community services for low- and moderate-income individuals, such as 
youth programs, homeless centers, soup kitchens, health care 
facilities, battered women's shelters, and alcohol and drug recovery 
centers'' are considered community development investments eligible for 
CRA credit.\406\
---------------------------------------------------------------------------

    \404\ See 12 CFR __.12(g)(2).
    \405\ See Q&A Sec.  __.12(g)(2)-1.
    \406\ Q&A Sec.  __.12(t)-4.
---------------------------------------------------------------------------

The Agencies' Proposal
    In proposed Sec.  __.13(d), the agencies replaced the current 
community development category of ``community services targeted to low- 
or moderate-income individuals'' with ``community supportive 
services.'' \407\ Specifically, incorporating and building on aspects 
of current guidance noted above, proposed Sec.  __.13(d) defined 
community supportive services as ``general welfare services that serve 
or assist low- or moderate-income individuals, including, but not 
limited to, childcare, education, workforce development and job 
training programs, and health services and housing services programs.''
---------------------------------------------------------------------------

    \407\ The proposed term ``community supportive services'' 
encompassed different activities than those proposed under the 
concept of ``community development services,'' which is described 
further in the section-by-section analysis of Sec.  __.25(d) 
(proposed Community Development Services Test), below, and generally 
refers to volunteer service hours that meet any one of the community 
development purposes in final Sec.  __.13.
---------------------------------------------------------------------------

    The agencies proposed to consider workforce development and job 
training program activities under the community supportive services 
category of community development, rather than under economic 
development (where workforce development and job training programs are 
generally considered today). Existing guidance regarding economic 
development generally limits what can be considered an economic 
development activity (including workforce development and job training) 
to support for small businesses meeting certain size standards.\408\ 
Under the proposal to consider these activities under the reconfigured 
``community supportive services'' category, activities that support 
workforce development and job training programs would receive 
consideration if the program's participants are low- or moderate-income 
individuals, without regard to the size of any business associated with 
the activity.\409\
---------------------------------------------------------------------------

    \408\ See proposed Sec.  __.13(d); compare with 12 CFR 
__.12(g)(3) and Q&A Sec.  __.12(g)(3)-1.
    \409\ See id.
---------------------------------------------------------------------------

    The agencies also proposed to build on current guidance by both 
clarifying and expanding upon a non-exclusive list of examples of 
community services and characteristics of those services that banks can 
use to demonstrate that a program or organization primarily serves low- 
or-moderate income individuals. Seven of the eight examples in proposed 
Sec.  __.13(d) reflected current guidance with certain technical edits, 
as follows:
     Activities conducted with a nonprofit organization that 
has a defined mission or purpose of serving low- or moderate-income 
individuals or is limited to offering community supportive services 
exclusively to low- or moderate-income individuals (proposed Sec.  
__.13(d)(1));
     Activities conducted with a nonprofit organization located 
in and serving low- or moderate-income census tracts (proposed Sec.  
__.13(d)(2));
     Activities conducted in low- or moderate-income census 
tracts and targeted to the residents of the census tract (proposed 
Sec.  __.13(d)(3));
     Activities offered to individuals at a workplace where the 
majority of employees are low- or moderate-income, based on readily 
available U.S. Bureau of Labor Statistics data for the average wage for 
workers in that particular occupation or industry (proposed Sec.  
__.13(d)(4));
     Services provided to students or their families through a 
school at which the majority of students qualify for free or reduced-
price meals under the USDA's National School Lunch Program (proposed 
Sec.  __.13(d)(5));
     Services that have a primary purpose of benefiting or 
serving individuals who receive or are eligible to receive Medicaid 
(proposed Sec.  __.13(d)(6)); and
     Activities that benefit or serve recipients of government 
assistance plans, programs, or initiatives that have income 
qualifications equivalent to, or stricter than, the definitions of low- 
and moderate-income (as defined in the proposed rule). Examples 
include, but are not limited to, HUD's section 8, 202, 515, and 811 
programs or the USDA's section 514, 516, and Supplemental Nutrition 
Assistance programs (proposed Sec.  __.13(d)(8)).\410\
---------------------------------------------------------------------------

    \410\ Q&A Sec.  __.12(g)(2)-1.
---------------------------------------------------------------------------

    The agencies also proposed an additional example not reflected in 
current guidance: activities that benefit or serve individuals who 
receive or are eligible to receive Federal Supplemental Security 
Income, Social Security Disability Insurance, or support through other 
Federal disability assistance programs.\411\ This proposed example 
reflected a suggested additional example raised in the Board CRA ANPR 
that received wide stakeholder support.\412\
---------------------------------------------------------------------------

    \411\ Proposed Sec.  __.13(d)(7).
    \412\ See 85 FR 66410, 66446 (Oct. 19, 2020). The example was 
also adopted in the illustrative list published with the OCC 2020 
CRA Final Rule.
---------------------------------------------------------------------------

Comments Received
    The agencies received comments on the community supportive services 
proposal from many different commenter types, raising a wide range of 
issues. Most of these commenters generally supported the agencies' 
proposal. A few commenters, for example, expressed that the community 
development services proposal would elevate the importance of community 
services and provide more clarity about what types of activities are 
included. In contrast, a commenter that disagreed with the proposal 
stated that the proposal would create unnecessary confusion and 
complexity and limit flexibility. This commenter expressed the view 
that the current community services definition should be retained, 
asserting that it better allows banks to tailor the provision of 
services to the specific needs of each community.
    Regarding the general definition of community supportive services 
in proposed Sec.  __.13(d), many commenters expressed their support for 
including ``health'' or ``healthcare services.'' Several commenters 
also expressed support for the proposal to include workforce 
development and job training as community supportive services. A few of 
these commenters noted that doing so could allow banks to receive 
credit for supporting activities in connection with a wider range of 
businesses than under the current CRA framework.
    Commenters also shared views on the list of examples in proposed 
Sec.  __.13(d)(1) through (8). For example, a commenter that expressed 
support for the proposal to include ``[a]ctivities conducted with a 
nonprofit organization located in and serving low- or moderate-income 
census tracts,'' \413\ noted that these types of organizations often 
serve the community in which they are

[[Page 6670]]

located. With respect to proposed Sec.  __.13(d)(7), regarding 
activities that benefit or serve individuals who receive or are 
eligible to receive Federal disability assistance, many civil rights 
and consumer advocacy groups for individuals with disabilities 
requested that the agencies also explicitly include vocational 
rehabilitation services and Medicaid-waiver funded home and community-
based services. One commenter stated that, as not all individuals with 
disabilities receive Federal benefits, the agencies should consider 
including other activities that support individuals with disabilities, 
such as a loan to upgrade equipment in a public library to accommodate 
low- and moderate-income disabled individual patrons.
---------------------------------------------------------------------------

    \413\ Proposed Sec.  __.13(d)(2).
---------------------------------------------------------------------------

    Commenters also encouraged the agencies to add a variety of 
examples to the list in Sec.  __.13(d)(1) through (8). For instance, a 
few commenters suggested adding activities that promote digital 
inclusion or digital literacy, indicating that those activities can 
improve access to important community services. Additional examples 
suggested included, among others: food access and sustainability 
projects; activities that house the homeless; higher education career 
courses or programming; activities that support service members, 
veterans, and their families; and activities that support consumers 
with limited English proficiency.
Final Rule
    As discussed in more detail below, the final rule revises the 
general definition of ``community supportive services'' in proposed 
Sec.  __.13(d) to provide greater clarity about the meaning of this 
community development category. The final rule also adopts the non-
exhaustive list of examples in Sec.  __.13(d)(1) through (8) generally 
as proposed, with certain technical revisions.
    Specifically, the final rule defines ``community supportive 
services'' as activities that assist, benefit, or contribute to the 
health, stability, or well-being of low- or moderate-income 
individuals, such as childcare, education, workforce development and 
job training programs, health services programs, and housing services 
programs. The definition in proposed Sec.  __.13(d) is thus revised by 
replacing the phrase ``general welfare activities that serve or assist 
low- or moderate-income individuals'' with ``activities that assist, 
benefit, or contribute to the health, stability, or well-being of low- 
or moderate-income individuals.'' As noted in the proposal, the 
agencies believe that adopting a community supportive services category 
that revises the existing ``community services'' category and 
associated guidance will provide clearer standards in the regulation 
for identifying the kind of activities that qualify as community 
development. Upon further consideration and in light of comments 
received, the agencies are concerned about potential confusion as to 
what constitutes ``general welfare activities'' in the proposed 
provision. The final rule's revised language focusing on the ``health, 
stability, or well-being'' of low- or moderate-income individuals is 
intended to better achieve the agencies' goal of providing clarity in 
outlining the kinds of activities that are eligible for consideration 
under this category, accounting for the types of benefits and services 
that many commenters highlighted.
    The agencies are adopting as proposed the community supportive 
services listed in the proposed general definition--childcare, 
education, workforce development and job training programs, health 
services programs, and housing services programs; these are intended to 
be illustrative of the kinds of services that can meet the criterion of 
assisting, benefiting, or contributing to the health, stability, or 
well-being of low- or moderate-income individuals and, as noted above, 
were generally supported by commenters. As also discussed above, 
considering workforce development and job training activities under the 
community supportive services category of community development 
clarifies that bank support for workforce development and job training, 
whose participants are low- or moderate-income individuals, is eligible 
for CRA consideration, regardless of the size of the businesses that 
may be associated with those activities.
    The final rule also adopts the non-exclusive list of examples of 
community supportive services in Sec.  __.13(d)(1) through (8), 
generally as proposed, with certain revisions as follows:
     Proposed Sec.  __.13(d)(1) is revised to refer to 
activities that are ``conducted with a mission-driven nonprofit 
organization.'' This change in final Sec.  __.13(d)(1) reflects that 
the final rule adopts a new definition of ``mission-driven nonprofit 
organization'' in Sec.  __.12, in order to support the term's use 
across multiple provisions in Sec.  __.13. As noted in the section-by-
section analysis of Sec.  __.12 above, the final definition is intended 
to be consistent with the types of organizations that the agencies 
proposed would be partners with banks in conducting community 
development.
     Proposed Sec.  __.13(d)(2) through (5) are adopted 
generally as proposed, with non-substantive technical edits to align 
the regulatory text structure.
     Proposed Sec.  __.13(d)(6), referencing activities that 
``have a primary purpose of benefiting or serving individuals who 
receive or are eligible to receive Medicaid'' (emphasis added) is 
revised to reference activities that ``Primarily benefit or serve 
individuals who receive or are eligible to receive Medicaid'' (emphasis 
added), with no substantive change intended. This revision is a 
conforming change consistent with proposed Sec.  __.13(a) that 
eliminates proposed references to the phrase ``primary purpose of 
community development,'' as discussed in the section-by-section 
analysis of Sec.  __.13(a).
     Proposed Sec.  __.13(d)(7) and (8) are revised to add the 
term ``primarily,'' so that, as adopted, they refer to activities that 
``Primarily benefit or serve individuals who receive or are eligible to 
receive'' Federal disability assistance (final Sec.  __.13(d)(7)) and 
``Primarily benefit or serve recipients of government assistance plans, 
programs, or initiatives . . . .'' (final Sec.  __.13(d)(8)). This 
addition is intended to provide consistency with the language in final 
Sec.  __.13(d)(6) described above, and to align with the agencies' 
intent to provide examples of activities that are specifically focused 
on benefiting or serving the individuals described in these examples.
    As discussed above, the examples in Sec.  __.13(d)(1) through (6) 
and (8) are adapted from existing guidance to promote clarity and 
consistency regarding the types of services that could be considered to 
be targeted to low- or moderate-income individuals. The agencies 
believe that the adopted examples will facilitate banks' ability to 
document and demonstrate that a program or organization assists, 
benefits, or contributes to the health, stability, or well-being of 
low- or moderate-income individuals as set forth in Sec.  __.13(d). For 
example, with respect to Sec.  __.13(d)(2), the agencies believe that 
qualified activities performed in conjunction with ``a nonprofit 
organization located in and serving low- or moderate-income census 
tracts'' are likely to assist, benefit, or contribute to the health, 
stability, or well-being of low- or moderate-income individuals due to 
the geographic location and service-orientation of the nonprofit 
organization on low- or moderate-income census tracts. Accordingly, the 
agencies believe that this example will facilitate banks' 
identification of qualified community

[[Page 6671]]

supportive services and opportunities to serve needs in their 
communities.\414\
---------------------------------------------------------------------------

    \414\ Final Sec.  __.13(d)(2) is distinguishable from final 
Sec.  __.13(d)(1). Section __.13(d)(1) references the narrower 
defined term of mission-driven nonprofit organizations, but is not 
geographically focused; while Sec.  __.13(d)(2) references nonprofit 
organizations more broadly, but is focused on particular census 
tracts. Both examples are intended to facilitate banks' ability to 
identify and document that an activity is a qualified community 
supportive service.
---------------------------------------------------------------------------

    In adopting the example in proposed Sec.  __.13(d)(7), related to 
activities for individuals receiving or eligible to receive Federal 
disability assistance, the agencies understand that many disability 
programs are means-tested, and that and research has found that 
households that include any working-age people with disabilities are 
more likely to have substantially lower incomes than those without any 
disabilities.\415\ Accordingly, the agencies believe that the example 
in Sec.  __.13(d)(7) will serve as another key proxy for activities 
that assist, benefit, or contribute to the health, stability, or well-
being of low- or moderate-income individuals, and will facilitate 
banks' ability to identify clear and consistent examples of community 
supportive services.
---------------------------------------------------------------------------

    \415\ See, e.g., William Erickson, Camille Lee, and Sarah von 
Schrader, ``2021 Disability Status Report: United States,'' Cornell 
University Yang-Tan Institute on Employment and Disability, 40 
(2023), https://www.disabilitystatistics.org/report/pdf/2021/2000000.
---------------------------------------------------------------------------

    The agencies also considered and appreciate additional examples of 
community supportive services offered by commenters, including 
additional suggestions noted above to supplement Sec.  __.13(d)(7) 
regarding other activities that benefit or serve individuals with 
disabilities. As discussed above, the list of examples in Sec.  
__.13(d)(1) through (8) is non-exclusive. The agencies believe that the 
list of examples adopted in the final rule address a wide range of 
qualified community supportive services and do not believe that it 
would be possible or practicable to capture every kind of community 
supportive service in the regulation. The agencies note that, to the 
extent that any other activity meets the general definition set forth 
in Sec.  __.13(d), it would be considered a community supportive 
service. While the agencies are not adding mention of specific 
additional community supportive services activities to the final rule, 
the agencies will take commenters' recommended examples under 
advisement as the agencies develop the illustrative list anticipated by 
Sec.  __.14(a).

Section __.13(e) Through (j) Place-Based Community Development

Current Approach
    The current regulation defines ``community development'' to include 
``activities that revitalize or stabilize'' the following four types of 
geographic areas:
     Low- or moderate-income census tracts;
     Designated disaster areas;
     Distressed nonmetropolitan middle-income census tracts; 
and
     Underserved nonmetropolitan middle-income census 
tracts.\416\
---------------------------------------------------------------------------

    \416\ 12 CFR __.12(g)(4). The current regulation provides that 
distressed or underserved nonmetropolitan middle-income census 
tracts are ``designated by [the Board, FDIC, and OCC] based on--(A) 
Rates of poverty, unemployment, and population loss; or (B) 
Population size, density, and dispersion.'' 12 CFR __.12(g)(4)(iii). 
The regulation further provides that ``[a]ctivities revitalize and 
stabilize [census tracts] designated based on population size, 
density, and dispersion if they help to meet essential community 
needs, including needs of low- and moderate-income individuals.'' 
Id.
---------------------------------------------------------------------------

    The Interagency Questions and Answers further elaborate on 
revitalization and stabilization activities in these geographic 
areas.\417\ With respect to low- and moderate-income census tracts, 
designated disaster areas, and distressed nonmetropolitan middle-income 
census tracts, current guidance states that revitalization and 
stabilization activities are those that help to ``attract new, or 
retain existing, businesses or residents'' in that geographic 
area.\418\ Current guidance for the same three targeted geographic 
areas also states that an activity will be presumed to revitalize or 
stabilize a geographic area if the activity is consistent with a 
government plan for the revitalization or stabilization of the 
area.\419\
---------------------------------------------------------------------------

    \417\ See Q&A Sec.  __.12(g)(4)(i)-1 (regarding low- or 
moderate-income census tracts), Q&A Sec.  __.12(g)(4)(ii)-2 
(regarding designated disaster areas), Q&A Sec.  __.12(g)(4)(iii)-3 
(regarding distressed nonmetropolitan middle-income census tracts), 
and Q&A Sec.  __.12(g)(4)(iii)-4 (regarding underserved 
nonmetropolitan middle-income census tracts). Activities considered 
to revitalize and stabilize a designated disaster area must also be 
``related to disaster recovery.'' See Q&A Sec.  __.12(g)(4)(ii)-2.
    \418\ See Q&A Sec.  __.12(g)(4)(i)-1 (regarding low- or 
moderate-income geographies), Q&A Sec.  __.12(g)(4)(ii)-2 (regarding 
designated disaster areas), and Q&A Sec.  __.12(g)(4)(iii)-3 
(regarding distressed nonmetropolitan middle-income census tracts). 
The ``attract new or retain existing businesses or residents'' 
language is not in the guidance on revitalization and stabilization 
activities for underserved nonmetropolitan middle-income census 
tracts. See Q&A Sec.  __.12(g)(4)(iii)-4.
    \419\ See Q&A Sec.  __.12(g)(4)(i)-1 (regarding low- or 
moderate-income census tracts), Q&A Sec.  __.12(g)(4)(ii)-2 
(regarding designated disaster areas), and Q&A Sec.  
__.12(g)(4)(iii)-3 (regarding distressed nonmetropolitan middle-
income census tracts).
---------------------------------------------------------------------------

    Further, in designated disaster areas and distressed 
nonmetropolitan middle-income census tracts, current guidance specifies 
that examiners will consider all activities that revitalize or 
stabilize a census tract but give greater weight to those activities 
that are most responsive to community needs, including the needs of 
low- or moderate-income individuals or neighborhoods.\420\ In 
determining whether an activity revitalizes or stabilizes a low- or 
moderate-income census tract, in the absence of a Federal, State, 
local, or tribal government plan, guidance instructs examiners to 
evaluate activities based on the actual impact on the census tract, if 
that information is available.\421\ If not, examiners will determine 
whether the activity is consistent with the community's formal or 
informal plans for the revitalization and stabilization of the low- or 
moderate-income census tract.\422\
---------------------------------------------------------------------------

    \420\ See Q&A Sec.  __.12(g)(4)(ii)-2 (regarding designated 
disaster areas) and Q&A Sec.  __.12(g)(4)(iii)-3 (regarding 
distressed nonmetropolitan middle-income census tracts).
    \421\ See Q&A Sec.  __.12(g)(4)(i)-1.
    \422\ See id.
---------------------------------------------------------------------------

    Regarding underserved nonmetropolitan middle-income census tracts, 
current guidance focuses on clarifying the regulatory provision stating 
that activities in census tracts designated by the agencies as 
underserved based on ``population size, density, and dispersion'' are 
considered to be revitalization and stabilization activities ``if they 
help to meet essential community needs, including needs of low- and 
moderate-income individuals.'' \423\ To this end, the Interagency 
Questions and Answers state that activities such as ``financing for the 
construction, expansion, improvement, maintenance, or operation of 
essential infrastructure or facilities for health services, education, 
public safety, public services, industrial parks, affordable housing, 
or communication services'' in underserved nonmetropolitan middle-
income census tracts will be evaluated to determine whether they meet 
essential community needs.\424\ The guidance also provides several 
examples of projects that may be considered to meet essential community 
needs, such as hospitals, industrial parks, rehabilitated sewer lines, 
mixed-income housing, and renovated schools--as long as the population 
served includes

[[Page 6672]]

low- and moderate-income individuals.\425\
---------------------------------------------------------------------------

    \423\ 12 CFR __.12(g)(4)(iii)(B).
    \424\ Q&A Sec.  __.12(g)(4)(iii)-4.
    \425\ See id.
---------------------------------------------------------------------------

Overview of the Proposal
    The agencies' proposal replaced the current revitalization and 
stabilization activities component of the community development 
definition with six separate categories of activities:
     Revitalization activities undertaken in conjunction with a 
government plan, program, or initiative; \426\
---------------------------------------------------------------------------

    \426\ See proposed Sec.  __.13(e).
---------------------------------------------------------------------------

     Essential community facilities activities; \427\
---------------------------------------------------------------------------

    \427\ See proposed Sec.  __.13(f).
---------------------------------------------------------------------------

     Essential community infrastructure activities; \428\
---------------------------------------------------------------------------

    \428\ See proposed Sec.  __.13(g).
---------------------------------------------------------------------------

     Recovery activities in designated disaster areas; \429\
---------------------------------------------------------------------------

    \429\ See proposed Sec.  __.13(h).
---------------------------------------------------------------------------

     Disaster preparedness and climate resiliency activities; 
\430\ and
---------------------------------------------------------------------------

    \430\ See proposed Sec.  __.13(i).
---------------------------------------------------------------------------

     Qualifying activities in Native Land Areas.\431\
---------------------------------------------------------------------------

    \431\ See proposed Sec.  __.13(k).
---------------------------------------------------------------------------

    Each of the proposed categories included requirements to benefit 
residents of targeted geographic areas, as discussed in more detail 
below, and thus are referred to as ``place-based categories'' (and the 
activities defined within the categories as ``place-based activities'') 
throughout this SUPPLEMENTARY INFORMATION. Each of the proposed place-
based categories also generally shared three other common required 
eligibility criteria (with adjustments specific to certain categories). 
Specifically, relevant activities must:
     Benefit or serve residents of the targeted geographic 
area, including low- or moderate-income individuals;
     Not displace or exclude low- or moderate-income 
individuals; and
     Be conducted in conjunction with a Federal, State, local, 
or tribal government plan, program, or initiative that includes an 
explicit focus on benefiting or serving the targeted geographic area.
    These criteria are generally referred to as ``place-based 
criteria'' throughout this SUPPLEMENTARY INFORMATION. By refining and 
further clarifying the current regulation and guidance regarding the 
revitalization and stabilization category of community development, the 
agencies intended to provide greater certainty about what activities 
are considered to revitalize and stabilize communities, and thus be 
considered community development.
    This section-by-section analysis first discusses the three place-
based criteria noted above, including general comments received and 
general revisions made in the final rule. An analysis of each of the 
six place-based community development categories follows, under which 
specific final place-based criteria provisions and revisions are 
discussed. As will be discussed below, the final rule generally retains 
the three common place-based criteria proposed for each of the six 
place-based categories, with some modifications. The analysis of the 
place-based criteria below generally follows the order of the proposal; 
as discussed under the analysis of each of the specific place-based 
categories, the final rule reorganizes the common place-based criteria 
to establish a consistent parallel structure across the categories.
Benefits or Serves Residents, Including Low- or Moderate-Income 
Individuals, of Targeted Geographic Areas
The Agencies' Proposal
    Across all place-based categories, the agencies proposed that 
activities supported by a bank's loans, investments, or services would 
be considered community development only in relation to particular 
geographic areas. Specifically, revitalization activities in 
conjunction with a government plan, program or initiative, essential 
infrastructure activities, essential community facilities activities, 
and disaster preparedness and climate resiliency activities would be 
community development under the proposal if they benefited or served 
residents, including low- or moderate-income residents, of one or more 
``targeted census tracts,'' defined in proposed Sec.  __.12 to mean 
low- or moderate-income census tracts and distressed or underserved 
nonmetropolitan middle-income census tracts.\432\ Similarly, essential 
community facilities, essential infrastructure, and disaster 
preparedness and climate resiliency activities would also be required 
to be ``conducted in'' targeted census tracts.\433\
---------------------------------------------------------------------------

    \432\ See proposed Sec.  __.13(e) (revitalization activities), 
(f) (essential community facilities activities), (g) (essential 
community infrastructure activities), and (i) (disaster preparedness 
and climate resiliency activities). For further discussion of the 
definition of ``targeted census tract,'' see the section-by-section 
analysis of Sec.  __.12 (``targeted census tract'').
    \433\ See proposed Sec.  __.13(f) (essential community 
facilities activities), (g) (essential community infrastructure 
activities), and (i) (disaster preparedness and climate resiliency 
activities).
---------------------------------------------------------------------------

    Under the proposal, recovery activities in designated disaster 
areas qualified in census tracts of all income levels, provided that 
the activities benefited or served residents, including low- or 
moderate-income residents, in an area subject to a Federal Major 
Disaster Declaration (excluding Major Disaster Categories A and 
B).\434\ Activities in Native Land Areas would qualify as community 
development if they were ``specifically targeted to and conducted in 
Native Land Areas'' and ``benefited residents of Native Land Areas, 
including low- or moderate-income residents.'' \435\
---------------------------------------------------------------------------

    \434\ See proposed Sec.  __.13(h)(1).
    \435\ See proposed Sec.  __.13(l). The definition of ``Native 
Land Area'' is discussed further in the section-by-section analysis 
of Sec.  __.12.
---------------------------------------------------------------------------

    The agencies also proposed requirements regarding the beneficiaries 
of place-based activities--specifically, that they benefit or serve 
residents of the relevant targeted geographic area, including low- or 
moderate-income residents. The express inclusion of ``low- or moderate-
income residents'' incorporated an emphasis on benefits for low- and 
moderate-income individuals reflected in the current regulation and 
guidance on revitalization and stabilization activities, as well as the 
CRA statute.\436\ The agencies sought feedback on how place-based 
activities can focus on benefiting residents in targeted census tracts 
and ensure that the activities benefit low- or moderate-income 
residents.
---------------------------------------------------------------------------

    \436\ See, e.g., 12 CFR __.12(g)(4); Q&A Sec.  __.12(g)(4)(i)-1 
(regarding low- or moderate-income geographies), Q&A Sec.  
__.12(g)(4)(ii)-2 (regarding designated disaster areas), Q&A Sec.  
__.12(g)(4)(iii)-3 (regarding distressed nonmetropolitan middle-
income census tracts), and Q&A Sec.  __.12(g)(4)(iii)-4 (regarding 
underserved nonmetropolitan middle-income census tracts); 12 U.S.C. 
2903(a) and 2906(a)(1).
---------------------------------------------------------------------------

Comments Received
    Commenters offered various views on how to focus place-based 
activities on benefiting residents in targeted geographic areas, and 
how to ensure that the activities benefit low- or moderate-income 
residents. Comments specific to whether activities should be directly 
conducted in targeted geographic areas are generally discussed under 
the section-by-section analyses for the respective place-based 
categories, where applicable. Several commenters suggested that the 
agencies adopt quantitative measures for evaluating benefits, such as 
requiring a majority of the beneficiaries to be low- or moderate-income 
in the targeted geographic area, or requiring a majority of 
beneficiaries to be low- or moderate-income minorities. Some commenters 
recommended that data on benefits to low- and moderate-income residents

[[Page 6673]]

should be part of community development data submissions, such as 
documentation regarding the number and percent of low- and moderate-
income persons in the census tract(s) of the target area and a 
narrative explaining how the activity would benefit them, or other 
evidence of community benefit such as job creation, living wages, fair 
lease payments, or sound land-use planning practices. In contrast, a 
commenter suggested that the agencies also allow for consideration of 
activities where benefits to low- or moderate-income individuals are 
not readily quantifiable, but otherwise demonstrable. This commenter 
cautioned that ``means testing'' would complicate community development 
financing and might not be possible, potentially discouraging bank 
investment, but suggested that projects located in low- and moderate-
income or distressed census tracts were likely to serve residents of 
those tracts and others in the area.
    Some commenters suggested requiring community input to demonstrate 
that activities benefit residents, including low- or moderate-income 
residents, of targeted census tracts. For instance, commenters 
recommended that banks document (and the agencies consider) public 
feedback provided by community groups; public attestations; or 
community benefit agreements (CBAs). Several commenters recommended 
that examiners use their judgment to determine whether qualifying 
activities benefit low- and moderate-income residents, indicating, for 
example, that different types of activities will warrant different 
types of evidence to demonstrate benefit to low- and moderate-income 
residents. Other commenters suggested that a statement from a bank's 
public or nonprofit organization partners could provide evidence of a 
place-based activity's impact on low- and moderate-income communities.
Final Rule
    The final rule generally retains the three common place-based 
criteria proposed for each of the six place-based categories, with some 
modifications. Generally applicable language and revisions are 
addressed here, with category-specific language described under each 
category below in this section-by-section analysis.
    Consistent with the proposal, each of the final place-based 
categories adopts a specific focus on targeted geographic areas, 
discussed in each of the section-by-section analyses of the place-based 
categories below. Under the final rule, the geographic area focus for 
each category is as follows:
     For revitalization or stabilization (Sec.  __.13(e)), 
essential community facilities (Sec.  __.13(f)), essential community 
infrastructure (Sec.  __.13(g)), and disaster preparedness and weather 
resiliency (Sec.  __.13(i)): ``targeted census tracts.'' Consistent 
with the proposal, targeted census tracts are defined in final Sec.  
__.12 as low- and moderate-income census tracts, as well as distressed 
or underserved nonmetropolitan middle-income census tracts;
     For recovery of designated disaster areas (Sec.  
__.13(h)): ``areas subject to a Federal Major Disaster Declaration, 
excluding Major Disaster Categories A and B''; and
     For qualified activities in Native Land Areas (Sec.  
__.13(j)): ``residents of Native Land Areas.'' \437\
---------------------------------------------------------------------------

    \437\ The term ``Native Land Area'' is separately defined in 
section Sec.  __.12 and discussed in detail in the accompanying 
section-by-section analysis.
---------------------------------------------------------------------------

    For each place-based category, the final rule also adopts 
substantially as proposed the place-based criterion that activities 
benefit or serve residents, including low- or moderate-income 
individuals, in the targeted geographic areas, including the proposed 
criterion that revitalization activities in Native Land Areas must have 
``substantial benefits for low- and moderate-income residents.'' \438\ 
The final rule revises the proposed language of this criterion, with no 
substantive change intended, to reference ``low- or moderate-income 
individuals'' rather than ``low- or moderate-income residents,'' which 
aligns with usage of the word ``individuals'' in the definitions of 
low-income and moderate-income in final Sec.  __.12 and is generally 
consistent with usage of the term ``low- or moderate-income 
individuals'' throughout the rule. As discussed in the proposal, this 
criterion establishes a consistent expectation that residents in the 
relevant targeted geographic areas will benefit from the qualifying 
activity and that the residents benefiting from the activity will 
include low- and moderate-income individuals. To further the purposes 
of CRA, the agencies believe it important that loans, investments, and 
services considered in a bank's community development performance 
evaluation support place-based activities that provide direct benefit 
to the people living in targeted geographic areas rather than solely 
supporting redevelopment these geographic areas more generally. 
Together with the other common place-based criteria discussed in more 
detail below, the agencies believe that this criterion will ensure a 
strong connection between activities and community needs.
---------------------------------------------------------------------------

    \438\ See proposed Sec.  __.13(l)(1)(i)(A) (``revitalization 
activities in Native Land Areas'') and final Sec.  __.13(j)(2)(ii) 
(revised to refer to ``revitalization or stabilization activities in 
Native Land Areas'').
---------------------------------------------------------------------------

    The agencies have considered, but are not adopting, additional 
quantitative standards or criteria in final Sec.  __.13(e) through (j), 
including a requirement that a majority of the beneficiaries of a 
qualifying activity in the proposed (and final) targeted geographic 
areas be low- or moderate-income individuals, minorities, or other 
underserved individuals. The agencies understand and appreciate the 
concerns giving rise to commenter suggestions for more precisely 
defining qualifying community development activities to focus on these 
individuals and communities. For this reason, as noted in the proposal, 
the agencies also considered a criterion that place-based activities 
benefit or serve solely low- or moderate-income individuals.
    On further consideration, however, the agencies believe that the 
final criterion (``benefits or serves residents, including low- or 
moderate-income residents'' \439\) is appropriately adaptable, 
providing needed flexibility to address the wide range of community 
development needs that may exist in the areas targeted in the proposed 
and final rule's place-based community development categories. Rather 
than adding quantitative limitations or other parameters to this 
proposed criterion, the agencies intend, in adopting this criterion 
generally as proposed, to maintain flexibility for activities to meet 
multiple types of community needs in the areas targeted by place-based 
activities--while also requiring the inclusion of low- or moderate-
income individuals as beneficiaries. This flexibility remains 
particularly important in distressed and underserved nonmetropolitan 
middle-income census tracts, which can have fewer low- or moderate-
income residents. The agencies further believe that this criterion, as 
adopted, is consistent with the CRA statute, which is focused on 
meeting the credit needs of an entire community, including low- and 
moderate-income needs.\440\ In addition,

[[Page 6674]]

the agencies note that, under the majority standard discussed in the 
section-by-section analysis of Sec.  __.13(a), loans, investments, or 
services supporting placed-based community development may receive 
community development consideration only if the majority of the 
beneficiaries are, or the majority of the dollars benefit or serve, 
residents of the targeted geographic areas.\441\
---------------------------------------------------------------------------

    \439\ The final rule adopts different language for 
revitalization or stabilization activities in Native Land Areas, 
which must benefit or serve residents of Native Land Areas, ``with 
substantial benefits for low- or moderate-income individuals'' 
(emphasis added). See final Sec.  __.13(j)(2)(ii), discussed in the 
section-by-section analysis of Sec.  __.13(j).
    \440\ See 12 U.S.C. 2903(a) and 2906(a)(1).
    \441\ See final Sec.  __.13(a)(1)(i)(B)(4) through (6).
---------------------------------------------------------------------------

    The agencies are also not adopting additional criteria, recommended 
by some commenters, for demonstrating and evaluating the benefits of 
place-based activities, such as through suggested data points or 
requiring community input. On further deliberation, the agencies are 
concerned that requiring specific ways of demonstrating benefits to 
residents could add complexity and burden, potentially dissuading banks 
from supporting place-based activities. The agencies further believe 
that maintaining some flexibility in the regulation is necessary to 
accommodate varying community needs and relationships that banks have 
with communities. At the same time, the agencies recognize that data 
and community input could be helpful in demonstrating and evaluating 
benefits of activities to residents of targeted geographic areas, 
including low- and moderate-income individuals; the final rule does not 
preclude banks and examiners from using an array of useful information 
in this regard.
    As was noted by commenters, examiner judgment will continue to have 
a role in agency determinations regarding whether activities benefit 
residents of targeted geographic areas, including low- or moderate-
income individuals. However, by adopting the criterion requiring 
activities to benefit or serve residents, including low- or moderate-
income individuals, in combination with other place-based criteria, the 
agencies intend to clarify expectations and to promote consistency in 
application across place-based categories of community development.
Prohibits Displacement or Exclusion of Low- or Moderate-Income 
Individuals
The Agencies' Proposal
    The agencies proposed that eligible place-based activities could 
not lead to the displacement or exclusion of low- or moderate-income 
residents in relevant geographic areas.\442\ For example, the proposal 
noted that, if a project to build commercial development to revitalize 
an area involved demolishing housing occupied by low- or moderate-
income individuals, then the project would not meet this criterion and 
loans, investments, or services supporting it would be ineligible for 
CRA credit. In proposing this criterion, the agencies sought to ensure 
that qualifying activities do not have a detrimental effect on low- or 
moderate-income individuals or communities or on other underserved 
communities. The agencies sought feedback on how considerations about 
whether an activity would displace or exclude low- or moderate-income 
residents should be reflected in the rule.
---------------------------------------------------------------------------

    \442\ See proposed Sec.  __.13(e)(2) (revitalization), (f)(2) 
(essential community facilities), (g)(2) (essential community 
infrastructure), (h)(2) (recovery in designated disaster areas), 
proposed (i)(2) (disaster preparedness and climate resiliency), and 
(l)(1)(i)(B) and (l)(2)(i) (Native Land Areas).
---------------------------------------------------------------------------

Comments Received
    Most commenters supported requiring that qualifying place-based 
activities not displace or exclude low- and moderate-income residents. 
Many of these commenters asserted that the anti-displacement and anti-
exclusion criterion should be extended to other categories of community 
development, with a number of commenters advocating for an extension of 
the criterion to the proposed category for affordable housing under 
proposed Sec.  __.13(b), including the naturally occurring affordable 
housing prong in proposed Sec.  __.13(b)(2).\443\
---------------------------------------------------------------------------

    \443\ See proposed Sec.  __.13(b), discussed above.
---------------------------------------------------------------------------

    A variety of commenters asserted that the criterion should be 
strengthened, and offered suggestions for demonstrating or measuring 
non-displacement and non-exclusion for activities supported by a bank's 
loans, investments, or services. Suggestions included, for example, 
that a bank:
     Demonstrate compliance with tenant protections, local 
health and habitability codes, civil rights and other relevant laws;
     Conduct due diligence to determine whether a project 
involves any concerns relating to eviction, harassment, complaints, 
rent increases, or habitability violations;
     Demonstrate that projects did not reduce affordable 
housing units or displace small businesses or farms;
     Evidence support for resident retention through lending in 
low- and moderate-income communities or minority communities to ensure 
non-displacement of those communities; or
     Provide attestations from public sector or nonprofit 
partners that displacement did not occur, or require other 
documentation of the community engagement process.
    Other commenters focused on gentrification concerns more expressly. 
For example, commenters recommended that the agencies: (1) consider 
whether an activity would promote gentrification and displacement of 
existing low- and moderate-income residents through increased rents.; 
(2) recognize both physical displacement, such as in the proposal's 
example of affordable housing being demolished to create housing 
serving higher-income households, and more general displacement from 
inflationary pressures caused by rapid growth or gentrification; and 
(3) closely evaluate the demographics of financial institutions' 
financing practices in relation to gentrification. Other commenters 
indicated that impact on minorities within identified census tracts 
should be accounted for, or that the agencies should expand CRA 
discrimination downgrade criteria to include incidents of displacement 
of, or harm to, low- and moderate-income communities and/or minorities.
    Some commenters supported the goal of preventing displacement but 
suggested that the proposed criterion was too broad and thus might 
inadvertently disqualify activities that would otherwise align with 
community development goals. Accordingly, some commenters recommended 
that the criterion be revised to, for instance: (1) allow for 
activities that result in displacement, if mitigation of displacement 
is incorporated into the project, such as voluntary agreements that 
provide for compensation, alternative housing in or near the relevant 
community, or other similar benefits to displaced residents; (2) 
provide other carve-outs from the criterion, such as for temporary 
relocations or limited displacement; or (3) include only involuntary or 
forced displacement, to permit, for example, voluntary relocation from 
climate-impacted areas.
    Other commenters opposed the proposal to include an anti-
displacement or anti-exclusion criterion as part of place-based 
community development activities, with some explicitly opposed to a 
criterion disallowing exclusion of low- and moderate-income 
individuals. Some of these commenters expressed concern about an 
undefined, overbroad, or subjective standard, with some suggesting that 
the proposed criterion would be difficult to demonstrate and for 
examiners to evaluate. A commenter suggested that meeting this 
criterion

[[Page 6675]]

would be especially difficult in advance of, or shortly after the 
completion of, the activity, and indicated that banks might not be able 
to predict or control the long-term effects of projects. This commenter 
asserted that the proposal would add inconsistency and uncertainty to 
CRA evaluations and potentially chill beneficial community development 
projects in low- or moderate-income communities.
    Several commenters suggested that the agencies omit the 
displacement and exclusion prohibition and instead weigh the overall 
impact of activities on targeted census tracts (and other relevant 
geographic areas, as applicable). For example, commenters suggested 
that activities could have larger community benefits even if some 
displacement results, such as a commercial mixed-use project that 
results in some displacement of low- and moderate-income residents but 
includes housing for low- and moderate-income residents. A commenter 
also suggested that the proposed anti-displacement criterion was 
inconsistent with the criterion that a project be ``in conjunction 
with'' a government plan, indicating that government revitalization 
plans sometimes involve the removal of apartment buildings that have 
sub-standard units.
Final Rule
    In the final rule, the agencies are adopting a revised version of 
the proposal to include a place-based criterion that activities may not 
``directly result in the forced or involuntary relocation of low- or 
moderate-income individuals'' in the targeted geographic areas. This 
criterion is designed to ensure that qualifying activities do not have 
a direct detrimental effect on low- or moderate-income individuals or 
communities in the relevant targeted geographic areas. The agencies 
believe that qualifying place-based community development activities 
that deny such populations the benefits of those activities through 
forced or involuntary relocation out of the targeted geographic area 
would be inconsistent with the purpose of the CRA to encourage banks to 
help serve the credit needs of their communities, including low- or 
moderate-income populations.
    The agencies have considered and are persuaded by comments that 
refinements to the proposed criterion are appropriate so as not to 
disqualify responsive community development activities that align with 
the purpose of the CRA. In particular, the agencies have considered 
concerns raised by some commenters based on their view of the breadth 
of the proposed standard. The agencies recognize, for example, that 
otherwise qualifying disaster recovery or disaster preparedness 
activities with widespread benefits for a community could involve 
voluntary relocation residents due to environmental conditions such as 
an increased risk of significant flooding. Therefore, the agencies have 
revised the proposal to focus the final rule's criterion on prohibiting 
activities that would result in the forced or involuntary physical 
displacement of low- or moderate-income individuals as a direct result 
of the activity.
    The final rule's criterion on displacement does not include the 
proposal's specific prohibition on ``exclud[ing]'' low- and moderate-
income residents. As noted above, the final rule includes a criterion 
that place-based activities must benefit or serve residents of a 
targeted geographic area, including low- or moderate-income individuals 
(with revitalization or stabilization activities in Native Land Areas 
requiring ``substantial benefits for low- or moderate-income 
individuals'' \444\). Given that the requirement to benefit or serve a 
targeted geographic area must include low- or moderate-income 
individuals (and therefore cannot exclude those individuals), on 
further consideration, the agencies believe that the exclusion language 
is redundant. However, the agencies do not intend a substantive change 
relative to the proposal. Thus, if low- or moderate-income individuals 
were not able to access or benefit from an activity, then the activity 
would not include low- or moderate-income individuals and therefore 
would not qualify as community development under the final rule.
---------------------------------------------------------------------------

    \444\ See final Sec.  __.13(j)(2)(ii).
---------------------------------------------------------------------------

    Under the final rule, ``forced or involuntary relocation'' could 
encompass both overt activities such as demolishing a building, as well 
as actions directly resulting in conditions for remaining in place 
being infeasible or undesirable, such as uninhabitable conditions. 
Accordingly, under the final rule, a project that involves demolishing 
a multifamily building in which low- or moderate-income individuals 
reside, thereby forcibly removing residents, would not qualify as 
community development under the place-based categories. In contrast, 
projects involving relocation of individuals could conceivably qualify 
as community development where residents agree to voluntary relocation. 
Regarding the concern that the proposed anti-displacement standard 
could conflict with government plans, the agencies believe that the 
revisions to the proposal--to focus on ``forced or involuntary 
relocation''--will help mitigate this concern by adding greater 
specificity to the provision. For example, if a government plan 
involves demolishing a building that has suffered substantial hurricane 
damage, and all tenants are willing to relocate, the relocation of 
those tenants would not be disqualifying under this place-based 
criterion.
    Additionally, the final rule states that activities may not 
``directly'' result in forced or involuntary relocation. Accordingly, 
to be disqualified, an activity must directly relate to the involuntary 
relocation. For example, if a commercial development project to 
revitalize an area involved demolishing housing occupied by low- or 
moderate-income individuals, this project would directly result in the 
relocation of those occupants. Depending on the facts and 
circumstances, if the relocation were forced or involuntary, then the 
loans, investments, or services supporting the project would be 
ineligible for CRA consideration. In contrast, while the agencies note 
commenter feedback regarding future market pressures on rents and other 
costs resulting from neighborhood redevelopment and share these 
concerns, the agencies do not believe such pressures generally would 
directly result in forced or involuntary relocation, and thus generally 
would not be disqualifying under the final criterion. Further, the 
agencies believe that evaluating the impact of a particular project on 
the broader market in the future, such as the possibility of general 
rent increases across the market, could be challenging or speculative, 
resulting in inconsistencies in application and decreased certainty as 
to which projects may qualify as community development.
    For similar reasons, the agencies are not incorporating specific 
displacement and relocation mitigation options as part of this 
criterion in the final rule. The agencies are concerned that doing so 
could create a need for a complex set of parameters regarding 
appropriate mitigation for otherwise qualifying activities. Further, 
determining when mitigation efforts are sufficient in all cases could 
be difficult or impracticable, as facts and circumstances can vary 
widely.
    Likewise, on further consideration, the agencies are not adopting 
additional commenter-recommended standards or criteria to measure or 
otherwise demonstrate or determine whether an activity displaces 
residents. As with the above place-based criterion to benefit or

[[Page 6676]]

serve residents of a targeted geographic area, including low- and 
moderate-income individuals, the agencies are concerned that specific 
evidentiary requirements or required methods to demonstrate or 
determine whether an activity displaces residents could add complexity 
and burden, potentially dissuading banks from engaging in place-based 
activities. The agencies further recognize that the range of 
circumstances and contexts of potentially qualifying projects could 
have implications for whether specific measures pertaining to 
displacement determinations are appropriate, and might not be 
foreseeable.
    The agencies have also considered commenter suggestions to 
incorporate this particular criterion into other community development 
categories, but believe that this criterion is most appropriate for 
place-based activities. The agencies believe that the criterion is 
appropriate specifically for place-based activities to ensure that 
activities designed to benefit a targeted geographic area do not have 
direct detrimental impacts on the residents the activities are intended 
to serve. Further, the relocation impacts of a particular activity can 
be more easily identified relative to a particular targeted geographic 
area, which are well-defined in, and the focus of, place-based 
community development activities in the final rule. Regarding comments 
encouraging expansion of the criterion to the affordable housing 
category, particularly naturally occurring affordable housing in Sec.  
__.13(b)(2), the agencies note that, under the final rule, this type of 
affordable housing is designed to create units or facilitate 
maintenance of existing units of affordable housing, and examiners will 
retain discretion to consider whether an activity reduces the number of 
housing units affordable to low- or moderate-income individuals. This 
design thus indirectly includes anti-displacement guardrails.\445\ The 
criterion is also less appropriate for other community development 
categories, such as community supportive services and financial 
literacy, that are unlikely to result in the direct relocation of 
residents.\446\
---------------------------------------------------------------------------

    \445\ For further discussion, see final Sec.  __.13(b)(2) and 
the accompanying section-by-section analysis.
    \446\ See final Sec.  __.13(d) and (k), respectively, and the 
accompanying section-by-section analyses.
---------------------------------------------------------------------------

    Regarding comments that the rule should permit downgrades for 
activities that result in displacement, the agencies note that under 
the final rule, as currently, evidence of illegal credit practices is 
the basis of a rating downgrade.\447\ The agencies have given serious 
consideration to the types of practices that should result in a ratings 
downgrade, in light of significant comments on this topic. For further 
discussion of the types of practices that can lead to a ratings 
downgrade under the final rule, see the section-by-section analysis of 
final Sec.  __.28(d). The agencies also emphasize that, under the final 
rule, no place-based activity directly resulting in forced or 
involuntary relocation of low- or moderate-income individuals will 
qualify as community development, so no bank may receive community 
development consideration for loans, investments, or services 
supporting those activities.
---------------------------------------------------------------------------

    \447\ See current 12 CFR __.28(c), proposed Sec.  __.28(d), and 
final Sec.  __.28(d).
---------------------------------------------------------------------------

    Finally, the agencies are not removing this criterion from the 
final rule or revising the rule to weigh overall impacts to a market, 
such as net benefits of an activity to a particular market, accounting 
for displacement. The agencies have considered comments suggesting 
removal or revision in this regard, but believe that granting 
consideration for loans, investments, or services that support projects 
directly resulting in forced or involuntary relocation of low- or 
moderate-income residents of targeted geographic areas, even in 
conjunction with a government plan, would be inconsistent with the 
express focus of the CRA on the needs of low- or moderate-income 
populations.
    Overall, the agencies believe that the final criterion as adopted 
offers a more precise standard relative to the proposal that 
appropriately balances encouraging activities that provide community 
benefits to residents of a targeted geographic area, including low- and 
moderate-income residents of targeted geographic areas, while 
discouraging activities that have detrimental effects on the residents 
of those targeted geographic areas, including low- or moderate-income 
individuals. The agencies recognize commenter concerns that the 
proposed rule was overbroad or could be difficult to evaluate, and 
believe that the final rule regulatory text on this criterion more 
accurately expresses the intent of the proposal and will be more 
practicable to establish than the proposed language.
Conducted in Conjunction With a Government Plan, Program, or Initiative
The Agencies' Proposal
    The agencies proposed that activities eligible under the place-
based community development categories would need to be undertaken ``in 
conjunction with a [F]ederal, [S]tate, local, or tribal government 
plan, program, or initiative'' that, for most proposed placed-based 
activities, would have to include ``an explicit focus'' on benefiting 
the relevant targeted geographic area.\448\ The agencies sought 
feedback on whether any or all place-based definition activities should 
be required to be conducted in conjunction with a government plan, 
program, or initiative and include an explicit focus of benefiting the 
targeted geographic area. In addition, the agencies sought feedback on 
appropriate standards for government plans, programs, or initiatives 
and asked about alternative options for determining whether place-based 
activities meet identified community needs.
---------------------------------------------------------------------------

    \448\ See proposed Sec.  __.13(e) (revitalization), (f)(3) 
(essential community facilities), (g)(3) (essential community 
infrastructure), (h)(3) (recovery in designated disaster areas), 
(i)(3) (disaster preparedness and climate resiliency), and (l)(1)(i) 
(revitalization in Native Land Areas). Proposed Sec.  
__.13(l)(2)(ii) (essential community facilities and essential 
community infrastructure in Native Land Areas) and (l)(3)(ii) 
(disaster preparedness and climate resiliency in Native Land Areas) 
did not include the ``explicit focus'' language.
---------------------------------------------------------------------------

Comments Received
    Some commenters supported the proposed common criterion to require 
that place-based community development be conducted in conjunction with 
a government plan, program, or initiative. These comments included, for 
example, a commenter asserting that banks' lending should be aligned 
with government efforts to ensure investments reach underserved 
communities and have the highest impact, and expressing the view that 
the proposed language ``in conjunction with'' would ensure that 
alignment. Several commenters supportive of the proposed criterion 
suggested adding other criteria as well, such as showing that a plan, 
program, or initiative has broad community support, to ensure that the 
government plan, program or initiative is responsive to community 
needs, or involves consultation and partnership with community- and 
faith-based organizations in targeted communities to determine how best 
to tailor activities. Commenter recommendations also included that 
banks should have to demonstrate that the underlying government plan or 
program includes goals and standards appropriately aligned with a 
community development category under CRA; and that qualifying plans 
should be included in an official government document that is readily 
available to the public and has

[[Page 6677]]

been subject to a formal community review process.
    However, a majority of commenters opposed or expressed concerns 
about requiring place-based activities to be conducted in conjunction 
with a government plan, program, or initiative as proposed, with some 
commenters suggesting eliminating the requirement altogether, or 
expanding the government plan, program, or initiative criteria to 
include other options for defining eligible activities. Some commenters 
viewed the criterion as too limiting, given that communities do not 
always have government plans, programs, or initiatives in place for 
community development. Commenters stated, for example, that: local 
governments in areas most in need of stabilization and revitalization, 
including small towns and rural areas, might not always have a plan, 
program, or initiative for the targeted census tract; consolidated 
plans developed at the State level often do not target rural areas at 
the census tract level; the requirement could prevent activities where 
banks are unable to find a government partner or to know in advance if 
one will be available for a prospective project; and, more generally, 
the requirement could lead to a contraction rather than an expansion of 
community development activities. A few commenters expressed concern 
that the proposed criterion would exclude impactful activities with 
nonprofit organizations or in the private sector that are not 
associated with a formal government plan but could effectuate the same 
community development purposes. A commenter expressed concern that 
banks could be penalized for supporting activities in areas without a 
plan and suggested that, at a minimum, the agencies should instead 
require only that an activity be conducted ``consistent with'' such a 
government plan, program, or initiative. Particularly regarding the 
proposed disaster preparedness and climate resiliency category of 
community development,\449\ a commenter suggested that if the 
government plan requirement were retained, the final rule should 
clarify that plans developed by local utilities are included.
---------------------------------------------------------------------------

    \449\ See final Sec.  __.13(i), discussed in detail in the 
accompanying section-by-section analysis.
---------------------------------------------------------------------------

    Other commenters asserted that government plans that do exist do 
not always match community goals or, similar to comments mentioned 
above, may unevenly address community needs. For instance, a commenter 
suggested that a local agency plan or initiative might not be 
responsive to needs of modest-income residents or minorities, or might 
be harmful to their interests. With respect to climate activities, a 
number of commenters argued that government plans may be inadequate or 
slow to respond to community needs. A few commenters noted that 
government programs regarding climate change often lack a racial 
justice focus.
    Some commenters supported broadening this criterion to include 
place-based activities in partnership with not only governments, but 
also local community organizations with plans, programs, or 
initiatives, particularly organizations that have knowledge of, and a 
successful record of working within, the relevant community; or, 
similarly, community-led plans and plans conducted in conjunction with 
community development organizations and nonprofit organizations that 
benefit low- and moderate-income individuals and communities. For 
example, a commenter recommended that bank lending and investment in 
low- and moderate-income communities working with mission-driven 
lenders should receive community development consideration. Another 
commenter emphasized the importance of including in any criterion the 
activities of Black developers or community organizers that engage in 
place-based activities outside of government plans--as long as such 
activities still meet the explicit focus of benefiting the targeted 
census tract, including low- and moderate-income residents.
    Other commenters suggested that place-based activities should 
instead simply qualify as community development if clearly supported by 
documentation that the activity meets a need in the community. For 
example, a commenter expressing concern regarding the level of required 
government engagement advocated for giving banks more flexibility to 
engage with non-government partners in projects that also met community 
needs, without the need to have a government plan in place. Several 
commenters suggested that the key qualification standard for place-
based activities should be whether intended beneficiaries are low- and 
moderate-income census tract residents or other low- and moderate-
income individuals.
    Some commenters supported the agencies' goals to create clear 
standards for qualification of place-based activities, but recommended 
alternatives to a requirement that place-based activities be conducted 
in conjunction with a government plan, program, or initiative. For 
example, several commenters suggested that, rather than requiring a 
nexus to a government, plan, program, or initiative, the final rule 
should incorporate impact scoring to boost consideration of activities 
undertaken in conjunction with a government plan, or that government 
plans should serve as evidence that an activity is responsive to local 
needs.
    A few commenters recommended a qualitative approach to assessing 
the value of place-based activities to the community, such as through 
examiner analysis of performance context or a CBA to determine 
community needs and whether activities respond to them. Additionally, a 
few commenters suggested that the agencies consider activities with a 
race-conscious objective or develop a ranking of activities that 
emphasize working in conjunction with government plans, programs, and 
initiatives that have a race conscious objective.
Final Rule
    The final rule adopts the proposed criterion that activities be 
conducted in conjunction with a government plan, program, or 
initiative, with revisions to: (1) broaden the criterion to include 
activities undertaken in conjunction with a mission-driven nonprofit 
organization; and (2) to generally delete the word ``explicit'' where 
applicable when referencing the focus of the government plan on the 
relevant community development activity in a particular geographic 
area.\450\ Accordingly, the final rule generally adopts as a criterion 
that activities be undertaken in conjunction with a Federal, State, 
local, or tribal government or a mission-driven nonprofit organization, 
where the plan, program, or initiative includes a focus on, for 
example, ``revitalizing or stabilizing targeted census tracts.'' \451\
---------------------------------------------------------------------------

    \450\ As noted, the ``explicit focus'' language for the 
government plan, program, or initiative appeared the provisions for 
all proposed placed-based categories of community development, other 
than essential community facilities, essential community 
infrastructure, and disaster preparedness and climate resiliency 
activities in Native Land Areas.
    \451\ See final Sec.  __.13(e)(1)(i) (revitalization and 
stabilization), (f)(1) (essential community facilities), (g)(1) 
(essential community infrastructure), (h)(1)(i) (disaster recovery), 
and (i)(1) (disaster preparedness and weather resiliency). The 
``explicit focus'' language is adopted regarding qualifying 
activities in Native Land Areas. See final Sec.  __.13(j)(2)(i) and 
(j)(3)(i).
---------------------------------------------------------------------------

    In general. As discussed in the proposal, the agencies intend this 
criterion to achieve several objectives. First, the criterion will help 
ensure that place-based activities are responsive to identified 
community needs. Government plans, programs, or initiatives provide a 
mechanism for ensuring that activities are intentional

[[Page 6678]]

and support articulated community development goals, with a specific 
tie to the relevant geographic areas. The agencies believe that these 
plans, programs, and initiatives are general indicators of community 
needs. As discussed in more detail below, expanding the criterion to 
plans, programs, and initiatives of mission-driven nonprofit 
organizations will provide another mechanism to ensure a nexus between 
an activity and community needs in a particular geographic area, given 
these organizations' knowledge and record of working within, and with 
residents of, targeted geographic areas. Including mission-driven 
nonprofit organizations in the criterion also will help address 
commenter feedback that government plans, programs, and initiatives are 
not always available or are not always responsive to or inclusive of 
all of the needs in a particular geographic area.
    Second, the final rule is intended to improve consistency, 
certainty, and transparency, which will give banks and other 
stakeholders more upfront clarity on how activities may qualify, prior 
to banks engaging in those activities. The criterion will increase 
consistency relative to current practice, where standards are complex 
and vary across geographic areas, including related to how banks can 
rely on a government plan to demonstrate qualification.\452\ The rule 
will also increase certainty and transparency in that this criterion 
sets forth a clear standard for determining whether a place-based 
activity qualifies as community development and a bank's community 
development loans, investments, or services supporting it could receive 
community development consideration.
---------------------------------------------------------------------------

    \452\ For example, under current guidance an activity in a 
distressed nonmetropolitan middle-income geography is presumed to 
revitalize or stabilize the area if the activity is consistent with 
a bona fide government revitalization or stabilization plan (see Q&A 
Sec.  __.12(g)(4)(iii)-3), while an activity in a low- or moderate-
income census tract is presumed to revitalize or stabilize the area 
if the activity has been approved by the governing board of an 
Enterprise Community or Empowerment Zone (designated pursuant to 26 
U.S.C. 1391) and is consistent with the board's strategic plan, or 
if the activity has received similar official designation as 
consistent with a Federal, State, local, or tribal government plan 
for the revitalization or stabilization of the low- or moderate-
income census tract. See Q&A Sec.  __.12(g)(4)(i)-1.
---------------------------------------------------------------------------

    Finally, the agencies believe that the final rule will provide 
additional clarity relative to current guidance by permitting 
consideration for activities in conjunction with a program or 
initiative, even if not part of a plan. The agencies believe that the 
adopted criterion will allow for consideration of activities related to 
a wide range of government plans, programs, and initiatives, including 
those found in all types of communities within the targeted geographic 
areas of the place-based community development categories. For example, 
a grant to support a park in a low-income census tract could qualify if 
undertaken in conjunction with a citywide government program or 
initiative to expand green space in low- or moderate-income areas, even 
if support for that park is not outlined in a particular plan. The 
final rule does not further specify the kinds of plans, programs, or 
initiatives that meet the criterion, nor the types of government 
entities, as these can vary by community and Federal, State, or local 
law.
    Mission-driven nonprofit organization plan, program, or initiative. 
The final rule broadens the proposed criterion to include activities 
undertaken in conjunction with plans, programs, or initiatives of not 
only governments, but also mission-driven nonprofit organizations. (For 
a more detailed discussion of the definition of mission-driven 
nonprofit organization, see the section-by-section analysis of Sec.  
__.12 (``mission-driven nonprofit organization'')). In reaching a 
determination on this final rule provision, the agencies considered 
commenter views that the proposed government plan, program, or 
initiative criterion is too narrow or limited. The agencies are 
persuaded by points raised by some commenters that not all communities 
have government plans, programs, or initiatives in place or that plans 
may vary in their level of application to different geographic areas. 
The agencies also considered comments that government plans do not 
always match the goals of all members of the community. Further, the 
agencies considered commenter views that the proposed requirement for 
activities to be conducted in conjunction with a government plan, 
program, or initiative could exclude impactful activities that are not 
associated with a formal government plan but that could also bring 
benefits to residents of a targeted geographic area.
    As defined in the final rule, mission-driven nonprofit 
organizations have knowledge of geographic areas that are the focus of 
place-based activities under the final rule, and a successful record of 
working within and with residents of these areas to meet community 
needs. Further, these organizations can be identified and evaluated 
through demonstrable and consistent standards (as discussed in more 
detail in the section-by-section analysis of Sec.  __.12).
    The agencies believe that expanding this criterion to include 
mission-driven nonprofit organizations will facilitate community 
partnerships between banks and these organizations. Moreover, the 
agencies believe that this expansion is consistent with ensuring that 
activities remain place-based and benefit or serve residents of 
targeted census tracts, designated disaster areas, and Native Land 
Areas, as applicable. In addition, the agencies believe that many 
commenters' specific suggestions will be addressed through this 
revision, such as suggestions to broaden the rule to allow for 
qualifying activities in connection with community organizations or 
community plans, programs, or initiatives.
    The agencies also recognize commenter suggestions to include 
activities with a range of organizations and entities, such as Black 
developers, community organizers, or other specific groups other than 
government entities, for determining qualification under the place-
based categories. While not specifically included in the final rule, 
the agencies believe that the revised adopted criterion will both allow 
for and encourage partnerships with many such organizations. The final 
rule does not expand this criterion to include all private sector 
partners, as the agencies believe that these entities can have varying 
goals and missions that do not always align with the goals of CRA. 
Instead, by adding mission-driven nonprofit organizations as defined in 
the final rule, the agencies believe that the final rule will 
appropriately broaden the kinds of plans, programs, and initiatives 
that can count for place-based activities, while continuing to ensure a 
focus on activities that are aligned with the goals of CRA.
    Additional considerations. The agencies have carefully considered 
but are not adopting further revisions related to commenter feedback 
regarding whether to require this criterion; the appropriate standards 
for this criterion; and alternative options. This includes comments 
suggesting additional requirements for this criterion such as 
demonstrations related to formal community review; advocating for a 
more qualitative approach emphasizing examiner judgment for assessing 
the value of place-based activities to the community in lieu of this 
criterion; or suggesting that proposed government plans, programs, or 
initiatives be a method for demonstrating that an activity meets 
community needs rather than a requirement.
    Regarding comments that any plan be included in a publicly 
available

[[Page 6679]]

document and/or be subject to formal community review process, or 
requiring community inputs as an additional criterion, the agencies are 
concerned that specific requirements of these types could be overly 
burdensome and limiting, and dissuade banks from engaging in place-
based activities. However, the agencies expect that many government 
plans, programs, and initiatives will involve a public input process.
    Regarding comments advocating for a more qualitative approach or 
that a government plan, program, or initiative be considered on an 
evidentiary rather than a mandatory basis, the agencies believe that 
including the adopted criterion--expanded to allow for activities in 
conjunction with mission-driven nonprofit organization plans, programs, 
and initiatives--is important to ensuring that activities qualifying 
under place-based community development categories are strongly linked 
to relevant local community needs in the targeted geographic areas.
    In addition, as noted regarding other place-based criteria 
discussed above, the agencies recognize commenter feedback to consider 
activities with a race-conscious objective or to develop a ranking that 
favors encouraging work in conjunction with government plans, programs, 
and initiatives that are ``racially-conscious.'' While these provisions 
are not included in the final rule, the agencies intend that the 
revised adopted criterion provides standards for ensuring that a broad 
range of residents in targeted geographic areas benefit and are served 
by place-based activities. For more information and discussion 
regarding the agencies' consideration of comments recommending adoption 
of additional race- and ethnicity-related provisions in this final 
rule, see section III.C of this SUPPLEMENTARY INFORMATION. On balance, 
the agencies believe the adopted criterion achieves an appropriate 
balance between a flexible standard that will ensure that place-based 
activities are designed to benefit or serve residents of targeted 
geographic areas, while also promoting clarity and consistency about 
eligible place-based activities.
    ``Explicit focus'' and ``in conjunction with''--in relation to a 
plan, program, or initiative. Other than for plans, programs, or 
initiatives related to activities in Native Land Areas,\453\ the final 
rule removes the term ``explicit'' from the proposed regulatory text, 
which would have required that the ``explicit focus'' of the government 
plan, program, or initiative be on, for example, revitalizing targeted 
census tracts.\454\ The agencies recognize that plans, programs, or 
initiatives may cover broader range of community development needs than 
those related to a specific category of place-based activities. In 
addition, the agencies are concerned that too narrow a focus on the 
specific wording in the type of plan, program, or initiative could 
potentially and inadvertently disqualify otherwise eligible activities 
that align with the community development goals of CRA. The agencies do 
not intend that removal of the word ``explicit'' has any substantive 
implications for the requirement that a plan, program, or initiative 
under this criterion include a focus on, for example, revitalizing or 
stabilizing a targeted census tract, or on disaster preparedness or 
weather resiliency activities in a targeted census tract. For further 
discussion of the inclusion of ``explicit focus'' in the final rule 
provisions on activities in Native Land Areas, see the section-by-
section analysis of Sec.  __.13(j).
---------------------------------------------------------------------------

    \453\ See final Sec.  __.13(j)(2)(i) and (j)(3)(i).
    \454\ See proposed Sec.  __.13(e).
---------------------------------------------------------------------------

    Finally, the agencies considered feedback to change the proposed 
requirement that an activity be ``in conjunction with'' a government 
plan, program, or initiative, to ``consistent with'' a plan, program, 
or initiative, but determined that ``consistent with'' would not 
provide sufficient clarity in determining when an activity meets the 
required standard. The agencies believe that finalizing a requirement 
for activities to be ``in conjunction with'' a government or mission-
driven nonprofit organization plan, program, or initiative will provide 
greater clarity relative to current guidance by expressly connecting 
the eligible activity to the applicable plan, program, or initiative. 
Currently, as noted, standards are complex and vary across the targeted 
geographic areas, including guidance related to how banks can rely on a 
government plan to demonstrate that an activity helps to attract or 
retain residents. Under the final rule, a uniform standard will apply 
to all activities, with flexibility to cover a range of government and 
nonprofit entities, as well as varying types of plans, programs, and 
initiatives.
    Regarding comments that any plan be included in a publicly 
available document and/or be subject to formal community review 
process, or requiring community inputs as an additional criterion, the 
agencies are concerned that a specific requirement in the regulation 
could be overly burdensome and limiting, and dissuade banks from 
engaging in place-based activities. However, the agencies expect that 
many government plans, programs, and initiatives will involve a public 
input process.

Section __.13(e) Revitalization or Stabilization Activities

The Agencies' Proposal
    In proposed Sec.  __.13(e), the agencies proposed a category of 
community development for revitalization activities undertaken in 
conjunction with a Federal, State, local, or tribal government plan, 
program, or initiative that includes an explicit focus on revitalizing 
or stabilizing targeted census tracts.\455\ The plan, program, or 
initiative would also specifically need to include the targeted census 
tracts, although the goals of a plan, program or initiative could 
include stabilization or revitalization of other geographic areas.
---------------------------------------------------------------------------

    \455\ See proposed Sec.  __.12 (defining ``targeted census 
tract'' to mean: ``(1) A low-income census tract or a moderate-
income census tract; or (2) A distressed or underserved 
nonmetropolitan middle-income census tract'').
---------------------------------------------------------------------------

    In addition to the targeted geographic focus and government plan, 
program, or initiative common criterion, the agencies proposed that 
activities under this category would need to meet the two other common 
place-based elements: proposed Sec.  __.13(e)(1) required activities to 
benefit or serve residents, including low- or moderate-income 
residents, in one or more of the targeted census tracts, while proposed 
Sec.  __.13(e)(2) required that activities not displace or exclude low- 
or moderate-income residents in the targeted census tracts. Proposed 
Sec.  __.13(e) also provided several representative examples to clarify 
the type of activities that could be considered under this category, 
including adaptive reuse of vacant or blighted buildings, brownfield 
redevelopment, or activities consistent with a plan for a business 
improvement district or main street program.
    The agencies proposed to exclude housing-related activities from 
the category of revitalization activities in proposed Sec.  __.13(e). 
Currently, pursuant to interagency guidance, activities that support 
housing for middle- and upper-income residents can receive community 
development credit if they revitalize or stabilize a distressed 
nonmetropolitan middle-income census tract or a designated disaster 
area, with greater weight given to activities that are most responsive 
to community needs, including needs of low- or moderate-income 
individuals or

[[Page 6680]]

neighborhoods.\456\ Based in part on prior stakeholder feedback that 
housing that benefits middle- or upper-income individuals, particularly 
in a low- or moderate-income census tract, can lead to displacement of 
existing residents,\457\ the agencies proposed that, under the 
``affordable housing'' category of community development in Sec.  
__.13(b), as discussed above, activities that promote housing 
exclusively for middle- or upper-income residents would not be eligible 
for CRA credit as affordable housing, regardless of the type of 
geographic area benefited.\458\ The agencies considered that additional 
clarity could come from qualifying most housing-related community 
development activities under the affordable housing category. The 
agencies also recognized that affordable housing activities are often 
components of government plans, programs, and initiatives to revitalize 
communities, and therefore sought feedback on whether housing-related 
revitalization activities should be considered under the affordable 
housing category or the revitalization activities category, and under 
what circumstances.
---------------------------------------------------------------------------

    \456\ See Q&A Sec.  __.12(g)(4)-2.
    \457\ See 87 FR 33884, 33904 (June 3, 2022). Stakeholder 
feedback considered for the proposal also included that 
revitalization or stabilization activities do not always provide 
direct benefits to low- or moderate-income individuals. See id. at 
33902.
    \458\ See proposed Sec.  __.13(b).
---------------------------------------------------------------------------

Comments Received
    Comments regarding the three common place-based criteria are 
discussed above. Remaining comments on proposed Sec.  __.13(e) 
primarily focused on the agencies' request for feedback on whether 
certain housing activities should be considered eligible under the 
revitalization category of community development. Many commenters 
supported including consideration for housing activities under Sec.  
__.13(e), consistent with current guidance.\459\ Some commenters 
asserted that these activities are central to overall community 
revitalization efforts, without specifying which housing activities 
should be included. A commenter suggested that limiting housing 
activities to the affordable housing category would create uncertainty 
for banks considering mixed-use revitalization projects that include 
both affordable housing and commercial revitalization. A few commenters 
suggested that affordable housing should be allowed to count under 
categories such as revitalization and climate resiliency, but should 
not be double-counted, as counting twice could lead to decreases in 
investment. A commenter suggested that housing should be included as an 
eligible revitalization activity and should be counted in all 
geographic areas, while another commenter stated that limiting 
consideration of housing activities under the revitalization category 
to activities serving high poverty or high vacancy geographic areas may 
not be necessary, as pockets of distress exist in otherwise prosperous 
communities.
---------------------------------------------------------------------------

    \459\ See 12 CFR __.12(g)(4) and Q&A Sec.  __.12(g)(4)-2.
---------------------------------------------------------------------------

    Some commenters seeking to include housing under Sec.  __.13(e) 
expressed support for including a variety of types of housing 
activities under the revitalization category as a crucial component of 
comprehensive, equitable neighborhood revitalization. Suggestions 
included, for example, eligibility for activities that support: (1) the 
construction or rehabilitation of owner-occupied homes (including 
condominiums and cooperatives), if the homes are in certain census 
tracts and the sales price is capped; (2) rehabilitation or 
reconstruction of owner-occupied homes if the owner is low-, moderate-, 
or middle-income; (3) the disposition, rehabilitation, or replacement 
of vacant and foreclosed homes, to create new opportunities for 
affordable homeownership for low- and moderate-income households; (4) 
supportive housing development, operation, and services in any 
geographic area, because the need for supportive housing outweighs 
supply (citing the impact of supportive housing due to lack of stable 
affordable housing with wrap-around services); and (5) home repair and 
mitigation activities for low- and moderate-income homeowners.
    Other commenters supported including mixed-income or mixed-used 
housing under the revitalization category. For example, a commenter 
suggested that mixed-income and mixed-use housing developments should 
qualify: (1) if in low- and moderate-income census tracts, and (2) if 
in higher-cost areas, and rent is limited to 60 percent of the area 
median income. This commenter suggested that high-cost neighborhoods 
are often the least accessible to low- and moderate-income individuals, 
but because these neighborhoods often offer the greatest access to 
jobs, higher performing schools, transportation, and other necessities, 
increasing access to these neighborhoods should be considered a 
revitalization activity. A few commenters recommended including housing 
developments that have onsite or co-located childcare and early 
education programs as eligible revitalization activities.
    Alternatively, several commenters stated that place-based 
revitalization activities and housing activities should be separately 
considered under the rule, or with limited exceptions. For example, a 
commenter suggested that considering housing activities solely as part 
of the affordable housing category would help clarify whether 
disparities in non-housing resources and investments are being 
adequately addressed, which this commenter asserted is particularly 
important because affordable and subsidized housing is often 
concentrated in low-resourced areas. A few commenters similarly 
indicated that areas targeted for revitalization activities are often 
areas where low-income housing is already concentrated, and housing 
activities undertaken as part of revitalization efforts can risk 
perpetuating economic and racial segregation. A commenter generally 
supportive of qualifying housing activities outside of the 
revitalization category also supported an exception for housing being 
removed or demolished as part of a broader community revitalization 
effort.
    Commenters also addressed proposed Sec.  __.13(e) beyond the 
question of whether to include housing. For example, a commenter 
expressed the view that the proposed rule's definitions of 
revitalization and stabilization activities would help direct more of 
the benefits of CRA-focused investment to low- and moderate-income 
communities and individuals. Another commenter suggested that any 
community revitalization plan or activity should include assurances 
that low- and moderate-income households will be able to remain in the 
neighborhood and enjoy the benefits of revitalization (through CBAs, 
support of community land trusts, or inclusionary zoning).
    A few commenters suggested certain activities that should be 
considered revitalization activities, such as broadband; sustainability 
projects including those related to food access, food and water source 
protection; renewable energy investments; and private investment in 
land banking activities.
Final Rule
    The agencies are adopting proposed Sec.  __.13(e), reorganized for 
clarity and consistency with the structures of other place-based 
categories, and further modified as described below. The final rule 
makes a technical revision to the name of the proposed community 
development category from

[[Page 6681]]

``revitalization'' to ``revitalization or stabilization'' for 
consistency with the current regulation and to reflect the agencies' 
intent to retain the concept of ``stabilization'' in this community 
development category. Final Sec.  __.13(e)(1) provides the general 
definition of the types of activities included in this category of 
community development. These activities must also meet specific place-
based eligibility criteria in Sec.  __.13(e)(i) through (iii). Final 
Sec.  __.13(e)(2) adds a new provision for mixed-use revitalization or 
stabilization projects.
Section __.13(e)(1) In General
    Similar to the proposal, under final Sec.  __.13(e)(1), 
revitalization or stabilization comprises activities that support 
revitalization or stabilization of targeted census tracts, including 
adaptive reuse of vacant or blighted buildings, brownfield 
redevelopment, support of a plan for a business improvement district or 
main street program, or any other activity that supports revitalization 
or stabilization. Final Sec.  __.13(e)(1) incorporates the technical 
revision from ``revitalization'' to ``revitalization or stabilization'' 
and other non-substantive edits.
    Consistent with the proposal, the final rule incorporates some 
aspects of existing guidance for revitalization and stabilization, but 
no longer focuses eligibility of activities on the extent to which an 
activity helps to attract or retain residents or businesses in targeted 
geographic areas. Consistent with prior stakeholder feedback and as 
noted in the proposal, the agencies have determined that the standard 
in current interagency guidance that an activity ``attract new, or 
retain existing, businesses or residents'' has proven difficult for 
banks, community groups, and the agencies to apply, resulting in 
inconsistent outcomes. Under the ``attract or retain'' standard, banks 
and other stakeholders lacked upfront clarity about which loans, 
services, or investments would be eligible for consideration, and the 
standard also sometimes allowed for development that did not align with 
the purpose of the CRA, such as housing for higher-income individuals, 
without benefits to low- or moderate-income individuals. Thus, the 
final rule focuses instead on revitalization and stabilization 
activities benefiting or serving targeted census tracts, and includes 
the other place-based criterion discussed in detail above. As further 
discussed below, the agencies believe that final Sec.  __.13(e) will 
provide stakeholders with a better upfront understanding of the types 
of activities that will qualify as revitalization and stabilization, 
and result in more consistency in community development consideration 
for loans, investments, and services supporting these activities.
    The final rule adopts the proposed focus on activities in targeted 
census tracts, in alignment with current guidance. The agencies 
considered commenter suggestions to qualify revitalization or 
stabilization activities in all geographic areas, but believe that the 
geographic nexus to targeted census tracts--defined in final Sec.  
__.12 to include low-income census tracts, moderate-income census 
tracts, or distressed or underserved nonmetropolitan middle-income 
census tracts--is an important standard to align the final rule with a 
longstanding geographic focus of CRA implementation, consistent with 
the CRA's emphasis on communities of need. The agencies believe that 
final Sec.  __.13(e) will allow activities to qualify across a range of 
community types with varying needs, including distressed and 
underserved nonmetropolitan middle-income census tracts without 
significant low- or moderate-income populations, as well as more 
densely populated metropolitan census tracts with a greater 
concentration of low- or moderate-income individuals.
    The examples of revitalization or stabilization in the final rule 
(as described above, adaptive reuse of vacant or blighted buildings, 
brownfield redevelopment, and support of a plan for a business 
improvement district or main street program) are drawn from current 
guidance and intended to clarify the types of activities that might be 
considered eligible under this category. However, these illustrative 
examples are intended to be non-exhaustive; the final rule clarifies 
that eligible activities include ``any other activity that supports 
revitalization or stabilization.'' The agencies recognize commenter 
suggestions to include specific activities under the revitalization or 
stabilization category, such as food access, renewable energy projects, 
or other sustainability projects, and believe that many of these types 
of projects could be included for consideration within this category 
upon meeting the required criteria. For example, a project to build a 
new supermarket within a low- or moderate-income census tract of a 
small town would qualify as a revitalization or stabilization activity 
if the activity met the required criteria. Similarly, the agencies 
recognize commenter support for including land banking and disposition 
of vacant or foreclosed land under revitalization, and believe that 
these activities would qualify provided they met other criteria in 
Sec.  __.13(e), as these are often central elements of neighborhood 
redevelopment efforts.
    The agencies note that some activities raised by commenters might 
qualify in other categories; for example, broadband is provided as an 
example under final Sec.  __.13(g) regarding essential community 
infrastructure. Other activities suggested by commenters might qualify 
under final Sec.  __.13(b) regarding affordable housing, such as 
financing that assists low- or moderate-income individuals to 
rehabilitate or reconstruct their owner-occupied homes (excluding loans 
by a bank directly to one or more owner-occupants of such 
housing),\460\ or alternatively, the financing of a supportive housing 
development and operation that meets applicable requirements in Sec.  
__.13(b).\461\ In response to comments suggesting co-located childcare 
and early education should qualify, the agencies believe this activity 
may, depending on the circumstances, qualify as a community supportive 
service (final Sec.  __.13(d)) or an essential community facility 
(final Sec.  __.13(f)), provided the activity meets all relevant 
criteria.
---------------------------------------------------------------------------

    \460\ See final Sec.  __.13(b)(4) and the accompanying section-
by-section analysis.
    \461\ See final Sec.  __.13(b)(1) and (2) and the accompanying 
section-by-section analyses.
---------------------------------------------------------------------------

Section __.13(e)(1)(i) Through (iii) Place-Based Criteria
    The final rule adopts the three proposed common place-based 
eligibility criteria for revitalization or stabilization activities, 
reorganized to be in a consistent parallel order across all place-based 
categories, and with the revisions described in the discussion of the 
place-based criteria above in this section-by-section analysis. 
Accordingly, under the final rule, revitalization or stabilization 
activities are those that: are undertaken in conjunction with a plan, 
program, or initiative of a Federal, State, local, or tribal government 
or a mission-driven nonprofit organization, where the plan, program, or 
initiative includes a focus on revitalizing or stabilizing targeted 
census tracts (final Sec.  __.13(e)(1)(i)); benefit or serve residents, 
including low- or moderate-income individuals, of targeted census 
tracts (final Sec.  __.13(e)(1)(ii)); and do not directly result in the 
forced or involuntary relocation of low- or moderate-income individuals 
in targeted census tracts (final Sec.  __.13(e)(1)(iii)).
    As noted, the reasons for adopting these final criteria, and for 
revisions to

[[Page 6682]]

the proposed criteria, are collectively discussed above in this 
section-by-section analysis. With respect to the revitalization or 
stabilization category in particular, the agencies note that final 
Sec.  __.13(e)(1)(iii) is revised from the proposal to prohibit 
activities that directly result in forced or involuntary relocation of 
low- and moderate-income individuals in targeted census tracts. 
Accordingly, the agencies are not incorporating into the final rule a 
commenter suggestion that community revitalization plans include 
assurances that low- and moderate-income households will not be 
displaced. The agencies believe that adopting the common place-based 
criteria, combined with the majority standard set forth in Sec.  
__.13(a),\462\ will adequately ensure that qualifying revitalization or 
stabilization activities benefit and serve the residents of targeted 
tracts, including low- and moderate-income individuals.
---------------------------------------------------------------------------

    \462\ For a detailed discussion of the majority standard in 
relation to when community development loans, investments, and 
services are eligible for full or partial credit, see the section-
by-section analysis of final Sec.  __.13(a).
---------------------------------------------------------------------------

Section __.13(e)(2) Mixed Use Revitalization or Stabilization Project
    On consideration of feedback regarding whether housing-related 
revitalization activities should be considered under the revitalization 
category, the agencies are adopting a provision that brings certain 
mixed-used revitalization or stabilization projects under the 
revitalization and stabilization category of community development. 
Specifically, Sec.  __.13(e)(2) incorporates into this community 
development category projects to revitalize or stabilize targeted 
census tracts that include both commercial and residential components, 
if: (1) the project meets all other criteria in Sec.  __.13(e)(1), 
including all place-based criteria (final Sec.  __.13(e)(2)(i)); and 
(2) more than 50 percent of the project is non-residential, as measured 
by the percentage of total square footage or dollar amount of the 
project (final Sec.  __.13(e)(2)(i)).
    The final rule is designed to take into account some commenters' 
views that mixed-use housing can be central to revitalization projects. 
However, the agencies do not intend to include in this category 
projects that are primarily comprised of housing, particularly mixed-
use developments with housing that is targeted to middle- or upper-
income individuals, including such projects in low- or moderate-income 
census tracts. The agencies have considered that this type of 
development might not clearly benefit existing residents of the 
targeted census tracts, particularly low- or moderate-income residents, 
and can sometimes lead to displacement of existing residents. On 
further consideration of comments, the agencies are adopting this 
revision to better allow for needed comprehensive redevelopment efforts 
in targeted census tracts that involve mixed-use properties comprised 
of some, but not primarily, housing.
    The agencies considered several alternative thresholds for the 
percentage of a mixed-use comprehensive redevelopment project that can 
be residential for the project to qualify as under Sec.  __.13(e), and 
are adopting a threshold requiring that more than 50 percent of the 
project must be non-residential as measured by the percentage of total 
square footage or dollar amount of the project (corresponding to a 
threshold of 50 percent or lower for the residential component of the 
project). The agencies believe that the adopted percentage threshold 
provides appropriate additional flexibility for mixed-use development 
under the final rule's revitalization and stabilization category. In 
this regard, the agencies considered that a lower residential 
percentage threshold would exclude several types of mixed-use projects 
central to overall community revitalization efforts. On the other hand, 
the agencies believe that activities inclusive of a higher percentage 
threshold of housing within a project (i.e., above 50 percent) are more 
appropriately considered under the affordable housing category in 
section Sec.  __.13(b), as those projects are primarily housing.
    An example of housing activity that could qualify under final Sec.  
__.13(e)(2), as long as all criteria are met, would be a main street 
mixed-use project to revitalize a series of vacant buildings to include 
60 percent commercial space and 40 percent apartments serving middle-
income residents. An example that would not qualify under Sec.  
__.13(e)(2) would include a condominium project that is 100 percent 
apartments that are affordable exclusively to higher-income residents 
in a targeted census tract. Likewise, the agencies recognize comments 
regarding supportive housing in any geographic area, and reconstruction 
or rehabilitation of owner-occupied homes in low- or moderate-income 
census tracts or distressed or underserved middle-income census tracts. 
These activities may qualify as affordable housing (final Sec.  
__.13(b)) and would qualify under Sec.  __.13(e) if they meet criteria 
as part of a comprehensive mixed-use revitalization project. Banks 
subject to the rule are permitted to qualify activities under any 
applicable category, but those activities may count only once for the 
purposes of calculating the Community Development Financing Metric.

Section __.13(f) Essential Community Facilities

Current Approach and the Agencies' Proposal
    Currently, in low- or moderate-income census tracts, distressed 
nonmetropolitan middle-income census tracts, and designated disaster 
areas, bank support for community facilities and infrastructure 
generally can receive community development consideration to the extent 
that these activities help to attract or retain residents or 
businesses.\463\ However, among these three geographic areas, these 
activities are only explicitly mentioned in current guidance for 
distressed nonmetropolitan middle-income areas \464\ (with guidance on 
designated disaster areas mentioning ``essential community-wide 
infrastructure'' but not facilities \465\). Regarding underserved 
nonmetropolitan middle-income census tracts, as noted earlier, the 
current CRA regulation provides that activities qualify for community 
development consideration in these areas ``if they help to meet 
essential community needs, including needs of low- and moderate-income 
individuals.'' \466\ To clarify this provision, the Interagency 
Questions and Answers states that activities such as ``financing for 
the construction, expansion, improvement, maintenance, or operation of 
essential infrastructure or facilities for health services, education, 
public safety, public services, industrial parks, affordable housing, 
or communication services'' in underserved nonmetropolitan middle-
income census tracts will be evaluated to determine whether they meet 
essential community needs.\467\
---------------------------------------------------------------------------

    \463\ See Q&A Sec.  __.12(g)(4)(i)--1 (regarding low- or 
moderate-income census tracts), Q&A Sec.  __.12(g)(4)(ii)--2 
(regarding designated disaster areas), and Q&A Sec.  
__.12(g)(4)(iii)--3 (for distressed nonmetropolitan middle-income 
census tracts).
    \464\ See Q&A Sec.  __.12(g)(4)(iii)--3 (``Qualifying activities 
may include, for example, . . . activities that provide financing or 
other assistance for essential infrastructure or facilities 
necessary to attract or retain businesses or residents.'').
    \465\ See Q&A Sec.  __.12(g)(4)(ii)--2.
    \466\ 12 CFR __.12(g)(4)(iii)(B).
    \467\ Q&A Sec.  __.12(g)(4)(iii)--4. As also noted, the guidance 
provides several examples of projects that may be considered to meet 
essential community needs in underserved nonmetropolitan middle-
income census tracts, such as hospitals, industrial parks, 
rehabilitated sewer lines, mixed-income housing, and renovated 
schools--as long as the population served includes low- and 
moderate-income individuals. See id.

---------------------------------------------------------------------------

[[Page 6683]]

    The agencies' proposal aimed to provide more clarity, certainty, 
and consistency regarding CRA consideration for activities that support 
essential community facilities and infrastructure. To this end, 
proposed Sec.  __.13(f) (essential community facilities) and proposed 
Sec.  __.13(g) (essential community infrastructure, discussed further 
below in this section-by-section analysis) built on the current 
Interagency Questions and Answers to clarify that essential community 
facilities and essential community infrastructure would be considered 
community development if they were conducted in and benefit or serve 
residents of targeted census tracts, defined in proposed Sec.  __.12 to 
mean low- or moderate-income census tracts, as well as distressed or 
underserved nonmetropolitan middle-income census tracts.
    Specifically, the agencies proposed a category of community 
development for essential community facilities, defined as activities 
that provide financing or other support for public facilities that 
provide essential services generally accessible by a local community. 
Proposed Sec.  __.13(f) included the following non-exhaustive examples 
of the types of facilities that would fall into this category: schools, 
libraries, childcare facilities, parks, hospitals, healthcare 
facilities, and community centers. The proposal further defined 
essential community facilities as activities conducted in targeted 
census tracts (as defined in proposed Sec.  __.12) that also meet the 
other place-based criteria discussed above: that activities benefit or 
serve residents, including low- or moderate-income residents (proposed 
Sec.  __.13(f)(1)); that activities do not displace or exclude low- or 
moderate-income residents in the targeted census tracts (proposed Sec.  
__.13(f)(2)); and that an activity that finances or supports essential 
community facilities must be conducted in conjunction with a Federal, 
State, local, or tribal government plan that includes an explicit focus 
on benefiting or serving the targeted census tracts (proposed Sec.  
__.13(f)(3)).
Comments Received
    Most commenters offering feedback on the agencies' proposal 
regarding essential community facilities were generally supportive. A 
few commenters supported the agencies' decision not to propose the 
current requirement that community facilities must also attract or 
retain businesses and residents.
    Commenters offered different views on the examples in the proposed 
essential community facilities category. Some commenters expressly 
supported the proposed examples of essential community facilities. 
Others sought clarity on the types of activities that would qualify 
under this community development category, or advocated for including 
additional types of activities in the regulation. For example, a number 
of commenters highlighted the proposed examples of hospitals and other 
healthcare-related facilities, noting this may encourage new investment 
in healthcare access, while others noted the inclusion of childcare 
facilities, citing a wide variety of community benefits.
    Others sought clarity on the types of activities that would qualify 
under this community development category, or advocated for including 
additional types of activities in the regulation. Several commenters 
suggested that the agencies add supermarkets and other food-related 
facilities to the proposed list of examples, including because low- and 
moderate-income communities are disproportionately more likely to be 
food deserts.\468\ Other comments included: a suggestion to clarify 
that the financing of retail service businesses, including grocery 
stores, pharmacies, and other neighborhood-scale services, are eligible 
facilities, regardless of the size of the occupant business, as these 
facilities bring convenience, jobs, physical revitalization, and lower 
prices for consumers; and suggested eligibility for financing grocery 
stores larger than the size standards in the proposed Retail Lending 
Test or proposed economic development category of community 
development. Another commenter cautioned the agencies against defining 
all examples of essential community facilities and essential community 
infrastructure in the regulation, stating that doing so could cause 
banks to limit activities based on the list and limit creativity in 
responding to local needs.
---------------------------------------------------------------------------

    \468\ Suggestions also included adding support for grocery 
stores to the illustrative list of eligible activities in proposed 
Sec.  __.14(a). For discussion of the proposed and final rules 
regarding the illustrative list of eligible community development 
loans, investments, and services, see the section-by-section 
analysis of final Sec.  __.14(a).
---------------------------------------------------------------------------

    A number of commenters also responded to the agencies' request for 
feedback regarding whether the proposed category should incorporate 
additional requirements to help ensure that essential community 
facilities activities include a benefit to low- or moderate-income 
residents in the communities served by these projects. Several 
commenters asserted that CRA credit should be given only to essential 
community facilities activities that serve critical community needs 
directly in low- and moderate-income areas that are otherwise unable to 
attract funding. One of these commenters stated that CRA credit should 
be limited if the market is already fully able to serve such needs. 
Another commenter recognized the challenges of determining the specific 
population of people who benefit from a public investment, but argued 
for identifying a set of characteristics or parameters to distinguish 
certain projects beneficial to low- and moderate-income residents from 
those where financing would be readily available at reasonable terms 
notwithstanding CRA eligibility.
    Other commenters emphasized that the goal for qualifying activities 
under this category should be to provide benefits to low- and moderate-
income residents. Commenter recommendations in support of this goal 
included, among others, that the final rule should: require banks to 
explain how low- and moderate-income residents benefit from an 
activity; include a primary purpose standard for qualifying bank 
support for essential community facilities under which a majority of 
the dollars invested by the bank would have to be directed toward 
supporting low- and moderate-income residents; and establish guardrails 
to ensure financing goes directly to low- and moderate-income 
communities, including metrics to measure benefits of these projects, 
such as jobs created for low- and moderate-income individuals and 
contracts with local companies, and growth in median income for census 
tract residents. A commenter recommended that any facility be presumed 
to serve low- and moderate-income residents if it is open to all 
residents of a targeted census tract, with fees (if any) that are 
affordable to low- and moderate-income persons.
    A few commenters opposed adding other criteria to the essential 
community facilities category to ensure that low- and moderate-income 
communities and residents benefit. These commenters asserted that 
activities should qualify if they benefit the entire community, 
including but without a specific focus on low- and moderate-income 
residents. A commenter recommended that essential community facilities 
should qualify, at least for partial credit, if located outside of 
targeted census tracts, if and to the extent they benefit low- and 
moderate residents of the targeted geographic areas.
Final Rule
    The agencies are adopting proposed Sec.  __.13(f), reorganized for 
clarity and

[[Page 6684]]

consistency with the structures of other place-based categories and 
modified as described below. Consistent with the proposal, final Sec.  
__.13(f) provides the general definition of the types of activities 
included in this category of community development, and requires that 
these activities must also meet specific place-based eligibility 
criteria in final Sec.  __.13(f)(1) through (3).

Section __.13(f) In General

    Under final Sec.  __.13(f), essential community facilities are 
public facilities that provide essential services generally accessible 
by a local community, including, but not limited to, schools, 
libraries, childcare facilities, parks, hospitals, healthcare 
facilities, and community centers that benefit or serve targeted census 
tracts. The final rule reflects technical edits for readability, but is 
substantively consistent with the proposal. As noted in the discussion 
of the revitalization or stabilization category in Sec.  __.13(e) 
above, the agencies believe that the final rule, with the common place-
based criteria discussed throughout the section-by-section analysis of 
Sec.  __.13(e) through (j), will provide stakeholders with a better 
upfront understanding of the types of essential community facilities 
that will qualify as community development relative to an ``attract or 
retain'' standard, resulting in more consistency in application. 
Further, the agencies believe that, relative to current practice, the 
final rule will better ensure that loans, investments, and services 
support activities aligned with the purposes of CRA to meet the credit 
needs of entire communities, including low- or moderate-income 
individuals.
    The proposed rule defined essential community facilities as those 
that are ``conducted in'' targeted census tracts; the final rule 
revises the proposal to define essential community facilities as those 
that ``benefit or serve'' residents of targeted census tracts, 
including low- and moderate-income individuals. The agencies proposed 
the ``conducted in'' standard to facilitate a bank's demonstration that 
activities are benefiting and serving the residents of a targeted 
census tract. Based on comments and on further consideration, however, 
the agencies believe that the ``conducted in'' standard could exclude 
facilities located in close proximity to a targeted census tract that 
nonetheless benefit and serve residents of that census tract, including 
low- and moderate-income individuals. For example, under the proposal, 
a construction loan to build a fire station located just outside but 
primarily serving residents of a targeted census tract would have not 
qualified for consideration. Under the final rule, that construction 
loan could be considered, provided the rule's other criteria are met. 
The agencies believe that the requirement as revised--to require that 
essential community facilities benefit or serve targeted census 
tracts--will ensure a strong connection between essential community 
facilities and community needs in targeted census tracts, and that this 
connection will be further bolstered by the other two place-based 
criteria (e.g., undertaken with a plan, program, or initiative that 
includes a focus on benefiting or serving the targeted census tract and 
not directly resulting in the forced or involuntary displacement of 
low- or moderate-income individuals in the targeted census tract). The 
agencies note that banks will be expected to be able to demonstrate 
that a project benefits the targeted census tracts in accordance with 
the rule.
    The agencies considered but are not adopting the suggestion for a 
presumption that any facility open to all residents of targeted census 
tracts with affordable fees serves low- and moderate residents, given 
the variety of potential facts and circumstances. The agencies believe, 
however, that a facility will qualify for consideration if a bank 
demonstrates that the facility is public and provides essential 
services, serves low- or moderate-income residents in the targeted 
census tract, and meets the rule's other required criteria. Similarly, 
the agencies are not adopting the commenter suggestion that activities 
qualify if they benefit the entire community without specific inclusion 
of low- and moderate-income individuals. The agencies believe that 
qualifying essential community facility activities should be 
demonstrably inclusive of low- and moderate-income individuals, in 
alignment with the CRA's express focus on encouraging banks to meet 
low- and moderate-income community needs in the communities they serve.
    Final Sec.  __.13(f) adopts the proposed list of examples of 
essential community facilities: schools, libraries, childcare 
facilities, parks, hospitals, healthcare facilities, and community 
centers, which are generally consistent with examples found in current 
guidance. The agencies believe that these examples provide adequate 
clarity to illustrate the types of activities that may qualify under 
this category. The list is intended to help clarify, for instance, that 
a loan to help build a public school or a community center that serves 
residents of a targeted census tract would qualify for community 
development consideration, provided all other criteria of Sec.  
__.13(f) are met. While the final rule does not adopt other examples 
raised by commenters, the agencies note that the list of examples is 
illustrative and non-exhaustive. The final rule does not preclude 
agency consideration of investments, loans, or services supporting 
other types of essential community facilities meeting the criteria set 
forth in Sec.  __.13(f). The agencies do not believe that identifying 
every kind of essential community facility in the regulation is 
practicable or possible. However, the agencies will take commenters' 
suggestions under advisement as the agencies develop the illustrative 
list contemplated by Sec.  __.14(a).
    Additionally, activities mentioned by commenters that might not 
qualify as essential community facilities under the final rule might 
qualify under other categories of community development. For example, a 
loan to finance a public road or sewer could qualify for consideration 
as supportive of essential community infrastructure under Sec.  
__.13(g), if all of the rule's criteria were met, while a grant to 
support a food bank that opens a food pantry could qualify under Sec.  
__.13(d) as supportive of a community supportive service. Financing of 
retail service businesses such as grocery stores, retail pharmacies, 
and other neighborhood-scale services are generally private sector 
facilities, and thus are not considered essential community facilities, 
which are defined as public facilities. However, these retail services 
may qualify as revitalization or stabilization activities under Sec.  
__.13(e), should they meet the criteria of that provision.
    On consideration of the comments and further deliberation, the 
agencies are not adopting additional or alternative requirements to 
help ensure that essential community facilities include a benefit to 
low- or moderate-income residents in the communities served by these 
projects. For example, regarding comments that the rule should qualify 
only activities supporting critical community needs, the agencies 
believe that this approach could be overly limiting in light of 
communities' varying needs and different views about which needs are 
critical. The agencies intend the final rule to maintain sufficient 
flexibility for banks and communities to address a wide range of needs 
that communities consider important.
    Regarding comments that the rule should require activities to have 
a primary purpose of serving low- and moderate-income residents in 
targeted

[[Page 6685]]

census tracts, the final rule seeks to maintain flexibility for 
activities to meet a range of community needs, while also requiring the 
inclusion of low- or moderate-income individuals as beneficiaries. As 
noted, this flexibility remains particularly important in distressed 
and underserved nonmetropolitan middle-income census tracts, which can 
have fewer low- or moderate-income residents. On the other hand, the 
agencies are also not adopting the suggestion to qualify facilities 
open to the entire community without specific inclusion of low- and 
moderate-income individuals. The agencies believe that the final 
criterion, as adopted, is tailored and consistent with the CRA statute, 
which focuses on benefits to communities, including to low- or 
moderate-income populations. The agencies believe that the rule as 
finalized, combined with the majority standard set forth in Sec.  
__.13(a),\469\ appropriately ensures inclusion of low- or moderate-
income residents.
---------------------------------------------------------------------------

    \469\ For further discussion of the standards for receiving full 
credit for a loan, investment, or service supportive of essential 
community facilities or essential community infrastructure, and 
related public comments, see the section-by-section analysis of 
Sec.  __.13(a). Loans, investments, or services supporting community 
development under final Sec.  __.13(f) meet the ``majority 
standard'' for receiving full credit it the majority of the 
beneficiaries are, or the majority of dollars benefit or serve, 
residents of targeted census tracts. See final Sec.  
__.13(a)(1)(i)(B)(4).
---------------------------------------------------------------------------

    For similar reasons, the agencies are also not incorporating into 
final Sec.  __.13(f) metrics for measuring the benefits of essential 
community facility activities to low- and moderate-income individuals. 
The agencies are concerned that specific metrics-related requirements 
or methodologies for demonstrating low- or moderate-income benefits of 
essential community facilities could be overly burdensome and complex 
to apply, potentially dissuading banks from supporting essential 
community facilities and limiting the adaptability of the rule to 
accommodate a variety of activities over time. However, banks will be 
expected to demonstrate that essential community facilities benefit or 
serve residents of targeted census tracts, including low- and moderate-
income individuals. Finally, as discussed further in the section-by-
section analysis of Sec.  __.13(a), the agencies are not adopting a 
partial consideration option in Sec.  __.13(f). The agencies believe 
the primary focus of activities should be to benefit or serve residents 
of targeted tracts and an alternative option providing partial 
consideration would allow for qualification of activities that do not 
share this focus as an intentional goal.
Section __.13(f)(1) Through (3) Place-Based Criteria
    The final rule adopts the three common place-based eligibility 
criteria for essential community facilities, reorganized to be in a 
consistent parallel order across all place-based categories, and with 
the revisions described in the discussion of the place-based criteria 
above in this section-by-section analysis. Accordingly, under the final 
rule, essential community facilities are public facilities that: are 
undertaken in conjunction with a plan, program, or initiative of a 
Federal, State, local, or tribal government or a mission-driven 
nonprofit organization, where the plan, program, or initiative includes 
a focus on benefiting or serving targeted census tracts (final Sec.  
__.13(f)(1)); benefit or serve residents, including low- or moderate-
income individuals, of targeted census tracts (final Sec.  
__.13(f)(2)); and do not directly result in the forced or involuntary 
relocation of low- or moderate-income individuals in targeted census 
tracts (final Sec.  __.13(f)(3)). As noted, the reasons for adopting 
these final criteria, and for revisions to the proposed criteria, are 
collectively discussed above in this section-by-section analysis.

Section __.13(g) Essential Community Infrastructure

The Agencies' Proposal
    In proposed Sec.  __.13(g), the agencies proposed a category of 
community development for essential community infrastructure 
activities, defined as activities that provide financing and other 
support for infrastructure, including, but not limited to broadband, 
telecommunications, mass transit, water supply and distribution, and 
sewage treatment and collection systems. The proposal further defined 
essential community infrastructure as activities conducted in targeted 
census tracts (as defined in proposed Sec.  __.12 and discussed above) 
that also meet the other place-based criteria discussed above: that 
activities benefit or serve residents, including low- or moderate-
income residents (proposed Sec.  __.13(g)(1)); that activities do not 
displace or exclude low- or moderate-income residents in the targeted 
census tracts (proposed Sec.  __.13(g)(2)); and that an activity that 
finances or supports essential community infrastructure must be 
conducted in conjunction with a Federal, State, local, or tribal 
government plan that includes an explicit focus on benefiting or 
serving the targeted census tracts (proposed Sec.  __.13(g)(3)). Thus, 
under the proposal, support for larger infrastructure projects could be 
eligible for community development consideration if the project is 
conducted in relevant targeted census tracts, demonstrably benefits the 
residents of the targeted census tracts, and it is evident that, in 
particular, low- or moderate-income residents, of the targeted census 
tracts would benefit and not be excluded from the larger-scale 
improvements.
Comments Received
    Many comments on proposed Sec.  __.13(g) provided feedback on the 
types of infrastructure that should be considered essential community 
infrastructure, with a number requesting clarification about specific 
types of infrastructure projects. Many commenters expressly supported 
the proposed consideration for broadband activities, emphasizing, among 
other things, the importance of broadband access in community 
resilience, closing the digital divide, and creating access to 
financial services, jobs, healthcare, and education, and noting the 
role of CRA in overcoming broadband investment costs. Additional 
commenter feedback included support for qualification of broadband 
infrastructure only if reliable, affordable, and locally controlled; 
and support for qualifying only the infrastructure examples included as 
part of the proposal. Other commenters generally highlighted the 
importance of investments made in functioning roadways, internet, 
health, and safety, with additional suggestions that the regulation 
specify a range of activities that qualify as essential community 
infrastructure, including renewable energy projects; transit-oriented 
infrastructure, including road and technology infrastructure; hospital 
construction; jail renovations; and refuse services.
    The agencies also received a number of comments in response to the 
agencies' request for feedback regarding whether the proposed category 
should incorporate additional criteria to help ensure that essential 
community infrastructure activities include a benefit to low- or 
moderate-income residents in the communities served by these projects. 
Some commenters opposed additional criteria for community development 
consideration of infrastructure projects (or community facilities), 
indicating that activities benefiting all residents, including persons 
of any income level, should qualify. As discussed in more detail below, 
other commenters on this aspect

[[Page 6686]]

of the proposal supported an emphasis on benefits to low- and moderate-
income residents, with some suggesting additional criteria for ensuring 
that community infrastructure projects qualifying as community 
development under the CRA benefit low- and moderate-income residents.
    Some commenters asserted that essential community infrastructure 
activities should be focused on benefiting low- and moderate-income 
residents of targeted census tracts (or other relevant geographic 
areas). For example, a commenter expressed concerns about certain 
proposed infrastructure examples such as broadband, water, and sewage, 
as greatly expanding the number and types of eligible activities 
without a clear benefit to low- and moderate-income people and places. 
A few commenters recommended that essential community infrastructure be 
limited to activities with a clear and demonstrable benefit to, or 
primary purpose of serving, low- and moderate-income people and 
geographic areas. Several commenters suggested that CRA credit for 
infrastructure should be limited based on a strong correlation with 
benefits to low- and moderate-income individuals and families because 
reasonable financing is already available for most essential 
infrastructure projects. Commenters also asserted that CRA credit 
should be given only to essential community infrastructure activities 
that serve critical community needs directly in low- and moderate-
income areas and are otherwise unable to attract funding. A few 
commenters recommended that essential community infrastructure be 
limited to activities with a clear and demonstrable benefit to, or 
primary purpose of serving, low- and moderate-income people and 
geographies. Another commenter emphasized that qualifying activities in 
this category should have a clear objective of meeting needs in 
targeted communities.
    Other comments on ensuring benefits for ensuring benefit for low- 
and moderate-income individuals and communities included support for 
limiting CRA consideration to those activities with a strong 
correlation to benefits for low- and moderate-income individuals and 
families, such as a project in a majority low- and moderate-income 
population census tract. Suggestions for measuring the benefits of 
infrastructure projects to low- and moderate-income communities 
included considering jobs created for low- and moderate-income 
individuals; contracts with local companies; economic growth-related 
metrics such as growth in median income for census tract residents; and 
environmental improvements, such as greenhouse gas emissions and/or 
pollution reductions, increases in the amount of greenspace, community 
health benefits, and climate adaptation strategies.
    Citing the impact of historical disinvestment in basic 
infrastructure on many low- and moderate-income communities, 
particularly minority communities, a commenter suggested that the CRA 
framework should prioritize ensuring that all communities have a 
minimum standard of infrastructure, including protective 
infrastructure, over enhancing infrastructure in areas that already 
have a standard level of investment. Another commenter suggestion was 
that the agencies consider a bank's activities supporting essential 
community infrastructure in light of the overall balance of activities 
that comprise a bank's portfolio, to ensure that a significant portion 
of the bank's community development activities are targeting places and 
populations of high need with products that are not otherwise likely to 
be offered by the bank. This commenter further suggested that that 
agencies cap the volume of essential community infrastructure that 
could be included in the proposed Community Development Financing 
Metric,\470\ asserting that essential community infrastructure projects 
are often relatively safe investments to make but might not necessarily 
be directly targeted to low- and moderate-income persons or 
communities.
---------------------------------------------------------------------------

    \470\ See proposed Sec.  __.24. See also final Sec.  __.24 and 
the accompanying section-by-section analysis.
---------------------------------------------------------------------------

    As also discussed above in the section-by-section analysis of Sec.  
__.13(a), a few commenters expressed support for giving partial credit 
for essential community infrastructure activities. Citing the large-
scale nature of many infrastructure projects and concerns about the 
potential difficulty of applying the proposed primary purpose 
standard,\471\ commenters recommended various approaches to a partial 
credit framework for essential community infrastructure. These included 
partial credit based on the percentage of low- and moderate-income 
census tracts served by the activity, or based on whether the 
infrastructure project meets or exceeds a minimum threshold of serving 
low- and moderate-income census tracts, residents, or small businesses 
or farms. A commenter separately suggested granting at least partial 
credit for infrastructure (and facilities) located outside of targeted 
census tracts, as long as the infrastructure benefits residents of 
those census tracts. In contrast, at least one commenter expressly 
opposed providing partial credit for bank support of essential 
community infrastructure, noting concerns that these activities tend to 
be large dollar transactions that are not necessarily targeted at low- 
and moderate-income residents with intentionality, and thus partial 
credit could allow for more projects to qualify and potentially 
comprise a significant portion of a bank's community development 
finance metric numerator at the expense of smaller, more impactful 
investments. However, this commenter recommended an exception for 
partial credit for activities in rural communities and cities with low 
bond ratings and thus that might not otherwise receive financing 
support.
---------------------------------------------------------------------------

    \471\ See proposed Sec.  __.13(a). See also final Sec.  __.13(a) 
and the accompanying section-by-section analysis.
---------------------------------------------------------------------------

Final Rule
    The agencies are adopting proposed Sec.  __.13(g), reorganized for 
clarity and consistency with the structures of other place-based 
categories and modified as described below. Consistent with the 
proposal, final Sec.  __.13(g) provides the general definition of the 
types of activities included in this category of community development, 
and requires that they meet specific place-based eligibility criteria 
in final Sec.  __.13(g)(1) through (3).
Section __.13(g) In General
    Under final Sec.  __.13(g), essential community infrastructure 
comprises activities benefiting or serving targeted census tracts, 
including but not limited to broadband, telecommunications, mass 
transit, water supply and distribution, and sewage treatment and 
collection systems. Thus, final Sec.  __.13(g) makes no substantive 
changes to the proposal other than technical edits for readability. As 
with other place-based categories, the agencies believe that final 
Sec.  __.13(g), with the common place-based criteria discussed in more 
detail elsewhere in the section-by-section analysis of Sec.  __.13, 
will provide stakeholders with a better upfront understanding of the 
types of essential community infrastructure that will qualify as 
community development relative to the current approach based on an 
``attract or retain'' standard. Additionally, consistent with the 
proposal, the final rule clarifies that essential community 
infrastructure is a community development category that applies across 
all targeted census tracts (i.e., low-income, moderate-income, 
distressed or underserved middle-

[[Page 6687]]

income census tracts), whereas, as noted, current guidance explicitly 
references infrastructure only in the context of distressed or 
underserved nonmetropolitan middle-income census tracts. Further, the 
agencies believe that, relative to current practice, the final rule 
will better ensure that loans, investments, and services support 
activities that align with the purposes of CRA to meet the credit needs 
of entire communities, including low- or moderate-income individuals.
    As noted, proposed Sec.  __.13(g) defined essential community 
infrastructure as those that are ``conducted in'' targeted census 
tracts; the final rule revises the proposal to define essential 
community infrastructure activities as those that ``benefit or serve'' 
residents of targeted census tracts, including low- or moderate-income 
individuals, similar to revisions made with respect to the essential 
community facilities category under Sec.  __.13(f). As with proposed 
Sec.  __.13(f), the agencies proposed the ``conducted in'' standard to 
facilitate a bank's demonstration that essential community 
infrastructure activities are benefiting and serving the residents of a 
targeted census tract. Based on comments and on further consideration, 
the agencies believe that the ``conducted in'' standard could exclude 
infrastructure projects located in close proximity to a targeted census 
tract that nonetheless benefit and serve residents of that tract, 
including low- and moderate-income individuals. The agencies also 
intend this revision to strengthen the emphasis on benefits to 
residents of targeted census tracts, including low- or moderate-income 
individuals, in the event that infrastructure projects ``conducted in'' 
a targeted census tract might have only ancillary if any benefits for 
the targeted census tract. For example, a project to build a sewer line 
that connects services to a middle- or upper-income housing development 
but passes through a low- or moderate-income census tract without 
connecting needed sewer services to that community generally would not 
qualify as essential community infrastructure under the final 
rule.\472\ In contrast, a project to improve water supply to residents 
of targeted census tracts could qualify as community development even 
if the water supply improvements were made outside of those census 
tracts, provided that the bank could demonstrate the project benefits 
the targeted census tracts in accordance with the rule. The agencies 
believe that the requirement as revised--to require that essential 
community infrastructure benefit or serve targeted census tracts--will 
ensure a strong connection between essential community infrastructure 
and community needs in targeted census tracts, and that this connection 
will be further bolstered by the other two common place-based criteria. 
The agencies further note that banks will be expected to be able to 
demonstrate that a project benefits the targeted census tracts in 
accordance with the rule.
---------------------------------------------------------------------------

    \472\ See also Q&A Sec.  __.12(g)(4)(iii)--4.
---------------------------------------------------------------------------

    As noted above, the final rule adopts the proposed non-exhaustive 
list of examples of essential community infrastructure: broadband, 
telecommunications, mass transit, water supply and distribution, and 
sewage treatment and collection systems. On consideration of the 
comments and further review, the agencies continue to believe that the 
proposed examples provide adequate clarity for the types of activities 
that could be considered essential community infrastructure under final 
Sec.  __.13(g), and also note that they generally align with current 
guidance, discussed above. Accordingly, examples of the types of loans, 
investments, and services that support essential community 
infrastructure under Sec.  __.13(g) could include a municipal bond to 
help fund a transit improvement within targeted census tracts, or 
financing of a project to provide residents of targeted census tracts 
access to broadband, subject to the other criteria being met.
    Regarding other examples raised by commenters, the agencies note 
that the list of examples is illustrative and non-exhaustive. Thus, the 
final rule does not preclude agency consideration of investments, 
loans, or services supporting other types of essential community 
infrastructure that meet the criteria set forth in Sec.  __.13(g). The 
agencies do not believe that identifying every kind of essential 
community infrastructure in the regulation is practicable or possible. 
However, the agencies will take commenters' suggestions under 
advisement as the agencies develop the illustrative list contemplated 
by Sec.  __.14(a).
    The agencies also considered the suggestion to limit the provision 
to only those activities listed in Sec.  __.13(g), but believe that 
this approach would be too restrictive; communities may have differing 
infrastructure needs, and limitations could deter new or innovative 
essential community infrastructure projects. Additionally, activities 
that are not essential community infrastructure may qualify under other 
categories of community development. For example, a project to 
redevelop vacant brownfield lots into buildable land would not qualify 
as essential community infrastructure in section Sec.  __.13(g), but 
might qualify as a revitalization or stabilization activity pursuant to 
section Sec.  __.13(e).
    On consideration of the comments and further deliberation, the 
agencies believe that final Sec.  __.13(g), combined with the majority 
standard set forth in Sec.  __.13(a),\473\ appropriately ensures a 
focus on low- or moderate-income residents of targeted census tracts. 
Accordingly, the agencies have determined not to adopt additional or 
alternative requirements to help ensure that essential community 
infrastructure activities include a benefit to low- or moderate-income 
residents in the communities served by these projects. Having carefully 
reviewed commenter suggestions, the agencies are concerned that 
additional criteria might be overly limiting, such as qualifying only 
activities supporting critical community needs, or particular 
activities only under specified conditions, such as limited costs or 
local control. The agencies recognize that community needs can vary 
widely across communities, and therefore intend the final rule to be 
sufficiently adaptable for banks and communities to address those 
needs. While the agencies note that infrastructure projects in higher 
income areas tend to be sufficiently resourced, the agencies believe 
that the final rule will provide recognition of bank support for a 
variety of needed activities in targeted census tracts, including those 
projects that would be less likely to be funded otherwise.
---------------------------------------------------------------------------

    \473\ See final Sec.  __.13(a)(1)(i)(B)(4) (providing that 
loans, investments, or services supporting community development 
under final Sec.  __.13(f) and (g) meet the ``majority standard'' 
for receiving full credit it the majority of the beneficiaries are, 
or the majority of dollars benefit or serve, residents of targeted 
census tracts), discussed in the section-by-section analysis of 
final Sec.  __.13(a)(1).
---------------------------------------------------------------------------

    In addition, the agencies are not adopting comments suggesting that 
the rule should require activities to primarily serve low- and 
moderate-income residents in targeted census tracts; to strongly 
correlate to the benefit to low- and moderate-income individuals; or to 
limit eligible activities to census tracts with majority low- or 
moderate-income populations. The final rule seeks to maintain 
flexibility for activities to meet a range of community needs, while 
also requiring the inclusion of low- or moderate-income individuals as 
beneficiaries. As noted in the discussion of essential community 
facilities (final Sec.  __.13(f)), the agencies believe that this 
flexibility remains particularly important in distressed or

[[Page 6688]]

underserved nonmetropolitan middle-income census tracts, which can have 
fewer low- or moderate-income residents. Thus, the final rule is 
intended to balance a number of considerations by specifically 
requiring that essential community infrastructure under Sec.  __.13(g) 
benefit or serve residents of these census tracts, or low- or moderate-
income census tracts, but also requiring that low- or moderate-income 
individuals within those census tracts benefit from the project. At the 
same time, the agencies are declining to expand the rule to qualify 
activities benefiting all residents without regard to income level, as 
the agencies believe it is important that there be some demonstrated 
benefit to low- and moderate-income individuals.
    For similar reasons, the agencies are also not adopting in the 
regulation recommended methods for measuring the benefits of these 
projects to low- and moderate-income individuals. The agencies are 
concerned that specific requirements in this regard could be overly 
burdensome and add a level of complexity to the rule that could run 
counter to facilitating partnerships between banks and communities to 
meet essential community infrastructure needs. The agencies further 
believe that there is a need to maintain flexibility in the rule, as 
noted above, for qualifying a range of infrastructure projects that 
meet varying community needs. However, banks will be expected to 
demonstrate that all of the criteria in Sec.  __.13(g) have been met, 
notably the criterion in Sec.  __.13(g)(2) that essential community 
infrastructure benefits or serves residents of targeted census tracts, 
including low- and moderate-income individuals.
    The agencies have also considered comments suggesting an option to 
provide partial credit for activities under Sec.  __.13(g), but 
continue to believe that not including a partial credit option for 
essential community infrastructure will better facilitate clarity and 
consistency in the consideration of essential community infrastructure. 
In addition, the agencies are concerned that providing partial credit 
could allow for qualification of projects without a specific focus on 
benefiting and serving residents of targeted census tracts, and might 
allow for activities with only tangential benefits to the targeted 
census tracts. The agencies recognize commenter concerns that the 
criteria for essential community infrastructure could result in support 
for larger infrastructure projects not qualifying for CRA credit, but 
believe that these larger projects are likely to have financing options 
even if they have only ancillary benefits to residents of targeted 
census tracts. The place-based criteria adopted under the final rule 
thus are designed to help ensure that community development under the 
CRA includes larger infrastructure projects that provide clear and 
meaningful benefits to residents of targeted census tracts, and that 
smaller projects benefiting residents of targeted census tracts have 
needed financial support. Larger scale infrastructure projects will 
qualify if they meet all required criteria, including that there is a 
demonstrated majority benefit for residents of targeted census 
tracts.\474\ Thus, a bank could purchase a bond to fund improvements 
for a citywide water treatment project that is consistent with a city's 
capital improvement plan; this bond purchase would qualify if the 
majority of the project benefits or serves residents in the eligible 
census tracts, includes low- or moderate-income residents, and meets 
the other criteria of Sec.  __.13(g).
---------------------------------------------------------------------------

    \474\ See final Sec.  __.13(a)(1)(i)(B)(4) and the accompanying 
section-by-section analysis.
---------------------------------------------------------------------------

Section __.13(g)(1) Through (3) Place-Based Criteria
    The final rule adopts the three common place-based eligibility 
criteria for essential community infrastructure, reorganized to be in a 
consistent parallel order across all place-based categories, and with 
the revisions described in the discussion of the place-based criteria 
above in this section-by-section analysis. Accordingly, under the final 
rule, essential community infrastructure are activities that: are 
undertaken in conjunction with a plan, program, or initiative of a 
Federal, State, local, or tribal government or a mission-driven 
nonprofit organization, where the plan, program, or initiative includes 
a focus on benefiting or serving targeted census tracts (final Sec.  
__.13(g)(1)); benefit or serve residents, including low- or moderate-
income individuals, of targeted census tracts (final Sec.  
__.13(g)(2)); and do not directly result in the forced or involuntary 
relocation of low- or moderate-income individuals in targeted census 
tracts (final Sec.  __.13(g)(3)). As noted, the reasons for adopting 
these final criteria, and for revisions to the proposed criteria, are 
collectively discussed above in this section-by-section analysis.

Section __.13(h) Recovery Activities in Designated Disaster Areas

Current Approach and the Agencies' Proposal
    Similar to the current CRA regulations and guidance regarding 
support for designated disaster areas,\475\ proposed Sec.  __.13(h) 
would establish recovery activities in designated disaster areas as a 
category of community development. Specifically, proposed Sec.  
__.13(h)(1) stated that these recovery activities comprised activities 
that revitalize or stabilize geographic areas subject to a Major 
Disaster Declaration administered by the Federal Emergency Management 
Agency (FEMA). Consistent with current guidance, the proposed provision 
expressly excluded activities that revitalize or stabilize counties 
designated to receive only FEMA Public Assistance Emergency Work 
Category A (Debris Removal) and/or Category B (Emergency Protective 
Measures), but modified the exclusion by providing that the agencies 
may determine to grant a temporary exception for these areas.\476\ Also 
aligned with current guidance, the proposal provided that activities 
promoting the revitalization or stabilization of designated disaster 
areas would be eligible for CRA consideration for 36 months after a 
Major Disaster Declaration unless that period is extended by the 
agencies.\477\
---------------------------------------------------------------------------

    \475\ See 12 CFR __.12(g)(4)(ii). See also Q&A Sec.  
__.12(g)(4)(ii)-1 and -2.
    \476\ See proposed Sec.  __.13(h)(1); compare with Q&A Sec.  
__.12(g)(4)(ii)-1.
    \477\ See id.
---------------------------------------------------------------------------

    The proposal further defined recovery activities in designated 
disaster areas as activities that also meet the other place-based 
criteria discussed above: that activities benefit or serve residents, 
including low- or moderate-income residents (proposed Sec.  
__.13(h)(2)); not displace or exclude low- or moderate-income 
residents, of these geographic areas (proposed Sec.  __.13(h)(2)); be 
conducted in conjunction with a Federal, State, local, or tribal 
government disaster plan that includes an explicit focus on benefiting 
the designated disaster area (proposed Sec.  __.13(h)(3)). Under the 
proposal, activities in designated disaster areas that meet these 
eligibility standards could be considered regardless of the income 
level of the designated census tracts.
Comments Received
    Comments on the proposal regarding recovery activities in 
designated disaster areas generally focused on the agencies' specific 
request for feedback on whether they should consider any additional 
criteria to ensure that activities in this category benefit low- or 
moderate-income individuals and communities. Some commenters, for 
example, indicated support for additional criteria for this category to 
focus the benefits of

[[Page 6689]]

recovery activities in disaster areas on low- and moderate-income 
individuals and communities and to avoid recovery efforts being 
concentrated in higher-income areas. Commenters noted that disasters 
disproportionately impact low-income communities, and pointed to the 
inequitable distribution of recovery resources following a disaster. 
Several of these commenters recommended metrics to help ensure low- and 
moderate-income community benefit of disaster recovery activities, such 
as: (1) requiring that a specific percentage of benefits inure to low- 
and moderate-income residents; (2) use of a Social Vulnerability Index 
to help determine and assess low- and moderate-income benefit; or (3) 
consideration of criteria used in the Census Bureau's Community 
Resilience Estimates, which focus on various factors that could impact 
a community's ability to survive and rebound from declared 
disasters.\478\ A few commenters further suggested that the agencies 
give credit for activities that serve displaced residents who were 
forced to migrate, as well as the census tracts that receive those 
displaced residents; or require that recovery activities in designated 
disaster areas benefit low- and moderate-income communities, minority 
communities, or both, in order to be eligible for CRA consideration. 
Another commenter similarly suggested that the focus of disaster 
recovery should be expanded to include minority communities, to ensure 
the agencies are fulfilling their obligation under the Fair Housing 
Act's affirmatively furthering fair housing provision.\479\ This 
commenter suggested that minority individuals and communities are 
especially vulnerable to disasters and are also the least likely to 
have access to the resources needed to recover from disasters. 
Commenter feedback also included a recommendation to qualify activities 
that primarily benefit low- and moderate-income communities affected by 
a natural disaster without requiring a FEMA declaration or disaster 
plan for that community.
---------------------------------------------------------------------------

    \478\ See, e.g., U.S. Census Bureau, ``Community Resilience 
Estimates'' (May 30, 2023), https://www.census.gov/programs-surveys/community-resilience-estimates.html.
    \479\ See 42 U.S.C. 3608. See also, e.g., 24 CFR 5.150 through 
5.180, as proposed to be amended in 88 FR 8516 (Feb. 9, 2023).
---------------------------------------------------------------------------

    In lieu of additional criteria, a few commenters advocated for 
using the proposed impact review to give positive treatment for bank 
financing activities for disaster recovery based on the extent to which 
low- and moderate-income individuals or neighborhoods benefit.\480\ For 
instance, a commenter suggested that CRA performance evaluations should 
specifically factor in the degree to which these activities benefit 
low- and moderate-income populations, with higher scores assigned to 
projects benefiting low- and moderate-income residents than other 
projects.
---------------------------------------------------------------------------

    \480\ See proposed Sec.  __.15(b). See also final Sec.  __.15(b) 
and the accompanying section-by-section analysis.
---------------------------------------------------------------------------

    Some commenters supported qualifying recovery activities in 
designated disaster areas, regardless of income level, or otherwise 
opposed additional criteria to ensure benefits for low- and moderate-
income individuals and communities in designated disaster areas. For 
example, a commenter supported considering disaster recovery activities 
as responsive to community needs and suggested that such activities in 
middle- and upper-income areas can benefit low- and moderate-income 
persons. A few commenters suggested that the agencies rely on the 
expertise of the bank's CRA professional to create a case for the 
activity and demonstrate that the activity is in direct response to a 
natural disaster. Another commenter referenced current guidance on 
disaster recovery activities under the CRA that are not income-
limited,\481\ and asserted that, to ensure that disaster recovery 
efforts are effective, all members of any community who have 
experienced economic dislocation due to a disaster must continue to be 
able to benefit from the community development activities undertaken by 
the financial institution, regardless of income.
---------------------------------------------------------------------------

    \481\ See Q&A Sec.  __.12(g)(4)(ii)-1 and -2.
---------------------------------------------------------------------------

Final Rule
    Final Sec.  __.13(h) adopts proposed Sec.  __.13(h), reorganized 
for clarity and consistency with the structures of other place-based 
categories, and modified as described below. Consistent with the 
proposal, final Sec.  __.13(h)(1) provides the general definition of 
the types of activities included in this category of community 
development and specifies that they must also meet the common place-
based eligibility criteria (final Sec.  __.13(h)(1)(i) through (iii)). 
Final Sec.  __.13(h)(2) contains the proposed exclusion from 
consideration for loans, investments, and services supporting disaster 
recovery in counties designated to receive only FEMA Public Assistance 
Emergency Work Category A (Debris Removal) and/or Category B (Emergency 
Protective Measures), and the timeframe for eligibility for 
consideration.
Section __.13(h)(1) Recovery of Designated Disaster Areas
    Under final Sec.  __.13(h)(1), activities that promote recovery of 
a designated disaster area are those that revitalize or stabilize 
geographic areas subject to a Major Disaster Declaration administered 
by FEMA. The final rule relocates the proposed additional parameters 
for qualification from proposed Sec.  __.13(h)(1) to final Sec.  
__.13(h)(2), described below. The final rule is intended to describe 
eligible disaster recovery activities more clearly, as a stand-alone 
community development category of community development in the 
regulation, rather than including disaster recovery activities as a 
subcategory of revitalization and stabilization. Examples of bank 
activities for CRA credit as supportive of disaster recovery activities 
under final Sec.  __.13(h) include, but are not limited to, assistance 
with rebuilding infrastructure; financing to retain businesses that 
employ local residents; and recovery-related housing or financial 
assistance to individuals in the designated disaster areas. As with the 
other place-based categories, the agencies believe that the final rule 
on disaster recovery activities, with the common place-based criteria 
discussed in more detail above, will provide stakeholders with a better 
upfront understanding of the types of disaster recovery activities that 
will qualify as community development relative to the current ``attract 
or retain'' standard.
    The agencies have considered commenter suggestions for additional 
or alternative criteria to help ensure that designated disaster 
recovery activities include a benefit to low- or moderate-income 
residents in the communities served by these projects. In particular, 
the agencies are sensitive to commenter concerns that disasters can 
often more severely impact low- and moderate-income individuals. At the 
same time, given the disparate and widespread impacts that major 
disasters can involve, the agencies are concerned about unduly limiting 
qualification of activities under this category and possibly qualifying 
fewer disaster recovery activities than under the current rule. Thus, 
the agencies are not adopting commenter suggestions that the rule 
should require that a majority of, or all, of disaster recovery 
activity benefits go to low- or moderate-income residents and 
communities, or other similar limitations noted in the summary of 
comments above. The agencies continue to believe that activities that 
promote the recovery of designated disaster areas should benefit

[[Page 6690]]

the entire community, including, but not limited to, low- or moderate-
income individuals and communities, consistent with the purposes of 
CRA. Further, the agencies believe that the common place-based criteria 
adopted under the final rule will ensure a strong connection to 
community needs in designated disaster areas. Specifically, while 
activities in all census tract income levels may be considered, these 
activities must benefit or serve residents of the census tracts 
included in the designated disaster area, including low- or moderate-
income individuals, and must not directly result in forced or 
involuntary relocation of individuals in designated disaster areas.
    The agencies are also not adopting the suggestion to include under 
disaster recovery those activities that are not tied to specific FEMA 
Major Disaster Declarations or disaster recovery plans. The agencies 
believe that revising the current (and proposed) rule to take a more 
expansive approach to designating eligibility under the disaster 
recovery category would be overbroad and could require supplemental 
eligibility criteria that would add complexity to the final rule, 
potentially detracting from the increased clarity and transparency for 
stakeholders and examiners that the final rule is designed to achieve. 
Incorporating State disaster declarations, for example, would pose 
compliance and implementation challenges due to varying standards and 
the large volume of such declarations.
    The agencies believe that generally retaining current and proposed 
parameters related to disaster recovery activities, including the focus 
on federally designated disaster areas and a nexus to a plan, program, 
or initiative,\482\ benefits stakeholders by providing consistency and 
predictability. The agencies also believe that the final rule's tie to 
geographic areas subject to a FEMA Major Disaster Area Declaration will 
provide recognition for a wide range of projects benefiting communities 
in crisis across the United States within appropriately far-reaching, 
yet clearly defined, geographic areas. The agencies also note that 
there have been a significant number of FEMA Major Disaster 
Declarations in recent years, further indicating that the final rule 
approach has an appropriate scope for considering a wide range of 
activities assisting many specifically impacted communities.
---------------------------------------------------------------------------

    \482\ See proposed Sec.  __.13(h); see also Q&A Sec.  
__.12(g)(4)(ii)-1 and -2.
---------------------------------------------------------------------------

    Finally, the agencies are declining to adopt specific methods to 
measure benefits as suggested by some commenters. As with similar 
suggestions for other place-based categories, the agencies are 
concerned that specific requirements could be difficult to implement 
and dissuade banks from engaging in these activities. The agencies 
further aim to support adaptability of the rule and recognize that 
different facts and circumstances could give rise to a wide range of 
appropriate ways to demonstrate that an activity meets the disaster 
recovery standards in final Sec.  __.13(h). As noted elsewhere, 
however, banks will be expected to demonstrate that they have met all 
of the criteria in Sec.  __.13(h) for activities in designated disaster 
areas, notably that the activities benefit residents, including low- or 
moderate-income individuals, of designated disaster areas.
Section __.13(h)(1)(i) Through (iii) Place-Based Criteria
    The final rule adopts the three common place-based eligibility 
criteria for disaster recovery activities, reorganized to be in a 
consistent parallel order across all place-based categories, and with 
the revisions described in the discussion of the place-based criteria 
above in this section-by-section analysis. Under the final rule, 
activities that promote recovery from a designated disaster are 
activities that: are undertaken in conjunction with a disaster plan, 
program, or initiative of a Federal, State, local, or tribal government 
or a mission-driven nonprofit organization, where the plan, program, or 
initiative includes a focus on benefiting or serving the designated 
disaster area (final Sec.  __.13(h)(1)(i)); benefit or serve residents, 
including low- or moderate-income individuals, of the designated 
disaster area (final Sec.  __.13(h)(1)(ii)); and do not directly result 
in the forced or involuntary relocation of low- or moderate-income 
individuals in the designated disaster area (final Sec.  
__.13(h)(1)(iii)). As noted, the reasons for adopting these final 
criteria, and for revisions to the proposed criteria, are collectively 
discussed above in this section-by-section analysis.
Section __.13(h)(2) Eligibility Limitations for Loans, Investments, or 
Services Supporting Recovery of a Designated Disaster Area
    Final Sec.  __.13(h)(2) relocates and adopts, with non-substantive 
clarifications, the additional eligibility parameters in proposed Sec.  
__.13(h)(1). Specifically, under Sec.  __.13(h)(2)(i), loans, 
investments, or services that support activities promoting recovery 
from a designated disaster in counties designated to receive only FEMA 
Public Assistance Emergency Work Category A (Debris Removal) and/or 
Category B (Emergency Protective Measures) are not eligible for 
consideration under Sec.  __.13(h), unless the agencies announce a 
temporary exception. Section __.13(h)(2)(ii) states that loans, 
investments, and services that support activities under Sec.  __.13(h) 
are eligible for consideration up to 36 months after a Major Disaster 
Declaration, unless that time period is extended by the agencies.
    The agencies continue to believe that activities covered under 
Categories A and B are generally short-term recovery activities that 
would significantly expand the number of designated disaster 
areas,\483\ and that longer-term activities are more likely to provide 
sustained benefits to impacted communities and thus are a more 
appropriate focus under the CRA. The agencies are therefore generally 
adopting the definition of designated disaster areas included in the 
Interagency Questions and Answers,\484\ and permitting the agencies to 
consider exceptions on a case-by-case basis, such as disaster 
declarations for the COVID-19 pandemic. Similarly, consistent with the 
proposal and current guidance, the agencies are adopting a time frame 
in Sec.  __.13(h)(2)(ii) making loans, investments, and services that 
support activities under Sec.  __.13(h) eligible for consideration up 
to 36 months after a Major Disaster Declaration. Thus, for example, 
providing a loan for rebuilding a commercial property 24 months after a 
declaration could qualify, even if the project continues to be financed 
past 36 months. Overall, the agencies believe that adopting these 
criteria will recognize comments that supported a continuance of 
current practice for this category and provide clarity for banks on the 
qualification of activities.
---------------------------------------------------------------------------

    \483\ See, e.g., FEMA, ``Public Assistance Fact Sheet'' (Oct. 
2019), https://www.fema.gov/sites/default/files/2020-07/fema_public-assistance-fact-sheet_10-2019.pdf.
    \484\ See Q&A Sec.  __.12(g)(4)(ii)-1.
---------------------------------------------------------------------------

Section __.13(i) Disaster Preparedness and Weather Resiliency 
Activities

Current Approach
    The agencies' CRA regulations have allowed CRA consideration for 
certain activities that help communities recover from natural 
disasters, including activities that help to revitalize and stabilize 
designated disaster areas, as discussed above. On a limited basis, 
activities that help designated disaster areas mitigate the impact of 
future disasters may be considered under CRA

[[Page 6691]]

if Hazard Mitigation Assistance is included in the FEMA disaster 
declaration.\485\ Outside of activities related to disaster recovery, 
the Interagency Questions and Answers provide examples of ``community 
development loans'' that include loans financing ``renewable energy, 
energy-efficient, or water conservation equipment or projects that 
support the development, rehabilitation, improvement, or maintenance of 
affordable housing or community facilities.'' \486\ However, the 
current regulations and guidance do not expressly identify as eligible 
for CRA credit activities related to helping low- or moderate-income 
individuals, low- or moderate-income communities, small businesses, or 
small farms prepare for disasters or build resilience to future 
weather-related events.
---------------------------------------------------------------------------

    \485\ See Q&A Sec.  __.12(g)(4)(ii)-1 and FEMA, ``How a Disaster 
Gets Declared'' (Apr. 25, 2023), https://www.fema.gov/disaster/how-declared.
    \486\ Q&A Sec.  __.13(h)-1.
---------------------------------------------------------------------------

The Agencies' Proposal
    In proposed Sec.  __.13(i), the agencies proposed to establish a 
separate category of community development for activities that assist 
individuals and communities to prepare for, adapt to, and withstand 
natural disasters, weather-related disasters, or climate-related risks. 
As with other proposed place-based categories of community development, 
eligibility under this category would be conditioned on meeting the 
proposed common place-based criteria. Specifically, the proposal stated 
that disaster preparedness and climate resiliency activities are those 
conducted in targeted census tracts and that: benefit or serve 
residents, including low- or moderate-income residents, in one or more 
of the targeted census tracts (proposed Sec.  __.13(i)(1)); do not 
displace or exclude low- or moderate-income residents in the targeted 
census tracts (proposed Sec.  __.13(i)(2)); and are conducted in 
conjunction with a Federal, State, local, or tribal government plan, 
program, or initiative focused on disaster preparedness or climate 
resiliency that includes an explicit focus on benefiting a geographic 
area that includes the targeted census tracts (proposed Sec.  
__.13(i)(3)).
Comments Received
    General comments. Most commenters addressing proposed Sec.  
__.13(i) generally supported adding this category of activities under 
the community development definition, as an appropriate step to 
encourage financial institutions to support disaster preparedness and 
climate resilience activities. A number of commenters asserted that 
these activities can mitigate risks that disproportionately impact low- 
and moderate-income communities, as well as indigenous communities and 
communities of color. For example, a commenter stated that low- and 
moderate-income communities are particularly vulnerable to extreme 
weather and other natural disasters because they are more likely to be 
sited in locations that have not benefited from investment in hazard 
mitigation. A few commenters highlighted the importance of proactive 
investment in communities as consistent with mission of the CRA, in 
addition to post-disaster funding. A few commenters asserted that 
climate resilience is a critical foundation for community health and 
economic stability and growth, while another noted that the proposed 
category could help communities understand what kinds of climate-
related investments they can seek financing for, and help financial 
institutions understand which activities can receive CRA credit. In 
contrast, a commenter opposed the proposal to include this category of 
activities in the community development definition, arguing that such 
activities are inconsistent with the CRA.
    As discussed in more detail below, while most commenters expressed 
general support for proposed Sec.  __.13(i), many of these commenters 
urged the agencies to clarify or broaden the scope and types of 
activities that would qualify under the proposed category as a way to 
strengthen the rule. Commenters also offered suggestions for revising 
the proposed category's required elements for place-based activities 
under proposed Sec.  __.13(i)(1) through (3), described in more detail 
below. Commenters also addressed miscellaneous topics outside the scope 
of the proposed provisions, discussed at the end of this section-by-
section analysis.
    Qualifying activities: scope and examples. The agencies requested 
comment on whether the proposed disaster preparedness and climate 
resiliency category appropriately defined qualifying activities in 
proposed Sec.  __.13(i) as those that assist individuals and 
communities to prepare for, adapt to, and withstand natural disasters, 
weather-related disasters, or climate-related risks. The proposal also 
provided various examples of eligible activities contemplated by this 
proposed provision. While commenters generally supported proposed Sec.  
__.13(i), many of those commenters requested the agencies provide 
additional clarity; provide additional, non-exhaustive examples of 
eligible qualifying activities; and/or broaden the types of eligible 
activities.
    For example, some commenters supported the term ``climate-related 
risks,'' but asserted that the agencies should interpret the term to 
include not only natural hazards or weather-related risks, but also 
environmental health and other risks exacerbated by climate change, 
such as those related to air quality, pest increases, and warming 
waters. A few commenters suggested State law climate mitigation 
frameworks as reference points. Other commenters suggested that the 
final rule specify, or provide as examples, a variety of activities 
they recommended should qualify, such as development of community solar 
and microgrids, battery storage, residential electrification, energy 
and water efficiency measures, green technology, broad environmental 
initiatives such as the creation and expansion of green jobs, 
greenhouse emission mitigation and decarbonization, and toxic waste and 
industrial site clean-up, among others. One commenter cautioned the 
agencies against being overly prescriptive, recommending that the final 
rule maintain definitions broadly associated with essential 
infrastructure, rather than list specific activities that could become 
obsolete.
    Categorizing activities that promote energy efficiency. The 
agencies sought comment on whether activities that promote energy 
efficiency should be included as a component of the disaster 
preparedness and climate resiliency category, or whether those 
activities should be considered under other categories, such as 
affordable housing (Sec.  __.13(b)) and essential community facilities 
(Sec.  __.13(f)). The agencies also sought feedback on whether certain 
activities that support energy efficiency should be included as an 
explicit component of the definition. Most commenters addressing the 
question supported the agencies' inclusion of energy efficiency-
promoting activities as a component of the disaster preparedness and 
climate resiliency category. For example, a commenter stated that 
energy efficiency activities can insulate low-income individuals from 
price inflation and fluctuations resulting from disasters and climate 
change impacts. Another commenter noted that in addition to decreased 
utility costs, many energy-efficient techniques support climate 
resiliency because they help maintain habitable conditions when power 
is disrupted. A commenter recommended that energy

[[Page 6692]]

efficiency promoting activities be included as a component of the rule, 
but consideration for the activities should be conditioned on whether 
the activities benefited low- or moderate-income individuals or 
communities. In contrast, one commenter expressed that the agencies 
should not include activities that promote energy efficiency as a 
component of disaster preparedness and climate resiliency, asserting 
that these activities are outside the scope of the CRA and are more 
appropriate for environmental, social, and corporate governance 
guidance.
    Several commenters also suggested that the agencies should take a 
broad view of what constitutes an eligible energy efficiency-promoting 
activity, with some suggesting mitigation efforts be considered. 
Examples include, among others: energy-efficient upgrades (or new 
installation) for residential and commercial buildings, such as 
appliance and fixture replacements, weatherization, improved 
insulation, window replacements, heat pump and HVAC system purchase and 
installation; and electrification or decarbonization measures that 
would help stabilize home energy costs; and water efficiency measures.
    A number of commenters suggested that energy efficiency-promoting 
activities should be considered a component of other proposed community 
development categories, such as affordable housing, community 
facilities, and/or community infrastructure. For example, several 
commenters observed that there will be circumstances where energy 
efficiency improvements can benefit affordable housing and community 
facilities and this approach would ensure such activities are targeted 
to the most underserved populations.
    In contrast, a few commenters supported including energy 
efficiency-promoting activities only under the proposed disaster 
preparedness and resiliency category, to facilitate initiatives that 
co-optimize the use of energy efficiency and weatherization with other 
related activities, to reduce confusion, or to prevent double-counting.
    Other energy-related activities. The agencies sought comment on 
whether, distinct from energy efficiency improvements, other energy-
related activities should be included in the disaster preparedness and 
climate resiliency category. Of those that responded, many commenters 
supported including other energy-related activities as activities that 
assist individuals and communities in preparing for, adapting to, and 
withstanding weather, natural disasters, and climate-related risks. 
Commenters offered various examples of such activities including, among 
others: renewable energy (including financing of solar panels in low- 
and moderate-income census tracts or on homes for low- and moderate-
income homeowners, community solar installation, or a neighborhood-wide 
microgrid or district energy system); flood control and water run-off 
measures; decarbonization activities; energy storage systems; 
distribution grid modernization; and electric vehicle charging 
infrastructure. A commenter suggested that the CRA should prioritize 
clean energy related lending and investment and do so in a manner akin 
to how LIHTCs are prioritized under the current rule.
    Utility-scale projects. While the agencies noted in the proposal 
that proposed Sec.  __.13(i) was not intended to include utility-scale 
projects, the agencies also sought comment on whether to include 
utility-scale projects, such as certain solar projects, that would 
benefit residents in targeted census tracts.
    Some commenters asserted that utility-scale projects could benefit 
low- and moderate-income areas through expanded capital investment and 
likely displacement of fossil fuel burning plants, which are more 
likely to be located in such areas; or to give clean energy options to 
residents who cannot install renewable energy on their homes (e.g., due 
to cost or because they are renters). A few commenters asserted that 
utility-scale projects such, as renewable energy plants developed 
outside of a targeted geography, should still be eligible for credit, 
if benefits accrue to residents of targeted census tracts. A commenter 
suggested that by definition, utility-scale clean energy should be 
considered to benefit residents in targeted census tracts, noting that 
clean energy, regardless of location, benefits the climate everywhere 
and that even utility-scale clean energy projects located physically 
outside the geographical borders of a low- and moderate-income 
community still benefits the environment, health, and welfare of low- 
and moderate-income persons and communities.
    Other commenters supported including utility-scale projects, 
conditioned on criteria such as a certain percentage of benefits 
accruing to low- and moderate-income census tracts; physical location 
in low- and moderate-income communities; or if documentation showed 
specific benefits to targeted geographies or to low- or moderate-income 
individuals. A few commenters raised offering partial credit for 
dollars going to low- or moderate-income neighborhoods or benefiting 
low- or moderate-income individuals, or for projects providing 
demonstrable financial benefits to those communities.
    In contrast, some commenters responded that utility-scale projects 
should not be included as eligible activities. These commenters offered 
various reasons for this view, including that the benefits of utility-
scale projects are not sufficiently directed to low- and moderate-
income communities and conventional financing is more likely to be 
available for these projects (i.e., these projects would occur without 
a CRA incentive). Another commenter expressed the view that including 
utility-scale projects would dilute the intended core focus of the CRA, 
due to the broad application of such projects, and the large dollar 
amounts involved.
Final Rule
Section __.13(i) In General
    The final rule adopts proposed Sec.  __.13(i), renamed and 
reorganized from the proposal for clarity, including for consistency 
with the structure of other place-based categories, and with other 
modifications discussed below. Final Sec.  __.13(i) uses the term 
``weather resiliency'' instead of ``climate resiliency'' to clarify the 
types of activities that qualify under this category of community 
development. Under final Sec.  __.13(i), disaster preparedness and 
weather resiliency activities are defined as those that assist 
individuals and communities to prepare for, adapt to, and withstand 
natural disasters or weather-related risks or disasters. As discussed 
below, final Sec.  __.13(i) is revised to state that disaster 
preparedness and weather resiliency activities benefit or serve 
targeted census tracts and meet the common place-based criteria in 
Sec.  __.13(i)(1) through (3).
    As noted by commenters and highlighted in a growing body of

[[Page 6693]]

literature, lower-income households and communities are especially 
vulnerable to the impact of natural disasters and weather-related risks 
and disasters.\487\ Low- and moderate-income communities are more 
likely to be located in areas or buildings that are particularly 
vulnerable to disasters or weather-related risks, such as storm shocks 
or drought.\488\ Because residents of affordable housing are more 
likely to be low-income, and affordable housing tends to be older and 
of poorer quality, low- and moderate-income households are more likely 
to have housing that is susceptible to disaster-related damage.\489\ 
Additionally, lower-income households tend to have fewer financial 
resources, making them less resilient to the temporary loss of income, 
property damage, displacement costs, and health challenges they face 
from disasters.\490\ Finally, low- and moderate-income communities are 
often disproportionately affected by the health impacts associated with 
natural disasters and weather-related events.\491\ For these reasons, 
the agencies believe adding a disaster preparedness and weather 
resiliency category furthers the purpose of the CRA.
---------------------------------------------------------------------------

    \487\ See, e.g., Federal Reserve Bank of New York, ``Reducing 
Climate Risk for Low-Income Communities'' (Nov. 19, 2020), https://www.newyorkfed.org/newsevents/events/regional_outreach/2020/1119-2020 (referencing, for example, low-income communities' 
vulnerability to weather-related events such as wildfires and 
hurricanes); Jesse M. Keenan and Elizabeth Mattiuzzi, ``Climate 
Adaptation Investment and the Community Reinvestment Act,'' 
Community Development Research Briefs (June 16, 2019), https://www.frbsf.org/community-development/wp-content/uploads/sites/3/climate-adaptation-investment-and-the-community-reinvestment-act.pdf 
(stating that ``shocks from extreme weather . . . exacerbate 
existing vulnerabilities associated with,'' for example, affordable 
housing, household wealth and savings, and economic mobility).
    \488\ See, e.g., Eleanor Kruse and Richard V. Reeves, 
``Hurricanes hit the poor the hardest,'' Brookings Institute (Sept. 
18, 2017), https://www.brookings.edu/blog/social-mobility-memos/2017/09/18/hurricanes-hit-the-poor-the-hardest/; Bev Wilson, ``Urban 
Heat Management and the Legacy of Redlining,'' 86 J. Am. Planning 
Ass'n 443-57(2020), https://www.tandfonline.com/doi/full/10.1080/01944363.2020.1759127.
    \489\ See, e.g., Maya K. Buchanan et al., ``Sea level rise and 
coastal flooding threaten affordable housing,'' Environ. Res. Lett. 
15 124020 (2020), https://iopscience.iop.org/article/10.1088/1748-9326/abb266/pdf (providing estimates of the expected number of 
affordable housing units that may be at risk of flooding due to 
exposure to extreme coastal water levels); Patrick Sisson, ``In Many 
Cities, Climate Change Will Flood Affordable Housing'' Bloomberg 
(Dec. 1, 2020), https://www.bloomberg.com/news/articles/2020-12-01/how-climate-change-is-targeting-affordable-housing (referencing 
significant projected losses of affordable housing in the United 
States due to repeated flooding and noting, for example, that 
``[o]lder homes tend to be poorer quality, suffer from deferred 
maintenance, and are more physically vulnerable to flooding damage 
(not to mention rising heat), all while housing a disproportionate 
amount of disabled, elderly and otherwise at-risk residents'').
    \490\ See, e.g., U.S. Global Change Research Program, ``Fourth 
National Climate Assessment, Volume II: Impacts, Risks, and 
Adaptation in the United States'' (2018), https://nca2018.globalchange.gov/(``People who are already vulnerable, 
including lower-income and other marginalized communities, have 
lower capacity to prepare for and cope with extreme weather and 
climate-related events and are expected to experience greater 
impacts.''); and Eleanor Kruse and Richard V. Reeves, ``Hurricanes 
hit the poor the hardest,'' Brookings Institution (Sept. 18, 2017), 
https://www.brookings.edu/blog/social-mobility-memos/2017/09/18/hurricanes-hit-the-poor-the-hardest.
    \491\ Eleanor Kruse and Richard V. Reeves, ``Hurricanes hit the 
poor the hardest,'' Brookings Institution (Sept. 18, 2017), https://www.brookings.edu/blog/social-mobility-memos/2017/09/18/hurricanes-hit-the-poor-the-hardest; U.S. Global Change Research Program, 
``Fourth National Climate Assessment, Volume II: Impacts, Risks, and 
Adaptation in the United States'' (2018), https://nca2018.globalchange.gov/(referencing increasing impacts from 
extreme weather on ``the health and well-being of the American 
people, particularly populations that are already vulnerable'').
---------------------------------------------------------------------------

    While the proposed rule defined disaster preparedness and climate 
resiliency activities as those that are ``conducted in'' targeted 
census tracts, final Sec.  __.13(i) is revised to define ``disaster 
preparedness and weather resiliency'' activities as those that 
``benefit or serve'' targeted census tracts. The agencies recognize 
that while a ``conducted in'' standard could facilitate a bank's 
demonstration that activities are benefiting and serving the residents 
of targeted census tracts, it could exclude disaster preparedness and 
weather resiliency activities located in close proximity to a targeted 
census tract that nonetheless are demonstrably designed to benefit and 
serve residents of that census tract, including low- or moderate-income 
individuals. Thus, under the final rule, a project to finance a levee 
specifically intended to prevent flooding in a targeted census tract 
could qualify for consideration, even if the levee were not located 
directly within the census tract, presuming all criteria of the rule 
were met.
    Qualifying activities under the final rule; examples; additional 
criteria. The agencies have considered commenter feedback on the scope 
and types of activities that might qualify under this category, and 
commenter responses to whether activities that promote energy-
efficiency and other energy-related activities should be explicitly 
included in the definition. For the reasons discussed below, the 
agencies are finalizing the proposal's high-level, comprehensive 
approach regarding the scope and types of activities that qualify under 
this category, such as activities that assist individuals and 
communities to prepare for, adapt to, and withstand natural disasters 
or weather-related risks or disasters. The agencies believe the final 
rule will encompass a wide variety of activities that help low- or 
moderate-income individuals and communities proactively prepare for, 
adapt to, or withstand the effect of natural disasters or weather-
related risks or disasters, such as earthquakes, severe storms, 
droughts, flooding, and forest fires. For example, potentially eligible 
activities under the final rule, include, but are not limited to, the 
construction of flood control systems in a flood prone low- or 
moderate-income or underserved or distressed nonmetropolitan middle-
income census tract; and retrofitting multifamily affordable housing to 
withstand future disasters or weather-related events. Additional 
examples of potentially eligible qualifying activities include, but are 
not limited to: promoting green space in targeted census tracts in 
order to mitigate the effects of extreme heat, particularly in urban 
areas; weatherization upgrades to affordable housing such as more 
efficient heating and air-cooling systems or more energy-efficient 
appliances; community solar projects, microgrid and battery projects 
that could help ensure access to power to an affordable housing project 
in the event of severe storms; financing community centers that serve 
as cooling or warming centers in low- or moderate-income census tracts 
that are more vulnerable to extreme temperatures; and assistance to 
small farms to adapt to drought challenges.
    The agencies believe that the final definition provides banks the 
flexibility needed to encourage investments in a range of activities 
that promote disaster preparedness and weather resiliency, particularly 
given that communities face different types of risks across the 
country. To the extent that activities meet the definition and the 
common place-based criteria in final Sec.  __.13(i), as well as meet 
the majority standard in final Sec.  __.13(a), such activities would 
qualify for community development consideration. For this reason, while 
the agencies intend that the final rule will encompass some energy-
efficiency and other energy-related activities (e.g., those mentioned 
above), the agencies believe it is unnecessary to more specifically 
reference those activities in the final rule. With respect to these and 
other activities raised by commenters, the agencies are concerned that 
a more prescriptive rule that either designates or provides examples of 
precise qualifying activities could be overly limiting for this 
category, become obsolete, or discourage innovative activities in an 
evolving area of community development. However, the agencies will take 
commenters' suggestions under advisement as the agencies develop the 
illustrative list contemplated by Sec.  __.14.
    While the agencies believe the final rule provides broad 
flexibility, the agencies are also declining to further expand 
community development under this category, for example, to incorporate 
all environmental health threats and other risks that could be 
exacerbated by climate conditions, all

[[Page 6694]]

activities to mitigate climate risks, such as those that promote 
decarbonization, or activities that facilitate the transition to clean 
energy generally. The agencies believe it is important that the final 
rule clearly link qualifying disaster preparedness and weather 
resiliency activities to those activities that benefit or serve 
residents of a targeted census tract, to ensure that these activities 
provide the community benefit in alignment with the CRA. The agencies 
are concerned that broadening the rule as suggested by some commenters 
would make it difficult for banks to demonstrate that nexus, as well as 
to meet the majority standard in Sec.  __.13(a).
    Energy efficiency activities and other community development 
categories. The agencies have also considered comments on whether to 
include activities that promote energy efficiency in the disaster 
preparedness and weather resiliency category, or under other community 
development categories, such as affordable housing or essential 
community facilities. On further consideration, the agencies believe 
that energy efficiency-promoting activities are generally consistent 
with the final definition of disaster preparedness and weather 
resiliency, and therefore should be included within this category. 
However, the agencies do recognize that some energy efficiency-
promoting activities could potentially be considered under other 
community development categories. For example, and as discussed in more 
detail in the proposal, certain weatherization improvements might also 
benefit affordable housing or essential community facilities. Banks 
subject to the rule are permitted to qualify activities under any 
applicable community development category, but those activities may 
count only once for the purposes of calculating the Community 
Development Financing Metric.
    Utility-scale projects. Relatedly, the agencies appreciate the 
varying views on whether to include utility-scale projects that benefit 
residents of targeted census tracts within the scope of the rule. After 
considering the comments, the agencies reaffirm that final Sec.  
__.13(i) is not intended to include utility-scale projects. Utility-
scale projects tend to be large, even regional projects. In addition, 
given their nature and function, the agencies believe it would be 
difficult for utility-scale projects to meet the definition and place-
based criteria described below; in particular, the agencies believe it 
would be difficult for banks to clearly demonstrate such projects 
benefit or serve specific groups of residents in targeted census 
tracts. The agencies further believe it would be difficult for utility-
scale projects to meet the majority standard described in Sec.  
__.13(a).
    The agencies also considered comments suggesting partial 
consideration be available for those utility-scale activities 
benefiting low- or moderate-income individuals or communities, but are 
not revising the rule in that regard. The agencies believe that partial 
consideration could allow for qualification of activities that are not 
primarily focused on benefiting or serving residents of targeted census 
tracts, and could allow for activities with only accessory benefits to 
targeted census tracts.
Section __.13(i)(1) Through (3) Placed-Based Criteria
The Agencies' Proposal
    The proposal defined disaster preparedness and climate resiliency 
activities as those conducted in targeted census tracts and that: 
benefit or serve residents, including low- or moderate-income 
residents, in one or more of the targeted census tracts (proposed Sec.  
__.13(i)(1)); do not displace or exclude low- or moderate-income 
residents in the targeted census tracts (proposed Sec.  __.13(i)(2)); 
and are conducted in conjunction with a Federal, State, local, or 
tribal government plan, program, or initiative focused on disaster 
preparedness or climate resiliency that includes an explicit focus on 
benefiting a geographic area that includes the targeted census tracts 
(proposed Sec.  __.13(i)(3)).
Comments Received
    Comments regarding the common place-based criteria are generally 
discussed in the introduction to this section-by-section analysis. The 
agencies additionally sought comment on questions specific to this 
category, as noted below.
    Criteria to ensure targeted benefits. The agencies sought feedback 
on other options for determining whether disaster preparedness and 
climate resiliency activities are appropriately targeted; how 
qualifying activities should be tailored to directly benefit low- or 
moderate-income communities and distressed or underserved 
nonmetropolitan middle-income areas; and whether other criteria are 
needed to ensure those activities benefit low- or moderate-income 
individuals and communities. Additionally, the agencies sought feedback 
on whether energy efficiency standards should be used to determine if 
an activity provides sufficient benefit to targeted census tracts, 
including low- and moderate-income residents. Several commenters 
concurred that the proposal would appropriately require activities to 
be targeted to ensure benefits to low- and moderate-income individuals 
and communities. Some commenters further recommended that qualifying 
activities be evaluated to ensure that they provide clear, direct, 
targeted, meaningful, and/or proven benefit to low- and moderate-income 
and historically disinvested individuals or communities. Other 
commenters expressed concern that the proposal was not sufficiently 
targeted, and urged the rule be revised to state that activities must 
directly benefit low- and moderate-income communities, Native 
communities, and minority communities to be eligible for CRA 
consideration, to prevent funding from going to higher-income areas.
    Some commenters offered specific views on whether additional 
tailoring is needed for eligible activities that benefit or serve low- 
and moderate-income individuals. A commenter encouraged the agencies to 
consider socially and environmentally beneficial activities even if the 
transaction does not directly involve a low- and moderate-income party, 
such as investments in broad environmental initiatives, green 
technology, and State programs to combat climate change. The commenter 
asserted that this would allow for financial institutions to more 
holistically serve low- and moderate-income communities. Another 
commenter noted that, as disasters do not target low- and moderate-
income communities and impact all income levels, further tailoring is 
unnecessary. In contrast, a commenter stated that activities that are 
generically responsive to climate change such as wind farms or carbon 
capture efforts should not be eligible for CRA consideration as they 
lack the targeted benefit.
    Commenters also suggested various criteria for the agencies to 
consider including in the final rule to ensure disaster preparedness 
and climate resiliency activities benefit low- or moderate-income 
individuals and communities. Examples of criteria suggested included, 
among others, considering the mission or focus of the organization 
owning or controlling the project and whether they have a focus on 
serving residents of low- and moderate-income communities; whether a 
project leads to expected energy reduction for low- and moderate-income 
individuals and communities; or whether a project expands low- and 
moderate-income household access to

[[Page 6695]]

renewable energy. Other commenters suggested eligibility criteria, such 
as requiring renewable energy projects to have a certain percentage of 
low- and moderate-income subscribers, or prorating CRA credit for 
activities based on the portion of funds dedicated to low- and 
moderate-income individuals and communities.
    Additional prong for activities benefiting low- and moderate-income 
individuals regardless of geographic location. The agencies also sought 
comment on whether to include a separate prong of the disaster 
preparedness and climate resiliency category for activities that 
benefit low- and moderate-income individuals, regardless of whether 
they reside in one of the targeted census tracts; and if so, what types 
of activities should be included in this component. In response, 
commenters generally supported including a prong to qualify activities 
that benefit low- and moderate-income individuals, regardless of where 
they live, if there is a clear benefit to low- and moderate-income 
individuals or communities or minority communities. Various commenters 
noted that not all low- and moderate-income individuals live in low- 
and moderate-income areas and so may be subject to increased 
displacement risk or physical and financial impacts. Another commenter 
observed that poverty is not concentrated in rural regions in the same 
way as in metropolitan areas. In contrast, a commenter suggested that 
fewer and more inclusive prongs would avoid confusion.
    Examples of activities that might fit under such a prong submitted 
by commenters included, among others: activities that promote energy 
efficiency activities for low- or moderate-income individuals, 
regardless of where they live, and activities that facilitate 
improvements and recovery assistance for homes owned or rented by low- 
and moderate-income households.
    Consideration of activities in designated disaster areas. The 
agencies also requested feedback on whether to qualify activities 
related to disaster preparedness and climate resiliency in designated 
disaster areas, and if so, whether additional criteria are needed to 
ensure benefits accrue to communities with fewest resources to address 
the impacts of future disasters and climate-related risks. Most 
commenters addressing this question opposed including designated 
disaster areas as targeted geographic areas for these activities. These 
commenters noted that Federal disaster areas often include higher-
income census tracts that have access to greater resources to finance 
activities that promote disaster preparedness and climate resiliency, 
and that CRA should encourage resources to go to communities with 
limited resources and greater needs. A few commenters offered support, 
but only if low- and moderate-income individuals or targeted census 
tracts would be the beneficiaries, with defined constraints, such as 
demonstrable requirements to have low- and moderate-income census 
tracts comprise a high percentage of the total geography for the 
project financed. A few commenters offered support for specified 
activities in designated disaster areas (such as emergency protective 
measures), and one commenter suggested that credit could be pro-rated 
based on the portion of low- and moderate-income census tracts that 
benefit.
Final Rule
    The final rule adopts the common place-based eligibility criteria, 
reorganized to be in a consistent parallel order across all place-based 
categories, and with the revisions described in the discussion of the 
place-based criteria above in this section-by-section analysis. Under 
the final rule, disaster preparedness and weather resiliency activities 
benefit or serve targeted census tracts and: are undertaken in 
conjunction with a plan, program, or initiative of a Federal, State, 
local, or tribal government or a mission-driven nonprofit organization, 
where the plan, program, or initiative includes a focus on benefiting 
or serving targeted census tracts (final Sec.  __.13(i)(1)); benefit or 
serve residents, including low- or moderate-income individuals, of 
targeted census tracts (final Sec.  __.13(i)(2)); and do not directly 
result in the forced or involuntary relocation of low- or moderate-
income individuals residing in targeted census tracts (final Sec.  
__.13(i)(3)).
    As discussed in more detail above, the final rule expands the 
government plan criterion adopted in Sec.  __.13(i)(1) to include 
mission-driven nonprofit organizations and deletes ``explicit'' from 
the requirement for the plan, program, or initiative to have a focus on 
benefiting or serving targeted census tracts. In particular, the 
agencies recognize that, consistent with feedback from some commenters, 
the Federal, State or local governments may not have disaster 
preparedness or weather resiliency plans or programs currently in place 
for some targeted census tracts. Additionally, some government plans 
may not be specifically focused on, or described as, disaster 
preparation or weather resiliency. The agencies also note that the 
Federal Government as well as more State and local governments are 
developing disaster preparedness or weather resiliency-related plans, 
and the agencies anticipate these plans will become more widespread 
over time.
    The criterion adopted in Sec.  __.13(i)(2) is substantially similar 
to the proposed criterion, with a revision from ``low- or moderate-
income residents'' to ``low- or moderate-income individuals.'' The 
criterion adopted in Sec.  __.13(i)(3) is revised to prohibit 
activities that directly result in forced or involuntary relocation of 
low- and moderate-income individuals residing in the targeted census 
tracts. The agencies believe that the common place-based criteria, 
combined with the majority standard set forth in Sec.  __.13(a), will 
adequately ensure that disaster preparedness and weather resiliency 
activities benefit and serve the residents of targeted census tracts, 
including low- and moderate-income individuals. Reasons for adopting 
these final criteria, and for the revisions made, are generally 
discussed above in this section-by-section analysis. Responses to 
comments on specific questions asked regarding this community 
development category follow below.
    Criteria to ensure targeted benefits. The agencies appreciate 
commenters' thoughtful responses on potential additional eligibility 
criteria to ensure targeted benefits to low- or moderate-income 
individuals and communities of activities under this category of 
community development. The agencies have considered the suggestions and 
believe the adopted standard is adequately calibrated to provide needed 
flexibility for qualifying activities to support varying community 
development needs across different types of communities. In addition, 
the agencies are concerned that it may be burdensome to have to 
demonstrate that a project meets suggested criteria and could deter 
investments under this category. Therefore, the agencies are not 
adopting additional eligibility criteria. The agencies believe that the 
final rule is appropriately tailored to ensure a focus on low- and 
moderate-income residents in targeted census tracts and will facilitate 
banks' ability to find opportunities to serve targeted communities.
    The agencies are also not adopting the suggestion to condition 
consideration of energy efficiency activities under the rule on 
specific benefits to low- or moderate-income individuals or 
communities, or specific energy

[[Page 6696]]

efficiency standards. The agencies have considered that such standards 
are continuously evolving and believe it would be impracticable to 
incorporate and enforce such standards in the final rule over time. In 
addition, the agencies have considered that, given the many different 
types of activities that could qualify, setting energy efficiency 
standards could result in standards that are not calibrated to the full 
breadth of qualifying activities. However, banks may find information 
showing that activities meet energy efficiency standards to be helpful 
in demonstrating that a particular activity meets the relevant criteria 
in Sec.  __.13(i).
    Additional prong for targeted activities, regardless of geographic 
location. Similarly, the agencies are declining to expand the proposed 
rule to adopt an additional prong for activities directed to low- or 
moderate-income individuals, regardless of geographic location. 
Although the agencies recognize that not all low- and moderate-income 
individuals live in targeted census tracts, as discussed above, the 
agencies believe that this category should remain place-based and thus 
focused on activities that benefit or serve targeted census tracts. 
Adopting an additional basis for qualifying activities in this category 
would also reduce consistency across the place-based categories and in 
that regard could increase the final rule's complexity.
    Consideration of activities in designated disaster areas. The 
agencies are also declining to expand the criterion in final Sec.  
__.13(i)(2) to include activities in designated disaster areas. In 
response to commenter concerns and upon further consideration, the 
agencies believe that the rule as finalized, combined with the majority 
standard in Sec.  __.13(a), will appropriately help ensure a focus on 
low- or moderate-income residents and targeted census tracts. The 
agencies also note that, to the extent a designated disaster area 
already encompasses one or more targeted census tracts, that area would 
already be eligible under final Sec.  __.13(i)(2). The agencies are 
concerned that expanding this category beyond targeted census tracts to 
include designated disaster areas would detract from ensuring that 
these activities continue to have a benefit for all residents, 
including low- and moderate-income residents, since designated disaster 
areas often include higher-income census tracts. The agencies also 
believe that many activities with long-term benefits for designated 
disaster areas could qualify under the separate category of community 
development focused on recovery for designated disaster areas.\492\ The 
agencies believe the rule as finalized, combined with the majority 
standard set forth in Sec.  __.13(a), sufficiently and appropriately 
ensures a focus on low- or moderate-income residents.
---------------------------------------------------------------------------

    \492\ See final Sec.  __.13(h), discussed further in the 
accompanying section-by-section analysis.
---------------------------------------------------------------------------

    Additional comments. Beyond the specific elements of proposed Sec.  
__.13(i), commenters also offered a variety of other suggestions 
related to the proposed disaster preparedness and climate resiliency 
category of community development. For example, a few commenters 
suggested the final rule should indicate the kinds of public data and 
tools available for banks to identify and/or quantify climate 
vulnerable communities and risks, to assess whether proposed 
investments align with known demographic and environmental conditions, 
and to prioritize investments to maximize benefits to targeted 
communities. For example, some commenters suggested leveraging the U.S. 
EPA's Environmental Justice Screening and Mapping Tool (EJScreen) and 
White House Council on Environmental Quality's Climate and Economic 
Justice Screening Tool (CEJST). While the agencies appreciate these 
suggestions, the agencies are aware that public data and tools are 
continuously evolving, and therefore are declining to adopt or 
reference specific tools in the final rule. As the agencies note in the 
section-by-section analysis of Sec.  __.21, the agencies intend to make 
tools and information available to banks and the public on performance 
context related information and will take these comments into 
consideration as the agencies implement the final rule.
    Commenters also addressed topics such as how the climate impacts of 
a bank's activities should be factored into a bank's CRA performance 
evaluation. For example, some commenters stated that banks should be 
scrutinized and/or downgraded for financing activities that increase 
greenhouse gas emissions, asserting that such activities 
disproportionately impact low- and moderate-income communities or 
minority communities, while at least one commenter expressed concern 
about such an approach. A few commenters suggested that the agencies 
should avoid awarding CRA credit to programs or products that may take 
advantage of or otherwise be unaffordable to low- and moderate-income 
or other underserved homeowners or consumers. In this regard, the 
agencies note that under the final rule, as currently, evidence of 
illegal credit practices can be the basis of a rating downgrade.\493\ 
For more information on the final rule's approach to rating downgrades, 
see the section-by-section analysis of Sec.  __.28.
---------------------------------------------------------------------------

    \493\ See current Sec.  __.28(c), proposed Sec.  __.28(d), and 
final Sec.  __.28(d).
---------------------------------------------------------------------------

    Several commenters suggested that the final rule encourage banks to 
provide financial services for climate resiliency activities in low-
income, indigenous, and minority communities. Specifically, one 
commenter suggested that the agencies develop a race and ethnicity 
disclosure framework for community development activities, similar to 
the proposed disclosure of race and ethnicity data for mortgage lending 
under the Retail Lending Test. Another commenter asserted that race 
should be explicitly used as a metric to ensure that climate vulnerable 
communities receive improved access to credit and services. For more 
information and discussion regarding the agencies' consideration of 
comments recommending adoption of additional race- and ethnicity-
related provisions in this final rule, see section III.C of this 
SUPPLEMENTARY INFORMATION.
    A few commenters suggested that an impact factor for climate 
resiliency-related activities could be developed, to recognize, among 
others, activities such as energy efficiency improvements that also 
benefit affordable housing and essential community facilities (if not 
explicitly eligible under those categories); decarbonization features 
of otherwise qualified activities; or activities undertaken in line 
with community-based plans or in collaboration with public agencies. 
For example, a commenter suggested that the final rule offer additional 
CRA credit specifically for making investments in CDFIs or other 
institutions that directly invest in rural-based resilience and 
adaptation programs or projects. The commenter observed that rural 
communities, particularly rural coastal regions, face a greater threat 
from climate change than more-urbanized areas because they often lack 
the resources, infrastructure and adaptive capacity of city centers.
    While the final rule does not adopt a specific impact factor for 
these types of activities, as suggested above, the agencies note that 
certain activities associated with commenter-recommended impact factors 
could potentially already be counted under one of the twelve impact and 
responsiveness factors adopted in final Sec.  __.15(b). These could 
include, for example, factors for community

[[Page 6697]]

development loans, investments, and services in specific geographic 
areas with significant community development needs (Sec.  __.15(b)(1) 
through (3)), that support an MDI, WDI, LICU, or CDFI (Sec.  
__.15(b)(4)), or that serve low-income individuals or families (Sec.  
__.15(b)(5)). Impact and responsiveness factors are discussed in more 
detail in the section-by-section analysis of Sec.  __.15.

Section __.13(j) Revitalization or Stabilization, Essential Community 
Facilities, Essential Community Infrastructure, and Disaster 
Preparedness and Weather Resiliency in Native Land Areas

Current Approach
    The current CRA regulations do not include a specific category of 
community development for activities in Native or tribal lands, 
although current guidance encompasses ``revitalization and 
stabilization'' activities consistent with a tribal government plan if 
the activities are located in low- or moderate-income census 
tracts.\494\ The OCC 2020 CRA Final Rule adopted definitions of both 
``Indian country'' and ``other tribal and Native lands,'' and 
designated certain activities as qualifying for consideration in these 
geographic areas.\495\
---------------------------------------------------------------------------

    \494\ See 12 CFR __.12(g)(4) and Q&A Sec.  __.12(g)(4)(i)-1 
(regarding activities in low- or moderate-income census tracts 
designated ``as consistent with a Federal, state, local, or tribal 
government plan for the revitalization or stabilization of the low- 
or moderate-income [census tract]''). See also Q&A Sec.  
__.12(g)(4)(ii)-2 (regarding activities in designated disaster areas 
``consistent with a bona fide government revitalization or 
stabilization plan'') and Q&A Sec.  __.12(g)(4)(iii)-3 (regarding 
activities in distressed nonmetropolitan middle-income census tracts 
``consistent with a bona fide government revitalization or 
stabilization plan'').
    \495\ See, e.g., 85 FR 34734, 34771, 34794-34796 (June 5, 2020).
---------------------------------------------------------------------------

    Discussed in greater detail below, to help address challenges 
specific to Native lands, the agencies proposed in Sec.  __.13(l), a 
new category of qualifying community development activities related to 
revitalization, essential community facilities, essential community 
infrastructure, and disaster preparedness and climate resiliency that 
are specifically targeted to and conducted in Native Land Areas (as 
defined in Sec.  __.12, discussed in the corresponding section-by-
section analysis above). The final rule renumbers proposed Sec.  
__.13(l) as Sec.  __.13(j), revises and reorganizes the section for 
clarity, and makes other modifications described below.
The Agencies' Proposal
    Under proposed Sec.  __.13(l), activities in Native Land Areas 
related to the following would comprise a distinct category of 
community development: revitalization, essential community facilities; 
\496\ essential community infrastructure; and disaster preparedness and 
climate resiliency.\497\ Consistent with other proposed place-based 
categories of community development, the agencies proposed that 
essential community facilities, essential community infrastructure, and 
disaster preparedness and climate resiliency activities in Native Land 
Areas must: benefit or serve residents of Native Land Areas, including 
low- or moderate-income residents of Native Land Areas; \498\ not 
displace or exclude low- or moderate-income residents of Native Land 
Areas; \499\ and be conducted in conjunction with a Federal, State, 
local, or tribal government plan, program, or initiative that benefits 
or serves residents of Native Land Areas.\500\
---------------------------------------------------------------------------

    \496\ The proposal's regulatory text used the term ``eligible'' 
community infrastructure, which was a typographical error. The final 
rule corrects the language to ``essential community 
infrastructure.''
    \497\ Under the proposal, other community development activities 
(i.e., affordable housing or economic development) could still 
qualify for consideration if those activities took place in Native 
Land Areas, provided that they otherwise meet the eligibility 
standards for that particular activity under another paragraph of 
Sec.  __.13.
    \498\ See proposed Sec.  __.13(l)(2)(i) and (l)(3)(i).
    \499\ See proposed Sec.  __.13(l)(2)(i) and (l)(3)(i).
    \500\ See proposed Sec.  __.13(l)(2)(ii) and (l)(3)(ii).
---------------------------------------------------------------------------

    Separately, the agencies proposed that revitalization activities in 
Native Land Areas have a more specific focus on low- and moderate-
income individuals. Specifically, the agencies proposed that 
revitalization activities must benefit or serve residents of Native 
Land Areas, with substantial benefits for low- or moderate-income 
residents; \501\ and must not displace or exclude low- or moderate-
income residents.\502\ Revitalization activities in Native Land Areas 
also would need to be undertaken in conjunction with a Federal, State, 
local, or tribal government plan, program, or initiative with ``an 
explicit focus on revitalizing or stabilizing Native Land Areas and a 
particular focus on low- or moderate-income households.'' \503\
---------------------------------------------------------------------------

    \501\ See proposed Sec.  __.13(l)(1)(i)(A).
    \502\ See proposed Sec.  __.13(l)(1)(i)(B).
    \503\ Proposed Sec.  __.13(1)(1)(i).
---------------------------------------------------------------------------

Comments Received
    Commenters offered views on establishing a category of community 
development for activities in Native Land Areas, as well as feedback on 
the types of activities that would qualify for CRA consideration under 
the Native Land Areas category of community development and additional 
ways to facilitate activities in Native Land Areas. Comments on the 
proposed definition of Native Land Areas are discussed in the section-
by-section analysis of that definition in Sec.  __.12.
    General comments. Overall, commenters generally expressed wide 
support for including a new community development category for 
activities in Native Land Areas, with some indicating that the proposal 
would facilitate addressing unmet credit needs in geographical areas 
that have traditionally lacked access to CRA loans and investments, as 
well as bank branches in those areas. Comments included that the CRA 
should ensure capital is deployed to Native Land Areas, given 
persistent lending gaps in these areas; that the proposal could be an 
important step toward addressing housing needs and persistent poverty 
in these communities; and that a strengthened and targeted provision 
would incentivize banks to do more to promote prosperity in rural and 
Native communities throughout the country.
    Additional eligibility requirements. Commenters expressed a range 
of views in response to the agencies' request for feedback on whether 
the agencies should consider additional eligibility requirements for 
activities in Native Land Areas to ensure that community development 
activities benefit or serves low- or moderate-income residents of 
Native Land Areas. A few commenters expressed general support for 
additional criteria to ensure that community development benefits 
accrue to low- and moderate-income residents of Native Land Areas. One 
such commenter, however, also wanted to ensure that CRA requirements do 
not place more burden on Native persons than others. Another commenter 
expressed support for focusing activities on low- and moderate-income 
residents, but asserted that low- and moderate-income resident benefit 
should not be a requirement for qualification.
    A number of commenters more specifically objected to including 
income limits on beneficiaries for activities to receive CRA 
consideration in Native Land Areas. Reasons offered included, among 
others, that: (1) AMI in these areas is often very low and credit 
challenges are not limited to those with below 80 percent AMI; (2) 
middle-income Native communities often experience gaps in services and 
funding opportunities; (3) income limits could deter investments; and 
(4) revitalization across the income spectrum can have

[[Page 6698]]

far-reaching positive community impacts across Native communities. 
Additional commenter feedback included: urging the agencies to make 
eligibility requirements as inclusive as possible, with various 
commenters noting the Federal Government's trust and treaty obligations 
or the historic underinvestment in tribal communities; stating that 
consideration of activities should focus on how an investment benefits 
the tribal community, and expressing concern that additional 
requirements would add to the complexity of determining whether a 
project would qualify prior to a CRA examination; and emphasizing that 
investments in businesses owned by higher-income Native individuals 
with a broader impact on tribal community and economic development can 
help avoid an unintended consequence of maintaining islands of poverty 
without amenities.
    Finally, on the topic of requirements for qualifying activities on 
Native Land Areas more generally, a commenter asserted that tribal 
organizations are best positioned to determine community development 
needs of their communities and advocated that the agencies incorporate 
into the CRA framework the ability for tribal nations to determine what 
constitutes a qualifying community development activity in tribal 
communities. This commenter also recommended that the rule focus on 
loans to individuals as well as investments in tribal nations, as 
individual tribal citizens residing on tribal lands have difficulty 
obtaining lines of credit, loans, and other financial services.
    Tribal association or tribal designee plans, programs, or 
initiatives. As discussed in the proposal, tribal government designees 
such as tribal housing authorities, tribal associations and intertribal 
consortiums are central to economic development and community planning 
efforts in many Native Land Areas. Accordingly, the agencies sought 
feedback on whether to expand the government plan eligibility criteria 
to activities in Native Land Areas undertaken in conjunction with 
tribal association or tribal designee plans, programs, or initiatives. 
Most commenters on this topic expressed support for broadening 
qualification to include an option for activities in conjunction with 
tribal associations or designees. For example, a commenter stated that 
tribal associations and tribal designees offer and manage many services 
and programs on tribal lands and for tribal members. Another commenter 
noted the lack of capacity of tribal governments and indicated that 
full consent to these proposed activities may therefore be 
unreasonable; this commenter suggested that broader investment 
opportunities would be possible if they did not have to be undertaken 
in conjunction with an explicitly established tribal government 
initiative.
    Commenters also offered views on how the rule could define what 
tribal associations or designees would be included in an expanded 
government plan eligibility criterion. Some suggested requiring that a 
tribal designee be led by or work closely with tribal members, or 
requiring that tribal association and designee plans be majority 
Native-led and endorsed by the tribal government or at least not 
actively opposed by a tribal government. A few commenters asserted that 
consortia should be included, while other commenters suggested that 
tribal charters, other Native-led organizations, Native CDFIs and TDHEs 
could fall within this category, with a commenter noting that tribes 
rely on federally funded TDHEs to drive housing development. One 
commenter suggested that regulators should be prepared to allow banks 
to invest in the activities of Native organizations even though the 
organizations may have an unfamiliar legal structure.
    Other recommendations for Native Land Area activities. Commenters 
also requested various clarifications or additions to the proposed 
rule. Suggestions included ensuring consideration for (1) activities 
that impactfully improve access to Native business loans, mortgage 
loans, and disaster loans; (2) investments in Native CDFIs to help make 
more micro loans and provide financing for larger, more complex 
development projects; and (3) high impact activities in Native Land 
Areas, such as bond and debt issuances for tribal government entities. 
Other recommendations included emphasizing climate resiliency or 
renewable energy with regard to activities in Native communities, as 
well as broadband and digital equity access for Native Americans.
    A few commenters suggested that the agencies provide express 
presumptions of eligibility for activities such as those carried out by 
or in conjunction with a tribal government or its agencies, tribal 
associations or designee plans, or where the primary beneficiaries are 
members of a federally or State-recognized Indian tribe. Several 
commenters, including tribal commenters, further asserted that the 
agencies should consult with tribes to exchange information, build 
relationships, and receive guidance and recommendations on reforming 
and implementing the CRA framework. Other commenters addressed tribal 
consultations with respect to activities that potentially would qualify 
under proposed Sec.  __.13(l). Comments included, for example, a 
suggestion that the agencies explicitly state that meaningful 
consultation should always be undertaken with the goal of obtaining 
tribal informed consent when a project would have an impact on tribal 
lands or resources, either on or off the reservation.
Final Rule
General Rule (Sec.  __.13(j)(1))
    The agencies are adopting proposed Sec.  __.13(l), renumbered as 
Sec.  __.13(j), with revisions as follows. The final rule is 
reorganized for clarity and consistency with the structures of other 
place-based categories. Final Sec.  __.13(j)(1) sets forth the types of 
activities included in this category of community development: 
generally consistent with the proposal, this provision states that 
revitalization or stabilization (termed ``revitalization'' in the 
proposal), essential community facilities, essential community 
infrastructure, and disaster preparedness and weather resiliency 
activities in Native Land areas are activities specifically targeted to 
and conducted in Native Land Areas. The final rule also adopts a 
conforming change from ``climate resiliency'' to ``weather resiliency'' 
for consistency with final Sec.  __.13(i).These activities must also 
meet specific place-based eligibility criteria in Sec.  __.13(j)(2) or 
(3), as applicable: final Sec.  __.13(j)(2) describes place-based 
eligibility criteria for revitalization or stabilization activities in 
Native Land Areas, while final Sec.  __.13(j)(3) collectively describes 
place-based eligibility criteria for essential community facilities, 
essential community infrastructure, and disaster preparedness and 
weather resiliency in Native Land Areas. These place-based eligibility 
criteria are discussed in more detail below.
    The final rule also makes other technical edits. Section 
__.13(j)(1) and (2) now reference ``revitalization or stabilization,'' 
instead of ``revitalization'' as proposed, for consistency with 
revisions to Sec.  __.13(e). Further, for clarity and to simplify the 
regulatory text, Sec.  __.13(j)(3) now cross-references the definitions 
of essential community facilities, essential community infrastructure, 
and disaster preparedness and weather resiliency found in final Sec.  
__.13(f), (g), and (i), respectively.

[[Page 6699]]

    The agencies believe that adopting a community development category 
for specified activities in Native Land Areas will further the purpose 
of the CRA to encourage banks to meet the credit needs of their entire 
communities, including those of low- and moderate-income communities. 
Available data indicate that Native and tribal communities face 
significant and unique community development challenges. For example, 
the poverty rate among Native individuals on reservations is 35 
percent, and exceeds 50 percent in some communities.\504\ Banking and 
credit access remains a chronic barrier for tribal economic inclusion. 
Seven percent of American Indian or Alaska Native households were 
unbanked in 2021, much higher than the 2.1 percent among White, non-
Hispanic households.\505\ Majority-Native American counties have an 
average of two bank branches compared to the nine-branch average in 
nonmetropolitan counties and well below the 27-branch overall average 
for all counties.\506\ In addition, basic infrastructure in tribal 
areas significantly lags behind that of the rest of the country, with 
over one-third of Native households in tribal areas affected by major 
physical problems with their housing, including deficiencies with 
plumbing, heating, or electric--a share nearly five times greater than 
for the United States population as a whole.\507\ In addition, rates of 
broadband and cellular access are low in many tribal lands, with 21 
percent of all tribal lands and 35 percent of rural tribal lands 
lacking broadband and cellular access.\508\ Given these challenges, and 
as noted in more detail in the place-based criteria discussion, the 
agencies believe it is particularly important that community 
development consideration under this category be directly linked to 
Native Land Areas. For this reason, the agencies are finalizing in 
Sec.  __.13(j)(1) the proposed requirement that all qualifying 
activities under Sec.  __.13(j) be ``targeted to and conducted in'' 
Native Land Areas, even where the cross-referenced community 
development category (e.g., essential community facilities in Sec.  
__.13(f)) does not itself have a ``targeted to and conducted in'' 
requirement.
---------------------------------------------------------------------------

    \504\ The Federal Reserve Bank of Minneapolis' Center for Indian 
Country Development (CICD) calculated poverty rates for the American 
Indian and Alaska Native population living on federally recognized 
reservations and off-reservation trust lands using the U.S. Census 
Bureau's American Community Survey 5-Year 2017-2021 data. Twenty-
five of these land units had American Indian and Alaska Native 
poverty rates above 50 percent. Under the more expansive U.S. Census 
Bureau definition of Native lands, this number grows to 56 land 
units.
    \505\ FDIC, ``National Survey of Unbanked and Underbanked 
Households,'' Table 3.1 (2021), https://www.fdic.gov/analysis/household-survey/2021report.pdf.
    \506\ Information calculated using FDIC's Summary of Deposits 
(2020).
    \507\ HUD, ``Housing Needs of American Indians and Alaska 
Natives in Tribal Areas: A Report from the Assessment of American 
Indian, Alaska Native, and Native Hawaiian Housing Needs'' (2017), 
https://www.huduser.gov/portal/publications/HNAIHousingNeeds.html. 
This study is based on a survey of 38 ``tribal areas'' that are 
considered Native Land Areas under the final rule.
    \508\ Federal Communications Commission, ``Fourteenth Broadband 
Deployment Report'' 28 (2021), https://docs.fcc.gov/public/attachments/FCC-21-18A1.pdf. As calculated by the Federal Reserve 
Bank of Minneapolis' CICD using U.S. Census Bureau American 
Community Survey 5-Year 2017-2021 data, nearly 1 in 5 households 
(17%) in Native geographic areas do not have access to the internet, 
compared to 1 in 10 households (10%) nationally. See also, e.g., 
Matthew T. Gregg, Anahid Bauer, and Donn. L. Feir, ``The Tribal 
Digital Divide: Extent and Explanations'' (revised June 2022), 
https://www.minneapolisfed.org/-/media/assets/papers/cicdwp/2021/cicd-wp-2021-03.pdf (providing more detail on internet access 
challenges in Native geographic areas).
---------------------------------------------------------------------------

    Based on comments received and upon further consideration, the 
agencies are not adopting additional eligibility requirements for 
activities in Native Land Areas to ensure that community development 
activities benefit or serve low- or moderate-income individuals 
residing in those areas, beyond those proposed and finalized. As 
discussed above, tribal communities in Native Land Areas face 
particular challenges related to access to credit. The agencies are 
concerned that additional income limitations or requirements could 
deter investments under this category. The agencies further believe 
that the rule as finalized is sufficiently tailored to ensure a focus 
on low- and moderate-income residents in Native Land Areas, and will 
accordingly encourage banks to find opportunities to serve low- and 
moderate-income communities in areas that can be more difficult to 
serve.
    The agencies are also not expanding the regulation to address 
commenter suggestions that tribal organizations determine what 
constitutes qualifying community development activities in Native Land 
Areas. The final rule is intended in part to ensure that stakeholders 
have a clear upfront understanding of what constitutes a qualifying 
activity, in order to encourage investment and greater certainty for 
banks and those they serve in undertaking community development. 
However, the final rule incorporates as an eligibility criterion that 
activities must be undertaken in conjunction with plans, programs, or 
initiatives of governments (including tribal governments) or mission-
driven nonprofit organizations, as discussed further below, and in the 
section-by-section analysis of the common criteria for placed-based 
activities, above. In this way, the final rule better incorporates 
recognition of the importance of tribal government and tribal nonprofit 
organizations in identifying, understanding, and addressing the needs 
of their communities, relative to the proposal.
    The agencies have also considered comments recommending additions 
or clarifications to the rule, such as to provide additional emphasis 
on various specific impactful activities or to provide presumptions of 
eligibility as described above. The agencies have decided not to adopt 
these recommendations specifically, but note that activities meeting 
the eligibility criteria in the full range of community development 
categories adopted in final Sec.  __.13, and that meet the majority 
standard in Sec.  __.13(a), would qualify for community development 
consideration. For the reasons explained in this section-by-section 
analysis, the agencies believe that the common place-based criteria are 
all important to ensuring that the place-based categories provide the 
intended community benefit, and thus are not adopting presumptions of 
eligibility in final Sec.  __.13(j) for select activities on Native 
Land Areas that might not satisfy those criteria. The agencies also 
emphasize that the final rule adopts twelve impact and responsiveness 
factors under Sec.  __.15 that highlight key areas of concern raised by 
stakeholders, including an impact and responsiveness factor expressly 
focused on activities that benefit or serve residents of Native Land 
Areas (final Sec.  __.15(b)(8), discussed in the accompanying section-
by-section analysis below).
    Regarding comments seeking consultation with tribal stakeholders, 
the agencies engaged in significant outreach prior to issuing the NPR 
and received feedback from many stakeholders that informed the proposal 
and final rule, including from those that would be affected by the 
inclusion of activities in Native Land Areas. Moreover, ongoing 
engagement with the wide range of stakeholders, including tribes, 
related to community reinvestment and community development is a 
central element of agency practice and will continue to be over the 
course of CRA implementation. Further, the agencies continue to believe 
that limiting qualification under Sec.  __.13(j) to only those 
activities where tribal governments had been consulted could be overly 
restrictive and impractical to implement, and

[[Page 6700]]

could diminish the scope of the activities that would qualify as 
community development, due to the time and resource constraints of 
tribal governments. However, as discussed in more detail below, the 
final rule recognizes the importance of tribal governments and other 
tribal organizations; in particular, and as discussed below, the 
agencies are adopting the proposal to require that activities in Native 
Land Areas must be conducted in conjunction with a government plans, 
programs, and initiatives, including a tribal government plan, program, 
or initiative, as well as by expanding the ways that this requirement 
can be met by allowing for activities undertaken in conjunction with a 
mission-based nonprofit organization.\509\
---------------------------------------------------------------------------

    \509\ See final Sec.  __.13(j)(2)(i) and (j)(3)(i).
---------------------------------------------------------------------------

    Definitions and place-based criteria (Sec.  __.13(j)(2) 
(revitalization or stabilization activities) and (3) (essential 
community facilities, essential community infrastructure, and disaster 
preparedness and weather resiliency)). The final rule adopts place-
based eligibility criteria for the community development category 
focused on activities in Native Land Areas in Sec.  __.13(j)(2) 
(revitalization or stabilization activities) and (3) (essential 
community facilities, essential community infrastructure, and disaster 
preparedness and weather resiliency). These sections are reorganized 
from the proposal to be in a consistent parallel order with other 
place-based categories, with certain features specific to the Native 
Land Areas category that are substantially similar to those in the 
proposal.
    Government plan, program, or initiative (Sec.  __.13(j)(2)(i) and 
(j)(3)(i)). Consistent with other place-based community development 
categories, the final rule adopts a criterion in each of Sec.  
__.13(j)(2)(i) and (j)(3)(i) requiring an activity to be undertaken 
``in conjunction with a plan, program, or initiative of a Federal, 
State, local, or tribal government or a mission-driven nonprofit 
organization.'' For clarity, and as described in the section-by-section 
analysis for Sec.  __.12, the final rule adopts a definition of 
``tribal government.'' The agencies believe that including a government 
plan criterion in each of Sec.  __.13(j)(2)(i) and (j)(3)(i) will help 
ensure that community development activities under Sec.  __.13(j) 
remain responsive to identified community needs, and that the addition 
of allowing activities with mission-driven nonprofit organizations will 
appropriately allow for and recognize the value and importance of 
targeted non-government-related activities that can serve communities 
in Native Land Areas.
    Final Sec.  __.13(j)(2)(i) adopts the proposed requirement that the 
relevant plan, program, or initiative include an ``explicit focus'' on 
revitalizing or stabilizing Native Land Areas, while final Sec.  
__.13(j)(3)(i) is revised to include the requirement that the relevant 
plan, program, or initiative include an ``explicit focus'' on 
benefiting or serving Native Land Areas. While other final place-based 
categories are adopted without an ``explicit focus'' requirement (as 
described elsewhere in the section-by-section analysis of Sec.  __.13), 
the agencies believe this standard is important for this category of 
community development, to establish that plans, programs, or 
initiatives have an intentional link to Native Land Areas, which as 
discussed above are particularly underserved geographic areas. Thus, 
for example, this category would qualify a flood mitigation project 
that is specifically designed to benefit residents of a Native Land 
Area (presuming all other criteria are met).
    Regarding revitalization or stabilization activities, final Sec.  
__.13(j)(2)(i) further requires that the plan, program, or initiative 
include ``a particular focus on low- or moderate-income households.'' 
As discussed in the proposal, the agencies are adopting a more targeted 
criterion for revitalization or stabilization activities, because 
Native Land Areas include some middle- and upper-income census tracts 
that are not designated as distressed or underserved nonmetropolitan 
middle-income census tracts. This criterion allows consideration for 
activities conducted in geographic areas that include middle- and 
upper-income census tracts, but retains the focus on low- and moderate-
income households. Based on supervisory experience, the agencies 
believe that the types of projects that could qualify as revitalization 
and stabilization activities are more feasibly and likely to be 
developed to target specific income levels than other categories of 
place-based activities covered in final Sec.  __.13(j) (i.e., community 
facilities, infrastructure, and disaster preparedness and weather 
resiliency activities), which are more likely to be utilized by the 
community as a whole. Therefore, the agencies believe that it is 
appropriate to establish an express nexus between these activities and 
benefits to low- and moderate-income households in Native Land Areas, 
to better ensure direct benefits to low- and moderate-income components 
of the community.
    As discussed above, the final rule expands the government plan 
criterion in each of Sec.  __.13(j)(2)(i) and (j)(3)(i) from the 
proposal to include plans, programs, or initiatives of mission-driven 
nonprofit organizations. Regarding the Native Land Area category of 
community development in particular, the agencies believe that this 
expanded government plan criterion will generally capture plans, 
programs, and initiatives of qualifying Native CFDIs, Native Hawaiian 
organizations, TDHEs, Indian Health Centers, consortia, and other key 
Native designees focused on low- and moderate-income individuals and 
communities. For this reason, the agencies do not believe that 
expanding this criterion to include tribal associations or designees 
specifically is necessary. Further, based on the agencies' research and 
commenter views on the proposal, the agencies are concerned that 
defining qualifying tribal associations or designees appropriately for 
the rule would be difficult. Rather, the agencies believe that defining 
and adding to this criterion mission-driven nonprofit organizations 
will remove potential ambiguity regarding which organizations would be 
eligible tribal associations or designees under this criterion, 
increasing clarity and transparency for stakeholders.
    Benefit or serve residents, including low- or moderate-income 
individuals (Sec.  __.13(j)(2)(ii) and (j)(3)(ii)). Final Sec.  
__.13(j)(2)(ii) and (j)(3)(ii) each contain the place-based criterion 
generally requiring benefits to residents in Native Land Areas. For the 
same reasons discussed above with respect to the government plan 
criterion, the agencies are adopting a more targeted criterion for 
revitalization or stabilization activities. Specifically, under Sec.  
__.13(j)(2)(ii), revitalization or stabilization activities ``must 
benefit or serve residents of Native Land Areas and must include 
substantial benefits for low- or moderate-income residents.'' For 
example, a bank's purchase of a bond to fund a distribution center in a 
Native Land Area, where a substantial number of employment 
opportunities are expected to be filled by low- or moderate-income 
residents of the Native Land Area, may qualify for consideration if the 
activity met other required criteria.
    Under final Sec.  __.13(j)(3)(ii), essential community facilities, 
essential community infrastructure, and disaster preparedness and 
weather resiliency activities in Native Land Areas must benefit or 
serve residents, including

[[Page 6701]]

low- or moderate-income individuals, in Native Land Areas. The reasons 
for adopting this criterion and general revisions from the proposal are 
discussed above in this section-by-section analysis regarding the 
common place-based criteria.
    Forced or involuntary relocation (Sec.  __.13(j)(2)(iii) and 
(j)(3)(iii)). Final Sec.  __.13(j)(2)(iii) and (j)(3)(iii) require that 
revitalization or stabilization activities and essential community 
facilities, essential community infrastructure, and disaster 
preparedness and weather resiliency activities in Native Land Areas, 
respectively, do not directly result in the forced or involuntary 
relocation of low- or moderate-income individuals residing in Native 
Land Areas. The reasons for adopting this criterion and general 
revisions from the proposal are discussed above in this section-by-
section analysis regarding the common place-based criteria.

Section __.13(k) Activities With MDIs, WDIs, LICUs, or CDFIs

Current Approach
    Under the CRA statute and current regulations, nonminority- and 
nonwomen-owned banks can receive CRA credit for ``capital investment, 
loan participation, and other ventures'' undertaken in cooperation with 
MDIs, WDIs, and LICUs, provided that these activities help meet the 
credit needs of local communities in which the MDIs, WDIs, and LICUs 
are chartered.\510\ These activities need not also benefit the bank's 
assessment areas or the broader statewide or regional area that 
includes the bank's assessment areas.\511\ While CDFIs are not 
separately highlighted in the statute or regulations, activities with 
CDFIs can qualify as community development under various provisions of 
the current regulations pursuant to current guidance.\512\
---------------------------------------------------------------------------

    \510\ See 12 U.S.C. 2903(b), implemented at 12 CFR __.21(f).
    \511\ See 12 CFR __.21(f); see also Q&A Sec.  __.21(f)-1.
    \512\ See, e.g., Q&A Sec.  __.12(t)(4) and Sec.  __.21(h)-1.
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to establish a category of community 
development for activities with MDIs, WDIs, LICUs, and U.S. Treasury 
Department-certified CDFIs. Specifically, a community development 
category in proposed Sec.  __.13(j) included:
     Investments, loan participations, and other ventures 
undertaken by any bank, including by MDIs and WDIs, in cooperation with 
other MDIs, other WDIs, or LICUs; \513\ and
---------------------------------------------------------------------------

    \513\ Proposed Sec.  __.13(j)(1).
---------------------------------------------------------------------------

     Lending, investment, and service activities undertaken in 
connection with a U.S. Treasury Department-certified CDFI,\514\ which 
the proposed rule expressly indicated would be presumed to qualify for 
favorable community development consideration.\515\
---------------------------------------------------------------------------

    \514\ Proposed Sec.  __.13(j)(2).
    \515\ Id.
---------------------------------------------------------------------------

    As discussed above in the section-by-section analysis of Sec.  
__.12, the proposal defined the term MDI to ensure consistency with the 
CRA statute and incorporate existing flexibility for each agency to 
define MDI as it determines appropriate. In this way, the agencies 
intended the proposal to ensure that activities conducted in 
cooperation with banks owned by minority individuals would receive 
consideration, and also provided consideration for activities conducted 
in cooperation with banks that the agencies have long considered to be 
MDIs.\516\ The agencies sought comment on whether the MDI definition 
should include insured credit unions considered to be MDIs by the NCUA. 
As also discussed in the section-by-section analysis of Sec.  __.12, 
the proposal defined WDI by cross-reference to the definition of the 
term in the CRA.\517\
---------------------------------------------------------------------------

    \516\ See OCC, ``Policy Statement on Minority Depository 
Institutions'' (July 26, 2022), https://www.occ.gov/news-issuances/news-releases/2022/nr-occ-2022-92a.pdf; Board, SR 21-6/CA 21-4, 
``Highlighting the Federal Reserve System's Partnership for Progress 
Program for Minority Depository Institutions and Women's Depository 
Institutions'' (Mar. 5, 2021), https://www.federalreserve.gov/supervisionreg/srletters/SR2106.htm; FDIC, ``Statement of Policy 
Regarding Minority Depository Institutions,'' 86 FR 32728 (June 23, 
2021).
    \517\ 12 U.S.C. 2907(b)(2), defining the term ``women's 
depository institution'' to mean a depository institution (as 
defined in 12 U.S.C. 1813(c)) in which: (i) more than 50 percent of 
the ownership or control is held by one or more women; (ii) more 
than 50 percent of the net profit or loss of which accrues to one or 
more women; and (iii) a significant percentage of senior management 
positions are held by women. See also the section-by-section 
analysis of final Sec.  __.12 (``women's depository institution'').
---------------------------------------------------------------------------

    In the proposal, the agencies noted stakeholder feedback indicating 
support for a stronger emphasis on community development financing and 
services that support these institutions, including equity investments, 
long-term debt financing, technical assistance, and contributions to 
nonprofit affiliates. Some stakeholders previously suggested the need 
to increase certainty surrounding the treatment of activities in 
partnership with MDIs, WDIs, LICUs, and CDFIs. For example, 
stakeholders noted that examiners might require extensive documentation 
that a CDFI assists low-income populations, even though CDFI 
certification by the U.S. Treasury Department's Community Development 
Financial Institutions Fund is an indication of having a mission of 
community development.\518\ In the proposal, the agencies also noted 
stakeholder support for conferring automatic CRA community development 
consideration for community development activities with U.S. Treasury 
Department-certified CDFIs, to provide a stronger incentive and reduce 
burden.
---------------------------------------------------------------------------

    \518\ See U.S. Dept. of Treasury, Community Development 
Financial Institutions Fund, ``CDFI Certification,'' https://www.cdfifund.gov/programs-training/certification/cdfi.
---------------------------------------------------------------------------

    The proposal clarified that investments, loan participations, and 
other ventures undertaken not only by nonminority institutions, but 
also by MDIs and WDIs, in cooperation with other MDIs, WDIs, and LICUs, 
would qualify for consideration under this category. This would expand 
on the current rule, which focuses on providing consideration for these 
activities when conducted by nonminority institutions.\519\
---------------------------------------------------------------------------

    \519\ See 12 CFR __.21(f) (implementing 12 U.S.C. 2903(b)).
---------------------------------------------------------------------------

    The agencies also sought feedback on whether activities undertaken 
by an MDI or WDI to promote its own sustainability and profitability 
should qualify for consideration. The agencies considered that allowing 
these activities to qualify could encourage new investments to bolster 
the financial positions of these banks, allowing them to deploy 
additional resources to help meet the credit needs of their 
communities. The agencies further sought comment on whether additional 
eligibility criteria should be considered to ensure investments by MDIs 
or WDIs in themselves would ultimately benefit low- and moderate-income 
and other underserved communities.
    The proposal to provide a presumption of favorable CRA 
consideration for lending, investment, and service activities with U.S. 
Treasury Department-certified CDFIs was based on the agencies' 
recognition that these CDFIs already undergo specific certification 
processes and evaluations of CDFIs' ongoing outputs and outcome goals 
in award-making processes to demonstrate that they have a mission of 
promoting community development and providing financial products and 
services to low- or moderate-income individuals and communities.\520\
---------------------------------------------------------------------------

    \520\ See U.S. Dept. of Treasury, Community Development 
Financial Institutions Fund, ``CDFI Certification,'' https://www.cdfifund.gov/programs-training/certification/cdfi.

---------------------------------------------------------------------------

[[Page 6702]]

Comments Received
    General. The agencies received comments on proposed Sec.  __.13(j) 
from a wide range of commenters. Overall, most commenters addressing 
proposed Sec.  __.13(j) supported including this category of community 
development under proposed Sec.  __.13, and most commenters supported 
both prongs of the proposal. Commenters noted, for example, that these 
organizations' missions to serve (and record of serving) underserved or 
historically disadvantaged communities, is consistent with the goals of 
CRA; that the proposed category would provide clarity regarding the 
treatment of bank activities with MDIs, WDIs, LICUs, and CDFIs under 
the CRA; and that the proposal would encourage activities that would 
reinforce and build the capacity of these entities. As discussed in 
more detail below, some commenters recommended that the agencies apply 
additional eligibility criteria to proposed Sec.  __.13(j), while 
others suggested that additional entities be included within the scope 
of proposed Sec.  __.13(j). As discussed in more detail below, some 
commenters sought additional clarity on the types of activities 
included in the rule.
    Comments regarding MDIs, WDIs, and LICUs (proposed Sec.  
__.13(j)(1)). Most commenters addressing proposed Sec.  __.13(j)(1) 
supported recognizing ``investments, loan participations, and other 
ventures'' undertaken by any bank, including by MDIs and WDIs, in 
cooperation with other MDIs, other WDIs, or LICUs, as community 
development. Similarly, several commenters noted that these entities 
are mission-driven and share a focus consistent with the purpose of 
CRA. For example, a commenter stated that MDIs have proven to advance 
economic mobility in Black communities, citing an FDIC study that 
included findings that an estimated 6 out of 10 people living in the 
service area of Black-owned banks are Black, and that MDIs originate a 
greater share of mortgage loans than non-MDIs to borrowers in low- and 
moderate-income census tracts and in census tracts with larger shares 
of minority populations.\521\ Another commenter stated that in many 
minority communities, MDIs offer safe and affordable banking services 
where other institutions may not, and that most MDIs provide vital 
deposit and credit access services in communities that large financial 
institutions avoid.
---------------------------------------------------------------------------

    \521\ FDIC, ``Minority Depository Institution: Structure, 
Performance, and Social Impact'' (May 2019), https://www.fdic.gov/regulations/resources/minority/2019-mdi-study/full.pdf.
---------------------------------------------------------------------------

    Commenters asserted that MDIs need increased capital investments to 
serve their communities and that the agencies should incentivize bank 
activities with MDIs that have a proven record of lending to minority 
consumers and in low- and moderate-income and minority communities. In 
this regard, a few commenters asserted that the agencies should 
specifically encourage activities with MDIs and minority-led or 
minority-owned CDFIs and credit unions in order to increase racial 
equity in historically underserved communities.
    Several commenters suggested additional eligibility criteria for 
activities with MDIs and WDIs, based on concerns that MDIs and WDIs 
might not always serve low- or moderate-income individuals or 
communities. A few commenters suggested that CRA credit for activities 
with MDIs be connected to the MDI's record of serving borrowers in 
minority communities. For example, to ensure that minority communities 
are served, a commenter suggested that activities with MDIs or WDIs 
with assets over $1 billion be subject to additional data requirements 
for transparency, as well as other guardrails. Another commenter 
suggested incorporating into the CRA regulations a Federal statutory 
definition of ``minority lending institution,'' requiring that a 
majority of both the number and dollar volume of arm's-length, on-
balance sheet financial products be directed at minorities or majority 
minority census tracts or equivalents.\522\ Another commenter asserted 
that activities with CDFIs are more responsive and impactful than 
deposits or investments into MDIs and WDIs, and that automatic 
consideration should not be conferred for activities with MDIs or WDIs; 
instead, examiners should consider what the MDI or WDI does with a 
deposit or investment prior to granting CRA credit.
---------------------------------------------------------------------------

    \522\ Consolidated Appropriations Act, 2021, tit. V, subtitle B, 
section 523(c)(4)(A), Public Law 116-260, 134 Stat. 2088-89 (Dec. 
27, 2020).
---------------------------------------------------------------------------

    Commenters separately addressed the proposed definition of MDI, 
including in response to the agencies' question on whether to include 
in the definition minority insured credit unions recognized by the 
NCUA. These comments and the agencies' response are addressed in the 
section-by-section analysis for the MDI definition in Sec.  __.12.
    Comments regarding CDFIs (proposed Sec.  __.13(j)(2)). Most 
commenters addressing proposed Sec.  __.13(j)(2) supported qualifying 
``lending, investment, and service activities'' undertaken in 
connection with a U.S. Treasury Department-certified CDFI as community 
development under the rule, including the proposed presumption that 
such activities qualify for favorable community development 
consideration. Commenters supporting the provision noted that CDFIs are 
responsible, mission-based lenders and investors. For example, a 
commenter stated that CDFIs are very active in the NMTC program and 
work closely with banks to produce the thoughtful and impactful 
revitalization efforts. Some commenters emphasized that CDFIs can help 
support small businesses, especially minority- and women-owned small 
businesses, and continue to partner with banks to make credit 
accessible in low- and moderate-income communities across the country.
    Some commenters sought clarifications in the final rule related to 
CDFIs. Several commenters recommended that the final rule clarify that 
a bank's activities with CDFIs would receive equal consideration to 
activities with MDIs, WDIs and LICUs, with some noting that this should 
apply regardless of a CDFI's location relative to a bank's assessment 
area. As noted above, one commenter suggested CDFIs are more impactful 
than MDIs, WDIs, or LICUs, and, accordingly, that only activities with 
CDFIs should receive automatic consideration. Some commenters also 
suggested that the final rule ensure uniform treatment of all kinds of 
CDFIs (e.g., loan funds, banks, and credit unions). A number of 
commenters suggested that the final rule explicitly include ``CDFI 
banks,'' based on concerns that the proposal was not clear that CDFI 
banks were ``banks'' and that activities between CDFI banks and MDIs, 
WDIs, and LICUs would be covered for CRA consideration under this 
category. Other commenters raised concerns about the potential impact 
of giving similar community development consideration to all CDFIs. For 
example, a few commenters expressed concern that allowing CRA 
consideration for bank activities in conjunction with a CDFI regardless 
of where the CDFI exists could have the effect of encouraging bank 
activities with only the largest CDFIs, thus redirecting capital 
resources away from smaller CDFIs with a primary mission of serving 
local communities. Thus, a commenter recommended that regulators should 
incentivize substantial participation with local CDFIs, as a condition 
precedent to an ``Outstanding'' rating.
    Activities undertaken by an MDI or WDI to promote its own 
sustainability and profitability; eligibility criteria.

[[Page 6703]]

Most commenters responding to the question of whether the agencies 
should consider activities undertaken by an MDI or WDI to promote its 
own sustainability and profitability stated that these activities 
should be considered. Commenters cited the importance of keeping these 
institutions in business so that they may better serve their 
communities. Commenters further suggested clear language expressly 
allowing CDFI banks to receive CRA consideration for activities that 
promote their own sustainability and profitability.
    A few commenters responded to a related question posed by the 
agencies on whether additional eligibility criteria should be 
considered to ensure that investments by an MDI or WDI in itself 
provide benefit to low- and moderate-income and other underserved 
communities. A commenter stated that the investments should show an 
ancillary benefit to low- and moderate-income populations or low- and 
moderate-income areas served by the institution. Some commenters stated 
that no additional eligibility criteria should apply to WDI and MDI 
investments in themselves, but suggested that enhanced consideration 
should be given to investments that directly benefit low- and moderate-
income and underserved communities.
    A few commenters opposed giving CRA consideration to activities 
undertaken by an MDI or WDI to promote its own sustainability and 
profitability, or suggested limits on consideration of these types of 
investments. For example, a commenter stated that MDIs or WDIs that are 
small or intermediate banks should receive CRA consideration for well-
defined investments in building their capacity, but that this should 
not extend to large banks that are MDIs or WDIs.
    Other requests for clarification. Commenters also sought 
clarification on various other aspects of the rule. A commenter 
suggested that the proposal generally did not clearly articulate what 
activities would be eligible for consideration under proposed Sec.  
__.13(j), and thus would not provide sufficient incentive for banks to 
engage in these partnerships. Some commenters sought clarity on whether 
specific types of activities would qualify, such as, among others, CDFI 
products designed to address racial inequity, or loan participations 
that banks sold to or purchased from MDIs and CDFIs. Some commenters 
suggested that all bank investments or loans, including equity 
investments in or to certified CDFIs be eligible to receive CRA credit, 
and that the final rule provide full CRA credit for loans originated to 
unbanked and underbanked borrowers that are originated by nonbank CDFIs 
(even if sold immediately to third-party investors). Commenters also 
recommended clarifying that investments, loans, or grants, and other 
support to subsidiaries or entities controlled or wholly-owned by U.S. 
Treasury Department-certified CDFIs be given the same CRA consideration 
as those supporting the CDFI.
    Additional entities. Some commenters recommended that community 
development consideration under proposed Sec.  __.13(j) be extended to 
activities with other entities, such as those undertaken with chartered 
NeighborWorks organizations, HUD-designated Community Housing 
Development Organizations, HUD-approved Housing Counseling 
Organizations, and Certified Development Companies (CDCs). In 
particular, commenters highlighted the rigor required for entities to 
maintain these certifications. Commenters also suggested adding a wide 
range of other entities that offer important community supports, such 
as Community Action Agencies (CAAs), Housing Partnership Network 
partners, Mutual Self-Help Housing grantees under the USDA Rural 
Development section 523 program, and other community-based 
organizations. Some commenters expressed concern that the proposal to 
grant automatic consideration to CDFIs could discourage similar support 
to CDCs and other non-CDFI-certified community-based organizations. A 
commenter suggested that providing CRA consideration for activities 
with community development venture capital funds and formative funds or 
entities seeking certified CDFI status would encourage bank support of 
valuable CDEs prior to certification, while another expressed support 
for the agencies' clarification in the proposal that non-CDFI certified 
activities could be considered under another community development 
category (assuming criteria are met).
Final Rule
    The final rule renumbers proposed Sec.  __.13(j) as Sec.  __.13(k) 
and revises it as discussed below. Under the final rule, activities 
with MDIs, WDIs, LICUs, or CDFIs are ``loans, investments, or services 
undertaken by any bank, including by an MDI, WDI, or CDFI bank 
evaluated under [the agencies' CRA regulations], in cooperation with an 
MDI, WDI, LICU, or CDFI.'' Final Sec.  __.13(k) covers activities with 
the same types of entities as those proposed, but the language 
referencing eligible types of activities with those entities is revised 
and simplified, with no substantive change intended, to refer to 
``loans, investments, and services.'' This change is a clarification 
for consistency with the activities considered under the Community 
Development Financing Test in final Sec.  __.24, the Community 
Development Services Test in final Sec.  __.25, and the Community 
Development Financing Test for Limited Purpose Banks in final Sec.  
__.26. Additionally, the final rule states that these activities do not 
include investments by an MDI, WDI, or CDFI bank in itself.
    The final rule is intended to build on and clarify important 
community development financing and services through MDIs, WDIs, LICUs, 
and CDFIs that qualify under the current CRA framework. The agencies 
believe that, by establishing a clear and straightforward standard that 
allows a bank's loans, investments, and services with MDIs, WDIs, 
LICUs, and CDFIs to receive community development consideration, the 
final rule will increase certainty and transparency concerning 
treatment of activities in partnership with these entities relative to 
current practice. The final rule is also expected to reduce 
documentation burden associated with demonstrating, for example, that 
CDFIs serve low- and moderate-income populations or otherwise have a 
community development mission, as commenters noted this can create 
challenges in engaging in these activities. Instead, the final rule is 
intended to streamline banks' engagement with MDIs, WDIs, LICUs, and 
CDFIs by providing automatic community development consideration for 
loans, investment, and services with these entities.\523\
---------------------------------------------------------------------------

    \523\ See also final Sec.  __.13(a)(1)(iii) regarding credit for 
community development activities under final Sec.  __.13(k) and the 
accompanying section-by-section analysis.
---------------------------------------------------------------------------

    The agencies believe that the mission of MDIs, WDIs, LICUs, and 
CDFIs in meeting the credit needs of low- and moderate-income and other 
underserved individuals, communities, and small businesses is highly 
aligned with CRA's core purpose of encouraging banks to meet the credit 
needs of their entire community, including low- and moderate-income 
populations. Emphasizing partnerships with MDIs, WDI, and LICUs in the 
final rule is consistent with the CRA's express provision highlighting 
``capital investment, loan participation, and other ventures'' by banks 
in cooperation with MDIs, WDIs and LICUs.\524\ As reflected in the 
current CRA framework,

[[Page 6704]]

CDFIs have long been recognized by the agencies as financial 
institutions that, like MDIs, WDIs, and LICUs, are critical to the 
lending and capital access ecosystem of low- or moderate-income 
communities.\525\ Based on the agencies' supervisory experience, 
stakeholder feedback over the years of rulemaking leading to this final 
rule, and other relevant sources, the agencies believe that MDIs, WDIs, 
LICUs, and CDFIs often have intimate knowledge of local community 
development needs and opportunities, allowing them to conduct highly 
responsive activities.\526\ These entities also generally undergo 
rigorous and verifiable certification processes.\527\
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    \524\ 12 U.S.C. 2903(b).
    \525\ See, e.g., Q&A Sec.  __.12(t)(4) and Sec.  __.21(h)-1. See 
also, e.g., 81 FR 48506, 48508-48510 (July 25, 2016).
    \526\ See also, e.g., U.S. Government Accountability Office 
(GAO), ``Paycheck Protection Program: Program Changes Increased 
Lending to Small Businesses and Underserved Businesses,'' 13 (Mar. 
16, 2022), https://www.gao.gov/assets/gao-22-105788.pdf (estimating, 
for example, that 69 percent of Paycheck Protection Loans by MDIs 
and CDFIs went to businesses in high-minority counties).
    \527\ See, e.g., OCC, ``Policy Statement on Minority Depository 
Institutions'' (July 26, 2022), https://www.occ.gov/news-issuances/news-releases/2022/nr-occ-2022-92a.pdf; Board, SR 21-6/CA 21-4, 
``Highlighting the Federal Reserve System's Partnership for Progress 
Program for Minority Depository Institutions and Women's Depository 
Institutions'' (Mar. 5, 2021), https://www.federalreserve.gov/supervisionreg/srletters/SR2106.htm; FDIC, ``Statement of Policy 
Regarding Minority Depository Institutions,'' 86 FR 32728 (June 23, 
2021); U.S. Dept. of Treasury, Community Development Financial 
Institutions Fund, ``CDFI Certification,'' https://www.cdfifund.gov/programs-training/certification/cdfi. See also 12 CFR 701.34 (NCUA 
standards for designating a Federal credit union as a ``low-income 
credit union'').
---------------------------------------------------------------------------

    Loans, investments, or services include, for instance, equity 
investments in and loan participations with MDIs, WDIs, and LICUs, and 
CDFIs. Consistent with current guidance, this would include, for 
example, loan participations that a bank purchased from a CDFI, loaning 
an officer or providing other technical expertise to assist an MDI in 
improving its lending policies and practices, or providing financial 
support for a WDI to partner with a local educational institution to 
provide financial literacy programming.\528\ The rule takes this broad 
approach in order to provide flexibility for banks to engage in a range 
of activities that will meet differing local needs across communities.
---------------------------------------------------------------------------

    \528\ See Q&A Sec.  __.21(f)-1. The final rule expands on 
current guidance to include CDFIs. Donating a branch, selling a 
branch on favorable terms, or making branches available on a rent-
free basis to MDIs, WDIs, and LICUs pursuant to section 801 of the 
CRA would also qualify for consideration under this prong, based on 
the final rule's definition of ``community development investment,'' 
discussed further in the section-by-section analysis of that 
definition in final Sec.  __.12.
---------------------------------------------------------------------------

    Inclusion of CDFIs. The agencies have also considered comments 
regarding how CDFIs should be considered relative to MDIs, WDIs, and 
LICUs. The agencies believe that creating a single standard for CDFIs, 
MDIs, WDIs, and LICUs is not only simpler, but also serves to 
acknowledge the importance of CDFIs as critical providers of capital to 
low- or moderate-income communities. The agencies also believe that the 
construction of the final rule as it relates to activities with CDFIs 
is preferable since it more directly states that these activities are 
eligible under final Sec.  __.13(k), as compared to the proposed rule's 
approach of providing a presumption of credit for CDFIs in proposed 
Sec.  __.13(j)(2). The agencies determined that the presumption 
language raised unintended uncertainty about whether activities with 
CDFIs would actually count for community development consideration.
    The final rule also references CDFIs instead of U.S. Treasury 
Department-certified CDFIs, as the definition of CDFI in the final rule 
is clarified to mean U.S. Treasury Department-certified CDFIs. See the 
section-by section analysis of Sec.  __.12 for discussion of the 
definition of ``Community Development Financial Institution (CDFI)''. 
This definitional change affirms the agencies' intent to ensure that, 
beyond MDIs, WDIs, and LICUs, the entities with which a bank may engage 
for automatic consideration of loans, investments, and services have 
undergone the U.S. Treasury Department's CDFI certification process and 
meet requirements for maintaining that certification. The agencies 
consider this a critical guardrail to ensuring that community 
development on an inclusive community basis is the focus of bank loans, 
investments, and services in cooperation with these CDFIs.
    Activities conducted by MDIs, WDIs, and CDFI banks with other MDIs, 
WDIs, LICUs, and CDFIs. Under final Sec.  __.13(k), any loans, 
investments, or services undertaken by any bank, including by an MDI, 
WDI, or CDFI bank, in cooperation with an MDI, WDI, LICU, or CDFI will 
qualify as community development. As noted in the proposal, in this 
regard the final rule expands on the current rule, which focuses on 
crediting these activities when conducted by nonminority 
institutions.\529\ As MDI, WDI, and CDFI banks are themselves subject 
to CRA evaluations, the agencies believe that this expansion is 
appropriate to ensure that the loans, investments, and services of 
these institutions receive the same treatment as nonminority 
institutions. CDFI banks. The final rule also clarifies that loans, 
investments, and services by ``any bank'' include not only majority 
institutions, but also those by an MDI, WDI, or ``CDFI bank'' that is 
evaluated under the CRA. The definition of ``CDFI'' in final (and 
proposed) Sec.  __.12 is general and thus includes both depository and 
non-depository CDFIs; however, the agencies intend with the reference 
to a ``CDFI bank'' in final Sec.  __.13(k) to address commenter 
concerns that the proposal was not clear that CDFI bank loans, 
investments, and services in cooperation with MDIs, WDIs, LICUs, and 
other CDFIs could qualify for consideration under this provision.
---------------------------------------------------------------------------

    \529\ See current 12 CFR __.21(f) (implementing 12 U.S.C. 
2903(b)).
---------------------------------------------------------------------------

    Additional eligibility criteria. The agencies have considered 
commenter suggestions to add additional eligibility criteria for MDIs 
and WDIs under the final rule, such as criteria concerning how 
investments in MDIs and WDIs are used, or an MDI's record of service to 
minority communities. On further deliberation, the agencies believe 
that an additional layer of criteria would be overly complex to define 
and apply, potentially dampening the range and quantity of activities 
beneficial to communities that could otherwise qualify under this 
provision. For similar reasons, the agencies also are using their 
statutory authority not to include in final Sec.  __.13(k) the 
reference in the statute and current regulation to activities that help 
meet the credit needs of ``local communities in which [MDIs, WDIs, and 
LICUs] are chartered.'' \530\ As discussed above, based on the 
agencies' supervisory experience, stakeholder feedback over the years 
of rulemaking leading to this final rule, and other relevant sources, 
MDIs, WDIs, LICUs, and CDFIs have robust knowledge about the needs of 
their local communities and records of serving these needs. The 
agencies believe that the structure and orientation of these entities 
provide needed guardrails to ensure that activities in cooperation with 
them will be consistent with the CRA's community focus in the final 
regulation.
---------------------------------------------------------------------------

    \530\ See 12 U.S.C. 2903(b), implemented by current 12 CFR 
__.21(f). See also 12 U.S.C. 2901(b), 2903(a) and (b), and 2905.
---------------------------------------------------------------------------

    Relatedly, under the final rule, activities with CDFIs are treated 
similarly to those with MDIs, WDIs, and LICUs, regardless of a CDFI's 
location or size. The agencies are mindful of concerns expressed by 
some commenters that this approach could direct bank investment away 
from smaller, local CDFIs in favor of larger

[[Page 6705]]

CDFIs. On further consideration, the agencies believe that adding size 
or location criteria regarding CDFIs with which banks may engage for 
CRA credit under this provision would diminish the flexibility needed 
for a range of activities meeting differing local needs across 
communities. The agencies also note the final rule's adoption of an 
impact and responsiveness review under Sec.  __.15, including an impact 
and responsiveness factor under Sec.  __.15(b)(4) for loans, 
investments, and services that support an MDI, WDI, LICU, or CDFI 
(excluding certificates of deposit with a term of less than one year) 
will allow the agencies to consider the extent to which such activities 
are highly impactful or responsive to the needs of underserved areas 
and populations.\531\
---------------------------------------------------------------------------

    \531\ See final Sec.  __.15 and the accompanying section-by-
section analysis.
---------------------------------------------------------------------------

    Activities undertaken by an MDI or WDI to promote its own 
sustainability and profitability. The agencies have considered comments 
responding to the question on whether an MDI or WDI should receive 
consideration for activities that promote an MDI's or WDI's own 
sustainability and profitability, and are adopting a final rule that 
excludes investments by MDIs, WDIs, or CDFI banks in themselves.\532\ 
The agencies appreciate commenter views on the importance of investment 
support for these entities to bolster their financial position so that 
they can better serve their communities, as well as the need to 
consider ways to ensure that these investments benefit low- and 
moderate-income and underserved communities. On further consideration, 
the agencies are concerned that the linkage between such investments 
and benefits to low- or moderate-income communities may be attenuated 
and thus difficult to determine, in turn making establishment and 
application of clear and consistent guardrails to ensure benefits to 
low- and moderate-income communities unduly challenging. At the same 
time, the agencies believe that the final rule provides robust avenues 
of support for the sustainability and profitability of MDIs and WDIs 
through other CRA-evaluated banks, including other MDIs and WDIs.
---------------------------------------------------------------------------

    \532\ While the agencies requested comment only on investments 
by MDIs and WDIs, the final rule also excludes similar investments 
by CDFIs for parity.
---------------------------------------------------------------------------

    Definition of MDIs; minority credit unions. The agencies considered 
comments in response to the agencies' request for feedback regarding 
whether minority credit unions should be included in the definition of 
MDI for the final rule and conducted further research on this matter. 
The agencies note that there is a large overlap between minority credit 
unions and LICUs.\533\ Thus, a bank's loans, investments, and services 
with a large percentage of minority credit unions will be eligible for 
community development consideration under final Sec.  __.13(k), based 
on the minority credit union's LICU status. For this and other reasons, 
the agencies have decided not to add minority credit unions to the 
proposed definition of MDI. The question of whether to include minority 
credit unions in the final rule's definition of MDI, as well as other 
aspects of the final rule's definition of MDI, is discussed in more 
detail in the section-by-section analysis of Sec.  __.12 (``minority-
depository institution (MDI)'').
---------------------------------------------------------------------------

    \533\ NCUA, ``Minority Depository Institutions Annual Report to 
Congress,'' 2 (2021), https://ncua.gov/files/publications/2021-mdi-congressional-report.pdf (indicating that 81 percent of minority 
credit unions are designated as LICUs).
---------------------------------------------------------------------------

    Additional entities. The agencies have also considered comments 
recommending that the final rule include additional types of entities 
with which banks could collaborate in order to receive community 
development consideration, and have decided not to include additional 
entities in Sec.  __.13(k). The agencies have considered that entities 
such as NeighborWorks America's network organizations, HUD's Community 
Housing Development Organizations, and other community-based 
organizations perform important functions in communities, as do 
community development venture funds and formative funds, or other 
entities seeking certified CDFI status. However, because qualifying 
activities under Sec.  __.13(k) are eligible for community development 
consideration without additional eligibility criteria, the agencies 
believe that narrowly tailoring the entities considered under the final 
rule is especially important and, accordingly, that focusing final 
Sec.  __.13(k) on MDIs, WDIs, LICUs, and CDFIs is appropriate. As 
outlined above, MDIs, WDIs, LICUs, and CDFIs generally have missions 
and track records that directly align with the CRA's mandate of 
providing credit to entire communities, including to low- or moderate-
income communities; undergo rigorous and verifiable certification 
processes; and are financial institutions that provide critical capital 
access and credit to underserved communities. The agencies further 
believe that emphasizing partnerships with the entities covered by 
final Sec.  __.13(k) is consistent with the CRA's express emphasis on 
cooperation with MDIs, WDIs and LICUs, as well as with the key role 
CDFIs play in the capital and financial ecosystem in low- or moderate-
income communities. The agencies also note and expect that loans, 
investments, and services supporting activities performed by other 
entities suggested by commenters may be eligible for community 
development consideration under other provisions in Sec.  __.13.
    The agencies have also considered comments that activities with 
subsidiaries or entities controlled or wholly-owned by CDFIs be 
eligible for community development consideration under Sec.  __.13(k). 
The agencies note that subsidiaries or entities controlled or wholly-
owned by MDIs, WDIs, or LICUs are not referenced in current Sec.  
__.21(f) or proposed Sec.  __.13(j) \534\ Similarly, final Sec.  
__.13(k) does not include activities with these subsidiaries or 
affiliates, as the agencies believe an automatic grant of community 
development consideration should remain narrowly tailored. However, 
activities with subsidiaries or affiliates could be considered under 
other categories of community development, to the extent they would 
meet the criteria of those categories.
---------------------------------------------------------------------------

    \534\ The relevant CRA statutory provision also does not 
reference subsidiaries or controlled entities of MDIs, WDIs, or 
LICUs. See 12 U.S.C. 2903(b).
---------------------------------------------------------------------------

Section __.13(l) Financial Literacy

Current Approach
    Currently, activities related to financial literacy may qualify for 
CRA credit as ``community development services.'' \535\ These 
activities must be targeted to low- or moderate-income 
individuals.\536\ Examples of community development services provided 
in current guidance include, among others: (1) ``[p]roviding credit 
counseling, home-buyer and home maintenance counseling, financial 
planning or other financial services education to promote community 
development and affordable housing, including credit counseling to 
assist low- or moderate-income borrowers in avoiding foreclosure on 
their homes,'' as well as (2) ``[e]stablishing school savings programs 
or developing or teaching financial education or literacy curricula for 
low- or moderate-income individuals.'' \537\
---------------------------------------------------------------------------

    \535\ See 12 CFR __.12(i) (defining ``community development 
service'').
    \536\ See Q&A Sec.  __.12(i)-3, Q&A Sec.  __.12(h)-8.
    \537\ See Q&A Sec.  __.12(i)-3.

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[[Page 6706]]

The Agencies' Proposal
    Proposed Sec.  __.13(k) established a separate category of 
community development for ``[a]ctivities that promote financial 
literacy,'' defined as activities that ``assist individuals and 
families, including low- or moderate-income individuals and families, 
to make informed financial decisions regarding managing income, 
savings, credit, and expenses, including with respect to 
homeownership.'' Under the proposed rule, a bank would receive 
consideration for these activities without requiring them to focus 
specifically on low- and moderate-income beneficiaries. The proposed 
approach was intended to encourage investments that have broad benefits 
across income levels and that support the economic well-being of entire 
communities, as well as to simplify qualification by limiting the need 
for banks to obtain documentation to demonstrate that the activity is 
targeted to low- or moderate-income individuals or families, which can 
be particularly difficult to obtain for non-customers. However, 
proposed Sec.  __.13(k) specified that the individuals and families 
assisted by financial literacy activities must ``includ[e] low- or 
moderate-income individuals and families.'' The agencies requested 
comment on whether CRA consideration of financial literacy activities 
should be expanded from current practice to include activities that 
benefit individuals and families of all income levels, or be limited to 
activities that have a primary purpose of benefiting low- or moderate-
income individuals or families.
Comments Received
    The agencies received many comments on the proposed financial 
literacy category of community development from a variety of 
commenters, as discussed in more detail below.
    Financial literacy activities that benefit individuals and families 
of all income levels, including low- and moderate-income. Commenters 
generally supported creating a community development category for 
financial literacy activities. In response to the agencies' request for 
comment on whether the financial literacy category should apply to all 
income levels or only to low- and moderate-income individuals and 
families, some commenters supported applying the community development 
category to all income levels as proposed. Commenters asserted, for 
example, that financial literacy is useful and important to peoples of 
all income levels; that the proposed approach would ensure that other 
underserved populations, including seniors, veterans, and rural 
communities, would benefit from financial literacy activities; and that 
the proposed approach would allow banks to expand financial literacy 
activities more broadly and efficiently to schools and students, 
without restricting activities to only those students that are low- or 
moderate-income. In this regard, one commenter asserted that targeting 
financial literacy activities to only low- or moderate-income students 
can be difficult in rural areas because there are very few schools with 
a majority of students that meet this criterion. A few commenters also 
noted that expanding the provision to all income levels would allow 
banks to better reach low- or moderate-income populations, including by 
providing an incentive for bank employees to offer financial literacy 
sessions to mixed-income groups, and by reducing burden for banks by 
streamlining the process for determining whether financial literacy 
activities qualify.
    In contrast, other commenters raised a range of concerns regarding 
the proposed approach to consider financial literacy activities that 
benefit individuals and families of all income levels. Of those 
commenters, many asserted that there is a scarcity of resources and 
support for financial literacy activities, and expressed concern that 
expanding eligible financial literacy activities to include those for 
all income levels would divert resources from low- and moderate-income 
individuals and families that are in greater need. Commenter feedback 
included, for example: that the proposed approach would not be aligned 
with the intention and goals of the CRA to ensure that low- and 
moderate-income consumers are adequately served by the banking system; 
disagreement with assertions that income level documentation is a 
significant burden to financial institutions, noting that nonprofit 
organizations track the income level of their clientele; and that banks 
should be required to demonstrate that the primary purpose of the 
financial literacy activities it supports is benefiting low- and 
moderate-income individuals or families.
    Some commenters suggested that financial literacy activities for 
other populations or in other specific areas should qualify. 
Suggestions included financial literacy activities serving underserved 
populations, first-time homebuyers, small businesses, minorities or 
minority-owned businesses of all income levels, Native communities, or 
activities in and around Native Land Areas. A commenter suggested that 
the agencies consider any financial literacy activity provided by a 
HUD-approved housing counseling agency or intermediary, as a way to 
address concerns about income verification burden on banks.
    Financial literacy activities. While many commenters supported the 
proposal without suggested changes or revisions to the activities 
indicated as qualifying under this category, other commenters suggested 
the agencies clarify or add a range of other activities considered 
eligible under this category, such as financial coaching, various 
digital education products, and other specific financial literacy 
education programs, products, and services. For example, a commenter 
suggested that the agencies clarify that credit counseling is an 
eligible activity under the financial literacy category, asserting that 
nonprofit credit counseling and debt management counseling are critical 
to support low- and moderate-income consumers. A few commenters 
suggested that the agencies specify that grants and loans made to 
nonprofit organizations that support eligible activities under the 
proposed financial literacy category qualify for consideration.
    Housing-related comments. A number of commenters had suggestions 
regarding consideration for housing and homeownership-related 
counseling activities. In particular, several commenters suggested that 
additional emphasis be given to activities that focus on housing 
counseling. Commenters generally noted the unique, vital, and effective 
role housing counseling can play in helping consumers meet their 
financial goals. A few commenters noted that HUD-certified housing 
counselors provide several critical services to renters and first-time 
homebuyers that help mitigate barriers related to income, race, and 
ethnicity, and asserted that the agencies should recognize and provide 
additional credit for activities that support those counselors. A group 
of commenters separately suggested that housing counseling should be 
recognized as a community development activity distinct from the 
financial literacy category. These commenters expressed concern that 
including activities related to housing counseling along with other 
activities in a single financial literacy category could result in 
banks focusing on non-housing activities in that category.
    Some commenters recommended that the final rule specifically 
recognize

[[Page 6707]]

lender fee-for-service payments for housing counseling services by HUD-
approved housing counseling agencies as an eligible activity, with some 
commenters recommending recognition of fee-for-service payments for 
housing counseling services specifically assisting low- and moderate-
income borrowers. For example, one commenter asserted that 
consideration for lender fee-for-service payments to housing counseling 
providers serving low- or moderate-income clientele would help ensure 
that those organizations would be able to continue providing housing 
counseling services. This commenter indicated that such organizations 
traditionally rely on grants to fund those activities, which can 
present a challenge for their long-term stability. Another commenter 
suggested that fee-for-service payments for housing counseling services 
should be recognized as an eligible activity if the bank can 
demonstrate that this service is being offered to low- or moderate-
income borrowers.
    Additional approaches to qualifying eligible financial literacy 
activities. Several commenters emphasized that the rule should 
encourage banks to partner with nonprofit organizations to ensure that 
financial literacy activities are relevant to the community and 
marketed successfully, and suggested that qualifying programs or 
activities should have a stated purpose of engaging low- and moderate-
income residents. A few commenters suggested that banks should receive 
enhanced credit for supporting financial literacy activities targeted 
to low- and moderate-income individuals and families, including through 
a multiplier scoring system correlated to the percentage of low- and 
moderate-income beneficiaries supported by an eligible activity.
Final Rule
    The final rule adopts the proposal on financial literacy 
substantially as proposed, renumbered as Sec.  __.13(l). Under the 
final rule, activities that promote financial literacy are those that 
``assist individuals, families, and households, including low- or 
moderate-income individuals, families, and households, to make informed 
financial decisions regarding managing income, savings, credit, and 
expenses, including with respect to homeownership.'' The final rule 
makes technical edits from the proposal by adding ``and households'' as 
a conforming edit consistent with edits made in other community 
provisions in final Sec.  __.13. The agencies that believe 
incorporating financial literacy activities into the regulation as a 
separate regulatory category of community development will provide 
banks with certainty and clarity regarding how these activities will 
qualify for CRA consideration, and that this, in turn, will benefit a 
wide range of individuals and families in need of financial literacy 
services.
    The agencies have carefully considered commenter views on whether 
the financial literacy category should be limited to activities 
targeted to low- and moderate-income individuals and families. On 
balance, for the reasons discussed below, the agencies believe that the 
rule as finalized, without such limitation, will ensure low- and 
moderate-income individuals, families, and households benefit from 
financial literacy activities, while further encouraging banks' 
involvement in such activities. The final rule will reduce barriers to 
offering financial literacy activities by permitting a broader range of 
mixed-income activities to qualify relative to current practice, and 
will reduce burden by limiting the need for banks to track income 
levels of participants (which, as noted above, can be particularly 
difficult with respect to non-customers). As discussed in the proposal, 
prior stakeholder feedback also has suggested that financial literacy 
activities are, in practice, primarily delivered to low- or moderate-
income individuals, which may be another factor that reduces the need 
to obtain income documentation. The language of the final rule 
providing that individuals, families, and households assisted by 
financial literacy activities must include low- or moderate-income 
individuals, families, and households will also ensure that financial 
literacy activities will not be eligible for CRA credit if they solely 
benefit middle- and upper-income individuals, families, or households.
    The agencies further believe that financial literacy can build 
economic resilience at all income levels, particularly where there may 
be evidence that financial literacy is lacking, or financial 
instability exists. The agencies are sensitive to concerns about the 
scarcity of available resources for financial literacy activities, and 
believe that the final rule's approach will more broadly share the 
benefits of these activities across communities and open up greater 
opportunities for underserved populations, including seniors, students, 
veterans, and rural communities to benefit from financial literacy 
activities. In the agencies' experience, financial literacy activities 
can provide important tools for all individuals and families to 
maintain or improve upon their financial status, which benefit 
communities as a whole. As such, the agencies believe that the final 
rule is consistent with the intent of CRA to serve the credit needs of 
a bank's entire community, including low- and moderate-income 
communities.\538\
---------------------------------------------------------------------------

    \538\ See, e.g., 12 U.S.C. 2903(a)(1).
---------------------------------------------------------------------------

    Regarding commenters' suggestions that the agencies revise the 
regulation to explicitly qualify specific activities, the agencies 
believe that the broader approach in the final rule will allow banks 
more flexibility, as any activities meeting the criteria in Sec.  
__.13(l) will qualify. Activities that the agencies view as consistent 
with the language in Sec.  __.13(l) will generally include activities 
such as financial education, financial coaching and counseling, small 
business education, and housing counseling. For example, a financial 
planning seminar with senior citizens, including low- and moderate-
income seniors, or a financial education program for children in a 
middle-income school district would both be activities that would 
qualify for consideration. Similarly, credit counseling for residents 
of a rural area or grants and loans to nonprofits related to financial 
literacy would generally qualify for consideration. The agencies will 
take commenters' recommended examples under advisement as the agencies 
develop the illustrative list anticipated by Sec.  __.14(a), discussed 
below.
    The agencies do not believe that direct marketing of specific bank 
products alone would constitute a financial literacy activity that 
``assist[s] individuals, families, and households, including low- or 
moderate-income individuals, families, and households, to make informed 
financial decisions,'' and therefore would not meet the criteria for 
qualification in Sec.  __.13(l). However, a lender fee-for-service 
financial education program focused on savings and the benefits of 
savings, through which a bank provides information on its low-cost 
savings accounts (such as through a BankOn program \539\) or allows 
participants to prepare for and access a sustainable home mortgage, as 
is done in many homebuyer programs with HUD-certified housing 
counselors, would likely qualify for consideration under Sec.  
__.13(l). The agencies note that when engaging in activities under 
Sec.  __.13(l), banks are expected to comply with all applicable laws,

[[Page 6708]]

including, among others, section 8 of the Real Estate Settlement 
Procedures Act of 1974.\540\
---------------------------------------------------------------------------

    \539\ See BankOn, ``Account Standards,'' https://bankon.wpenginepowered.com/wp-content/uploads/2022/08/Bank-On-National-Account-Standards-2023-2024.pdf.
    \540\ 12 U.S.C. 2607.
---------------------------------------------------------------------------

    The agencies have also considered commenter suggestions that 
various specific activities related to housing counseling should be 
recognized within a separate category of qualifying activities or that 
they should otherwise be given extra emphasis on examinations, 
including suggestions to give enhanced credit for activities targeted 
to low- and moderate-income individuals. The agencies understand the 
importance of housing-related financial literacy activities and, on 
further deliberation, believe that the final rule appropriately 
recognizes housing counseling activities by expressly identifying 
activities that assist individuals, families, and households to making 
informed financial decisions regarding ``homeownership'' as one key 
type of qualifying activity within a new, separate community 
development category for financial literacy overall. The agencies note 
that activities that assist individuals, families, and households to 
make informed financial decisions about homeownership are part of a 
wide range of available qualifying financial literacy activities that 
offer critical support for the economic well-being of communities. With 
respect to comments suggesting extra emphasis, the agencies also note 
that the final rule creates a non-exhaustive list of specific impact 
and responsiveness factors that will recognize certain activities, 
including factors for activities serving persistent poverty counties 
and higher poverty census tracts (Sec.  __.15(b)(1) and (2)), low-
income individuals, families, and households (Sec.  __.15(b)(5)), and 
affordable housing in High Opportunity Areas (Sec.  __.15(b)(7)). See 
the section-by-section analysis of Sec.  __.15, below.

Section __.14 Community Development Illustrative List; Confirmation of 
Eligibility

Current Approach
    Under the current regulations, the agencies do not jointly maintain 
a standalone list of examples of loans, investments, and services that 
qualify for CRA community development consideration. However, the OCC 
maintains an illustrative list of activities as a reference for 
determining whether activities conducted while the OCC 2020 CRA Final 
Rule was in effect were eligible for consideration under that 
rule.\541\ The Interagency Questions and Answers also include certain 
examples of eligible community development loans, investments, and 
services.\542\
---------------------------------------------------------------------------

    \541\ The OCC maintains an illustrative list on its website as a 
reference for national banks, Federal savings associations, and 
other interested parties to determine whether activities that they 
conducted while the OCC 2020 CRA Final Rule was in effect were 
eligible for CRA consideration. Activities on this illustrative list 
may not receive consideration if conducted after January 1, 2022, 
when the rescission of the OCC 2020 CRA Final Rule became effective. 
See OCC, ``CRA Illustrative List of Qualifying Activities,'' https://www.occ.treas.gov/topics/consumers-and-communities/cra/cra-illustrative-list-of-qualifying-activities.pdf.
    \542\ See, e.g., Q&A Sec.  __.12(g)-1 through __.12(g)(4)(iii)-
4, Q&A Sec.  __.12(h)-1 through __.12(h)-8, and Q&A Sec.  __.12(i)-1 
through __.12(i)-3.
---------------------------------------------------------------------------

    Relatedly, the OCC previously established a confirmation process, 
not currently codified in its CRA regulation, through which national 
banks, Federal savings associations, and other interested parties may 
request confirmation that a loan, investment, or service qualifies for 
CRA consideration.\543\ The Board and the FDIC do not currently have 
similar mechanisms for State banks or State savings associations. 
Currently, as part of their CRA examinations, banks submit community 
development activities that were undertaken without an assurance these 
activities are eligible. Knowing that an activity previously qualified 
can frequently provide banks with some confidence that the same types 
of activities are likely to receive consideration in the future. 
However, banks assessing a new, less common, more complex, or 
innovative activity may not know whether that activity is eligible for 
CRA consideration until a determination is made by an examiner as part 
of the bank's CRA examination--after the bank has made a decision about 
whether to provide a loan, investment, or service. The determination 
requires examiner judgment and the use of performance context, which 
may further complicate a bank's ability to predict what activities 
could qualify.
---------------------------------------------------------------------------

    \543\ See OCC, ``CRA Qualifying Activity Confirmation Request,'' 
https://www.occ.treas.gov/topics/consumers-and-communities/cra/qualifying-activity-confirmation-request/index-cra-qualifying-activities-confirmation-request.html.
---------------------------------------------------------------------------

Section __.14(a) Illustrative List

Section __.14(a)(1) Issuing and Maintaining The Illustrative List
The Agencies' Proposal
    To provide increased certainty regarding what community development 
activities qualify for CRA consideration, the agencies proposed in 
Sec.  __.14(a) to maintain a publicly available, non-exhaustive 
illustrative list of examples of community development activities that 
qualify for CRA consideration. As noted in the proposal, prior 
stakeholders had indicated broad support for an illustrative list 
similar to the list associated with the OCC 2020 CRA Final Rule. In the 
proposal, the agencies indicated that stakeholders supported this 
approach as a way to highlight loans, investments, and services that 
meet the CRA community development criteria, while also noting that 
those criteria remain the determinative factors in qualifying community 
development activities (as opposed to whether a particular activity 
appears on the illustrative list). The agencies sought feedback on 
whether the benefit of greater certainty would outweigh the potential 
that the list might limit innovation by unintentionally leading banks 
to focus primarily on activities on the list. The agencies sought 
comment on whether, in addition to maintaining an illustrative list of 
qualifying activities under Sec.  __.14(a), the agencies should also 
maintain a non-exhaustive list of activities that do not qualify for 
CRA consideration as a community development activity.
Comments Received
    General. Most commenters on this aspect of the proposal expressed 
support for the agencies maintaining a non-exhaustive illustrative list 
of qualifying activities, as set forth in proposed Sec.  __.14(a). In 
general, commenters stated that an illustrative list would simplify 
compliance, and provide more regulatory certainty regarding community 
development activities that meet the requirements for CRA credit. 
Commenters also generally stated that an illustrative list would 
promote consistency among agencies and examiners, with at least one 
commenter stating that the list should be universally accepted across 
all agencies and deployed consistently across examiners. Other 
commenters highlighted the benefits of an illustrative list in 
connection with a timely pre-approval process. For example, a commenter 
indicated that a clearly-articulated illustrative list could allow 
transactions to be structured between banks and partner organizations 
with more information earlier in the process. Commenters also suggested 
that the agencies clarify further that the list is not exhaustive.
    Some commenters expressed concerns about the potential breadth and 
impact of the proposed illustrative list. For instance, some commenters 
stated their concern that a lengthy list of qualifying activities could 
encourage banks to

[[Page 6709]]

participate in the easiest and least impactful community development 
activities. Accordingly, commenters emphasized that the list should be 
focused on those activities that are most impactful to low- and 
moderate-income communities or closely tied to local needs, or that a 
listed activity would not automatically qualify if it resulted in 
displacement of low- and moderate-income individuals or minorities. 
Several commenters raised concerns that providing an illustrative list 
could stifle innovation to the extent that banks default to engaging 
only in listed activities. Another commenter stated that examiner 
judgment and the use of performance context would still be warranted as 
new, innovative activities arise. Several other commenters proposed 
that the agencies instead adopt a principles-based list, with a few 
raising concerns that an extensive list could evolve into an 
overwhelming ad hoc list.
    Many commenters offered a variety of suggestions regarding how the 
agencies should develop, issue, and maintain an illustrative list. For 
example, a few commenters recommended that the list be published in the 
Federal Register. In addition, several commenters recommended that the 
agencies maintain an interactive database with various features, 
including, among others, topical organization and searchability; case 
studies; or guidance and examples of documentation. Several commenters 
suggested that any list be developed and updated in coordination with 
relevant stakeholders.
    Finally, commenters also offered a variety of suggestions on 
specific activities that should be included or expanded upon in an 
illustrative list. Several commenters recommended that the agencies 
adopt the list of qualifying activities found in the OCC 2020 CRA Final 
Rule. Other commenters offered specific suggested activities, 
including, among many others, various activities pertaining to 
environmental and climate resilience; impacting disabled persons, as 
relevant to the community supportive services category; and promoting 
digital inclusion. At least one commenter suggested that an 
illustrative list be expanded to include innovative and responsive 
retail product and service offerings in addition to community 
development activities.
    List of activities that do not qualify for CRA consideration. As 
noted above, the agencies sought comment on whether, in addition to 
maintaining an illustrative list of qualifying activities under Sec.  
__.14(a), the agencies should also maintain a non-exhaustive list of 
activities that do not qualify for CRA consideration as a community 
development activity. Many commenters supported maintaining a non-
exhaustive illustrative list of activities that do not qualify for CRA 
consideration, with several arguing, for example, that a list of non-
qualifying activities would provide increased transparency and prevent 
banks from allocating time to non-qualifying activities. Commenters 
also shared suggestions on how the agencies might develop a non-
qualifying illustrative list. However, other commenters opposed or 
expressed concerns about maintaining a non-exhaustive list of non-
qualifying activities. For example, one commenter cautioned that a list 
of ineligible activities could be misinterpreted, causing banks to 
avoid partnerships with entire entities instead of certain activities. 
Another commenter noted that eligibility for CRA consideration can 
depend on specific circumstances and unique facts, detracting from the 
usefulness of maintaining a list of non-qualifying activities.
Final Rule
    The final rule renumbers proposed Sec.  __.14(a) as Sec.  
__.14(a)(1), and reflects the technical edits and revisions from the 
proposal discussed below. The final rule clarifies that the agencies 
not only will maintain, but will jointly issue a publicly available 
illustrative list of non-exhaustive examples of loans, investments, and 
services that qualify for community development consideration as 
provided in Sec.  __.13. For the reasons stated in the proposal and on 
consideration of comments, the agencies believe that establishing an 
illustrative list will promote transparency and consistency, provide 
banks and other stakeholders with greater certainty, and help clarify 
the application of criteria for community development categories. These 
examples are intended to help banks make more informed decisions 
regarding what loans, investments, and services would qualify for 
community development consideration.
    The revision in the final rule confirming that the list will be 
jointly issued by the OCC, Board, and FDIC is partly intended to 
support commenters' interest in consistency across agencies and 
examinations. Whether to include (or add under final Sec.  __.14(a)(2), 
discussed below) an activity to the illustrative list is subject to the 
agencies' discretion. The final rule also makes conforming edits to 
replace ``community development activities that qualify for CRA 
consideration'' with ``loans, investments, and services that qualify 
for community development consideration,'' consistent with other 
revisions in the final rule, and edits to clarify that Sec.  __.14(a) 
is specifically applicable to the types of activities that are 
described in Sec.  __.13.
    In adopting the final rule, the agencies considered feedback on 
whether the benefit of greater certainty would outweigh the potential 
that the list might limit innovation by unintentionally leading banks 
to focus primarily on examples on the list. The agencies believe that, 
on balance, the benefit of greater certainty, transparency, and clarity 
outweigh this potential concern. The agencies also believe that 
updating the illustrative list periodically pursuant to final Sec.  
__.14(a)(2)(i), described below, will further mitigate concerns by 
allowing for new, innovative examples to be added over time.
    The agencies similarly considered commenter concerns and 
recommendations related to the potential breadth of the illustrative 
list. The agencies are concerned that adopting a principles-based list 
as suggested would not provide sufficient clarity or specificity, which 
would limit the informational benefits of an illustrative list for 
banks regarding what kinds of loans, investments, and services would 
qualify as community development. In developing the illustrative list, 
the agencies expect to consider what steps the agencies can take to 
promote ease of use by banks and the public, and to provide context to 
complex issues as feasible. Regarding the suggestion that the agencies 
clarify further that the list is not exclusive, the agencies reaffirm 
that the illustrative list is intended to be non-exhaustive; 
accordingly, the final rule retains proposed language expressly stating 
that the illustrative examples are non-exhaustive.
    The agencies also appreciate commenters' thoughtful views on how 
the agencies should develop and issue an illustrative list, as well as 
the types of activities that should populate the list. Subsequent to 
this rulemaking, the agencies expect to jointly develop the process for 
issuing, maintaining, and updating the illustrative list. The agencies 
will continue to take all of these comments under advisement as this 
process moves forward.
    The agencies are not adopting suggested revisions to final Sec.  
__.14(a)(1), as follows. Regarding commenter concerns that activities 
on the list be focused on particular community needs and not result in 
displacement, the agencies note that, as a threshold matter, any 
activity on the

[[Page 6710]]

illustrative list would still need to qualify under the relevant 
criteria of a particular community development category in Sec.  __.13, 
including any applicable criteria for any place-based community 
development activity. As discussed in the section-by-section analyses 
of Sec.  __.13(e) through (j), above, one placed-based criteria is that 
the activity ``not directly result in the forced or involuntary 
relocation of low- or moderate-income individuals'' in the relevant 
geographic area.\544\ Further, as needed, examiners will still exercise 
judgment and review performance context in evaluating an activity under 
the applicable facts and circumstances.
---------------------------------------------------------------------------

    \544\ See final Sec.  __.13(e)(1)(iii), (f)(3), (g)(3), 
(h)(1)(iii), (i)(3), (j)(2)(iii), and (j)(3)(iii).
---------------------------------------------------------------------------

    The agencies also considered the suggestion to expand the 
illustrative list to include innovative and responsive retail services 
and products offerings, in addition to community development 
activities. The agencies are not expanding the illustrative list in 
this manner, as the agencies have not observed as many questions 
necessitating upfront clarification regarding eligible retail services 
and products. In deliberating further on this matter in light of the 
comments, the agencies determined that, at this time, the illustrative 
list will best serve the purpose of clarity and transparency by being 
focused on community development activities as the area in which the 
agencies observe and hear from stakeholders there is the most need for 
clarity.
    Finally, the agencies considered commenter feedback on whether to 
maintain a separate list of activities that do not qualify for 
community development consideration. Upon further consideration of 
comments received, the agencies are concerned that such a list might 
inadvertently deter banks from pursuing eligible loans, investments, 
and services, and accordingly, the agencies are not adopting a 
provision to maintain a list of non-qualifying activities. The agencies 
also believe that resources will be more effectively and efficiently 
deployed if focused on providing a resource for banks seeking new 
opportunities to serve community needs. Nonetheless, the agencies note 
that the confirmation process adopted in final Sec.  __.14(b), 
discussed below, will provide a related venue for confirming 
eligibility, which should help banks reduce unintended allocation of 
time and resources to non-qualifying loans, investments, and services.
Section __.14(a)(2) Modifying the Illustrative List
The Agencies' Proposal
    To ensure flexibility and incorporation of new activities, the 
agencies proposed in Sec.  __.14(b)(1) to update the illustrative list 
periodically. The agencies also proposed in Sec.  __.14(b)(2) that, if 
the agencies determine that an activity on the illustrative list is no 
longer eligible for CRA community development consideration, the owner 
of the loan or investment at the time of the determination would 
continue to receive CRA consideration for the remaining term or period 
of the loan or investment. However, the loan or investment would not be 
eligible for consideration for any purchasers of that loan or 
investment post-determination.
Comments Received and Final Rule
    Commenters provided views on various aspects of proposed Sec.  
__.14(b), addressing how the agencies might update and remove items 
from the illustrative list, and the timeline for doing so. Commenters 
generally suggested regular monitoring and updating, with several 
offering suggested timelines (for example: as new innovations arise and 
circumstances warrant; biannually; or triennially). Commenter feedback 
included that: the agencies should regularly seek public comment as the 
most transparent and fair way to update the illustrative list; all 
stakeholders should be permitted to submit suggestions for issuing and 
modifying the illustrative list; banks should work with their primary 
regulator to provide submissions to the illustrative list, and agency 
staff should also be allowed to submit activities to the list arising 
through outreach or the examination process; and banks should still 
receive consideration for any previous investment that remains on the 
bank's books even if the activity is deemed ineligible later.
    The final rule adopts Sec.  __.14(b) substantially as proposed, 
renumbered as Sec.  __.14(a)(2), with technical edits to replace 
``activities'' with ``loans, investments, or services'' and other 
conforming edits. Final Sec.  __.14(a)(2)(i) provides that the agencies 
will periodically update the illustrative list in Sec.  __.14(a)(1). 
Consistent with the proposal, final Sec.  __.14(a)(2)(ii) states that, 
in the event the agencies determine that a loan or investment on the 
illustrative list is no longer eligible for community development 
consideration, the owner of the loan or investment at the time of the 
determination will continue to receive community development 
consideration for the remaining term or period of the loan or 
investment. However, these loans or investments will not be considered 
eligible for community development consideration for any purchasers of 
that loan or investment after the determination.
    The agencies believe that providing for periodic updates to the 
illustrative list under Sec.  __.14(a)(2)(i) offers the agencies 
flexibility and will promote innovation by allowing the agencies to add 
new and innovative examples over time. This provision also will allow 
the agencies' understanding of community development activities to 
evolve as banks' activities and community development needs shift. The 
agencies' ability to update the list periodically is also intended to 
help address some commenter concerns regarding Sec.  __.14(a)(1), that 
an illustrative list could limit innovation by leading banks to focus 
primarily on examples found on the list.
    As noted above, subsequent to this rulemaking, the agencies expect 
to jointly develop the process for issuing, maintaining, and updating 
the illustrative list, and will consider commenter suggestions for that 
process, including those regarding modifying and removing items from 
the illustrative list, and the timeline for doing so. Regarding 
commenter concerns about treatment of loans and investments later 
removed from the list, the agencies note that final Sec.  
__.14(a)(2)(ii) is intended to provide certainty that a bank (albeit 
not subsequent purchasers) will continue to receive consideration for 
their loans and investments even if those examples are later removed 
from the list. Accordingly, in circumstances where examples are later 
removed from the list, a bank's credit for those loans and investments 
would not be retroactively impacted.

Section __.14(b) Confirmation of Eligibility

The Agencies' Proposal
    The agencies proposed in Sec.  __.14(c) and (d) a formal mechanism 
for banks subject to the CRA regulations to request confirmation that 
an activity is eligible for CRA consideration. Under proposed Sec.  
__.14(c), a bank could submit a request to its appropriate Federal 
financial supervisory agency for confirmation that an activity is 
eligible for CRA consideration. When the agencies confirmed that an 
activity is or is not eligible for CRA consideration, the supervisory 
agency would notify the requestor, and the agencies might add

[[Page 6711]]

the activity to the publicly available illustrative list of activities, 
incorporating any conditions imposed, if applicable.
    Proposed Sec.  __.14(d)(1) provided that a bank could request that 
the appropriate Federal financial supervisory agency confirm that an 
activity is eligible for CRA consideration by submitting a request to 
its Federal financial supervisory, in a format prescribed by the 
agency. Proposed Sec.  __.14(d)(2) provided that, in responding to a 
confirmation request, the agencies would consider: (1) the information 
provided to describe and support the request; (2) whether the activity 
is consistent with the safe and sound operation of the bank; and (3) 
any other information that the agencies deem relevant. The agencies 
further proposed in Sec.  __.14(d)(3) that the agencies may impose any 
conditions on that confirmation, in order to ensure consistency with 
the requirements of the CRA and the CRA regulations. The agencies 
solicited comment on the process for accepting submissions for 
confirming qualifying community development activities, and on 
establishing a timeline for review. The agencies also solicited comment 
on processes involving joint actions by the agencies, as well as 
alternative processes and actions, such as consultation among the 
agencies, that would be consistent with the purposes of the CRA.
Comments Received
    Commenters generally supported the agencies' proposal in Sec.  
__.14(c) and (d) to create an established process for banks to request 
confirmation that an activity is eligible for CRA consideration. 
Commenters noted that such a process could help banks focus their 
community development activities, increase clarity, reduce uncertainty, 
improve transparency, and offer a centralized resource for vetting 
projects. For example, a commenter noted that an illustrative list, 
coupled with a confirmation process, would give banks the tools to plan 
community development activities and still be innovative when 
warranted. Some commenters stated that the agencies should expand the 
scope of proposed Sec.  __.14(c) and (d)(1) to permit submissions by 
stakeholders other than banks, so as not to deter the development of 
qualified, responsive, and innovative activities. Another commenter 
suggested that financial institutions should be allowed to request 
confirmation of activities that may have been presented to them by 
other stakeholders.
    Commenters shared a variety of suggestions in response to the 
agencies' request for feedback on the process for accepting submissions 
for confirming qualifying community development activities. For 
example, a commenter emphasized the importance of a confirmation 
process that is published and public, while another recommended that 
the agencies adopt a clear process for frequency of updates, factors 
considered in adding new activities, and the process for alerting banks 
to any modifications. Another commenter recommended that there be a 
process for confirming eligibility of qualifying activities both in 
advance and after an activity is completed.
    Commenters further offered feedback on processes involving joint 
actions by the agencies. Several commenters offered ideas for the 
review process, including establishing a joint interagency review and 
determination process; involving stakeholders (e.g., through a 
stakeholder advisory board or through a joint agency and stakeholder 
committee); and/or an automated review and approval process. A few 
commenters suggested coordination with State agencies or consideration 
of State CRA frameworks in the confirmation process. Several other 
commenters underscored the need for consistency among regulators' 
approval or denial for similar opportunities. A commenter that 
encouraged interagency coordination also recommended that only a 
requestor's primary Federal regulator should make the determination, 
rather than the feedback being a joint undertaking of the three 
agencies.
    Commenters also addressed timelines for the review and confirmation 
process. Some commenters stated that the process would need to be 
timely to be helpful, including because competition and customer 
expectations require institutions to move quickly, and because slow 
feedback can hinder projects and investments. A few commenters 
cautioned that a preapproval process should not require major 
investments of time or effort.
    Commenters suggested different review timeline ranges. Many 
commenters recommended a maximum 30-day timeframe for answering 
preapproval requests, with some noting this timeframe would allow for 
dialogue between the agency and financial institution, as well as time 
for regulators to coordinate with one another for purposes of 
consistency. Another group of commenters suggested that a 60-day 
timeframe would be appropriate. Other suggested timelines generally 
ranged from 24 hours to six months, with a commenter suggesting that a 
lack of response from the agency within a standard time should be taken 
as an approval of the activity.
    Commenters also addressed technical aspects of the submission 
process, such as submission through an email system, portal, and/or 
template, with details regarding acknowledgment and response times. 
Some commenters offered ideas to increase transparency, including, for 
example, making requests and decisions public, and implementing 
technology such as an online request tracking system. Among other 
process-related topics, commenters encouraged training and expectation-
setting for agency staff to promote expertise and consistency, and 
suggested documentation of the structure and flow of the confirmation 
process.
Final Rule
    Consistent with the proposal, the final rule establishes a formal 
mechanism for banks to submit a request for confirmation that an 
activity is eligible for community development consideration. Proposed 
Sec.  __.14(c) and (d) are renumbered as Sec.  __.14(b)(1) through (3), 
reflecting reorganization of the proposed regulatory text to follow a 
more chronological order of the confirmation process. As described more 
specifically below, final Sec.  __.14(b)(1) describes how banks subject 
to the CRA regulations may request a confirmation of eligibility from 
the appropriate Federal financial supervisory agency. Final Sec.  
__.14(b)(2) describes the process for determining eligibility of an 
activity, which includes the types of information the appropriate 
Federal financial supervisory agency will consider and a statement that 
the appropriate Federal financial supervisory agency will work in close 
coordination with the other agencies to make eligibility 
determinations. Final Sec.  __.14(b)(2) also includes the proposal 
clarifying that the supervisory agency may impose limitations or 
requirements on a determination for consistency with the requirements 
of the CRA final rule. Final Sec.  __.14(b)(3) reflects proposed Sec.  
__.14(c), stating that the appropriate Federal financial supervisory 
agency will notify the requestor and other agencies of its 
determination.
    The agencies believe that establishing a confirmation process as 
set forth in final Sec.  __.14(b) will accomplish the desired goal of 
increased certainty and clarity for banks by allowing them to seek an 
upfront determination that a loan, investment, or service will be 
eligible for community development consideration (subject to 
limitations or

[[Page 6712]]

conditions set by agencies in the confirmation process, such as the 
legality of the activity). Together with the illustrative list process 
in Sec.  __.14(a), the agencies believe that the confirmation process 
in Sec.  __.14(b) will assist banks with planning and will facilitate 
banks' support of newer, less common, more complex, or innovative 
activities. The agencies further believe that the confirmation process 
will improve a bank's transparency into its supervisory agency's views 
on a particular request, and will help banks focus their community 
development resources and engagements. The agencies have considered 
comments on the confirmation submission and review process, including 
views on joint confirmation determinations, and have adopted a revised 
rule taking that feedback into account, as described in more detail 
below.
    The agencies note that the confirmation process anticipated by 
Sec.  __.14(b) is an optional tool designed to provide more upfront 
certainty to banks. However, the final rule does not prevent banks from 
seeking informal, nonbinding feedback from the appropriate Federal 
financial supervisory agency on particular activities, or prevent an 
examiner from affirming in the normal course of an examination that an 
activity does or does not qualify for community development 
consideration based upon review of all facts and circumstances.
    Section __.14(b)(1) Request for confirmation of eligibility. As 
noted, final Sec.  __.14(b)(1) provides that a bank subject to the CRA 
regulations may request that the appropriate Federal financial 
supervisory agency confirm that a loan, investment, or service is 
eligible for community development consideration by submitting a 
request to, and in a format prescribed by, that agency. To streamline 
the regulation and reduce redundancy, the final rule combines proposed 
Sec.  __.14(c) and (d) in final Sec.  __.14(b)(1) through (3). Final 
Sec.  __.14(b) does not include the reference in proposed Sec.  
__.14(c) to updating the illustrative list, as duplicative of final 
Sec.  __.14(a)(2). The agencies expect to consider whether to add 
confirmed eligible loans, investments, and services to the illustrative 
list as part of the periodic list update process.
    The agencies are declining to expand the confirmation process to 
permit stakeholders beyond banks subject to the CRA regulations to 
submit confirmation requests to the agencies, as suggested by some 
commenters. The agencies appreciate the strong interest that other 
stakeholders such as community groups may have in confirming whether 
particular activities qualify for CRA consideration; at the same time, 
they are not subject to CRA examinations. The agencies believe that 
limiting the confirmation submission process to banks will ensure that 
agency resources are most efficiently deployed to considering 
eligibility for activities with confirmed interest from the banks that 
would be seeking CRA consideration. Additionally, the agencies 
emphasize that public input, including community contacts, and other 
tools for stakeholder involvement remain a key part of the CRA 
examination process.\545\
---------------------------------------------------------------------------

    \545\ See, e.g., final Sec.  __.46, regarding public engagement, 
and the accompanying section-by-section analysis.
---------------------------------------------------------------------------

    Section __.14(b)(2) Determination of eligibility. Final Sec.  
__.14(b)(2) describes the eligibility determination process, which has 
been revised from proposed Sec.  __.14(d)(2). Final Sec.  
__.14(b)(2)(i) provides the criteria the agencies will use in 
determining the eligibility of a loan, investment, or service for a 
request submitted under Sec.  __.14(b)(1). Specifically, the 
appropriate Federal financial supervisory agency will consider 
information that describes and supports the bank's request (final Sec.  
__.14(b)(2)(i)(A)) and any other information that the agency deems 
relevant (final Sec.  __.14(b)(2)(i)(B)).
    Final Sec.  __.14(b)(2)(i) clarifies proposed Sec.  __.14(d)(2) by 
stating that the appropriate Federal financial supervisory agency will 
consider these factors ``[t]o determine the eligibility of a loan, 
investment, or service for which a request has been submitted under 
paragraph (b)(1)'' (as opposed to considering these factors ``[i]n 
response to a request for confirmation'' \546\). In final Sec.  
__.14(b)(2)(i)(A) and (B), the agencies are adopting provisions 
proposed regarding information that the appropriate Federal financial 
supervisory agency will consider in determining whether an activity is 
eligible for CRA consideration under the individualized confirmation 
process.\547\ Final Sec.  __.14(b)(2)(i) does not incorporate the 
proposed provision stating that the agencies will consider ``[w]hether 
the activity is consistent with the safe and sound operation of the 
bank.'' \548\ On further consideration, the agencies believe that 
information in relation to the safe and sound operation of the bank is 
covered under the language ``any other information that the [Agency] 
deems relevant'' in final Sec.  __.14(b)(2)(i)(B), so is unnecessary. 
However, the agencies do not intend to substantively change the final 
rule in this regard, and note that the CRA emphasizes meeting community 
credit needs ``consistent with the safe and sound operation of such 
institutions.'' \549\
---------------------------------------------------------------------------

    \546\ See proposed Sec.  __.14(d)(2).
    \547\ See proposed Sec.  __.14(d)(2)(i) and (iii).
    \548\ Proposed Sec.  __.14(d)(2)(ii).
    \549\ 12 U.S.C. 2901(b).
---------------------------------------------------------------------------

    Final Sec.  __.14(b)(2)(ii) states that the agencies expect and are 
presumed to jointly determine eligibility of a loan, investment, or 
service to promote consistency across the agencies. This provision 
further states that, before making a determination of eligibility, the 
appropriate Federal financial supervisory agency will consult with the 
other agencies regarding the eligibility of a loan, investment, or 
service. On further deliberation, the agencies determined that it was 
important to clarify the provisions regarding confirmation of 
eligibility to reflect each agency's authority to make decisions about 
its own supervised entities. At the same time, the final rule 
incorporates the agencies' obligation to consult with one another and 
work together in making eligibility determinations.
    Proposed Sec.  __.14(d)(3) is finalized as Sec.  __.14(b)(2)(iii), 
with technical edits and revisions to clarify that the appropriate 
Federal financial supervisory agency (rather than all three agencies) 
may impose limitations or requirements on a determination of the 
eligibility of a loan, investment, or service of its regulated bank, to 
ensure consistency with the CRA regulations.
    In considering the appropriate provisions for final Sec.  
__.14(b)(2), the agencies particularly noted commenters' views on the 
importance of an efficient, timely confirmation process, as well as 
commenters' interest in promoting consistency across the agencies 
concerning similar opportunities. The agencies also considered that 
confirmation requests may be highly varied by type, complexity, and 
scope. The final rule thus emphasizes the agencies' commitment to 
jointly consider and make decisions on confirmation requests in 
consultation with one another, while allowing the Federal financial 
supervisory agency to consider relevant factors and make a final 
determination based on its particular supervisory knowledge of the 
requesting bank and the agency's supervisory experience with the CRA. 
Based on that knowledge and experience, the agencies believe it 
appropriate to clarify that the appropriate Federal financial 
supervisory agency (as opposed to all

[[Page 6713]]

three agencies together, as proposed) may impose limitations or 
requirements on any determination. The agencies believe that the final 
rule thus appropriately balances commenters' interests in efficiency 
and consistency.
    The agencies note that any determination of eligibility under final 
Sec.  __.14(b) is not a determination of legal permissibility or 
compliance with applicable laws and regulations. A bank requesting a 
determination remains responsible for ensuring that the loan, 
investment, or service is legally permissible and complies with 
applicable laws and regulations.
    Section __.14(b)(3) Notification of eligibility. Final Sec.  
__.14(b)(3) states that the Federal financial supervisory agency will 
provide a written notification to the requestor and to the other 
agencies of any eligibility determination, as well as the rationale for 
such determination. The final rule expands on the proposal (proposed 
Sec.  __.14(c)) to clarify that a requestor can expect to receive the 
rationale for an agency's determination, and to ensure that the 
agencies remain collectively informed of the final dispensation of 
requests, which will help promote interagency consistency and support 
future confirmation request determinations. As each confirmation 
request is dependent on individual facts and circumstances, and could 
contain confidential information from the requesting bank, the agencies 
do not intend to make their confirmation decisions public. However, as 
noted above, the agencies will consider confirmation decisions when 
periodically updating the illustrative list contemplated by Sec.  
__.14(a).
    Additional process issues. The final rule does not adopt specific 
timelines or other more detailed points of process at this time. The 
agencies appreciate commenters' additional feedback in response to 
questions on the confirmation submission process and timelines, 
including regarding process development, stakeholder engagement, and 
technical suggestions. As with the illustrative list in Sec.  __.14(a), 
subsequent to this rulemaking, the agencies expect to jointly develop 
the confirmation process in connection with final Sec.  __.14(b). The 
agencies in particular recognize commenter feedback on timelines, and 
intend to implement a timely and efficient process. The agencies will 
take these comments under advisement as that process development moves 
forward.

Section __.15 Impact and Responsiveness Review of Community Development 
Loans, Community Development Investments, and Community Development 
Services

Current Approach
    Currently, the agencies' qualitative assessment of a bank's 
community development performance takes into account the responsiveness 
of the bank's activities to credit and community development needs and, 
if applicable, the innovativeness and complexity of the 
activities.\550\ As part of these considerations, examiners also 
consider the degree to which the activities serve as a catalyst for 
other community development activities.\551\
---------------------------------------------------------------------------

    \550\ See Q&A Sec.  __.21(a)-2.
    \551\ See id.
---------------------------------------------------------------------------

    The terms ``responsiveness'' and ``innovativeness'' are generally 
described in the Interagency Questions and Answers. Regarding 
``responsiveness,'' for example, the Interagency Questions and Answers 
explains that an examiner will consider both quantitative and 
qualitative aspects of a bank's community development activities.\552\ 
Thus, in addition to considering the volume and type of activities, 
examiners may consider some activities to be more responsive than 
others if an activity effectively meets identified credit and community 
development needs.\553\ ``Innovativeness'' takes into account, for 
example, whether a bank implements meaningful improvements to products, 
services, or delivery systems to respond to community needs.\554\ These 
qualitative aspects of the bank's community development activities can 
be assessed based on information provided by the bank and other sources 
about the performance context and information about credit and 
community development needs and opportunities.\555\
---------------------------------------------------------------------------

    \552\ See Q&A Sec.  __.21(a)--3.
    \553\ See id.
    \554\ See Q&A Sec.  __.21(a)--4. The Interagency Questions and 
Answers also indicate that ``innovativeness'' may include banks 
introducing existing products, services, or delivery systems to 
``low- or moderate-income customers or segments of consumers or 
markets not previously served.'' Id. This guidance further states, 
``Practices that cease to be innovative may still receive 
qualitative consideration for being flexible, complex, or 
responsive.'' Id.
    \555\ See id.
---------------------------------------------------------------------------

    While current guidance emphasizes the importance of a qualitative 
review of a bank's community development activities and recognizes that 
certain activities are more responsive than others, there are no clear 
standards for how these factors are identified or measured. As a 
result, the qualitative evaluation currently relies heavily on examiner 
judgment.
    As the agencies discussed in the proposal, some stakeholders have 
suggested that the current approach for the qualitative evaluation of 
community development activities could be more transparent and 
consistent, and stakeholders have expressed that the qualitative 
assessment could have a stronger focus on the impact and responsiveness 
of a bank's community development activities and, relatedly, that it 
could be more clearly linked to CRA's core purpose of serving low- and 
moderate-income individuals and communities.

Section __.15(a) Impact and Responsiveness Review, in General

The Agencies' Proposal
    Proposed Sec.  __.15(a) would incorporate into the regulation an 
impact review of community development activities under the Community 
Development Financing Test,\556\ the Community Development Services 
Test,\557\ and the Community Development Financing Test for Wholesale 
or Limited Purpose Banks.\558\ The impact review would qualitatively 
evaluate the impact and responsiveness of qualifying activities with 
respect to community credit needs and opportunities through the 
application of a series of review factors. Specifically, as proposed in 
Sec.  __.15(b) and discussed below, the evaluation of a community 
development activity's impact and responsiveness would include, but 
would not be limited to, a set of ten specific qualitative factors. In 
addition, proposed Sec.  __.15(a) stated that the agencies would 
consider, as applicable, performance context information set forth in 
proposed Sec.  __.21(e), which would include information demonstrating 
an activity's impact on and responsiveness to local community 
development needs, such as detailed information about a bank's 
activities, local data regarding community needs, and input from 
community stakeholders.\559\ The impact and responsiveness review would 
provide appropriate community development recognition for loans, 
investments, and services that are considered to be especially 
impactful and responsive to community needs, including loans and 
investments that

[[Page 6714]]

may be relatively small in dollar amount.
---------------------------------------------------------------------------

    \556\ Proposed Sec.  __.24.
    \557\ Proposed Sec.  __.25.
    \558\ Proposed Sec.  __.26.
    \559\ Proposed Sec.  __.21(e) is renumbered final Sec.  
__.21(d), discussed in detail in the accompanying section-by-section 
analysis below.
---------------------------------------------------------------------------

Comments Received
    Commenters on the proposed community development impact review 
generally supported adding an impact review as proposed in Sec.  
__.15(a). As discussed in more detail below, commenters also generally 
favored adopting the proposed impact review factors in proposed Sec.  
__.15(b), while expressing a range of views regarding how particular 
proposed impact factors should be implemented. Numerous commenters also 
recommended that the agencies adopt a variety of additional impact 
factors.
    Scope of impact factor review. Several commenters urged the 
agencies to expand the scope of the impact factor review to include 
activities under the proposed Retail Lending Test and Retail Services 
and Product Test. These comments are discussed in the section-by-
section analysis of final Sec. Sec.  __.22 and __.23.
    Clarifications and impact factor review process.\560\ Some 
commenters recommended that the agencies provide further clarity and 
processes concerning how the agencies would review, weigh, and apply 
impact factors in examinations and ratings determinations. A number of 
commenters highlighted the need for a clear and transparent impact 
factor review process, with commenters offering a range of suggestions, 
including recommending additional public engagement, such as a public 
comment process. Some commenters expressed concern about what they 
viewed as a lack of specificity, regulatory uncertainty, and the risk 
of examination inconsistency in the proposed impact factor review 
process, while others emphasized the need for examiner training to 
promote rigorous analysis, development of requisite expertise, and 
consistency. A number of commenters also offered views on whether the 
agencies also should permit activities with harmful features to be 
evaluated negatively. Other commenters suggested that the impact review 
also consider the impact of a bank's historical discriminatory 
practices. A few commenters recommended that the agencies clarify that 
institutions would not be penalized if they do not conduct a sufficient 
number of activities associated with an enumerated impact factor.
---------------------------------------------------------------------------

    \560\ See the section-by-section analysis of Sec.  __.24 for 
further discussion of the commenters' requested clarifications to 
the impact and responsiveness review component in the final rule, 
other than those noted herein.
---------------------------------------------------------------------------

    Some commenters suggested that the agencies consider a 
quantitative, metrics-based approach to an impact review in addition to 
a qualitative review. Various commenters suggested that impact factor 
reviews include points, weighting, and ratings, such as score weighting 
for the most impactful investments, and a few commenters provided 
examples of potential metrics for consideration. A few commenters, in 
suggesting an analytical framework for evaluating the impact factors in 
proposed Sec.  __.15(b)(1) and (2) relating to persistent poverty areas 
and areas with low levels of community development financing (discussed 
below), noted that it would take several years before the agencies 
would have sufficient data to incorporate impact factors as a 
quantitative element of the examination process. Separately, another 
commenter cautioned that a quantitative approach could lead to 
unrealistic activity targets in some instances.
Final Rule
    The final rule adopts proposed Sec.  __.15(a) with clarifying and 
technical revisions. The final rule states that, under the Community 
Development Financing Test in Sec.  __.24, the Community Development 
Services Test in Sec.  __.25, and the Community Development Financing 
Test for Limited Purpose Banks in Sec.  __.26, the relevant agency 
evaluates the extent to which a bank's community development loans, 
investments, and services are impactful and responsive in meeting 
community development needs in each facility-based assessment area and, 
as applicable, each State, multistate MSA, and the nationwide area. The 
final rule renames the review as the ``impact and responsiveness 
review'' to clarify the agencies' intent that impact should be 
considered in conjunction with how responsive an activity is to 
community needs. As discussed below, the final rule is further revised 
from the proposal to clarify the agencies' intent for the impact and 
responsiveness review and associated factors. Additionally, the final 
rule makes technical edits to: (1) remove the reference to ``Wholesale 
Banks'' to conform with revisions made elsewhere in the regulation; (2) 
replace ``activities'' with ``loans, investments, and services,'' 
consistent with revisions made elsewhere in the regulation (with 
parallel edits made in Sec.  __.15(b)); and (3) update the performance 
context cross-reference to Sec.  __.21(d).
    As discussed in more detail in the section-by-section analysis of 
Sec.  __.24, the approach of identifying specific impact and 
responsiveness review factors as part of the qualitative evaluation is 
intended to promote clear and consistent criteria. As a result, the 
agencies believe that providing the impact and responsiveness review 
factors in final Sec.  __.15(b) will result in a more standardized 
qualitative evaluation relative to current practices, in combination 
with the standardized Community Development Financing Metrics and 
benchmarks adopted in the final rule. In addition, this approach is 
intended to foster transparency by providing the categories the 
agencies will consistently review in considering the impact and 
responsiveness of a bank's community development loans, investments, 
and services. The agencies believe that this approach will advance the 
purpose of the CRA by ensuring a strong emphasis on the impact and 
responsiveness of community development loans, investments, and 
services in meeting community needs, including loans and investments 
that may be relatively small in dollar amount.
    Consistent with the proposal, the final rule also states that the 
relevant agency evaluates the impact and responsiveness of a bank's 
community development loans, investments, or services based on Sec.  
__.15(b), discussed in detail below, and may also take into account 
performance context information pursuant to Sec.  __.21(d).\561\ The 
agencies recognize that assessing the impact and responsiveness of a 
bank's community development loans, investments, and services may 
necessitate considering activities and factors outside of Sec.  
__.15(b), and the agencies have provided for this through the reference 
to Sec.  __.21(d). Accordingly, the final rule's approach of 
considering the standardized categories in Sec.  __.15(b) in 
conjunction with the ability to consider broader performance context 
information pursuant to Sec.  __.21(d) is intended to help ensure 
recognition of activities with a high degree of impact on and 
responsiveness to the needs of low- or moderate-income communities. 
Consistent with the proposal, the final list of impact and 
responsiveness factors in Sec.  __.15(b) is non-exhaustive, which will 
also allow examiners to consider other highly impactful or responsive 
loans, investments, or services that support

[[Page 6715]]

community development under Sec.  __.13.
---------------------------------------------------------------------------

    \561\ For further discussion of final Sec.  __.21, see the 
corresponding section-by-section analysis below.
---------------------------------------------------------------------------

    The agencies have considered comments requesting additional detail 
on the impact review process, various specific suggestions for the 
process, and how the impact review might enhance or lower the bank's 
performance conclusion. The final rule clarifies the agencies' intent 
that, for purposes of the community development tests in Sec. Sec.  
__.24 through __.26, the relevant agency will evaluate the extent to 
which a bank's community development loans, investments, and services 
are impactful and responsive in meeting community development needs. As 
part of this evaluation, the agencies may consider the volume and type 
of activities undertaken by a bank, applying the factors in Sec.  
__.15(b) and performance context considerations. However, the agencies 
also recognize that some community development activities that are 
considered especially impactful and responsive to community needs may 
be comparatively smaller in dollar amount. As such, the agencies may 
consider more than the dollar volume or percentage of activities 
meeting an impact and responsiveness factor category in Sec.  __.15(b) 
when assessing the extent to which a bank's community development 
activities are impactful and responsive. The agencies will provide a 
summary of a bank's impact and responsiveness review data, such as the 
volume of activities by impact and responsiveness review category, and 
incorporate the impact and responsiveness review into the performance 
conclusions and the written performance evaluation.
    The agencies view the impact and responsiveness review as one 
component of a comprehensive evaluation in the community development 
tests under Sec. Sec.  __.24 through __.26. Under the final rule, 
metrics, benchmarks, and impact and responsiveness reviews are 
considered, as applicable, holistically in arriving at a performance 
conclusion for each of these community development-focused tests. As a 
result, the impact and responsiveness evaluation is not designed to 
raise or lower a conclusion that is based solely on other components of 
the performance tests under Sec. Sec.  __.24 through __.26, such as the 
bank's Community Development Financing Metric under Sec.  __.24. 
Rather, pursuant to the final rule, the impact and responsiveness 
evaluation is one of several components of the applicable tests, and 
all of these components are considered together to result in any of the 
five conclusion categories.
    The agencies have considered, but decline to adopt, an approach 
that would assign a separate impact score. The agencies believe that 
developing a consistent and consistently applied method of scoring the 
impact and responsiveness of a bank's community development activities 
factors could be particularly challenging without additional data, as 
also noted below, and given that the list of factors in Sec.  __.15(b) 
is non-exhaustive. When considering a bank's performance under the 
Community Development Financing Test in Sec.  __.24, the final rule 
specifies that the agency must consider the applicable Community 
Development Financing Metric, benchmark(s), and impact and 
responsiveness review. As a result, the impact and responsiveness 
review is directly incorporated into a Community Development Financing 
Test conclusion, which reflects the agencies' view that it is important 
to consider both quantitative data points and more qualitative 
considerations in assessing a bank's community development performance. 
See the section-by-section analysis of Sec.  __.24 for additional 
discussion regarding the overall qualitative nature of the Community 
Development Financing Test evaluation.
    The agencies also considered commenter suggestions to implement a 
quantitative, metrics-based approach to conducting an impact review. 
The agencies are not in this final rule adding any specific impact and 
responsiveness metrics, thresholds, or multipliers for community 
development financing or services activity due to a lack of relevant 
community development data. The agencies will continue to consider what 
additional guidance may be provided in the future regarding the impact 
and responsiveness review, and will take these comments under 
advisement.
    The agencies have considered, but are not adopting, a commenter 
recommendation to include in the impact and responsiveness review an 
assessment of a bank's historical discriminatory practices on the 
communities that it serves. In making this determination, the agencies 
considered that, under the final rule, as currently, evidence of 
discrimination and other illegal credit practices can be the basis of a 
rating downgrade.\562\
---------------------------------------------------------------------------

    \562\ See current Sec.  __.28(c), proposed Sec.  __.28(d), and 
final Sec.  __.28(d), discussed in the section-by-section analysis 
of final Sec.  __.28(d) below.
---------------------------------------------------------------------------

    Regarding comments recommending that the impact and responsiveness 
review be expanded to the proposed Retail Lending Test and Retail 
Services and Products Test, the agencies are not revising the final 
rule in that regard. As is discussed in the section-by-section analyses 
of Sec. Sec.  __.22 and __.23, the Retail Lending Test and the Retail 
Services and Products Test, taken together, have other mechanisms in 
place to evaluate qualitative aspects of responsive products and 
programs and incorporate factors appropriate for those evaluations.

Section __.15(b) Impact and Responsiveness Review Factors

Section __.15(b)(1) Benefits or Serves One or More Persistent Poverty 
Counties
Section __.15(b)(2) Benefits or Serves One or More Census Tracts With a 
Poverty Rate of 40 Percent or Higher
Section __.15(b)(3) Benefits or Serves One or More Geographic Areas 
With Low Levels of Community Development Financing
The Agencies' Proposal
    In Sec.  __.15(b)(1) and (2), the agencies proposed impact factors 
for activities serving specific geographic areas with significant 
community development needs: ``persistent poverty counties,'' (proposed 
Sec.  __.15(b)(1)); and ``areas with low levels of community 
development financing'' (proposed Sec.  __.15(b)(2)). The agencies 
considered that serving these geographic areas would reflect a high 
level of responsiveness because the activities could increase economic 
opportunity in areas with high needs and such activities may involve a 
high degree of complexity and more intensive engagement on the part of 
the bank.
    Under proposed Sec.  __.15(b)(1), whether an activity serves 
``persistent poverty counties'' would be an impact factor. The agencies 
proposed to define persistent poverty counties as counties or county-
equivalents with a poverty rate of at least 20 percent for the past 30 
years as measured by the most recent decennial censuses.\563\ Under 
proposed Sec.  __.15(b)(2), whether an activity serves ``areas with low 
levels of community development financing'' would be an impact factor. 
By incorporating local CRA community development financing data into 
the designation, this approach would highlight areas where CRA capital 
is most limited. Because comprehensive

[[Page 6716]]

CRA community development financing data is not currently available at 
local levels, the proposal noted that the agencies would first collect 
and analyze data under a revised CRA regulation and would then 
determine the appropriate approach for identifying areas with low 
levels of qualified community development activities. The agencies also 
sought feedback on whether to include activities in census tracts with 
a current poverty rate of at least 40 percent (as referenced in the 
proposal, a ``high poverty census tract'') as an impact factor. As 
noted in the proposal, the agencies considered that this approach would 
draw attention to economically distressed geographic areas that are 
smaller than an entire county and not located in a persistent poverty 
county, such as high poverty neighborhoods in densely populated urban 
areas. The agencies noted that a census tract approach would offer the 
advantage of emphasizing activities that specifically serve 
communities, including individual neighborhoods, with significant 
community development needs, and where barriers to credit access and 
opportunity are often the greatest.
---------------------------------------------------------------------------

    \563\ The Congressional Research Service identifies 407 counties 
that meet the criteria for persistent poverty county using poverty 
rate estimates from the 1990 Census, the 2000 Census, and the 2019 
Small Area Income and Poverty Estimates. See Congressional Research 
Service, ``The 10-20-30 Provision: Defining Persistent Poverty 
Counties'' (Apr. 2022), https://sgp.fas.org/crs/misc/R45100.pdf.
---------------------------------------------------------------------------

    The agencies sought feedback on whether the proposed impact review 
factors for activities serving geographic areas with high community 
development needs should include persistent poverty counties, high 
poverty census tracts, areas with low levels of community development 
financing, or some combination thereof. The agencies also sought 
feedback on what considerations should be taken in defining these 
categories and in updating a list of geographic areas for these 
categories. The agencies indicated in the proposal that expressly 
highlighting both persistent poverty counties and high poverty census 
tracts may be appropriate to capture a balance of high needs areas in 
both metropolitan and nonmetropolitan areas.
Comments Received
    Commenters on this aspect of the proposal generally supported 
proposed Sec.  __.15(b)(1) and (2), and offered views on whether to 
include high poverty census tracts as an impact factor. Several 
commenters argued that all three areas have significant needs and would 
benefit from community development activities. Other commenters 
emphasized the importance of including both persistent poverty counties 
and high poverty census tracts, asserting that persistent poverty 
counties are largely rural, and that focusing only on such counties 
would neglect many urban and suburban neighborhoods. Another commenter 
stated that the inclusion of an impact factor for both persistent 
poverty counties and high poverty census tracts might help address 
racial and ethnic inequities. One commenter raised concerns that a high 
poverty census tract approach focused on a 40 percent poverty rate 
might not encourage activities in less dense rural areas where poverty 
is diluted in census tracts.
    Some commenters recommended alternative geographic impact factors 
to those proposed. For example, commenters suggested that income-based 
measures for delineating geographic areas for impact factors might be a 
more equitable and consistent approach than poverty-based measures. 
These commenters explained that focusing on ``low-income'' geographic 
areas would result in investment opportunities that are more equally 
spread out across the nation because income levels are set relative to 
the area median income of each geographic area, whereas poverty levels 
are based on a nationwide standard. Thus, these commenters asserted 
that areas with lower area median incomes would have greater shares of 
high-poverty census tracts than areas with higher area median incomes, 
and investments in high-cost areas (that nonetheless might have high 
community development needs) would not be incentivized. In this regard, 
commenters recommended that the agencies recognize activities serving 
low-income census tracts, which the commenters stated are more 
challenging to serve than moderate-income census tracts.
    Other commenters proposed that the agencies expand on or add to the 
geographic areas included under proposed Sec.  __.15(b)(1) and (2), or 
select alternative definitions. Commenters recommended, for example, 
that the agencies include or give more emphasis to activities in 
particular communities, regardless of assessment area, such as 
activities in majority-minority geographic areas, or activities in the 
following areas with persistent poverty: Native communities, the 
Mississippi Delta, Central Appalachia, and the Texas/Mexico Border. 
Several other commenters recommended that ``rural'' communities be a 
separate impact category, and emphasized that ``rural'' is not 
synonymous with ``nonmetropolitan areas.'' These commenters noted that 
some experts are turning to alternative density-based measures like 
population per square mile to better identify communities.
    Commenters also provided other suggestions related to proposed 
Sec.  __.15(b)(1) and (2). Comments included, for instance, that: 
counties in all U.S. territories, such as Puerto Rico and the U.S. 
Virgin Islands, be included on a list of persistent poverty counties; 
high poverty census tracts, areas of low community development 
financing, and persistent poverty counties should all be evaluated 
separately so that projects that meet multiple criteria receive more 
credit; and the agencies should consider giving additional 
consideration for grants and donations to CDCs in persistent poverty 
counties.
    Lastly, commenter feedback regarding the inclusion of areas with 
low levels of community development financing in proposed Sec.  
__.15(b)(2) included, for example: opposing or expressing concern, in 
part because these low levels may be related to extenuating factors; 
suggesting that a demonstration of responsiveness to unmet needs should 
also be required; and encouraging the agencies to provide additional 
credit for community development activities in especially vulnerable 
census tracts, such as those that are low income, highly segregated, 
have distressed housing stock, or have significantly lower levels of 
community development financing than other areas within designated 
areas of need.
Final Rule
    For the reasons discussed below, the agencies are adopting in the 
final rule:
     Proposed Sec.  __.15(b)(1), with revisions discussed 
below, providing as an impact and responsiveness factor whether a 
bank's qualifying community development loan, investment, or service 
benefits or serves one or more persistent poverty counties. The 
definition of persistent poverty counties has been revised and 
relocated to the definitions section Sec.  __.12, as discussed below; 
\564\
---------------------------------------------------------------------------

    \564\ See Sec.  __.12 (``persistent poverty county'') and the 
corresponding section-by-section analysis.
---------------------------------------------------------------------------

     A new impact and responsiveness factor in Sec.  
__.15(b)(2) for whether a loan, investment, or service benefits or 
serves one or more census tracts with a poverty rate of 40 percent or 
higher; and
     Proposed Sec.  __.15(b)(2) substantially as proposed, 
renumbered as final Sec.  __.15(b)(3), providing as an impact and 
responsiveness factor whether a loan, investment, or service benefits 
or serves one or more geographic areas with low levels of community 
development financing.
    The final rule makes technical revisions from ``serves'' to 
``benefits or serves'' in each of final Sec.  __.15(b)(1)

[[Page 6717]]

through (3) for consistency with the language used in the community 
development categories under Sec.  __.13. Each of these factors is 
discussed in more detail below.
    The agencies believe that these factors capture three distinct, 
though interrelated, aspects of unmet community development needs. The 
impact and responsiveness factors in final Sec.  __.15(b)(1) and (2) in 
the final rule cover different dimensions of poverty, as discussed in 
more detail in each section below. Persistent poverty counties, as 
covered under Sec.  __.15(b)(1), represent more dispersed, often 
nonmetropolitan areas where a substantial share of residents have 
experienced poverty over many years. Census tracts with a poverty rate 
of 40 percent or higher, as covered under Sec.  __.15(b)(2), are 
disproportionately located in metropolitan areas. These census tracts 
also represent areas with highly concentrated poverty within a more 
recent timeframe that might not otherwise be captured by the persistent 
poverty county definition. The agencies believe that expressly adopting 
impact and responsiveness factors regarding both persistent poverty 
counties and census tracts with a poverty rate of 40 percent or higher 
appropriately captures a balance of high need areas in both 
metropolitan and nonmetropolitan areas, as well as a balance of more 
long-standing and more recent, higher levels of economic hardship.
    Additionally, the impact and responsiveness factor in final Sec.  
__.15(b)(3) highlights areas where there is a low level of community 
development financing, which could be found in both metropolitan and 
nonmetropolitan areas. Collectively, the agencies believe the final 
impact and responsiveness factors in Sec.  __.15(b)(1) through (3) will 
recognize loans, investments, and services in communities with 
significant community development needs. The agencies have considered 
comments, but for the reasons discussed below, are not adopting 
additional or alternative geographic designations, such as an impact 
and responsiveness factor based on area median income.
    Benefits or serves one or more persistent poverty counties (Sec.  
__.15(b)(1)). With respect to persistent poverty counties under final 
Sec.  __.15(b)(1), final Sec.  __.12 defines the term as meaning a 
county that has had poverty rates of 20 percent or more for 30 years, 
as publicly designated by the Board, FDIC, and OCC, compiled in a list, 
and published annually by the FFIEC. Under the final rule, the agencies 
are adopting a standard for measuring persistent poverty counties that 
is consistent with common practice at other Federal agencies,\565\ and 
that is designed to provide for statistical reliability while also 
allowing for regular data updates as conditions change. The final rule 
has been revised from the proposal (referencing the decennial census) 
to provide the agencies additional flexibility to adapt to changing or 
new data sources, including the ability to recognize how data on 
poverty rates may change over time, without having to modify the 
regulation. Doing so will also allow the agencies to adapt to a more 
standardized Federal agency definition of persistent poverty county 
over time, as recommended by the Government Accountability Office.\566\ 
The agencies intend to base an initial standard on data from the U.S. 
Census Bureau's American Community Survey and decennial censuses. In 
addition, the agencies expect to use equivalent statistical products to 
measure persistent poverty in areas not covered by both the American 
Community Survey and decennial census, such as Puerto Rico, the U.S. 
Virgin Islands, Guam, the Marshall Islands, and American Samoa, which 
should address the commenter recommendation to include U.S. territories 
in the definition.
---------------------------------------------------------------------------

    \565\ See, e.g., USDA Economic Research Service, ``Poverty Area 
Measures'' (Aug. 8, 2023), https://www.ers.usda.gov/data-products/poverty-area-measures/.
    \566\ GAO, ``Areas with High Poverty: Changing How the 10-20-30 
Funding Formula Is Applied Could Increase Impact in Persistent 
Poverty Counties'' (May 2021), https://www.gao.gov/assets/gao-21-470.pdf.
---------------------------------------------------------------------------

    Currently, the agencies estimate that 5.6 percent of the U.S. 
population lives in persistent poverty counties.\567\ Persistent 
poverty counties are disproportionately nonmetropolitan, with an 
estimated 13.6 percent of the population of nonmetropolitan areas 
living in persistent poverty counties.\568\ Mapping of persistent 
poverty counties shows that many are in the Mississippi Delta, 
Appalachia, ``colonias'' in the Rio Grande River valley, and American 
Indian and Alaska Native Areas as designated by the U.S. Census 
Bureau.\569\ As noted in the proposal, Congress has directed other 
agencies, including the U.S. Department of the Treasury's Community 
Development Financial Institutions Fund, the USDA, the U.S. Economic 
Development Administration, and the U.S. Environmental Protection 
Agency, to allocate funding to persistent poverty counties.
---------------------------------------------------------------------------

    \567\ Statistics used to characterize persistent poverty 
counties and census tracts with a poverty rate of 40 percent or 
higher are based on data in the 2015-2019 American Community Survey 
and classifications of persistent poverty counties from Poverty Area 
Measures published by the USDA Economic Research Service in November 
2022.
    \568\ See id.
    \569\ Id.; T. M. Tonmoy Islam, Jenny Minier, and James P. 
Ziliak, ``On Persistent Poverty in a Rich Country,'' 81 S. Econ. J. 
653-78 (2015).
---------------------------------------------------------------------------

    The agencies continue to believe that the impact and responsiveness 
factor for persistent poverty counties as adopted will recognize and 
encourage loans, investments, and services in areas that have 
experienced high levels of economic hardship over many years, and where 
community development needs can be significant. Additionally, the 
agencies believe that designating geographic areas at the county level 
offers a high degree of clarity and simplicity regarding which 
qualifying activities would meet the criterion.
    Benefits or serves one or more census tracts with a poverty rate of 
40 percent or higher (Sec.  __.15(b)(2)). For the reasons noted above 
and upon consideration of comments received, the agencies are adopting 
as an additional impact and responsiveness factor in final Sec.  
__.15(b)(2) to consider whether a loan, investment, or service benefits 
or serves one or more census tract with a poverty rate of 40 percent or 
higher. This impact and responsiveness factor is intended to complement 
the impact and responsiveness factor regarding persistent poverty 
counties. The agencies believe that expressly including census tracts 
with a poverty rate of 40 percent or higher captures high need areas 
with particularly high levels of spatially concentrated poverty. Census 
tracts covered by this factor might not be captured by the persistent 
poverty definition for various reasons. For example, these census 
tracts might have experienced high levels of poverty only in more 
recent years rather than over the past 30 years; or these census tracts 
might experience high poverty levels but are located in a county that 
is not a persistent poverty county, such as a high poverty neighborhood 
in a densely populated urban area. Census tracts with a poverty rate of 
40 percent or higher are severely disadvantaged to a degree that is 
reflected in several outcomes, even when compared with persistent 
poverty counties. The agencies estimate that employment rates are 
lower, a higher share of housing units are vacant, and median household 
incomes are lower than they are in persistent poverty counties, on 
average.\570\ The agencies further believe

[[Page 6718]]

40 percent is an appropriate benchmark for the impact and 
responsiveness factor, as it is double the 20 percent threshold used in 
the persistent poverty definition in Sec.  __.15(b)(1),\571\ is 
consistent with readily available statistical measures,\572\ and has 
been used in research on the effects of concentrated poverty.
---------------------------------------------------------------------------

    \570\ Statistics on employment rates, housing vacancies, and 
median household incomes are from the 2015-2019 American Community 
Survey and are reported as weighted averages across tracts. 
Statistics used to characterize persistent poverty counties and 
census tracts with a poverty rate of 40 percent or higher are based 
on data in the 2015-2019 American Community Survey and 
classifications of persistent poverty counties from Poverty Area 
Measures published by the USDA Economic Research Service in November 
2022.
    \571\ USDA Economic Research Service, ``Poverty Area Measures'' 
(Aug. 8, 2023), https://www.ers.usda.gov/data-products/poverty-area-measures/.
    \572\ See, e.g., HUD Office of Policy Development and Research, 
``Moving to Opportunity for Fair Housing Demonstration Program: 
Interim Impacts Evaluation'' (Sept. 2003), https://www.huduser.gov/portal//Publications/pdf/MTOFullReport.pdf.
---------------------------------------------------------------------------

    Adopting an impact and responsiveness factor for census tracts with 
more than 40 percent poverty is intended in part to help address 
commenter concerns that persistent poverty counties are 
disproportionately nonmetropolitan. Relative to persistent poverty 
counties, which as noted above are disproportionately nonmetropolitan, 
agency staff estimate that census tracts with a poverty rate of 40 
percent or higher are disproportionately metropolitan; 3.1 percent of 
the population of metropolitan areas lives in one of these extreme 
poverty census tracts, compared with 2.4 percent of the population of 
nonmetropolitan areas.\573\ Overall, 3.0 percent of the population 
lives in census tracts with a poverty rate of 40 percent or 
higher.\574\
---------------------------------------------------------------------------

    \573\ See id.
    \574\ See id.
---------------------------------------------------------------------------

    The agencies acknowledge that there is some overlap between 
persistent poverty counties and census tracts with a poverty rate of 40 
percent or higher. Accounting for this overlap, 7.8 percent of the U.S. 
population lives in either a persistent poverty county or a census 
tract with a poverty rate of 40 percent or higher.\575\ Thus, the 
agencies believe that adopting both of these impact and responsiveness 
review factors will more comprehensively recognize activities in areas 
of economic distress where loans, investments, or services will be 
particularly impactful or responsive.
---------------------------------------------------------------------------

    \575\ Id.
---------------------------------------------------------------------------

    Benefits or serves one or more geographic areas with low levels of 
community development financing (Sec.  __.15(b)(3)). Finally, to 
highlight areas where CRA community development capital is more 
limited, the agencies are adopting the proposed impact and 
responsiveness factor for areas with low levels of community 
development financing, renumbered from the proposal as Sec.  
__.15(b)(3). As discussed in the proposal, because comprehensive CRA 
community development financing data is not currently available at 
local levels, the agencies expect first to analyze data collected 
pursuant to the final rule, and will then determine the appropriate 
approach for identifying areas with low levels of community development 
loans, investments, and services, and making that information 
available. The agencies acknowledge commenter views that extenuating 
circumstances may contribute to low levels of community development 
financing, such as limited opportunities or few organizations actively 
engaged in community development. Additionally, some areas could be 
areas with few needs. However, the agencies believe it is important to 
highlight these geographic areas as areas where there may be 
opportunities to try to develop the community development ecosystem 
needed to effectively deploy community development financing resources 
when appropriate.
    Additional commenter suggestions on geographic designations. The 
agencies have considered comments suggesting additional or alternative 
geographic designations, but are not adopting alternative or expanded 
definitions such as those based on incomes relative to area median 
income, or adopting alternative impact and responsiveness factors such 
as a separate factor for rural communities. The agencies believe that 
the impact and responsiveness factors adopted in Sec.  __.15(b)(1) 
through (3) appropriately capture high needs areas taking into account 
both areas with either high and persistent or exceptionally high levels 
of poverty and areas with low levels of community development financing 
activity.
    The agencies believe that using poverty rates appropriately 
captures areas where incomes are low, since poverty is itself defined 
based on household incomes. As census tracts with a poverty rate of 40 
percent or higher contain a substantial share of households earning low 
incomes, the agencies believe that adopting this impact and 
responsiveness factor is responsive to comments emphasizing that it is 
more challenging to serve areas where incomes are generally low. 
Furthermore, area median incomes may be depressed across broad areas 
with high levels of need.
    On balance, the agencies believe that poverty measures are a useful 
and appropriate measure, as shown by their widespread use. At the same 
time, the agencies acknowledge commenter concerns about high needs 
areas in higher income areas. The agencies believe that the inclusion 
of an impact and responsiveness factor for areas with low levels of 
community development financing activity also should mitigate commenter 
concerns about a lack of incentives in high cost areas, because this 
impact and responsiveness factor is not tied to determinations of 
income or poverty levels,\576\ and a low level of community development 
financing could be a reflection of its high cost in a particular area. 
As relevant data will inform the identification of these areas, the 
agencies believe that a separate demonstration that activities in these 
areas meet unmet needs should not be necessary.
---------------------------------------------------------------------------

    \576\ Bank loans, investments, and services subject to the 
impact and responsiveness review would need, prima facie, to support 
community development under final Sec.  __.13, incorporating 
relevant criteria for the applicable community development category. 
See final Sec.  __.13 and the corresponding section-by-section 
analysis.
---------------------------------------------------------------------------

    With respect to rural areas, the agencies believe that the approach 
adopted in the final rule multiple impact and responsiveness factors 
addressing community development needs on a geographic and demographic 
basis recognizes activities benefiting many rural areas. As discussed 
above and below, these include factors focusing on areas where there is 
a demonstrated high level of need, such as persistent poverty counties. 
The agencies recognize that there are many ways to define ``rural,'' 
and are sensitive to the diversity of experiences in rural areas. 
However, the agencies do not believe that an impact and responsiveness 
factor for activities in all rural areas would be appropriate, since a 
designation as rural is not necessarily synonymous with having a high 
level of need.
    The agencies have determined not to adopt an impact factor for 
activities in majority-minority census tracts as suggested by 
commenters. For more information and discussion regarding the agencies' 
consideration of comments recommending adoption of additional race- and 
ethnicity-related provisions in this final rule, see section III.C of 
this SUPPLEMENTARY INFORMATION.
    Additionally, to the extent that community development loans, 
investments, and services in a particular geographic area do not fall 
under one of the adopted geographic-based impact and responsiveness 
factors, the agencies note that those activities could potentially be 
considered under other

[[Page 6719]]

impact and responsiveness factors, such as those serving low-income 
individuals, families, or households (Sec.  __.15(b)(5)) or supporting 
small businesses or small farms (Sec.  __.15(b)(6)). Finally, as noted 
above, the list of impact and responsiveness factors is non-exhaustive. 
To the extent that an activity in a particular geographic area is not 
directly covered by one of the adopted impact and responsiveness 
factors, yet is still highly impactful or responsive, it could still be 
considered as such under Sec.  __.15.
Section __.15(b)(4) Supports an MDI, WDI, LICU, or CDFI, Excluding 
Certificates of Deposit With a Term of Less Than One Year
The Agencies' Proposal
    In Sec.  __.15(b)(3), the agencies proposed an impact factor for 
bank activities that support MDIs, WDIs, LICUs, and U.S. Treasury 
Department-certified CDFIs.\577\ The agencies highlighted in the 
proposal these organizations' missions of meeting the credit needs of 
low- and moderate-income and other underserved individuals, 
communities, and small businesses; the community development needs and 
communities served by these organizations; as well as the statute's 
express emphasis on cooperation with MDIs, WDIs, and LICUs.
---------------------------------------------------------------------------

    \577\ See U.S. Dept. of Treasury, Community Development 
Financial Institutions Fund, ``CDFI Certification,'' https://www.cdfifund.gov/programs-training/certification/cdfi.
---------------------------------------------------------------------------

    The agencies solicited comment on whether proposed Sec.  
__.15(b)(3) should exclude placements of short-term deposits or other 
activities. The agencies also solicited feedback on whether criteria 
for review under this proposed impact factor should specifically 
emphasize equity investments, long-term debt financing, donations, and 
services, and whether other activities should be emphasized.
Comments Received
    Commenters generally supported the proposed impact factor for 
activities supporting MDIs, WDIs, LICUs, and CDFIs. A number of 
commenters emphasized their support for including CDFIs, highlighting 
the critical role that these institutions play in meeting the unique 
credit and capital needs of underserved communities, and emphasizing 
the need for CDFIs to raise capital for community development projects. 
A few commenters stated that the rule should incentivize investments 
into CDFIs that are minority lending institutions.
    Additional entities in scope. Some commenters suggested that 
additional entities be included in the proposed impact factor, given 
the communities and needs served by some other entities. Commenter 
suggestions included, for example, extending eligibility in this impact 
factor for activities supporting or in partnership with nonprofit 
organizations holding a NeighborWorks charter, land banks and land 
banking activities, minority credit unions, community development 
credit unions, cooperatives with a focus on revenue share or dividend-
based equity investments, SBICs, and RBICs.
    Activities in scope. Commenters offered varying views on whether 
proposed Sec.  __.15(b)(3) should exclude placements of short-term 
deposits or other activities. Several commenters supported including 
short-term deposits, asserting, for example, that short-term deposits 
can offer important and needed liquidity to lend, maintain asset size, 
and represent a commitment of capital to under-resourced institutions 
that can have a positive community benefit. In contrast, other 
commenters asserted that short-term deposits should not be considered 
in the impact factor, in part because underwriting community 
development activities often requires long-term and patient debt 
capital, and projects can take several years to become economically 
viable. Further, these commenters asserted that short-term deposits do 
not add as much value to communities compared to equity and equity-like 
investments. Many commenters stated that all types of investments 
should be considered as part of the proposed impact factor, although 
some of these commenters suggested that long-term investments, 
including long-term deposits, should receive greater impact 
consideration.
    A number of commenters supported an emphasis on equity investments, 
and long-term debt financing, donations, and services as particularly 
responsive, noting the greater impact of these forms of support on low- 
and moderate-income individuals and communities. Some commenters also 
suggested that particular activities within the proposed impact factor 
should receive more emphasis to recognize their impact and value, such 
as investments in smaller MDIs, WDIs, LICUs, and CDFIs, equity 
investments in MDIs and equity investments in LICUs serving low-income 
minority communities or communities with significant unmet community 
development needs.
Final Rule
    The final rule adopts proposed Sec.  __.15(b)(3), renumbered as 
Sec.  __.15(b)(4), as an impact and responsiveness factor considering 
whether loans, investments, and services support an MDI, WDI, LICU, or 
CDFI, but revised from the proposal to exclude certificates of deposit 
with a term of less than one year. The final rule also makes a 
conforming edit to eliminate the express reference to ``Treasury 
Department-certified'' CDFIs, because CDFI is now defined in final 
Sec.  __.12, meaning a U.S. Treasury Department-certified CDFI.\578\ As 
noted in the proposal, and as also discussed in the section-by-section 
analysis of final Sec.  __.13(k), the agencies believe that these 
organizations' missions of and track record in meeting the credit needs 
of low- or moderate-income and other underserved individuals and 
communities, as well as small businesses, are highly aligned with CRA's 
core purpose of encouraging banks to meet the credit needs of their 
entire community, including low- and moderate-income populations. These 
organizations often also have intimate knowledge of local community 
development needs and opportunities, allowing them to conduct highly 
responsive activities.
---------------------------------------------------------------------------

    \578\ See final Sec.  __.12 (``Community Development Financial 
Institution (CDFI)'') and the corresponding section-by-section 
analysis above.
---------------------------------------------------------------------------

    The agencies have considered comments but are not adding additional 
entities to the final impact and responsiveness factor, for reasons 
also discussed in the section-by-section analysis to Sec.  __.13(k). In 
addition to their mission and track record, noted above, MDIs, WDIs, 
LICUs, and CDFIs generally undergo rigorous and verifiable 
certification processes \579\ and are financial institutions that 
provide critical capital access and credit to underserved communities. 
The agencies further believe that emphasizing partnerships with the 
entities covered by Sec.  __.15(b)(4) is consistent with the CRA's 
express emphasis on cooperation

[[Page 6720]]

with MDIs, WDIs and LICUs,\580\ as well as with the key role that 
CDFIs--like MDIs, WDIs, and LICUs--play in the capital and financial 
ecosystem in low- or moderate-income communities.\581\
---------------------------------------------------------------------------

    \579\ See, e.g., OCC, ``Policy Statement on Minority Depository 
Institutions'' (July 26, 2022), https://www.occ.gov/news-issuances/news-releases/2022/nr-occ-2022-92a.pdf; Board, SR 21-6/CA 21-4, 
``Highlighting the Federal Reserve System's Partnership for Progress 
Program for Minority Depository Institutions and Women's Depository 
Institutions'' (Mar. 5, 2021), https://www.federalreserve.gov/supervisionreg/srletters/SR2106.htm; FDIC, ``Statement of Policy 
Regarding Minority Depository Institutions,'' 86 FR 32728 (June 23, 
2021); U.S. Dept. of Treasury, Community Development Financial 
Institutions Fund, ``CDFI Certification,'' https://www.cdfifund.gov/programs-training/certification/cdfi. See also 12 CFR 701.34 (NCUA 
standards for designating a Federal credit union as a ``low-income 
credit union'').
    \580\ See 12 U.S.C. 2903(b) (providing that the agencies may 
consider, in assessing a bank's record of meeting the credit needs 
of its community, the bank's activities in cooperation with MDIs, 
WDIs, and LICUs). See also 12 U.S.C. 2907(a) (providing that CRA 
credit may be granted to banks for donating, selling on favorable 
terms, or making available on a rent-free basis to any branch that 
is located in a predominantly minority neighborhood of an MDI or 
WDI).
    \581\ See, e.g., Anna Alvarez Boyd, Board of Governors of the 
Federal Reserve System, and Charlene Van Dijk, Federal Reserve Bank 
of Atlanta, ``An Overview of Community Development Financial 
Institutions,'' Consumer Compliance Outlook, Federal Reserve System 
(2022), https://www.consumercomplianceoutlook.org/2022/first-issue/overview-of-community-development-financial-institutions/.
---------------------------------------------------------------------------

    The agencies also considered comments received that discussed 
whether to exclude short-term deposits from this impact and 
responsiveness factor. On consideration of the comments and further 
deliberation, the agencies are excluding certificates of deposit with 
terms of less than one year from this impact and responsiveness review 
factor in the final rule. The agencies recognize that certificates of 
deposit with terms of less than one year may provide less benefit for 
community development projects financed by CDFIs, MDIs, WDIs and LICUs 
than do other types of capital investment structures, as some 
commenters noted. Limiting consideration under the impact and 
responsiveness review factor in this manner is intended to recognize 
activities that are more impactful and responsive to community credit 
needs, including other types of certificates of deposit that provide 
more stable, longer-term funding to CDFIs, MDIs, WDIs and LICUs. In 
addition, the agencies believe that, as some commenters noted, certain 
short-term deposits can provide important needed liquidity to lend and 
maintain asset size, and can represent a commitment of capital to 
under-resourced institutions that can have a positive community 
benefit. Accordingly, the final rule provides the flexibility to 
provide recognition under the impact and responsiveness review factor 
for other forms of short-term deposits. The agencies also note that 
exclusion from this impact and responsiveness factor does not preclude 
certificates of deposits with a term of less than one year that support 
a MDI, WDI, LICU, or CDFI from qualifying for community development 
consideration under Sec.  __.13(k).\582\
---------------------------------------------------------------------------

    \582\ The agencies note that certificates of deposit may also 
qualify for community development consideration if they meet of one 
or more of the other community development categories in Sec.  
__.13, regardless of term length.
---------------------------------------------------------------------------

    Further, the agencies considered commenter feedback regarding 
adopting specific criteria within Sec.  __.15(b)(4) to further 
emphasize equity investments, long-term debt financing, donations, and 
services. The agencies appreciate that these types of activities can be 
important to community development efforts; on balance, however, the 
agencies believe that the final rule should provide flexibility to 
encourage a range of activities that will meet differing local needs 
across communities. In addition, the final rule emphasizes some of 
these community development loans, investments, and services in other 
parts of the CRA evaluation. For example, the Community Development 
Financing Test (Sec.  __.24) is adopting a Bank Nationwide Community 
Development Investment Metric for large banks with assets over $10 
billion, which will specifically measure the dollar volume of the 
bank's community development investments, excluding mortgage-backed 
securities, that benefit or serve all or part of the nationwide area 
compared to the deposits located in the nationwide area for the 
bank.\583\
---------------------------------------------------------------------------

    \583\ For further detail regarding this provision, see final 
Sec.  __.24(e)(2)(iii) and the accompanying section-by-section 
analysis below. See also, e.g., final Sec.  __.15(b)(10) and the 
accompanying section-by-section analysis below, regarding the impact 
and responsiveness factor for investments in projects financed with 
LIHTCs or NMTCs.
---------------------------------------------------------------------------

Section __.15(b)(5) Benefits or Serves Low-Income Individuals, 
Families, or Households
The Agencies' Proposal
    Proposed Sec.  __.15(b)(4) established an impact factor for 
activities that serve low-income individuals and families, generally 
defined under proposed Sec.  __.12 as those with an income of less than 
50 percent of the area median income in a census tract.\584\ The 
agencies sought feedback on an alternative approach of defining this 
factor to include only those activities that serve individuals with an 
income of less than 30 percent of the area median income. The 
alternative would have been intended to ensure that the focus of this 
factor is on activities that serve the individuals that are most 
vulnerable to the challenges described above, such as housing 
instability and unemployment.
---------------------------------------------------------------------------

    \584\ See also final Sec.  __.12 (definition of ``income level'' 
and, within that definition, ``low-income'') and the accompanying 
section-by-section analysis above.
---------------------------------------------------------------------------

Comments Received
    Of those commenting on this aspect of the proposal, some supported 
the impact factor as proposed, including because households with 
incomes below 50 percent of the area median income are harder to serve 
and, relatedly, the 50 percent threshold fills a gap that is often 
unmet by the market. A few commenters expressed concern with the 
proposed 50 percent threshold and the 30 percent alternative as both 
being potentially too low, with a commenter suggesting a multiplier to 
recognize activities reaching individuals or families with incomes at 
30 percent of the area median income or below. Relatedly, a few other 
commenters noted that the thresholds could exclude the share of units 
within a LIHTC property that are affordable at 60 percent or 80 percent 
of the area median income. Some commenters stated that the agencies 
should not lower the threshold to 30 percent of area median income 
because providing affordable housing opportunities to very low-income 
families is especially difficult in high-cost markets.
Final Rule
    The final rule adopts proposed Sec.  __.15(b)(4), renumbered as 
Sec.  __.15(b)(5), and revised to state that the agencies consider 
whether a community development loan, investment, or service ``benefits 
or serves low-income individuals, families, or households.'' The final 
rule makes technical edits from the proposal from ``serves'' to 
``benefits or serves'' for consistency with the language used in the 
community development categories under Sec.  __.13, and adds ``or 
households'' for clarity, to conform with edits made to other community 
development provisions in the final rule. The definition of ``low-
income'' has been revised, as discussed in the section-by-section 
analysis of Sec.  __.12, but still generally references an income that 
is less than 50 percent of the area median income.
    The agencies note that, by focusing on low-income individuals, 
families, and households, final Sec.  __.15(b)(5) is intended to be 
consistent with the Retail Lending Test approach, in that the Retail 
Lending Test evaluates closed-end home mortgage lending and automobile 
lending using borrower distribution metrics that separately consider 
lending to low-income individuals.\585\ The agencies are also

[[Page 6721]]

adopting this impact and responsiveness factor in order to take into 
account that low-income individuals, families, and households have high 
community development needs and can experience challenges obtaining 
basic financial products and services, securing stable employment 
opportunities, finding affordable housing, and accessing digital 
infrastructure.\586\ The agencies also recognize that community 
development loans, investments, and services supporting activities that 
serve low-income individuals, families, or households often entail a 
high level of effort and complexity on the part of the bank and 
community partners.
---------------------------------------------------------------------------

    \585\ See final Sec.  __.22(d) and the accompanying section-by-
section analysis below, discussing the separate analyses under the 
Retail Lending Test of retail lending to low-income individuals and 
to middle-income individuals.
    \586\ See, e.g., FDIC, ``How America Banks: Household Use of 
Banking and Financial Services, 2019 FDIC Survey'' (Oct. 2020) 
(hereinafter ``How America Banks''), https://www.fdic.gov/analysis/household-survey/2019report.pdf; Federal Reserve Bank of Dallas, 
``Closing the Digital Divide: A Framework for Meeting CRA 
Obligations'' (July 2016), https://www.dallasfed.org/~/media/
documents/cd/pubs/digitaldivide.pdf; Joint Center for Housing 
Studies of Harvard University, ``America's Rental Housing 2022'' 
(2022), https://www.jchs.harvard.edu/sites/default/files/reports/files/Harvard_JCHS_Americas_Rental_Housing_2022.pdf; Nicole Bateman 
and Martha Ross, ``The Pandemic Hurt Low Wage Workers the Most and 
So-Far, the Recovery has Helped Them the Least'' Brookings 
Institution (July 2021), https://www.brookings.edu/articles/the-pandemic-hurt-low-wage-workers-the-most-and-so-far-the-recovery-has-helped-them-the-least/; Kelly D. Edmiston, Federal Reserve Bank of 
Kansas City, ``Why Aren't More People Working in Low- and Moderate-
Income Areas?'' (Jan. 2, 2020), https://www.kansascityfed.org/Economic%20Review/documents/919/2019-Why%20Aren't%20More%20People%20Working%20in%20Low-%20and%20Moderate-
Income%20Areas%3F.pdf/.
---------------------------------------------------------------------------

    The agencies have considered comments that the 50 percent area 
median income threshold used for this impact and responsiveness factor 
in the final rule will exclude some impactful and responsive activities 
from consideration under this provision, including certain LIHTC 
activity designed for affordability at 60 percent or 80 percent of the 
area median income. However, the agencies continue to believe that 
using a 50 percent area median income standard for low-income 
throughout the regulation is important to reduce complexity and 
confusion, and that a 50 percent of area median income appropriately 
tailors the impact and responsiveness factor to address hard-to-serve 
community development needs, as discussed above. Additionally, the 
agencies note that such activities may be included under other impact 
and responsiveness factors, such as the added impact and responsiveness 
factor in Sec.  __.15(b)(10) regarding projects financed with LIHTCs 
and NMTCs.
    The agencies have also considered the alternative approach of 
setting an income threshold of less than 30 percent of the area median 
income. In determining not to adopt this approach, the agencies have 
considered that, while a lower threshold could put more of a focus on 
the activities that serve the most vulnerable, there also might be 
comparatively fewer community development opportunities for banks that 
would primarily serve individuals, families, or households in this 
income category. The agencies have also considered that a lower 
threshold could exclude from consideration under this impact and 
responsiveness factor activities that are responsive to needs of low-
income communities, such as affordable housing opportunities to low-
income (30-50 percent area median income) families in high-cost 
markets. Similar to the discussion above, such activities may be 
included under other impact and responsiveness factors, such as the 
impact and responsiveness factor addressing High Opportunity Areas in 
Sec.  __.15(b)(7) and discussed further below.
Section __.15(b)(6) Supports Small Businesses or Small Farms with Gross 
Annual Revenues of $250,000 or Less
The Agencies' Proposal
    Proposed Sec.  __.15(b)(5) set forth an impact factor for 
activities that support small businesses or small farms with gross 
annual revenues of $250,000 or less. This factor was intended to 
recognize bank activities that address the unique credit needs of the 
smallest businesses and farms, in alignment with the Retail Lending 
Test approach in proposed Sec.  __.22(d)(2)(iii), which would 
separately evaluate a bank's distribution of loans to small businesses 
and small farms with gross annual revenues of $250,000 or less.\587\ 
The agencies sought feedback on whether this impact factor should 
instead be set at a higher gross annual revenue threshold, for example 
at $500,000; or lower, for example at $100,000. The agencies also 
solicited comment on how to weigh the importance of using a consistent 
threshold for identifying smaller businesses and smaller farms both for 
the Retail Lending Test and for this proposed impact factor.
---------------------------------------------------------------------------

    \587\ The proposed Retail Lending Test approach in Sec.  
__.22(d)(2) would also separately evaluate a bank's distribution of 
loans to small businesses and farms with gross annual revenues of 
more than $250,000, but less than or equal to $1 million. See final 
Sec.  __.22(d) and the accompanying section-by-section analysis.
---------------------------------------------------------------------------

Comments Received
    Commenters generally supported including an impact factor for 
activities supporting small businesses or small farms, but commenters 
provided a variety of views on the proposed gross annual revenue 
threshold. Some commenters expressed support for the proposed standard 
of gross annual revenue of $250,000 or less because, for instance, the 
threshold would incorporate many family care and childcare businesses 
into this impact factor. Other commenters expressed support for the 
proposed standard, but urged the agencies to consider a tiered approach 
under which the agencies would separately evaluate activities that 
support businesses with revenues less than $100,000 and that support 
businesses with revenues between $100,000 to $250,000 in order to help 
ensure that the smallest businesses are served, an approach they 
favored as consistent with current CRA small business lending reporting 
requirements.\588\ Several commenters noted that businesses with 
revenues under $100,000 are more likely to be startups and owned by 
women or people of color.
---------------------------------------------------------------------------

    \588\ See, e.g., current 12 CFR __.42(b)(1).
---------------------------------------------------------------------------

    A few commenters expressed support for the lower alternative 
threshold of $100,000 or less, to allow the agencies to better target 
very small businesses and small farms. One commenter recommended the 
proposed standard align with SBA criteria for Small Disadvantaged 
Businesses \589\ and the USDA definition for socially disadvantaged 
farm or farmer.\590\
---------------------------------------------------------------------------

    \589\ See, e.g., SBA, ``Small Disadvantaged Business'' (Sept. 
28, 2023), https://www.sba.gov/federal-contracting/contracting-assistance-programs/small-disadvantaged-business.
    \590\ See, e.g., USDA Economic Research Service, ``Socially 
Disadvantaged, Beginning, Limited Resource, and Female Farmers and 
Ranchers'' (Mar. 22, 2023), https://www.ers.usda.gov/topics/farm-economy/socially-disadvantaged-beginning-limited-resource-and-female-farmers-and-ranchers/.
---------------------------------------------------------------------------

    Some commenters expressed support for higher thresholds, such as 
the alternative contemplated in the proposal of $500,000 gross annual 
revenues or less, or higher thresholds ranging from $1 million to $5 
million. In this regard, one commenter stated, for example, that a 
higher threshold would be more appropriate from the standpoint of risk 
to the bank.
    Finally, a commenter urged consistency between the impact factor 
threshold and the threshold used in the Retail Lending Test, stating 
there would be no discernable benefit from having different thresholds, 
and that consistency would promote compliance.

[[Page 6722]]

More generally, a commenter suggested that small business-related 
provisions should focus on the number of small business loans made, 
rather than the total dollar volume.\591\
---------------------------------------------------------------------------

    \591\ For further discussion of the consideration of dollar 
volume under the Community Development Financing Test, see the 
section-by-section analysis of Sec.  __.24.
---------------------------------------------------------------------------

Final Rule
    The final rule adopts proposed Sec.  __.15(b)(5), renumbered as 
Sec.  __.15(b)(6), establishing an impact and responsiveness factor for 
loans, investments, or services that support small businesses or small 
farms with gross annual revenues of $250,000 or less. In deliberating 
on whether to finalize this impact and responsiveness factor, the 
agencies considered commenter feedback regarding the appropriate 
threshold as well as the feedback on the threshold used in the Retail 
Lending Test.\592\ As is also discussed in the section-by-section 
analysis of Sec.  __.22, on balance, the agencies believe that the 
$250,000 gross annual revenue threshold adopted under the final rule 
will recognize activities that are particularly responsive and 
impactful to smaller businesses and farms. The impact and 
responsiveness factor under final Sec.  __.15(b)(6) will apply to a 
small business loan or small farm loan that qualifies as a community 
development loan under Sec.  __.13 (which could include a loan that is 
also separately considered under the Retail Lending Test).
---------------------------------------------------------------------------

    \592\ See final Sec.  __.22(e)(2)(ii) and the accompanying 
section-by-section analysis below.
---------------------------------------------------------------------------

    The adopted threshold is intended to recognize a focus on the small 
business and small farm borrowers with high credit needs and that can 
be the most difficult to serve. The agencies believe that a higher 
threshold might not sufficiently encourage banks to seek out activities 
serving smaller businesses or farms. At the same time, the agencies 
considered that, while a lower gross annual revenue threshold might 
focus on businesses and farms with the greatest unmet credit needs, the 
adopted threshold will encourage banks to help meet the credit needs of 
a larger share and greater diversity of small businesses with 
significant credit needs in their communities.
    The agencies also considered commenter feedback suggesting 
alternative criteria or a tiered evaluation approach for this impact 
and responsiveness factor, but, on further deliberation, decided not to 
adopt these suggestions. The agencies believe that uniform thresholds 
across the final rule will promote clarity, align bank data 
requirements, and facilitate identifying opportunities and needs for 
CRA activity. The impact and responsiveness factor in final Sec.  
__.15(b)(6) will help accomplish these objectives by aligning with the 
lowest tier threshold adopted under the Retail Lending Test, evaluating 
bank lending to smaller businesses and smaller farms, identified as 
those having gross annual revenues of $250,000 or less.\593\ The 
agencies also believe that the final rule's simple and straightforward 
impact and responsiveness factor regarding smaller businesses and farms 
will support greater certainty and transparency for banks and other 
stakeholders.
---------------------------------------------------------------------------

    \593\ See final Sec.  __.22(e)(2)(ii)(C) and (E) and the 
accompanying section-by-section analysis below.
---------------------------------------------------------------------------

Section __.15(b)(7) Directly Facilitates the Acquisition, Construction, 
Development, Preservation, or Improvement of Affordable Housing in High 
Opportunity Areas
The Agencies' Proposal
    The agencies also proposed an impact factor for activities that 
directly facilitate the acquisition, construction, development, 
preservation, or improvement of affordable housing in High Opportunity 
Areas (proposed Sec.  __.15(b)(6)). The proposal defined High 
Opportunity Areas to align with the FHFA definition of High Opportunity 
Areas, including: (1) areas designated by HUD as a ``Difficult 
Development Area'' (DDA); or (2) areas designated by a State or local 
Qualified Allocation Plan as High Opportunity Areas, and where the 
poverty rate falls below 10 percent (for metropolitan areas) or 15 
percent (for nonmetropolitan areas).\594\ The agencies also solicited 
comment on whether the proposed approach to use the FHFA definition of 
``High Opportunity Areas'' is appropriate, and whether there are other 
options for defining High Opportunity Areas. Responsive comments are 
discussed in the section-by-section analysis of final Sec.  __.12 
regarding the definition of High Opportunity Area.
---------------------------------------------------------------------------

    \594\ See proposed Sec.  __.12 (``High opportunity area''); see 
also final Sec.  __.12 (``High Opportunity Area'') and the 
accompanying section-by-section analysis.
---------------------------------------------------------------------------

Comments Received
    Commenters addressing this aspect of the proposed rule generally 
supported it, with feedback including that High Opportunity Areas 
feature better schools, jobs, and opportunities, and that affordable 
housing in such areas represents an important step in addressing 
neighborhood segregation. One commenter supportive of the proposal 
nonetheless cautioned against designing the CRA final rule in a way 
that diminishes support for housing developments in areas that are not 
designated as high opportunity, but that are typically in dire need of 
investments.
    Various commenters also suggested that specific activities be given 
increased consideration under the proposed impact factor, including, 
among others, homeownership opportunities for low- and moderate-income 
individuals in High Opportunity Areas and financing that supports units 
with higher percentages of low-income tenants in high-cost-burdened 
geographic areas and areas with low vacancy rates. Some commenters 
offered suggestions for additional impact factors related to affordable 
housing, such as projects that are especially affordable or have longer 
affordability terms and covenants; and housing counseling and mobility 
counseling designed to connect consumers with these housing 
opportunities, among others.
Final Rule
    The final rule adopts proposed Sec.  __.15(b)(6), renumbered as 
Sec.  __.15(b)(7), which provides an impact and responsiveness review 
factor that considers whether loans, investments, or services directly 
facilitate the acquisition, construction, development, preservation, or 
improvement of affordable housing in High Opportunity Areas. As 
explained in more detail in the section-by-section analysis of Sec.  
__.12, under the final rule, a High Opportunity Area is defined as an 
area identified by the FHFA for purposes of the Duty to Serve 
Underserved Markets regulation in 12 CFR part 1282, subpart C. This 
definition generally includes geographic areas where the cost of 
residential development is high \595\ and affordable housing 
opportunities may be limited.
---------------------------------------------------------------------------

    \595\ See, e.g., HUD, Office of Policy Development and Research, 
``Qualified Census Tracts and Difficult Development Areas'' (2022), 
https://www.huduser.gov/portal/datasets/qct.html.
---------------------------------------------------------------------------

    As noted by the agencies in the proposal, the agencies consider 
affordable housing in High Opportunity Areas to have a high level of 
impact and responsiveness. This impact and responsiveness factor is 
intended to recognize qualifying homeownership opportunities for low- 
and moderate-income individuals in High Opportunity Areas and also to 
include qualifying loans, investments, and services that support 
projects with high percentages

[[Page 6723]]

of low-income tenants in high-cost-burdened geographic areas or areas 
with low vacancy rates in High Opportunity Areas.
    The agencies do not believe that inclusion of this impact and 
responsiveness factor diminishes support for housing developments in 
areas that are not designated as High Opportunity Areas, particularly 
in light of other aspects of the proposal. The final rule includes a 
separate category of community development focused more broadly on 
loans, investments, and services that support affordable housing, 
discussed in detail in the section-by-section analysis of final Sec.  
__.13(b). In addition, the agencies believe that other impact and 
responsiveness factors will recognize affordable housing in other ways, 
such as the impact and responsiveness factor adopted in Sec.  
__.15(b)(10) regarding investments in projects financed with LIHTCs or 
NMTCs, and the impact and responsiveness factors in Sec.  __.15(b)(1) 
through (3) for loans, investments, and services in specific geographic 
areas with significant community development needs. The agencies also 
believe that these aspects of the proposal may help to address 
suggestions by other commenters for additional impact factors related 
to affordable housing.
Section __.15(b)(8) Benefits or Serves Residents of Native Land Areas
The Agencies' Proposal
    Under Sec.  __.15(b)(7), the agencies proposed as an impact factor 
whether bank activities ``[b]enefit Native communities, such as 
qualifying activities in Native Land Areas under [proposed] Sec.  
__.13(l).'' This factor was intended to recognize the credit and 
community development needs of Native and tribal communities as 
discussed in the proposal, which make bank activities that serve these 
communities especially responsive.
    This proposed impact factor would include all eligible community 
development activities taking place in Native Land Areas. This includes 
activities as defined under proposed Sec.  __.13(l) (finalized as Sec.  
__.13(j)), as well as other eligible community development activities 
that benefit or serve Native Land Areas and meet other eligibility 
criteria in Sec.  __.13. For example, an affordable housing project 
that is located in a Native Land Area or an activity in a Native Land 
Area undertaken with a CDFI would be included under this proposed 
impact factor.
    The agencies sought feedback on whether this proposed impact factor 
should be defined to include activities benefiting Native communities 
not located in Native Land Areas, and if so, how to define those 
activities. Such an approach would be intended to recognize that many 
tribal members reside in areas outside of the proposed definition of 
Native Land Areas, as a result of a number of factors, including past 
Federal policies.\596\
---------------------------------------------------------------------------

    \596\ See, e.g., The Indian Relocation Act of 1956, Public Law 
84-959, 70 Stat. 986; National Archives, ``American Indian Urban 
Relocation,'' https://www.archives.gov/education/lessons/indian-relocation.html.
---------------------------------------------------------------------------

Comments Received
    Commenters generally supported proposed Sec.  __.15(b)(7). 
Commenters noted, among other reasons, that Native communities and 
tribal lands are consistently underserved and have unique priorities 
and needs, which can make lenders more reluctant to serve those areas. 
Commenters also generally supported including activities benefiting 
Native and tribal communities that are not located in Native Land 
Areas. For example, a commenter stated that the proposed approach is an 
effective way to provide certainty to lenders in the evaluation and 
``scoring'' process, while encouraging projects that may require 
investments both on and off Native Land Areas. Another commenter 
observed that some tribal citizens reside in areas outside of Tribal 
Nation jurisdictional boundaries, but still receive essential services 
provided by the commenter, and that tribal governments, businesses, or 
corporations are the main employers of those residents not living in 
Native Land Areas.
    A few commenters suggested other ways to provide an increased 
emphasis for activities benefiting Native Land Areas, as defined in the 
proposed rule. For instance, a commenter suggested that in order to 
incentivize projects in Native Land Areas, activities that benefit 
Native Land Areas should be given greater weight than those that 
benefit Native communities. Other commenters suggested alternative ways 
to define activities that could be considered under the impact factor, 
such as activities that primarily benefit low- or moderate-income 
Native individuals; or that primarily benefit tribal members in general 
(in that regardless of income, activities should be considered high-
impact and responsive). Other commenters suggested partial 
consideration be provided for activities provided to Native communities 
and Black Native Freemen, regardless of residence, even if less than 50 
percent of beneficiaries are low- and moderate-income; or greater 
emphasis for activities in hard-to-reach areas, given barriers to entry 
due to land ownership, tax status, and other constraints.
    Some commenters gave suggestions on how to define ``Native 
communities.'' Among suggestions, commenters suggested defining 
``community'' to include membership in a government-recognized Native 
or tribal community, and/or otherwise qualifying for government 
resources; organizations that are recipients of Federal funds intended 
to enroll Natives in urban areas; or U.S. territories.\597\
---------------------------------------------------------------------------

    \597\ For a more detailed discussion of public comments on the 
definition of ``Native Land Area,'' see the section-by-section 
analysis of Sec.  __.12.
---------------------------------------------------------------------------

Final Rule
    The final rule, renumbered as Sec.  __.15(b)(8), adopts as an 
impact and responsiveness factor whether loans, investments, and 
services benefit or serve residents of Native Land Areas. The final 
rule revises the proposed impact factor from ``Native communities'' to 
``residents of Native Land Areas,'' (as defined in Sec.  __.12), and 
does not adopt the cross-reference to Sec.  __.13(j).
    In arriving at the final rule, the agencies considered the unique 
status of and credit and community development needs in Native Land 
Areas. As discussed in more detail elsewhere in this SUPPLEMENTARY 
INFORMATION, Native Land Areas in particular have often experienced 
limited benefits from bank access or investments, which the agencies 
believe make bank loans, investments, and services in these geographic 
areas particularly impactful and responsive. For example, complex land 
ownership structures associated with Native Land Areas can make 
economic development in those lands particularly difficult, which the 
agencies believe supports incorporating a more specific focus and 
emphasis on those geographic areas in modernized CRA regulations. For 
further discussion on these challenges, see the section-by-section 
analysis of the Native Land Areas category of community development in 
Sec.  __.13(j). The final rule is thus revised to clarify and 
strengthen the nexus to residents of Native Land Areas.
    Additionally, as discussed in more detail in the section-by-section 
analysis of Sec.  __.12 (``Native Land Area''), the Native Land Area 
definition is designed to be comprehensive, to align with

[[Page 6724]]

existing Federal Indian Law regarding lands and communities with unique 
political status, and to support application of the rule with durable, 
publicly available data sources. The proposed impact factor contained 
an undefined term (``Native communities''), which comments suggested 
could have different meanings. Rather than defining ``Native 
communities'' in one or a combination of several ways some commenters 
suggested, the agencies believe that revising the final rule with 
reference to Native Land Areas, a term used elsewhere in the rule 
consistent with existing law, will facilitate compliance and 
supervision and make banks' ability to engage in and track activities 
that might be considered under this impact and responsiveness factor 
more practicable.
    The final rule also no longer cross-references the Native Land 
Areas community development category finalized in Sec.  __.13(j), for 
simplicity and to ensure clarity that the impact and responsiveness 
review factor is available with respect to any community development 
loan, investment, or service that qualifies under Sec.  __.13, provided 
that the loan, investment, or service benefits or serves residents of 
Native Land Areas. Examples of activities that might be considered 
under this impact factor include: a project to finance a tribal health 
care facility \598\ that qualifies as an essential community facility 
under Sec.  __.13(f) and that benefits or serves residents of a Native 
Land Area, or a housing project financed with a Native CDFI that 
qualifies under Sec.  __.13(k) and that benefits or serves residents of 
a Native Land Area.
---------------------------------------------------------------------------

    \598\ See U.S. Dept. of Health & Human Svc, Indian Health 
Service, ``Health Facilities Construction'' (Oct. 2016), https://www.ihs.gov/newsroom/factsheets/healthfacilitiesconstruction/.
---------------------------------------------------------------------------

    The agencies have carefully considered comments suggesting that the 
proposed impact and responsiveness factor be defined in the final rule 
to include loans, investments, or services benefiting or serving Native 
communities located outside of Native Land Areas. The agencies 
recognize that many Native communities live outside of Native Land 
Areas, and are sensitive to the many complexities and needs underlying 
and associated with these communities. However, for the reasons 
discussed above, the agencies believe that adopting an impact and 
responsiveness factor recognizing loans, investments, and services 
addressing the particular and significant community development needs 
in Native Land Areas is appropriate and will provide a greater degree 
of clarity and consistency across the rule and in its application. 
Relatedly, the agencies have taken into account potentially 
considerable practical challenges of implementing a broader impact and 
responsiveness factor focused on a highly dispersed population.\599\
---------------------------------------------------------------------------

    \599\ See also the section-by-section analysis of final Sec.  
__.12 (``Native Land Area''), regarding consideration of 
incorporating into the definition of Native Land Area areas outside 
of geographic areas enumerated in the final rule definition.
---------------------------------------------------------------------------

    The agencies believe that other impact and responsiveness factors 
adopted under the final rule will recognize activities that benefit or 
serve Native communities more broadly. These include impact and 
responsiveness factors discussed above focused on activities in other 
geographic areas with high community development needs (final Sec.  
__.15(b)(1) through (3)); low-income individuals, families, and 
households (final Sec.  __.15(b)(5)); and businesses and farms with 
gross annual revenues of $250,000 or less (final Sec.  __.15(b)(6)). 
These also include the impact and responsiveness factor adopted in 
Sec.  __.15(b)(4) regarding loans, investments, and services supporting 
an MDI, WDI, LICU, or CDFI, a subset of which are focused on serving 
Native communities, such as Native MDIs or Native CDFIs as designated 
by the CDFI Fund.\600\
---------------------------------------------------------------------------

    \600\ See CDFI Fund, ``Native Initiatives,'' https://www.cdfifund.gov/programs-training/programs/native-initiatives.
---------------------------------------------------------------------------

    The agencies have also considered comments encouraging additional 
emphasis for other particular activities within this impact and 
responsiveness factor, but are not otherwise revising the rule. The 
agencies believe that the combination of the new community development 
category for loans, investments, and services in Native Land Areas in 
final Sec.  __.13(j) and the final impact and responsiveness factor in 
Sec.  __.15(b)(8), along with other provisions in the final rule that 
would recognize bank investments benefiting Native communities, such as 
the impact and responsiveness factors noted above, appropriately help 
encourage banks to meet credit needs in these harder to serve parts of 
banks' communities. The agencies believe that these components of the 
final rule facilitate flexibility to address the diverse and myriad 
needs of Native communities.
Section __.15(b)(9) Is a Grant or Donation
The Agencies' Proposal
    Proposed Sec.  __.15(b)(8) included qualifying grants or 
contributions as an impact factor. As noted in the proposal, the 
Community Development Financing Metric in proposed Sec.  __.24(b) would 
be based on the dollar amount of financing activities (including loans, 
investments, and grants or contributions) relative to deposits, and 
thus would not account for the fact that a grant has no repayment 
obligation, unlike a typical community development loan or qualifying 
investment. The impact factor was designed to account for high-impact, 
smaller dollar transactions to complement their inclusion in the 
Community Development Financing Metric, recognizing that grants or 
donations are often smaller dollar volumes than community development 
loans or investments. Additionally, the impact factor was intended to 
recognize banks that provide important sources of capital that help 
community development organizations to build capacity and maintain 
sustainability.
Comments Received
    Commenters offered varying views on the agencies' proposal to 
include as an impact factor activities that are a qualifying grant or 
donation. Some commenters supported including qualifying grant 
contributions as an impact factor. A few commenters noted that grants 
are especially impactful, while another highlighted the importance of 
grant capital for funding CDFIs. One commenter noted that grant 
interventions can be particularly effective during crises for small 
businesses. Other commenters, however, raised questions about the 
proposed impact factor. For example, one commenter expressed concern 
about an over-emphasis on grants, asserting that grants do not directly 
expand access to credit, while loans are directly related to credit.
    Some commenters also offered suggested modifications or 
clarifications to the proposal. A few commenters remarked that the 
current CRA framework values loans over grants and donations and 
suggested additional emphasis, an outcome-based metric, or multipliers 
that would better account for the impact of grants to the organizations 
that depend on them. Commenters further suggested that to best 
encourage making grants, separate impact factors should be created for 
grants to nonprofit organizations, community-based organizations, 
CDFIs, and grant investments that serve low- or moderate-income 
households.
Final Rule
    For the reasons described in the proposal and as noted above, the 
final

[[Page 6725]]

rule adopts proposed Sec.  __.15(b)(8), renumbered as Sec.  
__.15(b)(9), generally as proposed, to recognize whether a loan, 
investment, or service is a grant or donation. As noted above and 
consistent with comments received, this final rule impact and 
responsiveness factor is intended to recognize that grants or donations 
tend to be smaller in dollar amount relative to larger-dollar volume 
financing activities, but often are particularly impactful. The 
agencies believe that an impact and responsiveness factor is 
appropriate to ensure grants continue to receive appropriate 
recognition when considered along with all other community development 
financing activities. The final rule deletes the word ``qualifying'' 
from the proposal as superfluous, as the impact and responsiveness 
review only considers grants or donations that qualify as community 
development under Sec.  __.13.
    The agencies have considered comments suggesting modifications or 
clarifications to the proposed rule, including that the rule should 
give special emphasis to or create separate impact factors for various 
kinds of grants or donations. The agencies believe that the broader 
impact and responsiveness factor in the final rule is appropriate to 
afford flexibility needed to address the different needs of various 
communities. On balance, the agencies believe that the simplicity of 
the final impact and responsiveness factor for grants or donations will 
better foster clarity and certainty than alternatives suggested. The 
agencies have also considered that identifying for special emphasis 
grants or donations to specific types of organizations or that meet 
specific community development categories would be challenging or 
impracticable, noting that different stakeholders may have varying and 
equally valid views on which grants or donations, organizations, or 
community development categories are more impactful than others.
Section __.15(b)(10) Is an Investment in Projects Financed With LIHTCs 
or NMTCs
Comments Received
    As discussed in more detail below, commenters suggested a wide 
variety of additional types of activities that should be included as 
impact factors. Among these, a number of commenters recommended adding 
investments in LIHTCs and NMTCs. Among other points, commenters 
asserted that the LIHTC program is one of the most important policy 
tools for creating affordable rental housing. Commenters noted that 
LIHTCs are distributed through a highly competitive process to the most 
impactful properties meeting the State or locality's affordable housing 
needs. One commenter raised concerns that insufficient CRA credit has 
deterred investors from LIHTC investments. A few commenters stated that 
creating a separate impact factor recognizing LIHTC investments would 
increase investor demand for these investments and thus increase equity 
yield for projects to offset rising construction costs. Other 
commenters noted that including an impact factor focused on LIHTC and 
NMTC investments could also be an important mitigating factor to 
counteract removal of the separate investment test or lack of a 
Community Development Financing Investment subtest for 
investments.\601\
---------------------------------------------------------------------------

    \601\ See final Sec.  __.24 and the accompanying section-by-
section analysis below.
---------------------------------------------------------------------------

    Several commenters stated that banks should receive extra 
consideration for syndicating and/or sponsoring funds supporting LIHTC 
and NMTC projects, consistent with the OCC 2020 CRA Final Rule. 
Commenters also suggested other types of investments designed to meet 
community needs for inclusion as impact factor categories, including 
Opportunity Zone investments and Historic Tax Credits.
Final Rule
    Upon consideration of commenter feedback, the final rule adopts a 
new impact and responsiveness review factor in Sec.  __.15(b)(10) for 
an investment in projects financed with LIHTCs or NMTCs. The agencies 
believe that adding an impact and responsiveness factor for these 
investments will mitigate commenter concerns about the final rule 
potentially discouraging tax credit transactions relative to the 
current CRA regulations, by eliminating the separate investment test in 
the current CRA evaluation framework for large banks, in favor of 
evaluating community development loans and investments together in the 
Community Development Financing Metric.\602\ As discussed further in 
the section-by-section analysis of Sec.  __.24, the agencies appreciate 
concerns about the importance of and need for community development 
investments. In addition, the agencies understand that, as some 
commenters suggested, CRA-motivated capital is one of the primary 
sources of funding for LIHTC and NMTC transactions. Accordingly, the 
agencies are adopting an impact and responsiveness factor for these 
project types to recognize these investments. This impact and 
responsiveness factor is part of a holistic consideration of a bank's 
community development financing performance, which also includes, for 
banks with assets greater than $10 billion, a Bank Nationwide Community 
Development Investment Metric and a Nationwide Community Development 
Benchmark.\603\ The investment metric and benchmark are designed to 
better understand the level of community development investments that 
banks are making, as discussed further in the section-by-section 
analysis of Sec.  __.24.
---------------------------------------------------------------------------

    \602\ For further discussion of the final rule's approach to 
community development investments, see final Sec.  __.24 and the 
accompanying section-by-section analysis.
    \603\ See final Sec.  __.24(e)(2)(iii) and (iv) and the 
accompanying section-by-section analysis.
---------------------------------------------------------------------------

    The agencies have considered but are not adopting commenter 
suggestions to adopt an impact and responsiveness factor addressing tax 
credits and investments other than LIHTCs and NMTCs. LIHTCs and NMTCs, 
as defined in final Sec.  __.12, are Federal programs that the agencies 
believe are clearly aligned with the intent of the CRA, and have a 
demonstrated impact in providing affordable housing and encouraging 
community development and economic growth.\604\ While other types of 
tax credits or investments, such as Historic Tax Credits or investments 
in Opportunity Zone funds can help finance projects that have important 
community benefits, these programs have varying criteria that may not 
always align with the intent of CRA. For example, Historic Tax Credits 
can be used to finance the renovation of historic properties in any 
community, and there is no requirement that these projects be located 
in low- or moderate-income tracts or benefit low- or moderate-income 
individuals or small businesses.\605\ However, the agencies note that 
projects financed by other types of tax credits or investments might be 
covered by other impact and responsiveness factors, depending on

[[Page 6726]]

the geographic area in which they are located and the purpose of the 
project or the population served. For example, a community development 
project financed with Historic Tax Credits located in a census tract 
with greater than 40 percent poverty could be covered by Sec.  
__.15(b)(3) if it otherwise met the criteria in Sec.  __.13, such as if 
the project is done in conjunction with LIHTCs under Sec.  __.13(b)(1) 
or if it is a revitalization or stabilization project that meets the 
criteria of Sec.  __.13(e).
---------------------------------------------------------------------------

    \604\ See OCC, ``Low-Income Housing Tax Credits: Affordable 
Housing Investment Opportunities for Banks,'' Community Development 
Insights (Mar. 2014), https://www.occ.gov/publications-and-resources/publications/community-affairs/community-developments-insights/pub-insights-mar-2014.pdf (2014); NYU Furman Center, ``The 
Effects of the Low-Income Housing Tax Credit (LIHTC)'' (May 2017) 
https://furmancenter.org/files/NYUFurmanCenter_LIHTC_May2017.pdf; 
U.S. Dept. of Treasury, Community Development Financial Institutions 
Fund, ``The Urban Institute's New Markets Tax Credit Program 
Evaluation: Key Findings and Lessons for Future Evaluations,'' 
https://www.cdfifund.gov/sites/cdfi/files/documents/urban-institute-summary-cover-memo.pdf.
    \605\ See U.S. National Park Svc., ``Historic Preservation Tax 
Incentives,'' https://www.nps.gov/subjects/taxincentives/index.htm.
---------------------------------------------------------------------------

Section __.15(b)(11) Reflects Bank Leadership Through Multi-Faceted or 
Instrumental Support
The Agencies' Proposal
    The agencies proposed to consider as an impact factor whether bank 
activities reflect bank leadership through multi-faceted or 
instrumental support (proposed Sec.  __.15(b)(9)). The agencies 
explained that multi-faceted support would include activities that 
entail multiple forms of support provided by the bank for a particular 
program or initiative, such as a loan to a community-based organization 
that serves low- or moderate-income individuals, coupled with a service 
supporting that organization in the form of technical assistance that 
leverages the bank's financial expertise. Instrumental support would 
include activities that involve a level of support or engagement on the 
part of the bank such that a program or project would not have come to 
fruition, or the intended outcomes would not have occurred, without the 
bank's involvement.
Comments Received
    Commenters offering views on proposed Sec.  __.15(b)(9) supported 
this impact factor. For example, one commenter emphasized the role that 
deeper technical assistance and capacity building can play for 
organizations that serve low- or moderate-income communities, and that 
these efforts cannot be adequately captured by looking solely at the 
associated dollar value. The commenter asserted that an impact factor 
is critical to ensuring that financial institutions are adequately 
incentivized. Another commenter stated that emphasizing multi-faceted 
support would help encourage financial institutions to engage in 
activities that can make a lasting impact on a community's development 
and affordable homeownership opportunities. A separate commenter stated 
that an impact review should recognize activities that reflect multi-
faceted partnerships, leadership, and innovation, based on data 
relating to whether the activity involved one or more forms of 
financing or technical assistance, whether the bank was in a leadership 
position, or whether the activity was innovative for the bank or 
geographic area.
Final Rule
    The final rule, renumbered as Sec.  __.15(b)(11), adopts as 
proposed an impact and responsiveness factor for loans, investments, 
and services that reflect bank leadership through multi-faceted or 
instrumental support. In adopting this impact and responsiveness 
factor, the agencies intend to incorporate into the final rule 
considerations regarding complexity and leadership under the current 
CRA regulations, but with greater specificity and a more direct tie to 
impact and responsiveness. The agencies note that activities involving 
multi-faceted or instrumental support often require significant efforts 
by the bank, reflect a high degree of engagement with community 
partners, and are highly responsive to community needs. Further, as 
noted by a commenter, bank efforts cannot always be adequately captured 
by looking solely at the associated dollar value of an activity.
Section __.15(b)(12) Is a New Community Development Financing Product 
or Service That Addresses Community Development Needs for Low- or 
Moderate-Income Individuals, Families, or Households
The Agencies' Proposal
    Under proposed Sec.  __.15(b)(10), the agencies would consider 
whether an activity results in a new community development financing 
product or service that addresses community development needs for low- 
or moderate-income individuals and families. This proposed impact 
factor built upon the emphasis on the innovativeness of activities 
under the current community development evaluation framework,\606\ and 
was intended to ensure that bank activities are also impactful and 
responsive to the needs of low- and moderate-income populations. 
Consideration afforded under this proposed impact factor would help to 
encourage banks and community partners to conceive of new strategies 
for addressing community development needs, especially needs that 
existing products and services do not adequately address. The proposed 
emphasis on activities that support developing new products and 
services was intended to ensure that the CRA continually improves the 
landscape of product offerings for low- or moderate-income individuals 
and families.
---------------------------------------------------------------------------

    \606\ See current 12 CFR __.24(e)(2) and Q&A Sec.  __.24(e)-2. 
See also current 12 CFR __.22(b)(5) and Q&A Sec.  __.21(a)-2 and 
(a)-4 and Q&A Sec.  __.22(b)(5)-1.
---------------------------------------------------------------------------

Comments Received
    Commenters that addressed proposed Sec.  __.15(b)(10) generally 
supported the proposal, but suggested modifications. For example, one 
commenter stated that the proposed impact factor would encourage 
innovation and solution-oriented CRA activities, and suggested that 
financial institutions helping to create or commit to a new fund or 
activity, with greater risks and benefits, should receive more 
favorable CRA consideration. Another commenter suggested that the 
agencies clarify that activities currently considered to be 
``innovative,'' ``complex,'' or ``flexible'' under the existing CRA 
regulations would receive a greater impact score even though the 
proposal used different terminology. On the other hand, one commenter 
cautioned that the proposed review factor should include safeguards to 
ensure that predatory or usurious products are not given consideration, 
while another commenter stated that consideration should be explicitly 
granted for products that assist low- and moderate-income borrowers to 
reduce their reliance on predatory products.
Final Rule
    The final rule adopts proposed Sec.  __.15(b)(10), renumbered as 
Sec.  __.15(b)(12), to establish an impact and responsiveness factor 
for loans, investments, and services that result in a new community 
development financing product or service that addresses community 
development needs for low- or moderate-income individuals, families, or 
households. The final rule makes technical edits from the proposal by 
adding ``or households'' for clarity, to conform with edits made to 
other community development provisions in the final rule. The agencies 
believe that the impact and responsiveness factor as adopted will 
appropriately help encourage banks to meet the credit needs of their 
entire communities by continually improving the landscape of product 
offerings for low- or moderate-income individuals, families, and 
households that are new to the bank or to a particular market. Further, 
the agencies believe that this impact and responsiveness factor will 
facilitate bank-community partnerships to identify new strategies for 
addressing community development needs, especially those not adequately 
addressed by existing products. For

[[Page 6727]]

example, a loan or investment that provides financing for the 
acquisition of land for a shared equity housing project that brings 
permanent affordable housing to a community could meet this impact and 
responsiveness factor, to the extent that it involves a new strategy to 
meet a community development need. The final rule is also consistent 
with the current CRA framework to provide consideration for activities 
that are innovative.
    The agencies intend for this particular impact and responsiveness 
factor to recognize innovation broadly, but are sensitive to commenter 
concerns regarding predatory or usurious products. Under the final 
rule, the agencies determine whether a loan or investment supports 
community development when the loan or investment is originated, made, 
or purchased. If the agencies later identify that the community 
development loan or investment involves evidence of discriminatory or 
other illegal credit practices pursuant to Sec.  __.28(d), the agencies 
will consider that information in the bank's CRA evaluation.\607\ 
Further, loans, investments, or services that assist low- and moderate-
income borrowers in reducing reliance on predatory products could 
qualify under this impact and responsiveness factor if such products 
are new and meet community needs.
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    \607\ See current Sec.  __.28(c), proposed Sec.  __.28(d), and 
final Sec.  __.28(d). See also the section-by-section analysis of 
final Sec.  __.28(d) for further discussion of practices that can 
lead to a ratings downgrade.
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Additional Comments on Proposed Sec.  __.15
    In addition to the impact and responsiveness factors discussed 
above, commenters recommended that the agencies adopt a wide range of 
additional factors. For example, a number of commenters recommended 
adding an impact factor for special purpose credit programs, such as 
those that focus on consumer or home mortgage lending, and community 
development special purpose credit programs. The agencies note that 
special purpose credit programs are largely covered under the Retail 
Services and Products Test in Sec.  __.23(c)(2)(v) in the evaluation of 
credit products and programs, as discussed in greater detail in the 
section-by-section analysis of Sec.  __.23(c)(2).
    Other commenter recommendations included adding an impact factor 
for activities benefiting low- or moderate-income individuals with 
disabilities, with commenters offering this idea also suggesting that 
specific weighting of the impact factors analysis in comparison to 
community development metrics would be helpful; an impact factor 
related to health initiatives, with the agencies encouraged to improve 
data collection and pursue routine partnerships with healthcare and 
public health entities to obtain data; and an impact factor for 
activities that support increasing the supply of high quality, 
affordable early childhood education and care facilities, which were 
emphasized as having compounding consequences for family stability, 
economic opportunity, and child health and development.
    Regarding these recommendations from commenters, the agencies note 
that many of these activities may qualify for CRA consideration under 
Sec.  __.13, to the extent that they meet the relevant eligibility 
criteria. For instance, the above-noted activities benefiting low- or 
moderate-income individuals with disabilities may qualify under the 
community supportive services category in Sec.  __.13(d), and 
healthcare and childcare facilities may qualify under the essential 
community facilities category in Sec.  __.13(f). Additionally, 
depending on the particular facts and circumstances, other impact and 
responsiveness factors adopted under the final rule may already cover 
these kinds of activities, such as Sec.  __.15(b)(5) for loans, 
investments, and services that serve low-income individuals, families, 
or households, and Sec.  __.15(b)(9) for grants or donations.
    Similar considerations apply to other potential impact factors 
recommended by commenters. These include, among others, impact factors 
recognizing: land bank investments; disaster preparedness and climate 
resiliency activities (including those in the most vulnerable low- and 
moderate-income minority communities); local community needs; deep 
impact lending; military communities and qualifying activities on 
military installations; collaboration with public agencies; broadband 
and digital inclusion projects; community engagement strategies; 
activities that support mission-driven nonprofit developers; loans for 
first generation homebuyers; and particularly responsive community 
development activities that fight involuntary relocation. Some 
commenters recommended impact factors for activities that close wealth 
gaps and promote economic activities, with suggestions including, among 
others, impact factors for engaging in activities that are particularly 
impactful for borrowers and minorities; for investments in historically 
redlined communities or that impact racial segregation; and for 
activities that close wealth gaps for racial, ethnic, national origin, 
limited English proficiency, lesbian, gay, bisexual, transgender, and 
queer (LGBTQ), or other underserved groups.
    The agencies have considered these recommendations from commenters 
and acknowledge that there are many types of loans, investments, or 
services that may be responsive or impactful to a community. As 
suggested above, many activities associated with commenter-recommended 
impact factors could potentially already be recognized under one of the 
twelve impact and responsiveness factors adopted in final Sec.  
__.15(b). In addition, the agencies believe that the impact and 
responsiveness factor categories specified in Sec.  __.15(b) reflect an 
appropriate set of categories to consider as part of evaluating a 
bank's community development performance, in furtherance of the purpose 
of the CRA. The adopted factors are ones that are supported by clear 
standards, tend to involve a higher degree of complexity and effort by 
a bank, and as noted above, tend to be particularly responsive and 
impactful. For more information and discussion regarding the agencies' 
consideration of comments recommending adoption of additional race- and 
ethnicity-specific provisions in this final rule, see section III.C of 
this SUPPLEMENTARY INFORMATION.
    The list of impact and responsiveness factors adopted in the final 
rule covers a wide range of potentially impactful and responsive 
activities but, as noted above, is not intended to be exhaustive. The 
agencies do not believe that identifying every kind of impactful and 
responsive activity in this section of the regulation is practicable or 
possible. The adopted impact and responsiveness factors are intended to 
standardize a set of categories that will be consistently reviewed as a 
part of an impact and responsiveness review, but they do not preclude 
agency consideration of other factors and activities.

Sections __.16 Through __.19 Assessment Areas and Areas for Eligible 
Community Development Activity

Current Approach
    Under the CRA, banks have a continuing and affirmative obligation 
to help meet the credit needs of the local communities in which they 
are chartered,\608\ and the agencies are required to assess a bank's 
record of meeting the credit needs of its entire community, including 
low- and

[[Page 6728]]

moderate-income neighborhoods.\609\ Accordingly, one of the CRA 
regulations' core requirements is that each bank delineate areas within 
which its CRA performance will be assessed, referred to in the current 
CRA regulations as the bank's assessment areas.\610\
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    \608\ See 12 U.S.C. 2901(a)(3).
    \609\ See 12 U.S.C. 2903(a)(1). See also 12 U.S.C. 2906(a)(1).
    \610\ See current 12 CFR __.41(a).
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    Current CRA regulations require a bank, other than a wholesale or 
limited purpose bank, to delineate one or more assessment areas that 
include the geographies in which the bank's main office, branches, and 
deposit-taking ATMs are located, as well as the surrounding geographies 
in which the bank has originated or purchased a substantial portion of 
its loans.\611\ These assessment areas are generally required to 
consist of one or more MSAs or metropolitan divisions, or one or more 
contiguous political subdivisions, such as counties, cities, or 
towns.\612\
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    \611\ See current 12 CFR __.41(c)(2). For this purpose, the 
agencies define geography as a census tract delineated by the U.S. 
Bureau of the Census in the most recent decennial census. See 
current 12 CFR __.12(k). Loans considered for determining assessment 
areas under this provision ``includ[e] home mortgage loans, small 
business and small farm loans, and any other loans the bank chooses, 
such as those consumer loans on which the bank elects to have its 
performance assessed.'' See current 12 CFR __.41(c)(2).
    \612\ See current 12 CFR __.41(c)(1).
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    For a wholesale or limited purpose bank, the current CRA 
regulations require such a bank to delineate assessment areas generally 
consisting 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.\613\
---------------------------------------------------------------------------

    \613\ See current 12 CFR __.41(b).
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    Within certain limitations, a bank may adjust the boundaries of an 
assessment area to include only the portion of a political subdivision 
that it reasonably can be expected to serve.\614\ Limitations 
applicable to the delineation of assessment areas include that each 
bank assessment area: (1) must consist only of whole geographies (i.e., 
census tracts), and (2) may not extend substantially beyond an MSA 
boundary or beyond a State boundary unless the assessment area is 
located in a multistate MSA.\615\ Further, the current CRA regulations 
provide that each assessment area may not reflect illegal 
discrimination and may not arbitrarily exclude low- or moderate-income 
census tracts.\616\ These provisions work congruently with ECOA and the 
Fair Housing Act, to combat redlining. Consequently, it is crucial that 
a bank delineate assessment areas that accurately reflect the 
communities it serves.
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    \614\ See current 12 CFR __.41(d).
    \615\ See current 12 CFR __.41(e)(1) and (4).
    \616\ See current 12 CFR __.41(e)(2) and (3).
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    As an exception to these requirements, a bank whose business model 
predominantly consists of serving the needs of military personnel or 
their dependents who are not located within a defined geographic area 
may delineate its entire deposit customer base as its assessment 
area.\617\
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    \617\ Current 12 CFR __.41(f); see also 12 U.S.C. 2902(4).
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    The agencies use the assessment areas delineated by a bank in the 
evaluation of the bank's performance unless the agencies determine that 
the assessment areas do not comply with the requirements of the current 
regulation.\618\
---------------------------------------------------------------------------

    \618\ See current 12 CFR __.41(g).
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    Currently, assessment areas are used in different ways in CRA 
examinations. Examiners evaluate a bank's retail lending and retail 
services performance within assessment areas under the lending test; 
retail lending outside of a bank's assessment areas is not evaluated 
using the lending test criteria. However, under existing guidance, 
examiners will give consideration for loans to low- and moderate-income 
persons and small business and farm loans outside of a bank's 
assessment area(s) provided that the bank has adequately addressed the 
needs of borrowers within its assessment area(s). Pursuant to the 
guidance, such loans will not compensate for poor lending performance 
within the bank's assessment areas.\619\ With respect to the evaluation 
of a bank's community development performance--including community 
development loans, investments, and services--examiners consider a 
bank's activities within its assessment area(s) or within the broader 
statewide or regional area that includes the bank's assessment 
area(s).\620\ Broader consideration of a bank's community development 
performance reflects the agencies' view that community development 
organizations and programs are efficient and effective ways for banks 
to promote community development, and that these organizations and 
programs often operate on a statewide or even multistate basis.\621\ 
For this reason, the bank's assessment area(s) need not receive an 
immediate or direct benefit from the bank'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 bank's assessment area(s).\622\ In 
addition, the agencies may consider community development activities in 
broader statewide or regional areas that do not benefit the assessment 
area if the bank has been responsive to community development needs and 
opportunities in its assessment area(s).\623\
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    \619\ See Q&A Sec.  __.22(b)(2) and (3)-4.
    \620\ See current 12 CFR __.12(h)(2)(ii) (community development 
loans); __.23(a) (community development investments); __.24(b) 
(community development services); see also current 12 CFR 
__.25(e)(2) (community development loans, investments, and services 
made by wholesale or limited purpose banks); Q&A Sec.  __.26(d)-2 
(community development loans, investments, and services made by 
intermediate small banks).
    \621\ See Q&A Sec.  __.12(h)-6.
    \622\ See id.
    \623\ See id.
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    The agencies proposed to revise the current assessment area 
framework by requiring all banks evaluated under the CRA to continue to 
delineate facility-based assessment area(s) as discussed in the 
section-by-section analysis of final Sec.  __.16, and requiring large 
banks to delineate a new type of assessment area referred to as retail 
lending assessment area(s), as discussed in the section-by-section 
analysis of final Sec.  __.17. In addition, the agencies proposed to 
evaluate the retail lending performance of large banks, and certain 
intermediate banks, in their outside retail lending areas, as discussed 
in the section-by-section analysis of final Sec.  __.18. The agencies 
also proposed to consider qualifying community development loans, 
investments, and services outside of a bank's facility-based assessment 
areas within the states and multistate MSAs in which the bank has a 
facility-based assessment area, and in the nationwide area, as 
discussed in the section-by-section analysis of final Sec.  __.19.

Section __.16 Facility-Based Assessment Areas

    The agencies proposed generally to maintain the current requirement 
that a bank delineate assessment areas where the bank has its main 
office, branches, and deposit-taking ATMs, with certain 
modifications.\624\ The agencies intended the proposal to reflect the 
fact that a bank's facilities remain an essential way of defining the 
local communities that are part of a bank's entire community. 
Accordingly, the agencies referred to these assessment areas in the 
proposal as ``facility-based assessment areas,'' distinguishing them 
from the retail lending assessment areas in proposed Sec.  __.17.
---------------------------------------------------------------------------

    \624\ See current 12 CFR __.41.

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[[Page 6729]]

    Relative to the current rule, the modifications proposed by the 
agencies included: (1) replacing the term ``deposit-taking ATM'' with 
``deposit-taking remote service facility;'' and (2) requiring a large 
bank to delineate a facility-based assessment area consisting of a 
single MSA, one or more contiguous counties within an MSA, or one or 
more contiguous counties within the nonmetropolitan area of a State, 
but consistent with the current rule, permitting a small or 
intermediate bank to delineate a facility-based assessment area that 
includes part of, but not the entirety of, one or more counties.
    The agencies received numerous comments on the facility-based 
assessment area proposal from many different types of commenters. As 
discussed in greater detail below, many commenters supported the 
facility-based assessment area proposal, including the modifications 
relative to the current rule. However, other commenters expressed 
concerns, especially regarding the types of bank facilities that would 
trigger the facility-based assessment area requirement, and the 
requirement for large banks to delineate facility-based assessment 
areas composed of whole counties.
    The agencies are adopting the facility-based assessment area 
proposal with certain changes, as discussed below.

Section __.16(a) In General

    As under the current rule, proposed Sec.  __.16(a) required that a 
bank delineate one or more facility-based assessment areas within which 
the agencies evaluate the bank's record of helping to meet the credit 
needs of its community pursuant to the standards in the proposed rule. 
Further, proposed Sec.  __.16(a) stated that the agencies do not 
evaluate the bank's delineation of its facility-based assessment areas 
as a separate performance criterion, but the agencies review the 
delineation for compliance with the requirements of this section.
    A number of commenters expressed general support for the agencies' 
facility-based assessment area proposal. However, the agencies 
generally did not receive comments on the specific language of Sec.  
__.16(a).
    The agencies are finalizing the first sentence of Sec.  __.16(a) 
substantially as proposed, with some technical changes. Specifically, 
final Sec.  __.16(a) refers to a bank's record of helping to meet the 
credit needs of its entire community (rather than just its 
``community'' as proposed) to better track the language of the 
statute.\625\ In addition, final Sec.  __.16(a) states more precisely 
that the agencies evaluate a bank within in its facility-based 
assessment areas pursuant to the performance tests and strategic plan 
described in Sec.  __.21 (rather than pursuant to ``the standards in 
this part'' as proposed).
---------------------------------------------------------------------------

    \625\ See 12 U.S.C. 2903(a)(1).
---------------------------------------------------------------------------

    The agencies determined that the second sentence of proposed Sec.  
__.16(a) is not necessary because, as discussed below, final Sec.  
__.16(e) specifies that the agencies use the facility-based assessment 
areas delineated by a bank in its evaluation of the bank's CRA 
performance unless the agencies determine that a facility-based 
assessment areas does not comply with the requirements of Sec.  __.16. 
For this reason, the agencies are not adopting the second sentence of 
proposed Sec.  __.16(a). The agencies note that this change is not 
intended to alter any requirement pertaining to facility-based 
assessment areas or how these areas are used in CRA evaluations.

Section __.16(b)(1) Geographic Requirements for Facility-Based 
Assessment Areas--Facilities Triggering Delineation

The Agencies' Proposal
    Proposed Sec.  __.16(b)(1) provided that banks must delineate 
facility-based assessment areas that include each county in which a 
bank has a main office, a branch, any other staffed bank facility that 
accepts deposits, or a deposit-taking remote service facility, as well 
as the surrounding geographies in which the bank has originated or 
purchased a substantial portion of its loans (including home mortgage 
loans, small business loans, small farm loans, and automobile loans). 
In addition, the proposal specified that facilities in paragraph (b) 
refers to those that are open to the general public and excludes 
nonpublic facilities. The agencies stated that the addition of other 
staffed bank facilities, together with proposed changes to the 
``branch'' definition, were intended to capture new bank business 
models, regardless of how the bank refers to such staffed physical 
locations, when those locations are open to the public and collect 
deposits from customers. The agencies requested comment on how to treat 
bank business models where staff assist customers to make deposits on 
their phone or mobile device while the customer is onsite.
    The proposal did not require delineation of a facility-based 
assessment area based solely on the existence of a loan production 
office.
Comments Received
    A number of commenters provided feedback on the types of facilities 
that should trigger the facility-based assessment area requirement.
    Main office and branches. Several commenters expressed support for 
retaining the current rule's requirement that a bank must delineate 
facility-based assessment areas based on the location of its main 
office and branches. In addition, several commenters addressed what 
should constitute a branch for purposes of the CRA regulations. These 
comments are discussed in the section-by-section analysis of Sec.  
__.12.
    Any other staffed bank facilities that accept deposits. In general, 
commenters who addressed this aspect of the proposal supported the 
proposal to require banks to delineate facility-based assessment areas 
in counties in which the bank has any other staffed bank facility that 
accepts deposits, other than a main office, branch, or deposit-taking 
remote service facility. Commenters that supported this aspect of the 
proposal noted that requiring banks to delineate facility-based 
assessment areas based on the location of other staffed bank facilities 
that accept deposits aligns with the premise of the CRA that a bank 
absorbing deposits from a community has certain obligations to serve 
that community.
    A number of commenters responded to the agencies' request for 
comment on the treatment of business models where bank staff assist 
customers with making deposits on their phones or mobile devices while 
customers are onsite at a staffed physical location. A few commenters 
noted generally that this business model represents an innovation in 
banking that allows bank employees to spend more time on customer 
services (such as financial education, consulting, and investment 
services) rather than engaged in transactions.
    Many of the commenters that addressed this issue stated that the 
agencies should require a bank to delineate a facility-based assessment 
area around locations where bank staff assist on-site customers with 
making deposits on the customers' phones or mobile devices. For 
example, a few commenters emphasized that bank staff at such locations 
acquire knowledge of community needs, and thus that the bank should be 
held accountable for serving those needs. At least one commenter went 
further, stating that any remote location at which bank staff offer 
products and services available at a branch should be considered a 
branch for purposes of delineating facility-

[[Page 6730]]

based assessment areas. On the other hand, a commenter warned against 
strictly construing any requirement to delineate a facility-based 
assessment area where bank staff assist on-site customers with making 
deposits on the customers' mobile devices so as not to discourage 
community development activities, such as mobile branches on wheels.
    However, many other commenters opposed requiring delineation of a 
facility-based assessment area where bank staff assist on-site 
customers with making deposits on the customers' phones or mobile 
devices. For example, one commenter noted that it was not aware of any 
instances of bank staff assisting a customer with making a deposit on a 
customer-owned mobile device while the customer is on-site, and thus 
believed that requiring the delineation of facility-based assessment 
areas on this basis was unnecessary. Other commenters that opposed 
requiring delineation of a facility-based assessment area in this 
situation stated that if bank staff assist customers in making deposits 
on their mobile devices, these deposits should be treated as 
originating from the customer's home or business address if the 
deposits are sent electronically.
    Deposit-taking remote service facility. A number of commenters 
addressed the proposed requirement to delineate facility-based 
assessment areas based on the location of deposit-taking remote service 
facilities.\626\ Some of these commenters expressed support for the 
agencies' proposal to require banks to delineate facility-based 
assessment areas around deposit-taking remote services facilities. A 
few commenters recommended that, for purposes of delineating facility-
based assessment areas, the definition of remote service facility 
should be sufficiently broad to capture innovations in banking services 
traditionally offered through physical branches.
---------------------------------------------------------------------------

    \626\ Commenters also discussed the proposed definition of 
``remote service facility.'' These comments are discussed in greater 
detail in the section-by-section analysis of final Sec.  __.12.
---------------------------------------------------------------------------

    However, a few commenters opposed requiring a bank to delineate a 
facility-based assessment area based solely on the location of its 
deposit-taking remote service facilities. A few commenters asserted 
that a deposit-taking remote service facilities should not trigger the 
full lending, service, and community development obligations of a 
facility-based assessment area because, among other reasons, banks 
typically do not have staff physically present in those areas to be 
able to generate loans or carry out community development financing 
activities or services. A commenter noted that requiring delineation of 
a facility-based assessment area based solely on a remote service 
facility would limit a bank's ability to place a deposit-taking remote 
service facility in a market as part of a strategy to transition toward 
a broader range of services in that market, or to serve only a specific 
market segment, such as business customers at a loan production office.
    Other commenters suggested placing certain limitations on when a 
remote service facility would trigger a facility-based assessment area. 
For example, a few commenters recommended that a deposit-taking remote 
service facility in a county that is immediately adjacent to a county 
where the bank already has a branch presence should not require the 
delineation of a new facility-based assessment area because the remote 
service facility was likely placed there in order to serve existing 
bank customers who work in or travel to the neighboring county. 
However, these commenters noted that where a bank establishes deposit-
taking remote service facilities in a county that is not adjacent to 
the county where the bank has an existing facility-based assessment 
area, then the bank should be required to delineate a facility-based 
assessment area in that county based solely on the presence of deposit-
taking remote service facilities.
    A few commenters recommended that a bank should have the option, 
rather than be required, to delineate a facility-based assessment area 
based on the location of its deposit-taking remote service facilities. 
At least one of these commenters reasoned that requiring delineation of 
a facility-based assessment area provides a strong disincentive against 
establishing temporary remote deposit facilities, such as in the case 
of a natural disaster or a special event.
    Non-proprietary remote service facilities. As discussed in the 
section-by-section analysis of Sec.  __.12, commenters disagreed on 
whether the proposed requirement to delineate facility-based 
assessments areas based on where a bank maintains deposit-taking remote 
service facilities should extend to remote service facilities not owned 
or operated by, or operated exclusive for, a bank, such as third-party 
ATM networks.
    Loan production offices. Several commenters noted that the proposal 
for delineating facility-based assessment areas would generally exclude 
loan production offices, insofar as such facilities do not accept 
deposits or are not open to the general public. A majority of these 
commenters recommended including loan production offices as a facility 
for purposes of delineating facility-based assessment areas. These 
commenters noted that loan production offices factor into a bank's 
overall lending performance in low- or moderate-income communities. 
These commenters also noted that loan production offices are often the 
only lending or banking-related presence in rural areas and small 
towns, suggesting their presence should confer a CRA obligation. Some 
of these commenters argued that, alternatively, if loan production 
offices do not trigger the delineation of a facility-based assessment 
area, the presence of loan production offices should trigger the 
delineation of at least a retail lending assessment area.
    However, a few commenters supported the agencies' proposal not to 
include loan production offices as a facility for purposes of 
delineating a facility-based assessment area. At least one of these 
commenters noted that loan production offices are not branches and are 
sometimes used by a bank to help determine whether a branch should be 
established in a new area.
Final Rule
    The agencies are adopting a modified version of proposed Sec.  
__.16(b)(1). Final Sec.  __.16(b)(1) provides that, except as provided 
in paragraph (b)(3), a bank's facility-based assessment areas must 
include each county in which a bank has a main office, a branch, or a 
deposit-taking remote service facility, as well as the surrounding 
counties in which the bank has originated a substantial portion of its 
loans (including home mortgage loans, multifamily loans, small business 
loans, small farm loans, and automobile loans). Unlike under the 
proposal, final Sec.  __.16(b)(1) does not require a bank to delineate 
a facility-based assessment area based on the location of any other 
staffed bank facility that accepts deposits (other than a main office, 
branch, or deposit-taking remote service facility).
    In addition to this substantive change, final Sec.  __.16(b)(1) 
incorporates several technical changes relative to the proposal. 
Specifically, final Sec.  __.16(b)(1) clarifies that paragraph (b)(3) 
(which, as discussed below, permits small and intermediate banks to 
delineate facility-based assessment areas composed of partial counties) 
is an exception to the ``each county'' requirement. Further, the final 
rule adds multifamily loans to the parenthetical

[[Page 6731]]

list of loan types so that this list includes all of the product lines 
included in the retail lending volume screen portion of the Retail 
Lending Test; these same types of loans may also be considered under 
the Small Bank Lending Test.\627\ Finally, the final rule refers to 
``surrounding counties,'' rather than ``surrounding geographies'' as 
proposed, consistent with the county-based geographic requirements 
described below.
---------------------------------------------------------------------------

    \627\ See final Sec.  __.22(c) and final Sec.  __.29.
---------------------------------------------------------------------------

    Any other staffed bank facilities that accept deposits. The final 
rule does not include the proposed requirement that a bank's facility-
based assessment areas include each county in which the bank has any 
other staffed bank facility that accepts deposits (other than a main 
office, branch, or deposit-taking remote service facility). The 
agencies believe that the remaining list of bank facilities that 
trigger facility-based assessment area delineation requirements (i.e., 
main office, branch, deposit-taking remote service facility) is 
sufficiently comprehensive that it is not necessary to include other 
staffed bank facilities that accept deposits. In particular, the 
agencies are not aware of the existence of a staffed bank facility that 
accepts deposits that would not qualify as a main office or branch. The 
agencies will continue to monitor whether other types of deposit-taking 
facilities emerge in the future that do not qualify as a main office, 
branch, or deposit-taking remote service facility, and that may warrant 
addition to the list of facilities that trigger the facility-based 
assessment area delineation requirement.
    For similar reasons, the agencies are declining to specify whether 
a facility where bank staff assist customers with making a deposit on a 
mobile phone or other mobile device triggers the facility-based 
assessment area delineation requirement. The agencies believe that, 
depending on the facts and circumstances, such a facility may qualify 
as a branch pursuant to the appropriate agency's licensing policies. 
Further, to the extent that such a facility does not qualify as a 
branch, the agencies do not want to disincentive bank staff from 
providing incidental support to customers at non-branch facilities. The 
agencies will continue to monitor banking developments and provide 
additional guidance as appropriate.
    Deposit-taking remote service facilities. The final rule also 
retains the proposed requirement that a bank's facility-based 
assessment areas include each county in which the bank has a deposit-
taking remote service facility.\628\ The agencies believe that 
requiring a bank to delineate a facility-based assessment area based on 
where it maintains a deposit-taking remote service facility is 
consistent with the statute because of the statutory definition of 
``domestic branch,'' discussed above, which includes other deposit-
taking facilities.\629\
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    \628\ The final rule's definition of ``remote service facility'' 
is discussed in greater detail in the section-by-section analysis of 
final Sec.  __.12.
    \629\ 12 U.S.C. 2906(e)(1).
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    The agencies have considered concerns raised by some commenters 
that a bank may need to delineate two separate facility-based 
assessment areas if it maintains, for example, a branch in one county 
and a deposit-taking remote service facility in an adjacent county. 
However, under the geographic requirements of the final rule discussed 
below, this result would be required only in cases where (1) one county 
is a metropolitan county (i.e., located within an MSA) and the other 
county is a nonmetropolitan county, or (2) the counties are 
nonmetropolitan counties in adjoining states. By contrast, if both 
counties are located in the same MSA, or if both counties are located 
in the nonmetropolitan area of the same State, then the bank could 
delineate a single facility-based assessment area that includes both 
counties. The agencies note that the CRA statute requires the agencies, 
in the written evaluation of a bank for each State in which it 
maintains one or more branches, to separately present conclusions for 
each metropolitan area in which the bank maintains a branch, and 
conclusions for the nonmetropolitan area of the State if the bank 
maintains a branch in such nonmetropolitan area.\630\ The agencies 
believe that allowing a single facility-based assessment area to 
consist of both metropolitan and nonmetropolitan areas, as in the case 
described above, would create challenges in assigning conclusions 
consistent with this statutory requirement because the agencies would 
not be able to distinguish between a bank's metropolitan area and 
nonmetropolitan area performance within a State.
---------------------------------------------------------------------------

    \630\ See 12 U.S.C. 2906(d)(3)(A).
---------------------------------------------------------------------------

    Non-proprietary remote service facilities. As discussed in the 
section-by-section analysis of Sec.  __.12, the term ``remote service 
facility'' includes only those remote service facilities that are owned 
or operated by, or operated exclusively for, a bank. As such, the final 
rule does not require a bank to delineate a facility-based assessment 
area based on the location of other remote service facilities, such as 
a network ATM operated by third party.
    Loan production offices. The final rule does not require banks to 
delineate facility-based assessment areas based solely on the location 
of loan production offices. The agencies considered commenter feedback 
that indicated a loan production office should trigger a facility-based 
assessment area delineation because it is a bank facility and may be 
part of the bank's strategy to meet the credit needs of the community 
it serves. However, based on the agencies' supervisory experience, the 
agencies believe that loan production offices vary widely in terms of 
service and product offerings, the number of customers served, and the 
capacity and resources to meet community credit needs. For example, a 
loan production office may not offer the types of loans evaluated under 
the Retail Lending Test, may not accept deposits, and may not be open 
to the public. For this reason, the agencies are declining to apply the 
facility-based assessment area requirement based solely on the location 
of a loan production office. However, under the final rule Retail 
Lending Test, the agencies will evaluate the major product lines of 
certain large banks in retail lending assessment areas where they have 
concentrations of closed-end home mortgage and small business 
loans.\631\ Similarly, the agencies will evaluate the major product 
lines of large and certain intermediate and small banks in the bank's 
outside retail lending area (i.e., the nationwide area outside of the 
bank's facility-based assessment areas and retail lending assessment 
areas).\632\ Thus, under the final rule, a geographic area in which a 
bank maintains loan production offices may be delineated as a retail 
lending assessment or included in the bank's outside retail lending 
area, as applicable.
---------------------------------------------------------------------------

    \631\ Retail lending assessment areas are discussed in the 
section-by-section analysis of final Sec.  __.17.
    \632\ Outside retail lending areas are discussed in the section-
by-section analysis of final Sec.  __.18.
---------------------------------------------------------------------------

Section __.16(b)(2) and (3) Geographic Requirements for Facility-Based 
Assessment Areas--Boundaries

The Agencies' Proposal
    Proposed Sec.  __.16(b)(2) required that a bank's facility-based 
assessment area consist of one or more MSAs or metropolitan divisions 
or one or more contiguous counties within an MSA, a metropolitan 
division, or the nonmetropolitan area of a State. In addition, 
consistent with current

[[Page 6732]]

guidance,\633\ proposed Sec.  __.16(b)(2) specified that a facility-
based assessment area may not extend beyond an MSA boundary or beyond a 
State boundary unless the facility-based assessment area is located in 
a multistate MSA or combined statistical area.
---------------------------------------------------------------------------

    \633\ See current 12 CFR __.41(e)(4); see also Q&A Sec.  
__.41(e)(4)-1 and -2.
---------------------------------------------------------------------------

    However, proposed Sec.  __.16(b)(3) provided an exception for an 
intermediate or small bank by which such a bank may adjust the 
boundaries of its facility-based assessment areas to include only the 
portion of a county that it reasonably can be expected to serve, 
provided that a facility-based assessment area that includes a partial 
county consists only of whole census tracts, and complies with the 
limitations discussed below in Sec.  __.16(c). As a result, under the 
proposal, large banks would no longer be allowed to delineate a partial 
county for facility-based assessment areas, as under the current 
rule.\634\ The agencies reasoned that this change would create a more 
consistent delineation standard for the delineation of assessment areas 
for large banks; encourage these banks to serve low- or moderate-income 
individuals and census tracts in counties where their deposit-taking 
facilities are located; help safeguard and support fair lending; and 
support the proposed use of metrics and associated data to evaluate 
bank performance. The agencies requested feedback on whether both small 
and intermediate banks should continue to have the option of 
delineating partial counties or whether they should be required to 
delineate whole counties as facility-based assessment areas to increase 
consistency across banks.
---------------------------------------------------------------------------

    \634\ See current 12 CFR __.41(d).
---------------------------------------------------------------------------

Comments Received
    Numerous commenters offered views on the proposed geographic 
requirements that would apply to the delineation of facility-based 
assessment areas.
    Whole-county requirement for large banks. Many commenters 
addressing the proposed geographic requirements for large banks' 
facility-based assessment areas supported this aspect of the proposal, 
including the proposed requirement that large banks' facility-based 
assessment areas consist of one or more MSAs, metropolitan divisions, 
or contiguous counties within an MSA, metropolitan division, or the 
nonmetropolitan area of a State. In general, these commenters expressed 
that partial-county delineations may result in the geographic scope of 
a bank's CRA evaluation not accurately reflecting the area that a large 
bank can reasonably be expected to serve, and that partial-county 
delineations could allow a large bank to reduce its lending in low- or 
moderate- income and majority-minority census tracts. A commenter 
stated that requiring large banks to delineate facility-based 
assessment areas composed of whole counties would facilitate peer 
comparison and simplify analysis from a metrics standpoint.
    However, most commenters that addressed the proposed geographic 
requirement for large banks' facility-based assessment areas opposed 
this aspect of the proposal, with some suggesting that some or all 
large banks should continue to have the option to delineate facility-
based assessment areas composed of partial counties. These commenters 
pointed to a variety of reasons supporting the view that large banks 
should retain the ability to delineate a facility-based assessment area 
composed of partial counties. For example, some commenters noted that 
certain bank characteristics, including a limited capacity to serve an 
entire county, a limited branch network in a county, and the location 
of the bank's branch or branches, could make it challenging to serve an 
entire county. In another example, a commenter suggested that serving a 
facility-based assessment area composed of whole counties would be so 
challenging that it would require the bank to divert resources from 
other programs, including those that serve low- or moderate-income 
communities.
    Commenters also noted that characteristics of a county could make 
it challenging to serve the entirety of that county, including the 
geographic size or other geographic characteristics, economic 
characteristics, the population and population density, and the level 
of competition among other banks in the county. A commenter described 
the proposed whole-county delineation requirement for large banks as 
mandating an unrealistic facility-based assessment area, which would 
lead to unrealistic benchmarks and conclusions. Specifically, the 
commenter cited the example of Los Angeles County, stating that several 
large banks operate three or fewer branches in the county, and that 
those banks would be required to delineate the whole county as a 
facility-based assessment area. The commenter stated that the county 
consists of approximately 2,500 census tracts, and questioned how these 
large banks can be asked to serve a whole county of this size with so 
few branches.
    Some commenters that criticized the proposed whole-county 
delineation requirement for large banks suggested that the whole-county 
requirement could be appropriate for large banks of a higher asset 
threshold, but that large banks of a smaller asset size, such as those 
below $5 billion or $10 billion in assets, should have the flexibility 
to define assessment area using partial counties.
    Partial-county allowance for small and intermediate banks. A 
majority of commenters that addressed the proposed geographic 
requirements for facility-based assessment areas of small and 
intermediate banks supported the proposal to continue to allow these 
banks to delineate facility-based assessment areas that include only 
the portion of a county that such a bank reasonably can be expected to 
serve. These commenters generally noted that small and intermediate 
banks are less likely to have the capacity and resources to serve an 
entire county.
    However, many other commenters recommended that small and 
intermediate banks be held to the same whole-county delineation 
standard for facility-based assessment area delineation as proposed for 
large banks. In general, these commenters expressed that partial-county 
delineations may result in the geographic scope of the bank's CRA 
evaluation not accurately reflecting the area the bank can reasonably 
be expected to serve. In addition, some commenters expressed concerns 
that partial-county delineations could result in redlining by allowing 
a bank to exclude low- or moderate-income and majority-minority census 
tracts. In addition, a few commenters noted that small and intermediate 
banks are often the only banks present in rural counties, and that 
partial-county delineations for these banks could result in underserved 
rural areas being excluded from facility-based assessment areas.
Final Rule
    The agencies are adopting the geographic requirements for facility-
based assessment areas in proposed Sec.  __.16(b)(2) and (3) with some 
modifications. Final Sec.  __.16(b)(2) provides that, except as 
provided in paragraph (b)(3), each of a bank's facility-based 
assessment areas must consist of a single MSA, one or more contiguous 
counties within an MSA, or one or more contiguous counties within the 
nonmetropolitan area of a State.
    Relative to the proposal, final Sec.  __.16(b)(2) incorporates some 
clarifications and non-substantive changes to streamline the drafting 
of

[[Page 6733]]

proposed Sec.  __.16(b)(2). First, the final rule specifies that the 
geographic requirements of this paragraph apply to each of a bank's 
facility-based assessment areas. Second, the final rule omits the 
proposed references to metropolitan divisions; the agencies believe 
these references are superfluous because metropolitan divisions consist 
of whole counties, and banks are not required to follow metropolitan 
division boundaries when delineating facility-based assessment areas. 
Third, and as discussed below, the final rule eliminates the proposed 
language concerning the circumstances under which a facility-based 
assessment area is permitted to extend beyond an MSA boundary or a 
State boundary. As a result, under the final rule, a facility-based 
assessment may not extend beyond an MSA boundary and may not extend 
beyond a State boundary unless the facility-based assessment area is 
located within a multistate MSA.
    Final Sec.  __.16(b)(3) provides that an intermediate or a small 
bank may adjust the boundaries of its facility-based assessment areas 
to include only the portion of a county that it reasonably can be 
expected to serve, subject to the limitations in paragraph (c). Final 
Sec.  __.16(b)(3) also provides that a facility-based assessment area 
that includes a partial county must consist of contiguous whole census 
tracts. The agencies believe that the requirement that partial-county 
delineations must consist of contiguous census tracts was implicit in 
the proposal, but that it is appropriate to make this requirement 
explicit in the final rule, paralleling the contiguous county 
requirement in final Sec.  __.16(b)(2).
    MSA and State boundaries. Under the final rule, a bank may not 
delineate a facility-based assessment area that extends beyond an MSA 
boundary, and a bank may not delineate a facility-based assessment area 
that extends beyond a State boundary unless the facility-based 
assessment area is located in a multistate MSA. By contrast, the 
proposal would have permitted facility-based assessment areas located 
in combined statistical areas to extend beyond an MSA or State 
boundary. The agencies have reconsidered the issue and, for the reasons 
discussed below, are adopting a final rule that is consistent with 
current Sec.  __.41(e)(4), which provides that an assessment area may 
not extend substantially beyond an MSA boundary or beyond a State 
boundary unless the assessment area is located in a multistate 
MSA.\635\
---------------------------------------------------------------------------

    \635\ The agencies acknowledge that current guidance suggests 
that banks may delineate assessment areas that extend beyond MSA 
boundaries in a combined statistical area. See Q&A Sec.  
__.41(e)(4)-1.
---------------------------------------------------------------------------

    The agencies believe that allowing a facility-based assessment area 
to consist of an entire combined statistical area would create 
challenges in assigning conclusions consistent with statutory 
requirements. Specifically, the statute requires the agencies, in the 
written evaluation of a bank, to present conclusions separately for 
each metropolitan area in which the bank maintains a branch.\636\ 
Further, the statute requires the agencies to present, in the written 
evaluation of an interstate bank's performance within a State, 
conclusions separately for each metropolitan area in which the bank 
maintains a branch, and for the remainder of the nonmetropolitan area 
of the State if the bank maintains one or more branches in such 
nonmetropolitan area.\637\ Because a combined statistical area may 
include a combination of metropolitan and nonmetropolitan counties, or 
may contain multiple distinct MSAs, the agencies would need to assign 
conclusions to one or more subparts of a facility-based assessment area 
consisting of a combined statistical area. For similar reasons, the 
agencies believe that applying the Community Development Financing Test 
in a facility-based assessment area consisting of a combined 
statistical area would be challenging because the Community Development 
Financing Test involves separate benchmarks for metropolitan and 
nonmetropolitan areas.\638\
---------------------------------------------------------------------------

    \636\ See 12 U.S.C. 2906(b)(1)(B).
    \637\ See 12 U.S.C. 2906(d)(2).
    \638\ These benchmarks are discussed in greater detail in the 
section-by-section analysis of Sec.  __.24(b)(2).
---------------------------------------------------------------------------

    Whole- and partial-county delineations. Under the final rule, large 
banks must delineate facility-based assessment areas composed of whole 
counties, but small and intermediate banks are permitted to adjust the 
boundaries of their facility-based assessment areas to include only 
those contiguous census tracts within a county that such banks can 
reasonably be expected to serve. The agencies' determination that large 
banks, but not small and intermediate banks, should be required to 
delineate facility-based assessment areas composed of whole counties 
balances multiple competing considerations.
    On the one hand, the agencies believe that requiring large banks to 
delineate facility-based assessment areas composed of whole counties 
helps to encourage those banks to serve low- or moderate-income 
individuals and census tracts in counties where the bank's deposit-
taking facilities are located and helps to safeguard and support fair 
lending. In particular, requiring a bank to delineate facility-based 
assessment areas composed of whole counties could reduce the risk that 
a facility-based assessment area may exclude low- or moderate-income or 
majority-minority census tracts from the facility-based assessment 
area. In addition, and as discussed in greater detail in the section-
by-section analysis of final Sec.  __.24, whole-county delineations 
facilitate the application of the Community Development Financing Test 
because the relevant metrics and benchmarks are calculated at the 
county level, and cannot be calculated at the census tract level 
without increasing the reporting burden on banks. Similarly, and as 
discussed in the section-by-section analysis of Sec.  __.28, whole-
county delineations for large banks facilitate the final rule's 
approach to weighting facility-based assessment area conclusions 
because these weights are based on a combination of a bank's retail 
loan and deposits data, and deposits data are reported at the county 
level for large banks with assets of over $10 billion, pursuant to 
final Sec.  __.42(b)(3). Under an alternative approach in which large 
banks are able to delineate partial-county facility-based assessment 
areas, to calculate a weight for each area, large banks with assets 
over $10 billion would need to report deposits data at a more granular 
geographic level, such as census tracts, which the agencies believe 
would increase burden and privacy concerns.
    On the other hand, the agencies have considered that requiring 
banks to delineate facility-based assessment areas composed of whole 
counties could result in facility-based assessment areas that are 
challenging for some large banks to serve, and may have an impact on 
compliance burden, such as costs associated with monitoring the bank's 
performance in and relevant benchmarks across the entire county, rather 
than a smaller geographic area. This is particularly the case with very 
large counties or counties with dividing geographic features (e.g., a 
large body of water that divides the county in two) in which a bank has 
a limited presence.
    The agencies believe that the final rule strikes an appropriate 
balance between these competing considerations. In circumstances in 
which large banks cannot serve their whole counties due to geographic 
barriers, limited presence, or other factors, the agencies would take 
these factors into consideration as performance context when evaluating 
a large bank's performance in such a

[[Page 6734]]

facility-based assessment area, as is generally the case under existing 
standards. Accordingly, the agencies believe that the application of 
performance context appropriately mitigates these concerns with respect 
to this final rule's whole-county delineation requirement for large 
banks, while retaining the benefits of the overall approach as 
described above. For these reasons, final Sec.  __.16(b)(2) requires 
large banks to delineate facility-based assessment areas composed of 
whole counties.
    By contrast, final Sec.  __.16(b)(3) allows small and intermediate 
banks to delineate partial-county facility-based assessment areas, as 
under the current rule, because these banks generally have less 
capacity than large banks to serve whole counties and to adapt to new 
regulatory requirements. The agencies have considered commenters' 
concerns that allowing partial-county delineations could result in the 
exclusion of low- or moderate-income, majority-minority, underserved, 
or rural census tracts from a facility-based assessment area. However, 
the agencies believe that other provisions of the final rule, including 
the limitations in final Sec.  __.16(c), discussed below, sufficiently 
address this risk.

Section __.16(c) Other Limitations on the Delineation of a Facility-
Based Assessment Area

The Agencies' Proposal
    Proposed Sec.  __.16(c) would retain the current rule that a bank's 
facility-based assessment areas may not reflect illegal discrimination 
and may not arbitrarily exclude low- or moderate-income census tracts, 
taking into account the bank's size and financial condition. The 
agencies stated in the proposal that these prohibitions affirm a bank's 
CRA obligation to serve its entire community, including low- or 
moderate-income individuals and census tracts, and should remain a 
vital component of the assessment area framework.
Comments Received
    Several commenters provided feedback regarding the proposed 
limitations on the delineation of facility-based assessment areas in 
proposed Sec.  __.16(c). These commenters generally recommended that 
the agencies strengthen the prohibitions that a bank's facility-based 
assessment areas may not reflect illegal discrimination and may not 
arbitrarily exclude low- or moderate-income census tracts. For example, 
a commenter recommended clarifying under what circumstances a bank's 
assessment areas would be deemed to reflect illegal discrimination and 
suggested that the agencies establish a rebuttable presumption that a 
bank's facility-based assessment area reflects illegal discrimination 
where its facility-based assessment area consists of a partial 
political subdivision that excludes contiguous neighborhoods of color. 
Many commenters stated that racial demographics should be considered 
when delineating facility-based assessment areas, emphasizing that 
minority communities should not be arbitrarily excluded. For example, a 
commenter suggested that where a small or intermediate bank delineates 
a facility-based assessment areas containing part of a county, 
examiners should review the partial-county delineation to ensure that 
it does not unreasonably exclude minority communities; if examiners 
determine the bank has unreasonably excluded minority communities, this 
finding should adversely impact the bank's CRA rating.
Final Rule
    The agencies are adopting the limitations on the delineation of 
facility-based assessment areas in proposed Sec.  __.16(c) 
substantially as proposed. Relative to the proposal, the final rule 
includes drafting changes to clarify that the bank's capacity and 
constraints, including its size and financial condition, are 
considerations that the agencies will take into account in determining 
whether a facility-based assessment area arbitrarily excludes low- or 
moderate-income census tracts.\639\
---------------------------------------------------------------------------

    \639\ See Q&A Sec.  __.41(e)(3)-1.
---------------------------------------------------------------------------

    The agencies acknowledge comments that recommended more specific 
and stringent standards to safeguard against illegal discrimination and 
arbitrary exclusion. Whether a facility-based assessment area reflects 
illegal discrimination is a fact-and-circumstances-specific 
determination, and for this reason, the agencies are not adopting more 
specific standards, such as the rebuttable presumption suggested by 
some commenters, within the regulatory text. The agencies note that 
other parts of the final rule, such as the adverse effect of 
discriminatory or other illegal credit practices provided in final 
Sec.  __.28(d), help safeguard and support fair lending, consistent 
with the agencies' goal of confirming that CRA and fair lending 
responsibilities are mutually reinforcing. Moreover, consistent with 
current CRA examination procedures, examiners will continue to review a 
bank's delineation of any facility-based assessment areas, whether 
composed of partial or whole counties, for compliance with the 
requirements of Sec.  __.16, which includes ensuring that the facility-
based assessment area does not reflect illegal discrimination and does 
not arbitrarily exclude any low- or moderate-income areas.\640\
---------------------------------------------------------------------------

    \640\ See, e.g., Large Institution CRA Examination Procedures 
(April 2014) at 4. In addition, examiners review a bank's CRA 
assessment areas as part of the redlining analysis in fair lending 
examinations. Specifically, the redlining analysis considers the 
following indicators of potential discriminatory redlining, among 
others: (1) explicit demarcation of credit product markets that 
excludes MSAs, political subdivisions, census tracts, or other 
geographic areas within the bank's lending market or CRA assessment 
areas and having relatively high concentrations of minority 
residents, and (2) the bank's CRA assessment area appears to have 
been drawn to exclude areas with relatively high concentrations of 
minority residents. See Interagency Fair Lending Examination 
Procedures (August 2009) at 10-11.
---------------------------------------------------------------------------

Section __.16(d) Military Banks

The Agencies' Proposal
    Proposed Sec.  __.16(d) would retain the flexibility in the current 
rule afforded to a military bank whose customers are not located within 
a defined geographic area to delineate its entire deposit customer base 
as its assessment area, consistent with the CRA statute.\641\
---------------------------------------------------------------------------

    \641\ See 12 U.S.C. 2902(4). See also current 12 CFR __.41(f). 
The agencies proposed to define ``military bank'' to mean a bank 
whose business predominately consists of serving the needs of 
military personnel who serve or have served in the Armed Forces 
(including the U.S. Air Force, U.S. Army, U.S. Coast Guard, U.S. 
Marine Corps, and U.S. Navy) or dependents of military personnel. 
See proposed Sec.  __.12.
---------------------------------------------------------------------------

Comments Received
    As discussed in the section-by-section analysis of Sec.  __.12, a 
commenter recommended expanding the proposed definition of ``military 
bank'' to include a branch located on a military installation so that 
such a branch could delineate its entire deposit customer base as an 
assessment area, as provided in proposed Sec.  __.16(d), regardless of 
whether the bank as a whole qualifies as a military bank. As an 
alternative to expanding the ``military bank'' definition in this way, 
the commenter suggested allowing a bank that operates a branch on a 
military installation to delineate a geographic-based facility-based 
assessment area defined by the boundaries of the military installation. 
The commenter explained that one of these alternatives is necessary 
because it can be challenging for a branch located on a military 
installation to serve a broader geographic area given

[[Page 6735]]

restrictions on public access to military installations.
Final Rule
    The agencies are finalizing a modified version of proposed Sec.  
__.16(d). The final rule provides that, notwithstanding the other 
requirements of Sec.  __.16, a military bank whose customers are not 
located within a defined geographic area may delineate the entire 
United States and its territories as its sole facility-based assessment 
area. The final rule uses the defined term ``facility-based assessment 
area,'' rather than ``assessment area'' as proposed, to clarify that 
the area is not a retail lending assessment area or outside retail 
lending area, which would be evaluated only under the Retail Lending 
Test. In addition, the agencies believe that the term ``sole'' 
clarifies that a military bank that elects to delineate its facility-
based assessment area pursuant to Sec.  __.16(d) would have only one 
facility-based assessment area, and would not delineate other 
geographic areas for evaluation.\642\
---------------------------------------------------------------------------

    \642\ The evaluation of military banks under the final rule is 
discussed in greater detail in the section-by-section analysis of 
final Sec.  __.21(a)(5).
---------------------------------------------------------------------------

    The agencies considered the challenges identified by commenters 
regarding the operation of branches on military installations. However, 
the agencies have determined not to modify the facility-based 
assessment area delineation requirements for these branches. The 
agencies believe that the final rule approach is sufficiently flexible 
such that banks that operate branches on military installations, or in 
other areas where public access is restricted, would not be penalized 
for doing so. In particular, the agencies expect that examiners would 
consider the public accessibility of a branch as performance context 
when evaluating the bank's performance in the facility-based assessment 
area surrounding the branch. Other areas of the final rule also permit 
examiners the flexibility to consider the unique circumstances of 
branches on military installations. For example, pursuant to final 
Sec.  __.22(c), in the case of a bank that operates a branch on a 
military installation but that does not meet or surpass the Retail 
Lending Volume Screen threshold in the facility-based assessment area, 
examiners could consider the restrictions on public access to the 
branch as part of the bank's institutional capacity and 
constraints.\643\
---------------------------------------------------------------------------

    \643\ See final Sec.  __.22(c)(3)(i)(B).
---------------------------------------------------------------------------

Section __.16(e) Use of Facility-Based Assessments Areas

    As under the current rule, proposed Sec.  __.16(e) stated that the 
agencies use the facility-based assessment areas delineated by a bank 
in their evaluation of the bank's CRA performance unless the agencies 
determine that the facility-based assessment areas do not comply with 
the requirements of proposed Sec.  __.16.
    The agencies did not receive any comments on this aspect of the 
proposal. As such, the agencies are finalizing Sec.  __.16(e) as 
proposed.

Section __.17 Retail Lending Assessment Areas

    In proposed Sec.  __.17, the agencies proposed a new requirement 
for large banks to delineate retail lending assessment areas where a 
large bank has concentrations of home mortgage or small business loans 
outside of its facility-based assessment areas. The agencies proposed 
to evaluate a large bank's performance in retail lending assessment 
areas under the proposed Retail Lending Test, but not under other 
performance tests. As stated in the proposal, the agencies intended the 
proposed retail lending assessment area approach, as with facility-
based assessment areas, to establish local communities in which a bank 
is evaluated for its CRA performance, and to reflect ongoing changes in 
the banking industry. The agencies further stated in the proposal that 
evaluating large banks' retail lending performance on a local basis in 
retail lending assessment areas would accord with CRA's focus on a 
bank's local performance in helping to meet community credit needs, 
promote transparency by providing useful information to the public and 
banks regarding their performance in specific markets, and improve 
parity between banks that lend primarily through branches and those 
banks with different business models.
    The agencies received a significant amount of feedback related to 
the retail lending assessment area proposal from a wide array of 
commenters. Commenters expressed a range of views regarding the overall 
retail lending assessment area approach, with many commenters 
supporting the proposal, and many other commenters opposing it, 
especially due to concerns about the compliance burden of the proposal. 
Commenters also provided feedback on specific aspects of the retail 
lending assessment area proposal, including which large banks should be 
required to delineate retail lending assessment areas, geographic 
requirements for retail lending assessment areas, and the number and 
types of retail loans that would trigger the retail lending assessment 
area requirement.
    For the reasons discussed below, the agencies are including the 
retail lending assessment area approach in the final rule. However, in 
response to commenter feedback, the agencies are adopting several 
modifications to the retail lending assessment area proposal to better 
align the retail lending assessment area approach with the agencies' 
policy objectives. In particular, and as described below, the final 
rule (1) tailors the retail lending assessment area requirement by 
exempting large banks that conduct more than 80 percent of their retail 
lending in facility-based assessment areas from the retail lending 
assessment area requirement; (2) reduces the number of retail lending 
assessment areas that affected large banks will need to delineate by 
increasing the proposed home mortgage loan and small business loan 
count thresholds for triggering retail lending assessment areas; (3) 
reduces the number of product lines evaluated in retail lending 
assessment areas by modifying the evaluation of a large bank's retail 
lending performance in retail lending assessment areas so that only 
closed-end home mortgage loans and small business loans are evaluated, 
and only if they exceed the applicable loan count threshold; and (4) 
narrows the geographic scope of certain retail lending assessment areas 
by tailoring the proposed geographic requirements for retail lending 
assessment areas in the nonmetropolitan area of a State to exclude any 
counties in which a large bank did not originate any reported closed-
end home mortgage loans or small business loans.

Overall Retail Lending Assessment Area Approach

The Agencies' Proposal
    To facilitate evaluation of whether and to what extent banks are 
meeting the credit needs of their entire communities, proposed Sec.  
__.17 complemented the existing framework for evaluating large banks' 
retail lending in facility-based assessment areas by requiring large 
banks to delineate retail lending assessment areas where they have 
concentrations of certain retail loans (i.e., home mortgage loans or 
small business loans) outside of facility-based assessment areas. The 
agencies proposed to evaluate a large bank's performance in retail 
lending assessment areas under the proposed

[[Page 6736]]

Retail Lending Test, but not under other performance tests.
Comments Received
    Numerous commenters addressed the overall retail lending assessment 
area approach. Many commenters expressed support for establishing 
retail lending assessment areas, but many others either opposed the 
concept altogether or recommended changes to reduce the compliance 
burden associated with retail lending assessment areas. Additionally, 
some commenters offered views on alternative ways to evaluate retail 
lending outside of facility-based assessment areas.
    Support for retail lending assessment areas. A number of commenters 
expressed support for the agencies' proposal to require retail lending 
assessment areas where large banks do not maintain deposit-taking 
facilities but have concentrations of home mortgage loans and/or small 
business loans. Many of these commenters asserted that the agencies' 
proposal represents an appropriate response to changes in banking over 
time, such as the increase in retail lending offered via non-branch-
based delivery channels and would improve parity in the same geographic 
area between banks that operate via branches and banks that begin to 
make loans in the same market without establishing a branch. For 
example, some commenters stated that the proliferation of online 
lending and other non-branch-based delivery channels increasingly 
allows for a bank to serve a local community without the presence of a 
deposit-taking facility located within the community, and that the CRA 
evaluation framework should evolve to reflect this development. Other 
commenters noted that the retail lending assessment area approach would 
ensure that a large bank that closes its deposit-taking facilities in a 
geographic area but continues to conduct a significant volume of retail 
lending through online or other channels in that area, would continue 
to have that retail lending evaluated on a local basis. A few 
commenters also stated that evaluating banks in retail lending 
assessment areas would be consistent with the purpose and principles of 
the CRA statute.
    Commenters that supported the overall retail lending assessment 
area approach also pointed to various benefits that they believe would 
follow from the approach. For example, some commenters noted that the 
proposed retail lending assessment area approach, together with the 
proposed outside retail lending area approach, would result in the 
majority of bank retail lending being evaluated under the CRA, and 
would increase bank accountability for serving low- and moderate-income 
communities as a result. A number of commenters stated that the 
proposed retail lending assessment area approach would improve CRA 
coverage in underserved geographic areas, with various commenters 
suggesting that rural areas, banking deserts, impoverished communities, 
majority-minority communities, and Native Land areas would particularly 
benefit from the proposed approach. A few commenters stated that 
expanding assessment areas beyond facility-based assessment areas would 
likely result in more lending to low- and moderate-income borrowers and 
communities, noting that research demonstrates that banks make a higher 
percentage of their loans to low- and moderate-income borrowers and in 
low- and moderate-income census tracts in their assessment areas 
compared to areas not designated as assessment areas.
    Policy concerns with retail lending assessment areas. Conversely, 
many commenters opposed or raised significant concerns with the 
proposed retail lending assessment area approach.
    First, many of the commenters that opposed or expressed concerns 
with the proposed retail lending assessment area approach asserted that 
the addition of retail lending assessment areas would introduce 
significant complexity into CRA evaluations and impose substantial 
compliance burdens on banks. Several of these commenters estimated 
that, under the proposal, some banks would be required to delineate 
large numbers of new retail lending assessment areas and expressed that 
monitoring where a bank might trigger retail lending assessment areas, 
including retail lending performance metrics and performance ranges in 
those areas, would entail significant compliance costs. A few 
commenters stated that the compliance burden associated with the retail 
lending assessment area proposal would be particularly acute for 
smaller large banks (e.g., large banks with assets under $10 billion), 
which these commenters said are not currently staffed or equipped with 
appropriate technology to satisfy CRA requirements in retail lending 
assessment areas. At least one commenter stated that the compliance 
burden of the proposed retail lending assessment area approach was not 
worth the relatively low weight that retail lending assessment areas 
would typically receive under the proposed Retail Lending Test, based 
on lower levels of bank retail lending and deposit dollar volumes in 
these markets.
    Some commenters that emphasized the compliance burdens associated 
with the retail lending assessment area proposal offered suggestions 
for how the agencies could modify the proposal to reduce the compliance 
impact. For example, many of these commenters supported an exemption 
from the retail lending assessment area requirements for primarily 
branch-based banks and increased loan count thresholds for triggering 
retail lending assessment areas, as described below. At least one 
commenter suggested including a cap on the number of retail lending 
assessment areas that a large bank must delineate to mitigate concerns 
that some banks would be required to delineate a large number of retail 
lending assessment areas. At least one other commenter suggested that 
the agencies should create data and mapping tools to assist banks with 
delineating assessment areas.
    Second, some commenters that opposed or expressed concerns with the 
proposed retail lending assessment area approach warned of unintended 
consequences that they believed would result from retail lending 
assessment areas. For example, many commenters expressed concerns that 
the proposed retail lending assessment areas could result in banks 
limiting retail lending activity, which some of these commenters 
asserted would be contrary to the intent of the CRA and the agencies' 
proposal. In particular, commenters warned that banks might curtail 
their retail lending outside of facility-based assessment areas, such 
as by closing loan production offices and reducing indirect lending, to 
avoid surpassing the loan count thresholds that would trigger the 
delineation of retail lending assessment areas. Further, commenters 
warned that banks that have already surpassed the loan count thresholds 
and would therefore be required to delineate retail lending assessment 
areas might withdraw from these geographic areas, particularly if it 
would be too challenging to meet performance standards in a retail 
lending assessment area without a physical presence or local community 
knowledge or expertise.
    Other commenters identified other potential unintended consequences 
of retail lending assessment areas. For example, several commenters 
asserted that the addition of retail lending assessment areas would 
competitively disadvantage banks relative to nonbank lenders and credit 
unions who are not subject to the CRA, thereby exacerbating trends of 
home mortgage and small business lending shifting outside the regulated 
banking system. A few

[[Page 6737]]

commenters stated that as banks dedicate more resources to serve retail 
lending assessment areas, banks' capacity to be responsive to community 
needs within facility-based assessment areas would necessarily be 
reduced. A few commenters suggested that the proposed retail lending 
assessment area approach could cause banks to rethink their business 
models, including by slowing their deposit and loan growth through 
digital channels. Another commenter stated that expanding assessment 
areas would make it even harder for low-income areas that need banking 
services to be served, noting that many low-income individuals are 
disadvantaged when relying on online services.
    Third, some commenters expressed concerns that the retail lending 
assessment area proposal would not target geographic areas with the 
greatest needs and would not benefit low- or moderate-income and 
underserved communities. For example, a few commenters made the point 
that subjecting digital banks to retail lending assessment areas would 
not target underserved geographies with the greatest credit needs, with 
at least one such commenter recommending that the agencies focus on 
incentivizing digital lenders to conduct CRA activities where there is 
the most need. Other commenters asserted that retail lending assessment 
areas would be located predominantly in large cities and would not 
benefit underserved areas outside of these cities. At least one 
commenter indicated that retail lending assessment areas would not 
address the problem of a bank taking deposits from a market but not 
lending in that market, and would not prevent a bank from engaging in 
redlining.
    Legal concerns regarding retail lending assessment area proposal. 
Some commenters opposed to the proposed retail lending assessment area 
approach raised legal concerns regarding this aspect of the proposal. 
First, some commenters questioned whether the agencies' analysis 
supporting the retail lending assessment area proposal was legally 
adequate under the Administrative Procedure Act. Several commenters 
suggested that the agencies' justification for the retail lending 
assessment area proposal did not demonstrate that the agencies engaged 
in reasoned decision-making, for example, stating that the agencies 
failed to demonstrate the potential benefits of retail lending 
assessment areas would exceed the significant burden they would impose 
on banks or otherwise did not provide an adequate rationale for 
specific aspects of the retail lending assessment area proposal. A few 
commenters stated that the proposal did not include enough information 
for commenters to be able to assess the impact of the retail lending 
assessment area proposal, such as where particular retail lending 
assessment areas would be located.
    Second, some commenters questioned whether the agencies have the 
legal authority under the CRA to evaluate banks' retail lending in 
geographic areas where they do not maintain deposit-taking facilities. 
For example, these commenters pointed to certain provisions of the 
statute to support the proposition that a bank's community refers only 
to the geographic areas around deposit-taking facilities, including 
references to banks' local communities in the findings and purpose 
section of the statute,\644\ the provisions of the statute regarding 
written evaluations,\645\ and the provision concerning banks that serve 
military personnel.\646\
---------------------------------------------------------------------------

    \644\ See, e.g., 12 U.S.C. 2901(a)(3) (referring to banks' 
obligation to ``help meet the credit needs of the local communities 
in which they are chartered'').
    \645\ See, e.g., 12 U.S.C. 2906(b)(1)(B) (requiring the agencies 
to present certain information related to a bank's performance 
``separately for each metropolitan area in which a regulated 
depository institution maintains one or more domestic branches'').
    \646\ See 12 U.S.C. 2902(4) (permitting a bank ``whose business 
predominately consists of serving the needs of military personnel 
who are not located within a defined geographic'' to ``define its 
`entire community' to include its entire deposit customer base 
without regard to geographic proximity'').
---------------------------------------------------------------------------

    Alternatives to retail lending assessment areas. Some commenters 
that opposed or expressed concerns with retail lending assessment areas 
suggested a variety of alternative approaches for evaluating banks' 
retail lending outside of facility-based assessment area.
    First, some commenters suggested evaluating all of a large bank's 
retail lending outside of its facility-based assessment areas at a 
broader geographic level, such as at the State or institution level 
only. In general, these commenters stated that an institution-wide 
evaluation would: (1) provide a more complete view of a bank's retail 
lending distributions; (2) maximize geographic coverage; and (3) afford 
neutral treatment to a bank's business model, consistent with the 
agencies' goals for CRA modernization. At least one of these commenters 
suggested that an institution-level evaluation could be supplemented by 
providing banks positive consideration for strong lending performance 
in underserved geographic areas.
    Second, other commenters suggested evaluating large banks in retail 
lending assessment areas only at a bank's option, emphasizing the 
compliance burden of the retail lending assessment area proposal.
    Third, some commenters suggested that banks should be required to 
delineate assessment areas in geographic areas with the greatest need, 
such as rural areas, majority-minority areas, and Native Land areas. 
These commenters generally expressed concerns that, under the proposed 
approach, retail lending assessment areas would not necessarily cover 
these geographic areas, and thus would not necessarily incentivize 
banks to increase lending in the areas of greatest need.
    Finally, many commenters recommended requiring banks to delineate 
an assessment area where they have concentrations of deposits outside 
of facility-based assessment areas, either as an alternative or in 
addition to the agencies' proposed retail lending assessment areas. 
Some of these commenters provided the view that, compared to retail 
lending assessment areas, deposit-based assessment areas would be more 
consistent with the CRA's emphasis on banks' reinvesting in the 
communities from which they draw deposits. Some commenters added that 
deposit-based assessment areas would be especially important for 
capturing banks whose business models involve collecting deposits 
through non-branch channels, but that do not necessarily engage in 
lending in the communities from which those deposits are drawn. A few 
commenters suggested that the agencies could wait until the proposed 
deposit data collection and reporting provisions are implemented, and 
then revisit the issue of whether to require delineation of deposit-
based assessment areas. In contrast, another commenter opposed 
establishing deposit-based assessment areas because it would require 
deposit data collection and reporting requirements for all large banks.
Final Rule
    For the reasons discussed below, the agencies are including the 
retail lending assessment area approach in the final rule. However, in 
response to commenter feedback and in consideration of the agencies' 
policy objectives, the agencies are also adopting several modifications 
to the retail lending assessment area proposal. Specifically, the final 
rule: (1) tailors the retail lending assessment area requirement to a 
narrower subset of large banks by exempting large banks that conduct 
more than 80 percent of

[[Page 6738]]

their retail lending in facility-based assessment areas from the retail 
lending assessment area requirement; (2) reduces the number of retail 
lending assessment areas that affected large banks will need to 
delineate by increasing the proposed home mortgage loan and small 
business loan count thresholds for triggering retail lending assessment 
areas; (3) reduces the number of product lines evaluated in retail 
lending assessment areas by modifying the evaluation of a large bank's 
retail lending performance in retail lending assessment areas so that 
only closed-end home mortgage loans and small business loans are 
evaluated, and only if they exceed the applicable loan count threshold; 
and (4) narrows the geographic scope of certain retail lending 
assessment areas by tailoring the proposed geographic requirements for 
retail lending assessment areas in the nonmetropolitan area of a State 
to exclude any counties in which a large bank did not originate any 
reported closed-end home mortgage loans or small business loans. These 
modifications to the proposal are discussed in detail below.
    Legal authority. The agencies have considered all of the issues 
raised by commenters regarding their legal authority to require large 
banks to delineate retail lending assessment areas and to evaluate the 
retail lending performance of large banks in those areas. Consistent 
with the agencies' views stated in the proposal, and upon further 
deliberation and consideration, the agencies have concluded that the 
CRA authorizes the agencies to evaluate large banks' retail lending 
performance in geographic areas where banks have concentrations of 
retail loans. In particular, the CRA requires the agencies to assess a 
bank's record of meeting the credit needs of its entire community, 
without defining what constitutes a bank's entire community.\647\ 
Further, the references to a bank's local communities in the 
congressional findings and purpose section of the statute do not define 
what geographic areas constitute a bank's local communities.\648\
---------------------------------------------------------------------------

    \647\ See 12 U.S.C. 2903(a)(1) (requiring that the agencies 
``assess [an] institution's record of meeting the credit needs of 
its entire community'').
    \648\ See 12 U.S.C. 2901(a)(3) (finding that ``regulated 
financial institutions have continuing and affirmative obligation to 
help meet the credit needs of the local communities in which they 
are chartered'') and 12 U.S.C. 2901(b) (stating that the purpose of 
the CRA is ``encourage such institutions to help meet the credit 
needs of the local communities in which they are chartered 
consistent with the safe and sound operation of such 
institutions.'').
---------------------------------------------------------------------------

    The CRA includes provisions that specifically relate to the 
preparation of written evaluations that support the conclusion that the 
geographic areas where a bank maintains deposit-taking facilities are 
considered part of the bank's entire community.\649\ However, nothing 
in these provisions indicates that a bank's entire community consists 
of only these geographic areas. Similarly, the provision of the statute 
concerning banks that serve the needs of military personnel, also cited 
by some commenters, does not support the view that other types of 
banks' local communities or entire communities are limited to areas 
with geographic proximity to a deposit-taking facility.\650\
---------------------------------------------------------------------------

    \649\ E.g., 12 U.S.C. 2906 (requiring the agencies to prepare a 
written evaluation of a bank's CRA performance for each metropolitan 
area and, in the case of an interstate bank, each State and/or 
multistate metropolitan area in which the bank maintains a branch).
    \650\ See 12 U.S.C. 2902(4) (authorizing a bank whose business 
predominately consists of serving the needs of military personnel 
who are not located within a defined geographic area to define ``its 
entire deposit customer base without regard to geographic 
proximity'' as ``its `entire community' '').
---------------------------------------------------------------------------

    The CRA delegates authority to the agencies to prescribe 
regulations to carry out the purposes of the CRA.\651\ To achieve its 
purposes, the CRA requires the agencies to assess whether a bank is 
meeting the credit needs of all parts of the communities it serves, 
without excluding the low- and moderate-income neighborhoods in those 
communities.\652\ The agencies have determined, based on their 
supervisory experience and expertise, that a large bank's ``entire 
community'' can reasonably be considered to include areas where the 
bank is conducting meaningful banking activity by making a substantial 
number of retail loans. The agencies have concluded that retail lending 
assessment areas fall within the requirements imposed on the agencies 
by the CRA to assess a bank's record of meeting the credit needs of its 
entire community, and properly further the purpose of the statute to 
encourage banks to meet the credit needs of all parts of communities in 
which they meaningfully operate and that they serve.
---------------------------------------------------------------------------

    \651\ See 12 U.S.C. 2905.
    \652\ See 12 U.S.C. 2903(a).
---------------------------------------------------------------------------

    Policy objectives of retail lending assessment areas. In developing 
the overall retail lending assessment area approach in the proposed and 
final rules, the agencies seek to achieve several different policy 
objectives.
    First, the overall retail lending assessment area approach adapts 
to ongoing changes to the banking industry. The current CRA regulations 
generally define assessment areas in connection with a bank's main 
office, branches, and deposit-taking ATMs. However, the agencies 
recognize that changes in technology and in bank business models have 
resulted in banks' entire communities extending beyond the geographic 
footprint of the bank's main office, branches, and other deposit-taking 
facilities. To reflect these changes in banking, and to make the 
assessment area framework more durable over time, the agencies are 
complementing the existing facility-based assessment area framework in 
the final rule with a retail lending assessment area requirement 
tailored to certain large banks.
    Second, the retail lending assessment area approach improves parity 
in the evaluation framework for large banks with different business 
models. For example, under the current approach, a bank that maintains 
branches in multiple States and conducts retail lending in the 
geographic areas served by those branches would have its retail lending 
evaluated in multiple assessment areas based on the location of its 
branches; however, an online bank that conducts a similar amount of 
retail lending in the same geographic areas would not be required to 
delineate assessment areas in these areas under current standards, and 
would only be evaluated in one assessment area based on the location of 
the bank's main office. Under the retail lending assessment area 
approach of the final rule, however, the online bank may be required to 
delineate retail lending assessment areas in the geographic areas where 
it makes a concentration of retail loans, or these loans may be 
included in the bank's outside retail lending area evaluation, 
resulting in more comparable CRA evaluations for both banks despite 
their different business models.
    Third, in accounting for ongoing changes to the banking industry 
and improving parity in the evaluation framework for large banks with 
different business models, the agencies also seek to retain an emphasis 
on a large bank's performance in meeting the credit needs of the local 
communities it serves, consistent with the focus of the CRA. 
Specifically, the agencies seek to emphasize performance in specific 
geographic areas by assigning conclusions that reflect the large bank's 
retail lending performance in those areas, rather than only assigning 
conclusions at an aggregate level. For example, under the retail 
lending assessment area approach, a bank that is not meeting the retail 
credit needs of a specific geographic area in which it has

[[Page 6739]]

made a significant volume of retail loans will receive a conclusion of 
``Needs to Improve'' or ``Substantial Noncompliance'' in that retail 
lending assessment area, reflecting the bank's performance in that 
specific geographic area. As discussed below, the agencies considered 
an alternative approach in which all of a large bank's retail lending 
outside of its facility-based assessment areas would only be evaluated 
in the aggregate (i.e., assigning a single conclusion that reflects the 
bank's performance with respect to all of its retail lending outside of 
its facility-based assessment areas), rather than assigning conclusions 
that reflect the bank's performance in specific geographic areas 
outside of the bank's facility-based assessment areas where the bank 
has concentrations of retail lending. For the reasons discussed below, 
the agencies are not adopting this alternative approach.
    Fourth, the retail lending assessment area approach, in combination 
with the outside retail lending area approach discussed in the section-
by-section analysis of final Sec.  __.18, increases the share of retail 
lending by large banks that is considered in CRA evaluations. Under the 
current approach, retail lending conducted outside of a bank's 
assessment areas is not evaluated using the Lending Test criteria; this 
lending is only considered if the bank has adequately addressed the 
needs of borrowers within its assessment areas, and does not compensate 
for poor lending performance within the bank's assessment areas.\653\ 
The retail lending assessment area approach in the final rule applies a 
metrics-based evaluation approach to retail loans in retail lending 
assessment areas (and outside retail lending areas) and generally 
increases the share of retail lending by banks that is evaluated in 
this manner.
---------------------------------------------------------------------------

    \653\ See Q&A Sec.  __.22(b)(2) and (3)-4.
---------------------------------------------------------------------------

    Finally, the agencies seek to achieve the policy objectives 
described above while also appropriately adjusting for the level of 
complexity and impact on large banks that would have new retail lending 
assessment area evaluations. The agencies acknowledge that the retail 
lending assessment area approach may result in additional compliance 
costs for large banks; in particular, the agencies have considered 
feedback from industry commenters that the compliance costs related to 
the retail lending assessment area approach include costs associated 
with identifying and delineating retail lending assessment areas, costs 
associated with reporting the location of retail lending assessment 
areas, potential costs associated with monitoring performance in retail 
lending assessment areas, and potential costs associated with meeting 
performance standards in retail lending assessment areas. The agencies 
believe that aggregate compliance costs related to the retail lending 
assessment area approach is correlated with the number of large banks 
that are required to delineate one or more retail lending assessment 
areas, the total number of retail lending assessment areas overall, and 
the number of product lines evaluated within retail lending assessment 
areas. The retail lending assessment area approach in the final rule is 
intended to address compliance cost concerns, while simultaneously 
ensuring that the agencies' other objectives, described above, are 
achieved.
    Modifications to the proposed retail lending assessment area 
approach. In developing the final rule, the agencies have considered 
the proposed retail lending assessment area approach in light of the 
policy objectives described above and public comments on this aspect of 
the proposal. The agencies continue to believe that evaluating the 
retail lending performance of certain large banks in geographic areas 
where they have concentrations of retail loans accomplishes the 
agencies' policy objectives; accordingly, the final rule includes a 
retail lending assessment area approach. However, as noted above, the 
final rule includes several modifications to the retail lending 
assessment area proposal to better align the retail lending assessment 
area approach with the agencies' policy objectives.
    First, and as described below in the section-by-section analysis of 
final Sec.  __.17(a), the agencies are adopting the alternative 
approach discussed in the proposal of exempting from the retail lending 
assessment area requirement large banks that conduct more than 80 
percent of their retail lending in facility-based assessment 
areas.\654\ The agencies believe that this exemption appropriately 
narrows the scope of the retail lending assessment area requirement to 
large banks that conduct a significant portion (i.e., 20 percent or 
more) of their retail lending outside of facility-based assessment 
areas. This exemption further recognizes that conclusions assigned to 
the retail lending performance of predominantly branch-based banks in 
their facility-based assessment areas typically already capture a large 
majority of these banks' retail lending. In addition, the agencies 
believe this exemption aligns with the other objectives of adapting to 
changes in the banking landscape, improving parity in the evaluation 
framework for branch-based and non-branch based large banks, and 
minimizing the number of retail lending assessment areas and the number 
of affected large banks while still achieving the agencies' other 
policy objectives.
---------------------------------------------------------------------------

    \654\ See final Sec.  __.17(a)(2) and final appendix A, 
paragraph II.a.1.
---------------------------------------------------------------------------

    Second, and as described below in the section-by-section analysis 
of final Sec.  __.17(c), the agencies are increasing, relative to the 
proposal, the respective loan count thresholds in the final rule for 
triggering the requirement to delineate retail lending assessment areas 
from the proposed levels to 150 closed-end home mortgage loans and 400 
small business loans. In response to changes to the major product lines 
evaluated under the Retail Lending Test discussed in the section-by-
section analysis of final Sec.  __.22(d), the agencies are also 
limiting the proposed home mortgage loan count threshold to closed-end 
home mortgage loans only. In comparison to the proposal, which would 
have required a large bank to delineate a retail lending assessment 
area if it originated at least 100 home mortgage loans (i.e., open-end 
home mortgage loans or closed-end home mortgage loans) or 250 small 
business loans in a geographic area, the final rule increases these 
loan count thresholds by 50 percent (for closed-end home mortgage loans 
only) and 60 percent for small business loans. The agencies believe 
that these revised loan count thresholds in the final rule strike an 
appropriate balance between, on the one hand, increasing the share of 
retail lending that is considered in CRA evaluations and the share of 
retail lending with respect to which a bank's performance is assigned a 
conclusion in a specific geographic area, and on the other hand, 
minimizing the number of retail lending assessment areas and affected 
large banks while still achieving the agencies' other policy 
objectives.
    Third, and as described below in connection with the section-by-
section analysis of final Sec.  __.17(d), the agencies are modifying 
the evaluation of a large bank's retail lending performance in retail 
lending assessment areas so that the only retail product lines that may 
evaluated as a major product line in a retail lending assessment area 
are closed-end home mortgage loans and small business loans. Further, 
closed-end home mortgage loans or small business loans are major 
product lines in a retail lending assessment area only if the product 
line exceeds the applicable loan

[[Page 6740]]

count threshold in the retail lending assessment area (i.e., 150 
closed-end home mortgage loans, and 400 small business loans). As a 
result, the number of product lines evaluated in retail lending 
assessment areas will decrease relative to the proposed approach. The 
agencies believe that this modification will appropriately focus the 
retail lending evaluation in retail lending assessment areas on the 
particular concentration of retail loans responsible for triggering the 
retail lending assessment area and, in so doing, will reduce the 
potential compliance costs associated with monitoring performance in 
these areas.
    Finally, and as described below with the section-by-section 
analysis of final Sec.  __.17(b), the agencies are tailoring the 
geographic requirements for retail lending assessment areas located in 
the nonmetropolitan area of a State to exclude any counties in which a 
large bank did not originate any reported closed-end home mortgage 
loans or small business loans during the calendar year. As a result, 
the geographic scope of these retail lending assessment areas will be 
more focused in comparison to the proposed approach and will limit the 
evaluation of a large bank's performance in these retail lending 
assessment areas to the counties in which a bank has conducted retail 
lending.
    Impact of modifications to the proposed retail lending assessment 
area approach. To assess the cumulative impact of the modifications to 
the proposed retail lending assessment area approach, the agencies 
conducted an analysis of the proposed retail lending assessment area 
approach and the final rule approach using data from the 2018, 2019, 
and 2020 calendar years.\655\ Specifically, assuming that the proposed 
approach and the final rule approach had been in effect during those 
years, the agencies calculated the number and share of large banks that 
would have had to delineate one or more retail lending assessment areas 
in any of those three years (``affected large banks''), and the number 
of retail lending assessment areas that would have been delineated in 
aggregate across all affected large banks under the proposed and final 
rule approaches, respectively. This analysis, shown in Table 1, showed 
that the modifications adopted in the final rule, relative to the 
proposal, would have reduced the number and percentage of affected 
large banks by about half, from 125 to 63 large banks, and from 33.5 
percent to 16.9 percent of large banks in the sample. In addition, the 
modifications adopted in the final rule approach would have reduced the 
number of retail lending assessment areas delineated across all 
affected large banks by almost half, from 1,591 to 863 retail lending 
assessment areas.
---------------------------------------------------------------------------

    \655\ The agencies used closed-end home mortgage and small 
business data from the CRA Analytics Data Tables for the years 2016-
2020 to perform an analysis of the final rule retail lending 
assessment area approach and potential alternative approaches. The 
sample for the analysis included all CRA reporters, except for 
wholesale, limited purpose, and strategic plan banks which are 
excluded.
---------------------------------------------------------------------------

    The agencies also analyzed the distribution of the number of retail 
lending assessment areas across affected large banks that would have 
been delineated had the proposed approach and the final rule approach 
been in effect during the 2018, 2019, and 2020 calendar years. As shown 
in Table 2, among large banks that would have had been required to 
delineate one or more retail lending assessment areas during the period 
from 2018 to 2020, most affected large banks would have been required 
to delineate five or fewer retail lending assessment areas. Under the 
final rule approach, 24 affected large banks would have been required 
to delineate more than five retail lending assessment areas, compared 
to 38 affected large banks under the proposed approach.
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P
[GRAPHIC] [TIFF OMITTED] TR01FE24.000


[[Page 6741]]


[GRAPHIC] [TIFF OMITTED] TR01FE24.001

BILLING CODE 4810-33-C; 6210-01-C; 6714-01-C
    Availability of data tools. The agencies recognize that large banks 
that are not exempt from the requirement to delineate retail lending 
assessment areas will bear some compliance costs, such as costs 
associated with identifying and delineating retail lending assessment 
areas, and the costs associated with reporting the location of retail 
lending assessment areas. In addition, large banks may expend further 
resources to monitor their performance and meet performance standards 
in retail lending assessment areas. The agencies will develop and make 
freely available tools that would leverage reported loan data to help 
banks identify geographic areas where retail lending assessment areas 
may be required, and to calculate the retail lending distribution 
benchmarks that applied to those retail lending assessment areas in 
recent years. The agencies believe that such tools would also be 
responsive to some commenters' concerns that large banks may lack the 
technology and staffing necessary to satisfy CRA requirements in retail 
lending assessment areas.
    Impact of retail lending assessment areas on retail lending outside 
of facility-based assessment areas. The agencies acknowledge that 
commenters disagreed on the likely impact of the proposed overall 
retail lending assessment area approach. In particular, some commenters 
stated that the approach would incentivize banks to improve their 
retail lending performance in retail lending assessment areas. Other 
commenters predicted that banks would reduce their retail lending 
outside of facility-based assessment areas to avoid the requirement to 
delineate retail lending assessment areas.
    As further described in the section-by-section analysis of final 
Sec.  __.22, the agencies conducted an analysis using historical data 
to estimate the recommended conclusions that banks would have received 
had the final rule Retail Lending Test been in effect in 2018-2020. 
Regarding large banks'

[[Page 6742]]

performance in retail lending assessment areas, the agencies estimate 
that 77.7 percent of retail lending assessment areas delineated by 
large banks included in the analysis would have received either a ``Low 
Satisfactory,'' ``High Satisfactory,'' or ``Outstanding'' recommended 
conclusion, which the agencies believe demonstrates that a ``Low 
Satisfactory'' or higher conclusion is generally attainable for large 
banks in retail lending assessment areas. The agencies further note 
that, while an estimated 20.6 percent of retail lending assessment 
areas would have received recommended conclusions of ``Needs to 
Improve,'' and 1.8 percent would have received a recommended conclusion 
of ``Substantial Noncompliance,'' only approximately 7 percent of large 
banks included in the analysis would have received a ``Needs to 
Improve'' Retail Lending Test conclusion when overall retail lending 
performance is calculated at the institution level (and no large banks 
included in the analysis would have received a ``Substantial 
Noncompliance'' conclusion at the institution level). This analysis 
informs the agencies' belief that the retail lending assessment area 
approach is reasonable and not unduly burdensome, because the retail 
lending of a significant majority of affected banks in this analysis is 
consistent with a ``Low Satisfactory,'' ``High Satisfactory,'' or 
``Outstanding'' estimated conclusion, both for retail lending 
assessment areas, and at the institution level.
    Alternatives to retail lending assessment areas. In developing the 
overall retail lending assessment area approach in the proposed and 
final rules, the agencies considered alternative ways of modernizing 
the CRA evaluation framework to provide a more comprehensive evaluation 
of a large bank's retail lending, including in areas outside of 
facility-based assessment areas.\656\
---------------------------------------------------------------------------

    \656\ This discussion focuses on approaches to evaluating the 
retail lending of large banks outside of facility-based assessment 
areas. The final rule approach for evaluating intermediate and small 
banks' retail lending outside of facility-based assessment areas is 
discussed further in the section-by-section analysis of final Sec.  
__.18.
---------------------------------------------------------------------------

    First, as suggested by some commenters, the agencies considered an 
approach under which a large bank's retail lending outside of its 
facility-based assessment areas would be evaluated only at a broader 
geographic level, such as at the State or institution level. The 
agencies decided not to adopt this approach for large banks for several 
reasons. Under this approach, a bank would not receive a conclusion 
reflecting its retail lending performance in any specific geographic 
area outside of its facility-based assessment areas, including specific 
geographic areas in which it originated a significant number of loans. 
Compared to such an aggregate approach, the agencies believe that 
assigning conclusions that reflect a large bank's retail lending 
performance in retail lending assessments area comports with the CRA's 
focus on a bank meeting the credit needs of the local communities it 
serves. Further, assigning conclusions that reflect a large bank's 
performance in geographic areas where it has concentrations of retail 
loans provides more specific information to the bank and the public 
regarding the bank's performance particular geographic areas. 
Additionally, an institution-level only approach to evaluating a large 
bank's retail lending outside of its facility-based assessment areas 
would not achieve the agencies' objective of improving parity in the 
CRA evaluation framework for large banks with different business 
models. For example, under the institution-level only approach, a large 
branch-based bank would have much of its retail lending evaluated 
within its facility-based assessment areas, and would be assigned 
conclusions reflecting the bank's retail lending performance in those 
areas, with only its remaining retail lending evaluated on an aggregate 
basis at the institution level. By contrast, a large online bank with a 
similar volume and geographic dispersion of retail lending would have 
most of its retail lending (i.e., all of its retail lending outside the 
sole assessment area around the bank's main office) evaluated on an 
aggregate basis, with no conclusions that reflect performance in 
specific areas. Under the retail lending assessment area approach of 
the final rule, however, the large online bank may be required to 
delineate retail lending assessment areas, and the agencies would 
assign conclusions reflecting the large bank's retail lending 
performance in these retail lending assessment areas, resulting in more 
comparable CRA evaluations for both banks despite their different 
business models.
    Second, the agencies considered making retail lending assessment 
areas optional but not required, as some commenters requested. However, 
the agencies believe that an optional evaluation approach would not 
achieve the agencies' policy objectives since banks could opt out of 
retail lending assessment areas entirely under this alternative. The 
agencies are concerned that over time, an optional retail lending 
assessment area approach would make the assessment area framework less 
durable to ongoing changes in the banking industry, particularly with 
any expansion of digital banking. Specifically, if an increasing share 
of large bank retail lending occurs outside of facility-based 
assessment areas, and if the agencies could evaluate that lending in 
retail lending assessment areas only at a bank's option, the policy 
objectives of increasing the share of retail lending that is considered 
in CRA evaluations and that is evaluated in specific geographic areas 
would be undermined. Further, the policy objective of improving parity 
in the evaluation framework for banks with different business models 
would be undermined if, for example, non-branch-based banks could opt 
out of the retail lending assessment area approach.
    Third, as suggested by some commenters, the agencies considered 
requiring large banks to delineate assessment areas in geographic areas 
with the greatest credit needs, rather than delineating retail lending 
assessment areas. However, the agencies note that CRA encourages banks 
to help meet the credit needs of the local communities they serve, and 
does not require banks to begin serving communities they do not already 
serve.\657\ In addition, the agencies believe it is appropriate to 
evaluate banks' retail lending performance in the communities it 
serves, regardless of the presence of other banks in those communities. 
Further, regarding the concern expressed by commenters that retail 
lending assessment areas would only be located in large cities, the 
agencies' analysis of the impact of the final rule Retail Lending Test 
using historical data indicates that there would have been a mixture of 
both metropolitan and nonmetropolitan areas in which one or more retail 
lending assessment areas were located.\658\
---------------------------------------------------------------------------

    \657\ See 12 U.S.C. 2901(b).
    \658\ The agencies' analysis using historical data estimated 
that 18 percent of the RLAAs that would have been delineated during 
the 2018-2020 evaluation period would have been located in the 
nonmetropolitan area of a State.
---------------------------------------------------------------------------

    Finally, the agencies considered requiring large banks to delineate 
deposit-based assessment areas in geographic areas outside of facility-
based assessment areas where the bank draws a certain volume of 
deposits. The agencies have considered that there may be benefits to 
deposit-based assessment areas. However, the deposits data necessary to 
assess the potential impact of a potential deposit-based assessment 
area approach are not currently available because the FDIC's Summary

[[Page 6743]]

of Deposits, which is the only source of information available on the 
geographic dispersion of bank deposits, apportions each bank's total 
deposits across its main office and its branches, all of which are 
located within its facility-based assessment areas, even when the 
deposits are collected from depositors outside of the bank's facility-
based assessment areas. As a result, deposits collected from beyond a 
bank's facility-based assessment areas are assigned in the Summary of 
Deposits to branches within its facility-based assessment areas, making 
it impossible to determine how much of a bank's deposits were sourced 
outside of its facility-based assessment areas or from where those 
deposits were collected. Without such data, the agencies cannot 
determine, under various potential thresholds, the number of deposit-
based assessment areas, the number of affected large banks, or the 
degree to which deposit-based assessment areas may capture retail 
lending outside of facility-based assessment areas. In addition, due to 
the lack of deposits data, the agencies are not able to analyze 
different policy options related to deposit-based assessment areas, 
such as whether the threshold for requiring delineation of a deposit-
based assessment area should be a certain percentage of a large bank's 
total deposits in a geographic area, a certain dollar volume of 
deposits in a geographic area, a certain number of depositors in a 
geographic area, or based on other factors. For these reasons, the 
agencies did not adopt the deposit-based assessment area approach.

Section __.17(a) In General--Banks Subject to the Retail Lending 
Assessment Area Requirement

The Agencies' Proposal
    The agencies proposed to apply the retail lending assessment area 
requirement solely to large banks, including large banks that elect to 
be evaluated under an approved strategic plan.\659\ In addition, the 
agencies also sought feedback on an alternative approach that would 
tailor the retail lending assessment area requirement by exempting 
large banks from the requirement to delineate retail lending assessment 
areas if such banks conduct a significant majority of their retail 
lending, such as more than 80 or 90 percent of their retail loans, 
inside their facility-based assessment areas. This exemption would 
exclude banks that are primarily branch-based from the retail lending 
assessment area requirement, reflecting the view that such banks' 
overall Retail Lending Test conclusion could be reasonably derived by 
focusing on the activity within their facility-based assessment areas. 
Under this alternative, the retail loans of an exempt bank outside of 
the bank's facility-based assessment areas would not be evaluated 
within a retail lending assessment area, but the agencies would 
evaluate this lending under the proposed outside retail lending area 
approach discussed in the section-by-section analysis of final Sec.  
__.18.
---------------------------------------------------------------------------

    \659\ See proposed Sec.  __.17(a).
---------------------------------------------------------------------------

Comments Received
    Numerous commenters addressed the types of banks that should be 
subject to the proposed requirement to delineate retail lending 
assessment areas.
    Tailoring of retail lending assessment area requirement by bank 
size. Some commenters supported the proposal not to apply the retail 
lending assessment area requirement to small and intermediate banks. As 
noted previously, a few commenters stated that the compliance burden 
associated with the retail lending assessment area proposal would be 
particularly acute for smaller large banks, with at least one such 
commenter recommending that the retail lending assessment area 
requirement should apply only to large banks with at least $10 billion 
in assets.
    Conversely, a few commenters suggested expanding the universe of 
banks subject to retail lending assessment area requirement. Some of 
these commenters favored requiring at least some intermediate banks to 
delineate retail lending assessment areas. For example, at least one 
commenter asserted that intermediate banks, especially those with over 
$1 billion in assets, have sufficient capacity and knowledge of local 
markets to serve retail lending assessment areas. A few other 
commenters suggested that intermediate banks should be required to 
delineate retail lending assessment areas if they are not primarily 
branch-based. A few commenters asserted that all banks, including small 
banks and intermediate banks, should be evaluated in retail lending 
assessment areas because banks of any size may conduct a significant 
amount of lending activity outside of their facility-based assessment 
areas.
    Tailoring of retail lending assessment area requirement by business 
model. Many commenters favored some form of an exemption from the 
requirement to delineate retail lending assessment areas for large 
banks that lend primarily within their facility-based assessment areas. 
In general, these commenters stated that it is not necessary to 
evaluate primarily branch-based banks in retail lending assessment 
areas because their retail lending is already concentrated in facility-
based assessment areas. These commenters also stated that the retail 
lending assessment area requirement is appropriately applied to online 
banks but should not impose additional burden on traditional branch-
based banks. These commenters offered various suggestions in terms of 
the percentage of retail lending that a large bank must conduct within 
its facility-based assessment areas to benefit from any exemption, with 
commenter suggestions generally ranging from 50 to 90 percent.
    However, several other commenters opposed providing any exemption 
from the retail lending assessment area requirement for large banks 
that primarily lend within facility-based assessment areas. These 
commenters generally stated that large banks should be evaluated for 
their retail lending performance in all areas where they conduct a 
meaningful amount of lending, and that an exemption could result in 
substantial amounts of retail lending for which a conclusion is not 
assigned in a specific geographic area, especially in rural areas. At 
least one commenter stated that it is not necessary to exempt primarily 
branch-based banks from the retail lending assessment area requirement 
because the proposed approach would appropriately account for 
differences in bank business models by giving more weight to those 
assessment areas where a bank's retail lending is concentrated, while 
still holding banks accountable for performance wherever they conduct 
retail lending business.
    Beyond an exemption for primarily branch-based banks, a few 
commenters offered alternative approaches for tailoring the retail 
lending assessment area requirement based on a large bank's business 
model. A few commenters suggested that the agencies should 
qualitatively assess a large bank's business model and practices to 
identify and exempt those banks whose lending and account-opening 
activities are not conducted through a branch network. At least one 
commenter asserted that the agencies should exempt strategic plan banks 
from the retail lending assessment area requirement to preserve the 
flexibility of the strategic plan option.
Final Rule
    The agencies are adopting a modified version of proposed Sec.  
__.17(a). Similar to the proposal, final Sec.  __.17(a)(1) provides 
that, based upon the criteria described in Sec.  __.17(b) and (c), a 
large bank must delineate retail lending assessment areas within which 
the

[[Page 6744]]

agencies evaluate the bank's record of helping to meet the credit needs 
of its entire community pursuant to the Retail Lending Test.
    However, as discussed below, the agencies are adopting an exemption 
from the retail lending assessment area requirement for large banks 
that conduct a substantial majority of their retail lending in 
facility-based assessment areas. Specifically, final Sec.  __.17(a)(2) 
provides that a large bank is not required to delineate retail lending 
assessment areas for a particular calendar year if, in the prior two 
calendar years, the large bank originated or purchased within its 
facility-based assessment areas more than 80 percent of its home 
mortgage loans, multifamily loans, small business loans, small farm 
loans, and automobile loans (if automobile loans are a product line for 
the large bank), as described in paragraph II.a.1 of final appendix A.
    In addition, final Sec.  __.17(a)(3) provides that if, in a retail 
lending assessment area delineated pursuant to Sec.  __.17(c), the 
large bank did not originate or purchase any reported loans in any of 
the product lines that formed the basis of the retail lending 
assessment area delineation pursuant to Sec.  __.17(c)(1) or (2) (i.e., 
the closed-home mortgage loan and small business loan count 
thresholds), the agencies will not consider the retail lending 
assessment area to have been delineated for that calendar year. The 
agencies believe this limitation was implicit in the proposal, but that 
it is helpful for the final rule to explicitly state that the agencies 
will not evaluate a bank's retail lending performance in a retail 
lending assessment area in which a large bank did not originate or 
purchase any reported closed-end home mortgage loans or small business 
loans, as applicable, in the calendar year.
    Application to large banks. The agencies continue to believe that 
it is appropriate to apply the retail lending assessment area 
requirement to large banks, but not small or intermediate banks. The 
agencies see significant benefits to increasing the share of retail 
lending for which a conclusion is assigned reflecting the bank's 
performance in a specific geographic area. However, the agencies 
believe that these benefits must be weighed against the potential 
additional compliance burden of the approach, such as compliance costs 
associated with identifying and delineating retail lending assessment 
areas, and reporting the location of retail lending assessment areas. 
On balance, the agencies believe it is appropriate to tailor the retail 
lending assessment area requirement to large banks, recognizing that 
large banks generally have more resources and therefore greater 
capacity than small and intermediate banks to adapt to new regulatory 
provisions such as retail lending assessment areas. The agencies note 
that, as discussed in the section-by-section analysis of final Sec.  
__.18, under the final rule, the agencies will evaluate the retail 
lending performance of an intermediate bank, and a small bank that opts 
to be evaluated under the Retail Lending Test, in its outside retail 
lending area if the bank conducts a majority of its retail lending 
outside of its facility-based assessment areas.
    The agencies have carefully considered comments regarding the 
potential burden that the retail lending assessment area approach may 
impose on large banks, including specific commenter suggestions for 
further tailoring the proposed requirement to a narrower subset of 
large banks. The agencies appreciate these concerns and suggestions 
and, as described below, are adopting an exemption to the retail 
lending assessment area requirements for primarily branch-based large 
banks.
    Exemption for primarily branch-based large banks. To further tailor 
the application of the retail lending assessment area requirement, 
final Sec.  __.17(a)(2) sets forth an exemption from the retail lending 
assessment area requirement for certain large banks. Specifically, a 
large bank is not required to delineate retail lending assessment areas 
in a particular calendar year if, in the previous two calendar years, 
the large bank originated or purchased within its facility-based 
assessment areas more than 80 percent of its home mortgage loans, 
multifamily loans, small business loans, small farm loans, and 
automobile loans (if automobile loans are a product line for the large 
bank). The 80 percent calculation is further described in paragraph 
II.a.1 of final appendix A.
    The agencies believe that it is appropriate to exempt primarily 
branch-based large banks from the retail lending assessment area 
requirement for two main reasons. First, such an exemption would tailor 
the approach by focusing the retail lending assessment area framework 
on those large banks for which facility-based assessment area 
evaluations alone do not capture the vast majority of the bank's retail 
lending. For large banks conducting 80 percent or less of their retail 
lending within facility-based assessment areas, the agencies believe 
that evaluating retail lending performance in retail lending assessment 
areas is an appropriate way to update where large banks are locally 
evaluated for their retail lending performance. For large banks that 
conduct more than 80 percent of their retail lending within facility-
based assessment areas, the agencies believe that a sufficient share of 
the bank's retail lending is already evaluated, and conclusions are 
already assigned reflecting the bank's retail lending performance, in 
specific geographic areas. The agencies note that, under the final 
rule, large banks that are exempt from the retail lending assessment 
area requirement will still be evaluated for their retail lending 
performance outside of their facility-based assessment areas through 
the outside retail lending area evaluation, as discussed in the 
section-by-section analysis of final Sec.  __.18.
    Second, such an exemption would have the benefit of resulting in a 
significant number of large banks no longer having any retail lending 
assessment area requirement, compared to the proposed approach. The 
agencies believe this will reduce the aggregate compliance burden 
associated with the retail lending assessment area approach, as 
discussed above.
    80 percent threshold. Under the final rule, as discussed above, 
large banks that conduct more than 80 percent of their retail lending, 
based on a combination of loan dollars and loan count as defined in 
Sec.  __.12, within their facility-based assessment areas are exempt 
from the retail lending assessment area requirement. In determining the 
level of the 80 percent threshold, the agencies considered a number of 
factors. The agencies considered commenter suggestions for lower 
thresholds and, as a preliminary matter, considered that a threshold 
below 50 percent would mean that, for up to half of a large bank's 
retail lending, the bank would not be assigned any conclusions that 
reflect the bank's retail lending performance in specific geographic 
areas. The agencies believe that evaluating up to half of a large 
bank's retail lending (i.e., the retail lending outside of the large 
bank's facility-based assessment areas) only in the aggregate through 
the outside retail lending area evaluation could provide a misleading 
picture of the large bank's overall retail lending performance if, for 
example, strong performance in parts of the outside retail lending area 
obscured poor performance in other parts of the outside retail lending 
area. For this reason, the agencies are adopting a heightened standard 
rather than a simple majority standard.
    In addition, the agencies believe that the 80 percent threshold, 
compared to other potential threshold levels, achieves an appropriate 
balance of

[[Page 6745]]

increasing the share of a large bank's retail lending for which a 
conclusion is assigned reflecting the bank's performance in a specific 
geographic area while limiting the number of large banks required to 
delineate retail lending assessment areas. In making this 
determination, the agencies considered, for a range of potential 
thresholds, the number of large banks that would be required to 
delineate at least one retail lending assessment area, the total share 
of retail lending across large banks that would have been evaluated 
within retail lending assessment areas, and the share of closed-end 
home mortgage and small business lending across large banks outside of 
their facility-based assessment areas that would have been evaluated in 
retail lending assessment areas had the final rule retail lending 
assessment area approach been in effect in the 2018, 2019, and 2020 
calendar years. The agencies noted that a 90 percent threshold, 
relative to an approach with no exemption, only slightly reduced the 
number of affected large banks, from 88 to 83 large banks, while an 80 
percent threshold provided a more significant reduction to 63 large 
banks. The agencies further noted that the 80 percent threshold reduced 
the percentage of closed-end home mortgage lending outside of facility-
based assessment areas that would have been evaluated within retail 
lending assessment areas from 35.9 to 23.0 percent, and for small 
business lending, a more modest reduction from 45.3 to 39.3 percent. 
While threshold options of 50, 60, and 70 percent would have further 
reduced the number of affected banks, these thresholds would also have 
resulted in lower percentages of closed-end home mortgage and small 
business lending outside of facility-based assessment areas being 
evaluated within retail lending assessment areas.
BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P;

[[Page 6746]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.002

BILLING CODE 4810-33-C; 6210-01-C; 6714-01-C
    Calculation of 80 percent threshold. Under the final rule, and as 
specified in paragraph II.a.1 of final appendix A, the 80 percent 
threshold is calculated based on the share of a large bank's retail 
loans originated or purchased in its facility-based assessment areas, 
out of the bank's retail loans originated and purchased overall over 
the prior two calendar years. The retail loans included in this 
calculation are the large bank's originated and purchased home mortgage 
loans, multifamily loans, small business loans, small farm loans, and 
automobile loans if automobile loans are a product line for the large 
bank.\660\ The

[[Page 6747]]

retail loans included in the calculation of the 80 percent threshold 
are thus identical to the loans included in the numerator of the Bank 
Volume Metric calculated for purposes of the Retail Lending Volume 
Screen in final Sec.  __.22(c). The agencies believe that it is 
important to harmonize the measures of a bank's retail lending used for 
various calculations where appropriate to simplify the final rule to 
the extent possible. Further, the agencies believe that these retail 
product lines can be viewed as a reasonable reflection of a bank's 
overall business model for a bank that is not a limited-purpose bank, 
and thus, it is appropriate to look to these loans for purposes of 
determining whether a large bank is primarily branch-based.
---------------------------------------------------------------------------

    \660\ Under the final rule, and as discussed in the section-by-
section analysis of final Sec.  __.12 (definition of ``product 
line''), automobile loans are a product line for a bank if the bank 
is a majority automobile lender or opts to have its automobile loans 
evaluated pursuant to the Retail Lending Test.
---------------------------------------------------------------------------

    Under the final rule, the 80 percent threshold is calculated over 
the two calendar years preceding each calendar year. The agencies 
believe that calculating the 80 percent threshold over the two 
preceding calendar years will provide greater certainty to large banks 
regarding whether they qualify for the exemption, compared to a 
calculation based on a one-year lookback period.
    The 80 percent threshold is calculated based on a combination of 
loan dollars and loan count as defined in final Sec.  __.12. 
Specifically, the agencies calculate the share of the large bank's 
retail lending within its facility-based assessment areas based on loan 
dollars, and the same percentage based on loan count, then take the 
simple average of the two percentages. Using a combination of loan 
dollars and loan count is consistent with various other calculations in 
the final rule, and is intended to reflect both the total dollars of 
loans originated and purchased as well as the number of borrowers 
served, which the agencies believe appropriately reflects the degree to 
which a bank is serving a geographic area.
    Alternative methods of identifying primarily branch-based banks. 
The agencies considered the alternative methods suggested by commenters 
for identifying primarily branch-based large banks. In particular, the 
agencies considered adopting a qualitative approach to identifying 
large banks that rely on non-branch delivery channels. However, the 
agencies believe that such an approach would be inconsistent with the 
agencies' goal of providing greater clarity and consistency in the 
application of the CRA regulations.
    The agencies also considered exempting strategic plan banks from 
the retail lending assessment area requirement but decline to do so in 
the final rule. As discussed above, the agencies intend the retail 
lending assessment area approach, together with facility-based 
assessment areas, to establish the local communities in which a large 
bank is evaluated for its CRA performance, and the agencies believe 
that inconsistency with respect to such a core aspect of the CRA 
evaluation framework would not be desirable. The agencies do not 
believe it would be appropriate to create an incentive for banks to 
seek approval under a strategic plan to avoid otherwise applicable 
requirements to delineate retail lending assessment areas. As described 
in the section-by-section analysis of final Sec.  __.27, the final rule 
includes other provisions that facilitate a customized approach to 
evaluating strategic plan banks; however, the retail lending 
performance of strategic plan banks will still be evaluated in retail 
lending assessment areas where applicable.\661\
---------------------------------------------------------------------------

    \661\ See final Sec.  __.27(c)(3) and (g)(1).
---------------------------------------------------------------------------

Section __.17(b) Geographic Requirements for Retail Lending Assessment 
Areas

The Agencies' Proposal
    Under proposed Sec.  __.17(b)(1), large banks would be required to 
delineate retail lending assessment areas consisting of either: (1) the 
entirety of a single MSA, excluding counties inside their facility-
based assessment areas; or (2) all of the counties in a single State 
that are not included in an MSA, excluding counties inside their 
facility-based assessment areas, aggregated into a single retail 
lending assessment area. Similar to the proposal for facility-based 
assessment areas,\662\ and consistent with the current 
regulations,\663\ proposed Sec.  __.17(b)(2) specified that a retail 
lending assessment area may not extend beyond an MSA boundary or beyond 
a State boundary unless the assessment area is located in a multistate 
MSA or combined statistical area.
---------------------------------------------------------------------------

    \662\ See proposed Sec.  __.16(b)(2).
    \663\ See current 12 CFR __.41(e)(4).
---------------------------------------------------------------------------

    The agencies sought feedback on what should happen if a bank's 
retail lending assessment area is located in the same MSA (or 
nonmetropolitan area of a State) where a smaller facility-based 
assessment area is located. Specifically, the agencies asked whether a 
bank in this case should be required to expand its facility-based 
assessment area to the whole MSA (or nonmetropolitan area of a State), 
or whether the bank should have the option to designate the portion of 
the MSA that excludes the facility-based assessment area as a new 
retail lending assessment area.
Comments Received
    Geographic requirements. Some commenters expressed concerns that 
the proposed geographic requirements for retail lending assessment 
areas may not accurately reflect where a bank conducts retail lending 
business, potentially leading to unrealistic and misleading performance 
conclusion. For example, a few commenters recommended that only those 
counties within which a bank has a certain minimum number or percentage 
of retail loans should be included in a retail lending assessment area.
    Several commenters provided views specific to retail lending 
assessment areas located in the nonmetropolitan area of a State. For 
example, at least one commenter expressed support for the proposed 
requirement that a retail lending assessment area in the 
nonmetropolitan area of a State must consist of that entire area, 
noting that this approach would help capture underserved 
nonmetropolitan areas. However, a few commenters suggested that the 
entire nonmetropolitan area of a State would often be too large for a 
bank to serve, especially in states with large rural geographic areas, 
due to limited bank capacity. At least one commenter indicated that it 
would be challenging for the agencies to consider performance context 
for an entire nonmetropolitan area of a State because these areas may 
vary considerably.
    Retail lending assessment areas and facility-based assessment areas 
in the same MSA or nonmetropolitan area of a State. Some commenters 
addressed what should happen if a large bank's retail lending 
assessment area is located in the same MSA or the nonmetropolitan area 
of a State where a facility-based assessment area is located. Some of 
these commenters supported allowing banks to designate the portion of 
the MSA or the nonmetropolitan area of the State that is not part of 
the bank's existing facility-based assessment area as a new retail 
lending assessment area, consistent with the proposal. Other commenters 
supported the alternative approach of requiring banks that maintain a 
facility-based assessment area in the same MSA or nonmetropolitan area 
of a State where a retail lending assessment area is located to expand 
their facility-based assessment areas to encompass the entire MSA or 
nonmetropolitan area of a State. Some of these commenters favorably 
noted that the alternative approach would mean that a large bank would 
be evaluated under all four

[[Page 6748]]

applicable performance tests in the entire MSA or nonmetropolitan area 
of the State due to expansion of its facility-based assessment area, 
rather than only evaluating the large bank in the retail lending 
assessment area under the proposed Retail Lending Test. At least one 
commenter recommended that the agencies apply either the proposed or 
the alternative approach depending, in each case, on which option would 
increase retail lending to underserved communities.
    Legal concerns regarding geographic requirements. Some commenters 
raised legal concerns that the geographic requirements for retail 
lending assessment areas may not be consistent with the CRA. For 
example, at least one commenter stated that the agencies did not 
explain in the proposal how an MSA or the nonmetropolitan area of a 
State would constitute a ``local community.'' Commenter feedback 
included the observation that these retail lending assessment areas 
often cover relatively large geographic areas. The commenter also noted 
that the agencies did not discuss why smaller geographic base units for 
retail lending assessment areas were not considered.
Final Rule
    The agencies are adopting, with revisions, the proposed geographic 
requirements for retail lending assessment areas. Specifically, final 
Sec.  __.17(b)(1) provides that a retail lending assessment area must 
consist of either:
    1. The entirety of a single MSA (using the MSA boundaries that were 
in effect as of January 1 of the calendar year in which the delineation 
applies), excluding any counties inside the large bank's facility-based 
assessment areas, or
    2. All of the counties in the nonmetropolitan area of a State 
(using the MSA boundaries that were in effect as of January 1 of the 
calendar year in which the delineation applies), excluding any counties 
included in the large bank's facility-based assessment areas, and 
excluding any counties in which the large bank did not originate any 
closed-end home mortgage loans or small business loans that are 
reported loans during that calendar year.
    In addition, the agencies are modifying the proposed prohibition on 
retail lending assessment areas extending beyond a State boundary. 
Specifically, final Sec.  __.17(b)(2) provides that a retail lending 
assessment area may not extend beyond a State boundary unless the 
retail lending assessment area consists of counties in a multistate 
MSA. Final Sec.  __.17(b)(2) does not permit a retail lending 
assessment area to extend beyond a State boundary on the basis that the 
retail lending assessment area consists of counties located in a 
combined statistical area.
    Legal considerations. The agencies considered commenter feedback 
that requiring retail lending assessment areas to consist of an entire 
MSA or the entire nonmetropolitan area of a State may not be consistent 
with the statute. However, the agencies concluded that the geographic 
requirements for retail lending assessment areas in the final rule are 
within the scope of authority granted to the agencies under the CRA. As 
noted above, the CRA requires the agencies to assess a bank's record of 
meeting the credit need of its entire community, without defining what 
geographic areas constitute a bank's ``entire community.'' \664\ The 
statute further does not define what geographic units the agencies 
should use in assessing a bank's record of meeting the credit needs of 
its entire community. References to a bank's local communities in the 
congressional findings and purpose section of the statute, cited by 
some commenters, similarly do not specify what geographic area or 
geographic units constitute a local community.\665\
---------------------------------------------------------------------------

    \664\ See 12 U.S.C. 2903(a)(1).
    \665\ See 12 U.S.C. 2901(a)(3) and 2901(b).
---------------------------------------------------------------------------

    Accordingly, the agencies conclude that it is reasonable to 
interpret ``entire community'' for a large bank to include retail 
lending assessment areas consisting of an entire MSA or the 
nonmetropolitan area of a State. The agencies note that the statute 
clearly demonstrates that Congress intended the agencies to distinguish 
between a bank's performance in metropolitan areas and nonmetropolitan 
areas.\666\ Further, Congress explicitly contemplated assigning 
conclusions that reflect a bank's performance in an entire MSA or in 
the entire nonmetropolitan area of a State, notwithstanding that the 
geographic scope of these areas.\667\ As such, the agencies believe 
that using MSAs and the nonmetropolitan areas of States as the 
geographic base units for delineating retail lending assessment areas 
is consistent with the statute.
---------------------------------------------------------------------------

    \666\ See 12 U.S.C. 2906(b)(1)(B) and 2906(d)(3)(A).
    \667\ See id.
---------------------------------------------------------------------------

    Geographic base units. In addition to these legal considerations, 
the agencies believe that using MSAs and nonmetropolitan areas of 
States as the geographic base units for delineating retail lending 
assessment areas is appropriate for other reasons. Using MSAs and the 
nonmetropolitan area of a State as geographic base units avoids having 
multiple retail lending assessment areas in a single MSA or in the 
nonmetropolitan area of a single State, which the agencies believe 
would add complexity. Further, and particularly in the case of the 
nonmetropolitan area of a State, using larger geographic base units (as 
opposed to counties or census tracts) ensures that a larger number of 
retail loans, including loans across multiple counties, are captured in 
a retail lending assessment area and helps to ensure that credit needs 
and opportunities in nonmetropolitan areas are taken into account when 
the agencies evaluate a bank's retail lending performance. Relatedly, 
the agencies considered that larger geographic base units may provide 
banks with greater flexibility and more opportunities to originate and 
purchase small business loans and small farm loans, and loans made to 
low- and moderate-income borrowers and in low- and moderate-income 
census tracts.
    Entire-MSA retail lending assessment areas. The agencies believe it 
is appropriate to require retail lending assessment areas to consist of 
an entire MSA, excluding any counties inside facility-based assessment 
areas. Although some commenters expressed concern that a retail lending 
assessment area consisting of an entire MSA may not accurately reflect 
where a bank conducts retail lending business, the agencies believe 
that the benchmarks used to evaluate a large bank's retail lending 
performance should reflect the lending opportunities and credit needs 
of the entire MSA. For example, if a large bank makes loans only in an 
upper-income portion of an MSA, then excluding other portions of the 
MSA from the retail lending assessment area would result in relatively 
low benchmarks, even if the remainder of the MSA has significant 
lending opportunities and credit needs. Further, the agencies note that 
unlike in facility-based assessment areas (which are evaluated using 
the Retail Lending Volume Screen), a large bank is not required to 
conduct a certain amount of lending in a retail lending assessment area 
to achieve a particular performance conclusion, and the agencies will 
not consider as an additional factor the dispersion of a bank's closed-
end home mortgage or small business lending within the retail lending 
assessment area. Thus, requiring a retail lending assessment area to 
consist of an entire MSA should not result in a requirement for a large 
bank to serve an area larger than its capacity to serve. Finally, the 
agencies note that the entire MSA

[[Page 6749]]

approach for retail lending assessment areas is analogous to the 
approach under the current CRA regulations that permit assessment areas 
to consist of an entire MSA.
    Retail lending assessment areas in the nonmetropolitan area of a 
State. Upon consideration of the comments, the agencies have decided in 
the final rule to exclude from all retail lending assessment areas in 
the nonmetropolitan area of a State any counties in which a large bank 
did not originate any reported closed-end home mortgage loans or small 
business loans during that calendar year. As a result, retail lending 
assessment areas in the nonmetropolitan area of a State will be more 
targeted, relative to the proposal, to where a large bank conducts 
retail lending business in nonmetropolitan areas. In making this 
change, the agencies have considered feedback from some commenters that 
the proposed requirement to delineate a retail lending assessment area 
consisting of the entire nonmetropolitan area of a State may result in 
retail lending assessment areas that are very expansive, particularly 
in geographically large states. The agencies have also considered 
commenter feedback that the proposed approach could result in 
benchmarks that are based on an entire nonmetropolitan area of a State 
that is not aligned with the actual geographies served by the bank. For 
example, the agencies considered that a bank might have a retail 
lending assessment area in the nonmetropolitan area of a State due to 
lending across two counties where it does not maintain deposit-taking 
facilities and that are adjacent to a facility-based assessment area of 
the bank. In this example, the agencies believe that benchmarks based 
on the entire nonmetropolitan area of the State would not accurately 
reflect the lending opportunities reasonably available to the bank, and 
that setting benchmarks based on only the counties in which the bank 
made loans is more appropriate. Further, the agencies have also 
considered that it could be challenging for the agencies to consider 
performance context in evaluating a large bank's retail lending 
performance in the entire nonmetropolitan area of a State. In light of 
these considerations, the agencies believe it may not be reasonable to 
evaluate a bank's retail lending performance in nonmetropolitan 
counties in which it did not originate any reported closed-end home 
mortgage loans or small business loans in a retail lending assessment 
area.
    Combined statistical area retail lending assessment areas. Unlike 
under the proposal, the final rule does not permit a large bank to 
delineate a retail lending assessment area consisting of a combined 
statistical area. As with the proposal regarding retail lending 
assessment areas in the nonmetropolitan area of a State, the agencies 
have determined that retail lending assessment areas consisting of a 
combined statistical area may be too expansive--both for the 
appropriateness of the benchmarks used to evaluate the bank, and for 
the agencies to appropriately consider performance context. Further, 
evaluating a large bank's performance at the combined statistical area 
level may not provide as useful information regarding the bank's 
performance in specific geographic areas if, for example, the combined 
statistical area included multiple distinct MSAs. Finally, and as 
described in the section-by-section analysis of final Sec.  __.16(b), 
allowing a retail lending assessment area to extend beyond an MSA 
boundary in a combined statistical area would create challenges in 
assigning conclusions consistent with statutory requirements.
    Retail lending assessment areas and facility-based assessment areas 
in the same MSA or nonmetropolitan area of a State. Where a large 
bank's retail lending assessment area is located in the same MSA or 
nonmetropolitan area of a State where a smaller facility-based 
assessment area is located, the agencies considered requiring the large 
bank to expand its facility-based assessment area to include the entire 
MSA or entire nonmetropolitan area of the State. However, the final 
rule retains the proposed approach of allowing the large bank to 
designate the portion of the MSA or nonmetropolitan area of the State 
that excludes the facility-based assessment area as a retail lending 
assessment area. The agencies believe that this approach adequately 
captures the bank's retail lending performance in the MSA or 
nonmetropolitan area of a State. Further, in retaining the proposed 
approach, the agencies sought to preserve the current standard for 
delineating assessment areas around a bank's deposit-taking facilities, 
under which standard a bank must include the surrounding geographies in 
which the bank has originated or purchased a substantial portion of its 
loans. In particular, a bank might originate or purchase a substantial 
portion of its loans around a deposit-taking facility located in an MSA 
or the nonmetropolitan area of a State, and also originate or purchase 
a significant, but comparably smaller, portion of its loans in the 
remaining portion of the MSA or nonmetropolitan area of a State. 
Requiring such a large bank to expand its facility-based assessment 
area to include these remaining portions of the MSA or the 
nonmetropolitan area of the State would result in the large bank 
becoming subject to all four large bank performance tests in the entire 
MSA or nonmetropolitan area of the State, including in geographic areas 
where the large bank does not maintain deposit-taking facilities. The 
agencies believe this may result in additional burden, and that the 
final rule approach adequately captures a large share of retail lending 
within CRA evaluations without imposing this additional burden.

Section __.17(c) Delineation of Retail Lending Assessment Areas

The Agencies' Proposal
    Under proposed Sec.  __.17(c), a large bank would be required to 
delineate a retail lending assessment area in any MSA or in the 
nonmetropolitan area of any State in which it originated, as of 
December 31 of each of the two preceding calendar years, in that 
geographic area: (1) at least 100 home mortgage loans outside of its 
facility-based assessment areas; or (2) at least 250 small business 
loans outside of its facility-based assessment areas. In proposing 
these loan count thresholds, the agencies considered what thresholds 
would appropriately align with the amount of lending typically 
evaluated in a facility-based assessment area. The agencies also 
considered what loan count thresholds would result in a substantial 
percentage of loans that a bank makes outside of facility-based 
assessment areas being evaluated within a retail lending assessment 
area. The agencies stated that retail lending should be evaluated 
within a local context wherever feasible, based on a sufficient volume 
of loans and the size and business model of the bank.
Comments Received
    A number of commenters provided feedback on whether the requirement 
to delineate a retail lending assessment area should be triggered by 
loan count thresholds or an alternative type of trigger. In addition, 
with respect to the proposed loan count thresholds, numerous commenters 
discussed the number and types of loans that should trigger the retail 
lending assessment area.
    Use of loan count thresholds. Several commenters supported the 
proposed use of loan counts thresholds to trigger the retail lending 
assessment area requirement. However, numerous commenters opposed using 
loan count

[[Page 6750]]

thresholds to trigger the retail lending assessment area requirement. 
For example, a few commenters stated that loan count thresholds could 
be manipulated and that large banks would cap their lending just below 
these thresholds to avoid triggering a retail lending assessment area. 
At least one commenter recommended that, if the final rule retains the 
use of loan count thresholds, the agencies should penalize banks that 
manipulate their retail lending activity to avoid triggering retail 
lending assessment areas. A few commenters asserted that using loan 
count thresholds could make it challenging for banks to identify which 
markets might trigger retail lending assessment areas due to 
fluctuations in retail lending volume.
    Many commenters opposed to using loan count threshold offered 
alternative approaches for consideration, with some such commenters 
advocating for hybrid versions of the alternative approaches described 
below.
    First, a number of commenters recommended a market share approach 
to triggering the retail lending assessment area requirement. These 
commenters suggested requiring delineation of a retail lending 
assessment area only when a bank's market share of retail lending 
surpasses a certain percentage, with some commenters suggesting 1 or 2 
percent of aggregate lending. Arguments supporting this approach 
centered on eliminating retail lending assessment areas where a bank's 
lending was not material to the local market and decreasing the number 
of retail lending assessment areas required and the associated 
compliance burden for banks. Some commenters that supported the market 
share approach asserted that using a market share measure instead of 
the proposed loan count thresholds to trigger retail lending assessment 
area delineation would help to create retail lending assessment areas 
in smaller communities. At least one commenter stated that the market 
share approach is preferable to using loan count threshold because the 
latter might trigger retail lending assessment areas in areas that are 
already well-served by other lenders.
    Second, some commenters suggested requiring a retail lending 
assessment area only when a bank's retail lending in the geographic 
area constitutes a certain minimum percentage of the bank's overall 
retail lending nationwide, with commenter suggestions ranging from 0.5 
percent to 10 percent. In general, these commenters emphasized that 
such an approach would appropriately target retail lending assessment 
areas to those geographic areas where banks conduct material levels of 
lending activity. In addition, some of these commenters indicated that 
this approach would eliminate retail lending assessment areas where a 
bank's retail lending volume was not high enough to impact the bank's 
overall CRA retail lending performance, which would in turn reduce 
associated compliance burden for banks.
    Finally, some commenters suggested other alternative standards for 
requiring delineation of retail lending assessment areas. For example, 
at least one commenter suggested that a threshold based on the dollar 
amount of retail lending, would better ensure that retail lending 
assessment areas were delineated in areas where banks have a material 
level of activity. At least one other commenter suggested that a bank 
should not be required to delineate a retail lending assessment area 
unless it draws a certain level of deposits from the geography, 
pointing to the CRA's focus on banks reinvesting in communities from 
which banks draw deposits. A few commenters suggested replacing the 
loan count thresholds with what they described as a clearer and more 
stable indicator of a bank's relevant activity, such as the presence of 
a loan production office. Similarly, some commenters recommended that 
if the agencies do not require a facility-based assessment area based 
on the presence of a loan production office then, at a minimum, the 
presence of a loan production office should trigger delineation of a 
retail lending assessment area.
    Loan types considered in loan count thresholds. A number of 
commenters expressed views about the types of loans that should be 
included in or excluded from the proposed loan counts thresholds used 
to trigger retail lending assessment areas. For example, many 
commenters requested that the agencies count loans made by non-bank 
partners of the bank toward the proposed loan counts thresholds to hold 
banks more accountable for serving low- and moderate-income borrowers. 
A few commenters similarly recommended that loans of bank affiliates 
should count toward the loan count thresholds for triggering a retail 
lending assessment area.
    With respect to the proposed home mortgage loan count threshold, a 
few commenters recommended excluding certain types of home mortgage 
loans from the threshold. For example, at least one commenter stated 
that counting second mortgage loans toward the loan count threshold for 
triggering a retail lending assessment area could discourage banks from 
engaging in this activity, which would be detrimental because many 
banks offer second mortgages to cover down payment and closing costs in 
conjunction with affordable home mortgage programs, such as State 
housing finance agency programs. A few commenters noted that home 
mortgage refinance lending volume is highly sensitive to interest rates 
and cannot reasonably be controlled by a bank, making these loans 
unsuitable for counting toward the home mortgage loan count threshold. 
At least one of these commenters stated that the lower interest rates 
of recent years have resulted in significant refinance activity, which 
could result in more banks being required to delineate retail lending 
assessment areas.
    With respect to the proposed small business loan count threshold, a 
few commenters suggested not counting indirect small business loans. 
These commenters stated that delineating a retail lending assessment 
area based on a loan count threshold that includes indirect small 
business loans would be inappropriate because a third-party dealer or 
seller markets and originates these loans. Further, at least one of 
these commenters asserted that banks do not have control over the 
geographic distribution of these borrowers, nor are they in a position 
to conduct outreach to low- or moderate-income borrowers in the areas 
where the dealers are located. At least one other commenter recommended 
that the agencies consider whether to count small business credit card 
loans toward the small business loan count threshold, cautioning that 
this type of lending can be predatory and that distinguishing small 
business credit card accounts from personal credit card accounts may be 
difficult.
    Some commenters suggested that the loan count thresholds for 
triggering retail lending assessment requirement should include other 
types of loans beyond home mortgage and small business loans. A few 
commenters recommended that the agencies adopt a consumer loan count 
threshold for triggering retail lending assessment areas (in addition 
to the proposed home mortgage and small business loan count 
thresholds), with one such commenter stating that 100 consumer loans 
should trigger the retail lending assessment area requirement. In 
general, these commenters asserted that adopting a consumer loan count 
threshold would result in retail lending assessment areas that more 
accurately reflect where a bank conducts business. Another commenter 
stated that the agencies should adopt separate loan count thresholds 
for credit card loans and

[[Page 6751]]

non-credit card consumer loans. At least one commenter stated that the 
agencies did not provide sufficient justification in the proposal as to 
why home mortgage and small business loans, but not other types of 
retail loans, were appropriate for triggering retail lending assessment 
areas.
    Loan count threshold levels. A number of commenters discussed the 
level of home mortgage and small business lending that should trigger 
the retail lending assessment area requirement. A few commenters 
asserted that the agencies did not provide sufficient rationale for why 
the proposed loan count thresholds were set at 100 home mortgage loans 
and 250 small business loans, and requested that the agencies provide 
more supporting data and analysis.
    A few commenters suggested that the proposed loan count thresholds 
of 100 home mortgage loans and 250 small business loans were too high. 
Some of these commenters suggested lower loan count thresholds, such as 
50 home mortgage loans and 100 small business loans, stating that lower 
thresholds would incorporate more rural geographic areas into retail 
lending assessment areas. Other commenters suggested that large banks 
should be evaluated in every geographic area in which they conduct any 
volume of retail lending and that, accordingly, no loan count 
thresholds are necessary.
    However, many commenters recommended increasing the proposed home 
mortgage and small business loan count thresholds to decrease the 
number of retail lending assessment areas required, and to ensure that 
retail lending assessment areas reflect those geographic areas where a 
bank conducts a meaningful amount of retail lending. Most of these 
commenters suggested alternative loan count thresholds ranging from 250 
to 500 home mortgage loans, and 350 to 750 small business loans.
Final Rule
    Section __.17(c) of the final rule provides that, subject to the 
geographic requirements in Sec.  __.17(b), a large bank must delineate, 
for a particular calendar year, a retail lending assessment area in any 
MSA or the nonmetropolitan area of any State in which it originated at 
least 150 closed-end home mortgage loans that are reported loans in 
each year of the prior two calendar years, or at least 400 small 
business loans that are reported loans in each year of the prior two 
calendar years. The final rule thus differs from the proposal in that 
it: (1) includes only closed-end home mortgage loans in, excludes open-
end home mortgage loans from, the home mortgage loan count threshold; 
and (2) increases the loan count thresholds from the proposed loan 
count thresholds of 100 home mortgage loans and 250 small business 
loans.
    Use of loan count thresholds. After considering public comments, 
the agencies believe that it is appropriate to use loan count 
thresholds to trigger the retail lending assessment area requirement. 
The agencies believe that loan count thresholds remain the most 
transparent and straightforward approach to identifying geographic 
areas in which a large bank has concentrations of closed-end home 
mortgage and small business lending outside of its facility-based 
assessment areas. The number of loans is a reasonable proxy for a large 
bank's presence in a particular market, as each loan generally 
corresponds to one or more borrowers served by the bank.
    The agencies considered comments about the potential variability of 
retail lending assessment area delineations over time. However, the 
agencies believe that the proposed approach of requiring a large bank 
to delineate a retail lending assessment area only when it has met the 
applicable loan count threshold in each year of the two prior calendar 
years will generally provide greater certainty and reduce variability, 
relative to an approach in which a single year of lending is sufficient 
to trigger a retail lending assessment area. In addition, the agencies 
intend to explore the development of data tools to help large banks 
monitor those geographic areas where they may be required to delineate 
a retail lending assessment area and monitor the retail lending 
distribution benchmarks for such geographic areas.
    The agencies considered several alternatives to the use of loan 
count thresholds suggested by commenters. First, the agencies 
considered, but did not adopt, a market share approach in place of or 
in combination with the proposed loan count thresholds. Under such an 
approach, a large bank would be required to delineate a retail lending 
assessment area only if the bank's market share of retail lending in 
the geographic area met a certain threshold. The agencies believe that 
such an approach would be more complex to administer relative to the 
loan count threshold approach. In addition, under a market share 
approach, whether a bank is required to delineate a retail lending 
assessment area would depend on factors outside of the bank's control, 
namely the activity of other lenders in the market. Further, the 
threshold for triggering delineation of a retail lending assessment 
area could vary considerably from year to year depending on the total 
number of loans in the market, making retail lending assessment area 
delineations less predictable. Finally, under the market share 
approach, the number of loans that would be sufficient to trigger the 
retail lending assessment area requirement in particular MSAs or the 
nonmetropolitan areas of States could differ drastically depending on 
the total number of loans in the market. As a result, the retail 
lending performance of a large bank could be assigned a conclusion in 
one specific geographic area, but not another geographic area, despite 
having a similar number of loans in both geographic areas. The agencies 
believe that it is more desirable to have consistency in the number of 
loans used to designate retail lending assessment areas. For these 
reasons, the agencies have decided to not adopt a market share approach 
to delineating retail lending assessment areas.
    Second, the agencies considered, but are not adopting, a bank-
specific lending share approach in place of or in combination with the 
proposed loan count thresholds. Under such an approach, a large bank 
would be required to delineate a retail lending assessment area only if 
the bank's loans in the geographic area represented a certain 
percentage of the bank's overall retail lending nationwide. The 
agencies believe that the lending share approach would be somewhat more 
complex than using loan count thresholds, and would result in 
inconsistent standards for different banks. For example, under the 
lending share approach, two large banks could make the same number of 
closed-end home mortgage or small business loans within the same 
geographic area, but only one such bank could be required to delineate 
a retail lending assessment area. The agencies believe that banks 
engaged in a similar volume of lending in the same market should 
generally be evaluated in a consistent manner. For these reasons, the 
agencies have decided not to adopt the lending share approach.
    Third, the agencies considered, but are not adopting, a deposit 
share approach in combination with the proposed loan count thresholds. 
Under such an approach, a large bank would be required to delineate a 
retail lending assessment area only if it meets an applicable loan 
count threshold and has a certain number of depositors in or draws a 
certain volume of deposits from a geographic area. However, as 
discussed above in connection with the potential deposit-based 
assessment area

[[Page 6752]]

approach, the full range of deposits data needed to assess the 
potential impact of a deposit share approach to triggering the retail 
lending assessment area requirement is not currently available. 
However, the agencies note that, under the final rule, for large banks 
over $10 billion in assets and other banks that elect to report 
deposits data, the amount of the bank's deposits in a retail lending 
assessment area will affect the weighting of the retail lending 
assessment area in assigning conclusions at the State, multistate MSA, 
and institution levels, pursuant to section VIII of final appendix A. 
As a result, the weight assigned to each retail lending assessment area 
will reflect the volume of deposits that the bank draws from the 
geographic area.
    Finally, the agencies considered requiring a large bank to 
delineate a retail lending assessment area in geographic areas where it 
maintains loan production offices. The final rule does not adopt this 
approach. The agencies believe that the products and services offered 
in, and the number of borrowers served by, a bank's loan production 
offices vary widely, and as such, it is preferable to use established 
loan count thresholds to delineate retail lending assessment areas. For 
example, the agencies note that a bank may establish a loan production 
office as an initial step to gain a foothold in a new market where the 
bank has made few or no loans. The agencies also note that, once a loan 
production office outside of a bank's facility-based assessment area 
becomes established and the office originates closed-end home mortgage 
loans or small business loans in a particular area, the final rule loan 
count thresholds will ultimately capture the loans originated from the 
office in a retail lending assessment area if the loan count thresholds 
are met.
    Loan types considered. Under the final rule, only a large bank's 
closed-end home mortgage and small business loans would be considered 
for purposes of determining whether the retail lending assessment area 
requirement is triggered. Regarding feedback from some commenters that 
additional types of loans, particularly consumer loans, should count 
toward the loan count thresholds, the agencies have considered this 
feedback and determined that adopting additional loan count thresholds 
would necessitate additional data collection and reporting 
requirements. For example, the agencies believe that individual loan 
data collection and reporting for consumer loans, or potentially only 
automobile loans, would be necessary in order to use those product 
lines to establish loan count thresholds for the purposes of 
establishing retail lending assessment areas. As discussed further in 
the section-by-section analysis of final Sec.  __.42, the agencies have 
determined to only require automobile lending data collection and 
maintenance, but not reporting, for large banks for which automobile 
loans are a product line (i.e., majority automobile lenders, and banks 
that opt to have their automobile loans evaluated pursuant to the 
Retail Lending Test). Further, the agencies believe that the focus on 
closed-end home mortgage and small business lending is appropriate 
given the central importance of these products to meeting community 
credit needs and given the agencies' objective to minimize compliance 
costs by limiting data collection and reporting requirements. The 
agencies also note that consumer loans other than automobile loans will 
generally not be evaluated under the Retail Lending Test, but rather, 
will be considered under the responsive credit products component of 
the Retail Services and Products Test, as discussed in the section-by-
section analysis of final Sec.  __.23(c).
    With respect to the home mortgage loan count threshold, the final 
rule would only consider a bank's closed-end home mortgage loans, and 
not open-end home mortgage loans as proposed. As discussed in the 
section-by-section analysis of final Sec.  __.22(d), under the final 
rule, the geographic and borrower distributions of a bank's open-end 
home mortgage loans will not be evaluated under the Retail Lending 
Test. For this reason, the agencies removed open-end home mortgage 
loans from the home mortgage loan count threshold for purposes of 
triggering the retail lending assessment area requirement. For a large 
bank that originates open-end home mortgage loans, this change has the 
effect of making it less likely that the large bank's home mortgage 
lending meets any particular loan count threshold triggering the retail 
lending assessment area delineation requirement. For example, a large 
bank that originated 150 home mortgage loans in an MSA in each year of 
the prior two calendar years, 100 of which were open-end home mortgage 
loans and 50 of which were closed-end home mortgage loans, would have 
been required to delineate a retail lending assessment area under the 
proposed approach, but would not be required to delineate a retail 
lending assessment area under the final rule approach due to the 
exclusion of open-end home mortgage loans from the final rule loan 
count thresholds.
    However, beyond the exclusion of open-end home mortgage loans, the 
agencies are not excluding other types of home mortgage or small 
business loans from the respective loan count thresholds, as some 
commenters suggested. The agencies believe that excluding certain types 
of loans--such as affordable housing loans, home mortgage refinance 
loans, indirect small business loans, or small business credit card 
loans--from the loan count thresholds would produce a less 
comprehensive picture of a large bank's lending in a particular 
geographic area. Finally, the agencies believe that aligning the 
closed-end home mortgage and small business loans considered in the 
loan count thresholds with reported loan data simplifies the loan count 
threshold calculation.
    The agencies are also not adopting the suggestions by some 
commenters to require that loans originated by a large bank's 
affiliates or non-bank partners, other than a bank's operations 
subsidiaries or operating subsidiaries, count toward the loan count 
thresholds in final Sec.  __.17(c). However, as discussed further in 
the section-by-section analysis of final Sec.  __.21(b), the final rule 
does include the activities of a bank's operations subsidiaries or 
operating subsidiaries in a bank's evaluation, including with respect 
to loan counts for determining a large bank's retail lending assessment 
area delineations.
    In addition, final Sec.  __.21(b)(3)(iv) provides that if a large 
bank opts to have the agencies consider the closed-end home mortgage 
loans or small business loans that are originated or purchased by any 
of the bank's affiliates in any Retail Lending Test Area, the agencies 
will consider the closed-end home mortgage loans or small business 
loans originated by all of the bank's affiliates in the nationwide area 
toward the loan count thresholds in final Sec.  __.17(c). The agencies 
believe that this approach affords an appropriate degree of flexibility 
for bank business models that involve affiliates other than operations 
subsidiaries or operating subsidiaries, as discussed in the section-by-
section analysis of Sec.  __.21(b).
    Loan count threshold levels. Under the final rule, a large bank 
that is not exempt from the retail lending assessment area requirement 
must delineate a retail lending assessment area in an MSA or the 
nonmetropolitan area of a State in which it has originated at least 150 
closed-end home mortgage loans that are reported loans or at least 400 
small business loans that are reported loans in each year of the prior 
two calendar years. The loan count thresholds in the final rule 
represent an increase from the proposed loan count

[[Page 6753]]

thresholds of 100 home mortgage loans and 250 small business loans.
    As discussed above, in determining the loan count thresholds in the 
final rule, the agencies considered commenter feedback as well as 
different objectives. Specifically, the agencies considered how to 
balance the objective of increasing the share of retail lending outside 
of facility-based assessment areas that would be evaluated within 
retail lending assessment areas, with the objective of limiting the 
number of retail lending assessment areas and the number of affected 
large banks. The agencies also considered that retail lending 
assessment areas would help to adapt the CRA evaluation framework to 
changes in the banking landscape, and noted the potential challenges 
associated with monitoring where retail lending assessment areas are 
required, and monitoring performance within those areas.
    The agencies also analyzed data from the 2018, 2019, and 2020 
calendar years, summarized in Table 4, to assess how different loan 
count thresholds would have impacted (1) the number and percentage of 
affected large banks, (2) the number of retail lending assessment 
areas, (3) the percentage of lending outside of facility-based 
assessment areas that would have been evaluated within retail lending 
assessment areas, and (4) the number of large banks that would have had 
to delineate at least 100 retail lending assessment areas over the 
three calendar years. For all threshold options included in Table 4, 
the analysis assumed that the final rule retail lending assessment area 
approach had been in effect during those calendar years, including the 
exemption for large banks that conduct more than 80 percent of their 
retail lending within their facility-based assessment areas, the 
inclusion of only closed-end home mortgage loans (and not open-end home 
mortgage loans), and the final rule approach to identifying major 
product lines in retail lending assessment areas.
    Based on this analysis, the agencies believe that the increased 
loan count thresholds in the final rule appropriately tailor the retail 
lending assessment area requirement while also ensuring that the 
overall retail lending assessment area approach continues to cover a 
meaningful percentage of retail lending taking place outside of 
facility-based assessment areas. Relative to an alternative approach 
that retained the proposed loan count threshold levels but incorporated 
the final rule's other modifications to the retail lending assessment 
area proposal, the final rule loan count thresholds would have 
significantly decreased the number of affected large banks, from 81 to 
63, and the total number of retail lending assessment areas, from 1,301 
to 863. In addition, relative to the proposed loan count threshold 
levels, the historical analysis shows that the final rule loan count 
thresholds would have decreased the percentage of retail lending 
outside of facility-based assessment areas that is evaluated in retail 
lending assessment areas by about 4 percentage points for closed-end 
home mortgage lending, and by about 5 percentage points for small 
business lending. The agencies note that, under the final rule, a large 
bank's retail lending outside of its facility-based assessment areas 
and retail lending assessment areas is evaluated on an aggregate basis 
through the outside retail lending area evaluation, discussed in the 
section-by-section analysis of final Sec.  __.18.
    Table 4 also includes the loan count threshold option of 50 closed-
end home mortgages and 100 small business loans, as suggested by some 
commenters. The agencies note that while these decreased thresholds 
would have increased the share of retail lending outside of facility-
based assessment areas that is captured in retail lending assessment 
areas, they also would have significantly increased the number of 
affected banks relative to the proposed threshold levels, from 81 to 
114, and the total number of retail lending assessment areas, from 
1,301 to 2,421. Based on the results of this analysis, and in light of 
comments regarding the compliance burden associated with retail lending 
assessment areas, the agencies do not believe that these lower loan 
count thresholds would appropriately balance the agencies' objectives.
    In addition, Table 4 includes two loan threshold options higher 
than the ones adopted in the final rule. For the potential loan count 
thresholds of 250 closed-end home mortgage loans or 500 small business 
loans, the agencies' historical analysis found that, compared to the 
final rule thresholds, these thresholds would have further decreased 
the number of affected large banks, from 63 to 50, and the total number 
of retail lending assessment areas, from 863 to 629. Furthermore, these 
thresholds would have resulted in a decrease in the percentage of 
closed-end home mortgage lending outside of facility-based assessment 
areas that would have been evaluated within retail lending assessment 
areas, from 23.0 percent to 17.2 percent, relative to the proposed 
levels, and would have decreased to a lesser extent the percentage of 
small business lending outside of facility-based assessment areas that 
would have been evaluated within retail lending assessment areas, from 
39.3 percent to 37.3 percent, relative to the proposed levels. While on 
the one hand, these loan count thresholds would have further reduced 
the number of affected large banks and the total number of retail 
lending assessment areas, the agencies do not believe that these 
thresholds would evaluate a sufficient share of large banks' retail 
lending outside of facility-based assessment areas in specific 
geographic areas.
    Finally, Table 4 also included loan thresholds of 500 closed-end 
home mortgage loans or 750 small business loans. The agencies' 
historical analysis indicates that these loan count thresholds would 
have resulted in only 10.7 percent of large banks' closed-end home 
mortgage lending outside of facility-based assessment areas being 
evaluated in retail lending assessment areas, and only 32.7 percent of 
small business lending. As with the higher potential loan count 
threshold discussed above, the agencies do not believe that these 
threshold levels, or any higher threshold levels, would achieve the 
objective of modernizing the assessment area framework to account for 
changes in banking.
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BILLING CODE 4810-33-C; 6210-01-C; 6714-01-C

Section __.17(d) Use of Retail Lending Assessments Areas

The Agencies' Proposal
    The agencies proposed in Sec.  __.17(d) to use retail lending 
assessment areas delineated by a large bank in the evaluation of the 
bank's retail lending performance unless the agencies determine that 
the retail lending assessment areas do not comply with requirements of 
Sec.  __.17. The agencies did not propose to evaluate other aspects of 
a bank's performance, including its community development activities, 
in retail lending assessment areas.
    To create parity between the evaluation of a large bank's major 
product lines in facility-based assessment areas and retail lending 
assessment areas, the agencies proposed to use the same approach to 
identify

[[Page 6755]]

major product lines in both geographic areas, as discussed in the 
section-by-section analysis of final Sec.  __.22(d). The agencies 
intended for this approach to ensure that the retail loans that would 
be evaluated under the distribution analysis component of the Retail 
Lending Test in both facility-based assessment areas and retail lending 
assessment areas are those product lines in which the bank specialized 
locally.
    However, the agencies sought feedback on alternative approaches to 
evaluating a large bank's retail lending performance in retail lending 
assessment areas. Specifically, the agencies suggested an alternative 
approach under which the retail lending performance of large banks 
would be evaluated in retail lending assessment areas with respect to 
home mortgage lending only if the bank met the proposed 100 home 
mortgage loans threshold, and with respect to small business lending 
only if the bank met the proposed 250 small business loans threshold. 
This alternative approach would differ from the proposed approach in 
that, under the proposed approach, all of a bank's major product lines 
would be evaluated under the distribution analysis component of the 
Retail Lending Test in a retail lending assessment area if the bank 
surpassed at least one of the proposed loan count thresholds.\668\ The 
agencies explained that the alternative approach would more narrowly 
tailor the evaluation of a large bank's retail lending performance in 
retail lending assessment areas.
---------------------------------------------------------------------------

    \668\ See proposed Sec. Sec.  __.17(c) and __.22(a)(4).
---------------------------------------------------------------------------

Comments Received
    Product lines evaluated in retail lending assessment areas. 
Numerous commenters addressed the product lines that should be 
evaluated in retail lending assessment areas under the distribution 
analysis component of the Retail Lending Test.
    A few commenters supported the proposal to evaluate the geographic 
and borrower distributions of all of a large bank's major product lines 
in retail lending assessment areas. In general, these commenters stated 
that a large bank that meets either of the proposed loan count 
thresholds would be a major lender in the particular market, and that 
evaluating all of the bank's major product lines would be necessary to 
fully assess the bank's retail lending impact. At least one commenter, 
noted that the proposed approach to weighting different major product 
lines would ensure that there is an appropriate emphasis on a bank's 
most relevant product lines in CRA evaluations.
    However, most commenters on this topic recommended evaluating the 
geographic and borrower distributions a more limited set of product 
lines in retail lending assessment areas. Of these commenters, most 
recommended only evaluating home mortgage loans or small business loans 
in a retail lending assessment area, and only if the bank met the 
relevant loan count threshold, as contemplated as an alternative in the 
proposal.
    Some commenters suggested other approaches for determining which of 
a large bank's product lines should be evaluated under the distribution 
analysis component of the Retail Lending Test in a retail lending 
assessment area. For example, one commenter suggested evaluating the 
geographic and borrower distributions of only the top two product lines 
in each retail lending assessment area. Many of the commenters that 
recommended using a market share or lending share approach for 
triggering the retail lending assessment area requirement also 
recommended applying the same standard for purposes of determining what 
product lines are evaluated in a retail lending assessment area.
    Evaluation of activities beyond retail lending. A number of 
commenters recommended that CRA evaluations in retail lending 
assessment areas should go further than the proposal by including an 
assessment of not only retail lending activities evaluated under the 
proposed Retail Lending Test, but also other types of bank activities, 
particularly community development lending. Several of these commenters 
stated that evaluating a bank's community development activities in 
retail lending assessment areas would improve bank responsiveness to 
the needs of rural communities. At least one commenter stated that 
banks acquire knowledge of the markets and needs of their retail 
lending assessments by virtue of doing business there, and thus, it 
would be appropriate to evaluate a large bank's community development 
activities in these areas. At least one other commenter stated that 
banks should not be required to conduct community development 
activities in retail lending assessment areas, but should receive CRA 
credit if they do conduct activities in these areas.
Final Rule
    The agencies are adopting with revisions, the proposed use of 
retail lending assessment areas in final Sec.  __.17(d). As under the 
proposal, the final rule states that the agencies use the retail 
lending assessment areas delineated by a large bank, unless the 
agencies determine that a retail lending assessment area does not 
comply with the requirements of final Sec.  __.17. However, the 
agencies are narrowing the scope of the evaluation of a large bank's 
retail lending performance in retail lending assessment areas, relative 
to the proposal. Specifically, under the final rule approach, only a 
large bank's closed-end home mortgage loans and small business loans 
could be evaluated under the distribution analysis component of the 
Retail Lending Test in a retail lending assessment area. Further, under 
the final rule approach, the agencies will evaluate these product lines 
in a retail lending assessment area only to the extent that the large 
bank meets the applicable loan count thresholds in the retail lending 
assessment area.
    Product lines evaluated. The agencies proposed to evaluate the 
geographic and borrower distributions of all of a large bank's major 
product lines in retail lending assessment areas to comprehensively 
assess whether a bank is meeting the credit needs of the entirety of 
its retail lending assessment areas. As discussed above, the agencies 
are persuaded that the benefits of the retail lending assessment 
approach are outweighed by the complexity of, and compliance burden 
associated with, the approach as proposed. To simplify the retail 
lending assessment area framework and reduce the compliance burden 
associated with retail lending assessment areas, the final rule adopts 
the alternative approach contemplated in the proposal under which only 
a large bank's closed-end home mortgage lending and small business 
lending could be evaluated under the distribution analysis component of 
the Retail Lending Test in a retail lending assessment area, and only 
to the extent that the large bank meets the applicable loan count 
threshold for triggering the retail lending assessment area 
requirement. In other words, if a large bank meets the loan count 
thresholds for either or both closed-end home mortgage loans or small 
business loans and thus must delineate a retail lending assessment 
area, the product lines responsible for triggering the retail lending 
assessment area are automatically considered a major product line in 
the retail lending assessment area.
    The agencies also considered alternative approaches suggested by 
commenters. In particular, the agencies considered only evaluating the 
geographic and borrower distributions of a large bank's top two product 
lines in a retail lending assessment area, but

[[Page 6756]]

determined that this approach would add complexity and could undermine 
predictability, particularly if a large bank has several product lines 
of a similar size in a retail lending assessment area. The agencies 
also considered using a market share or lending share threshold to 
determine which of a large bank's product lines to evaluate under the 
distribution analysis component of the Retail Lending Test in a retail 
lending assessment area. However, as discussed above in connection with 
the use of loan count thresholds, the agencies determined these 
approaches would add complexity and may fail to capture product lines 
consisting of a significant number of loans in a retail lending 
assessment area.
    In determining whether to apply the same major product line 
standard for facility-based assessment areas and outside retail lending 
areas to retail lending assessment areas as proposed, or whether to 
adopt the alternative approach of evaluating the geographic and 
borrower distributions of only the product line or product lines that 
triggered the retail lending assessment area requirement, the agencies 
analyzed data from the 2018, 2019, and 2020 calendar years, summarized 
in Table 5, to assess the percentage of large banks' retail lending 
outside of facility-based assessment areas that would have been 
evaluated within retail lending assessment areas, and the average 
number of major product lines per retail lending assessment area, had 
either approach been in effect during those calendar years. In 
comparing the options, the agencies note that the final rule approach 
of evaluating only the product line or product lines that triggered the 
retail lending assessment area would have resulted in a small reduction 
in the percentage of closed-end home mortgage lending outside of 
facility-based assessment areas that would have been evaluated within 
retail lending assessment areas from 27.5 to 23.0 percent. The final 
rule approach would have resulted in the same percentage of small 
business lending outside of facility-based assessment areas that would 
have been evaluated in retail lending assessment areas (39.3 percent) 
but a decrease in the share of small farm lending that would have been 
evaluated, from 0.7 to 0 percent. Finally, the final rule approach 
would have resulted in a significant decrease in the average number of 
product lines that would have been evaluated in a retail lending 
assessment area, from 1.4 to 1.1. The agencies believe that lowering 
the number of product lines evaluated in retail lending assessment 
areas will decrease the potential complexity and burden of the retail 
lending assessment area approach, and that this decreased complexity 
and burden outweighs the potential loss of coverage for closed-end home 
mortgage, small business, and small farm lending evaluated within 
retail lending assessment areas.
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BILLING CODE 4810-33-C; 6210-01-C; 6714-01-C
    Performance tests applied in retail lending assessment areas. The 
agencies acknowledge comments that CRA evaluations in retail lending 
assessment areas should not be limited to the Retail Lending Test, and 
that evaluations in these areas should also consider large banks' 
community development activities. However, the agencies believe that 
retail lending assessment area evaluations should be specific to retail 
lending, and that the proposed Retail Services and Products Test, 
Community Development Financing Test, and Community Development 
Services Test appropriately consider other large bank activities 
outside of facility-based assessment areas. Under the final rule, and 
as discussed in the section-by-section analysis of final Sec.  __.19, a 
large bank will receive consideration for community development loans, 
community development investments, and community development services 
outside of the facility-based assessment areas when determining the 
bank's conclusion at the State, multistate MSA, and institution levels. 
In addition, and as discussed in the section-by-section analysis of 
final Sec.  _.23, a large bank may receive consideration for applicable 
retail banking services outside of its facility-based assessment areas 
as certain components of the Retail Services and Products Test are not 
restricted to a bank's facility-based assessment areas. Specifically, 
in the case of a large bank with assets greater

[[Page 6758]]

than $10 billion in both of the prior two calendar years, a large bank 
with assets less than or equal to $10 billion in either of the prior 
two calendar years and that does not operate branches, or any other 
large bank at the bank's option, the agencies will evaluate the large 
bank's digital and other delivery systems at the institution level. In 
addition, at the institution level, a large bank may receive positive 
consideration for its credit products and programs, and a large bank 
with assets of $10 billion or more in both of the prior two calendar 
years, or any other large bank at the bank's option, may receive 
positive consideration for its responsive deposit products. The 
agencies believe that it is appropriate to consider these activities at 
the State, multistate MSA, and institution levels rather than within 
specific retail lending assessment areas because it provides greater 
flexibility for a large bank to identify areas with unmet community 
development and retail services needs that the bank has the capacity 
and expertise to address. In contrast, a large bank conducting retail 
lending in a retail lending assessment area has demonstrated capacity 
to lend in that geographic area, and therefore, the agencies believe 
that it is appropriate to evaluate the extent to which the bank is 
meeting the credit needs of the entirety of its retail lending 
assessment areas.

Section __.18 Outside Retail Lending Areas

    In proposed Sec.  __.22(a)(2)(ii) and (a)(3), respectively, the 
agencies proposed to evaluate large banks and certain intermediate 
banks \669\ under the Retail Lending Test in ``outside retail lending 
areas.'' Under the proposal, a bank's outside retail lending area would 
consist of the nationwide area outside of the bank's facility-based 
assessment areas and, as applicable, retail lending assessment areas. 
In proposing the outside retail lending area approach, the agencies 
intended to comprehensively assess large banks' and certain 
intermediate banks' lending to low- and moderate-income census tracts 
and borrowers, and small businesses and small farms, by ensuring that 
retail lending that is too geographically dispersed to be evaluated 
within a facility-based assessment area or retail lending assessment 
area would still be considered under the Retail Lending Test.
---------------------------------------------------------------------------

    \669\ The proposal provided that an intermediate bank that 
originates and purchases more than 50 percent of its retail loans 
(by dollar amount) outside of its facility-based assessment areas 
over the relevant evaluation period would be evaluated in its 
outside retail lending area. See proposed Sec.  __.22(a)(3).
---------------------------------------------------------------------------

    Numerous commenters provided feedback on the proposed outside 
retail lending area approach. Commenters expressed a variety of views 
regarding the outside retail lending area proposal, with some 
commenters supporting the proposed approach and others opposing the 
proposed approach. Commenters also provided feedback on specific 
aspects of the outside retail lending area proposal, especially views 
on which banks should be evaluated under the outside retail lending 
area approach.
    For the reasons discussed below, the final rule adopts the proposed 
outside retail lending area approach with some modifications. 
Consistent with the proposal, the final rule provides that the agencies 
evaluate on a mandatory basis the retail lending performance of a large 
bank, and certain other banks, in the bank's outside retail lending 
area. The final rule also provides that the outside retail lending area 
generally consists of the nationwide area outside of the bank's 
facility-based assessment areas and retail lending assessment areas. 
However, in a change from the proposal, and as described below, the 
final rule: (1) adjusts the standard used to determine when an 
intermediate bank's outside retail lending area is evaluated on a 
mandatory basis, and applies the same standard to a small bank that 
opts to be evaluated under the Retail Lending Test; (2) permits an 
intermediate bank or small bank that does not meet this standard to opt 
to have its outside retail lending area evaluated; and (3) tailors the 
proposed geographic standard for outside retail lending areas to 
exclude those nonmetropolitan counties in which a bank did not 
originate or purchase any closed-end home mortgage loan, small business 
loan, small farm loan, or automobile loan (if automobile loans are a 
product line for the bank). In addition, the agencies are codifying the 
outside retail lending area approach is new Sec.  __.18 for better 
clarity and organization.

Overall Outside Retail Lending Area Approach

The Agencies' Proposal
    To complement the agencies' evaluation of a bank's retail lending 
in its facility-based assessment areas and retail lending assessment 
areas, as applicable, the agencies proposed in Sec.  __.22(a) to 
evaluate the retail lending performance of large banks and certain 
intermediate banks in the bank's outside retail lending area. As 
defined in proposed Sec.  __.12, the bank's outside retail lending area 
would be the nationwide area outside of the bank's facility-based 
assessment areas and retail lending assessment area.
Comments Received
    Several commenters supported the agencies' proposal to evaluate the 
retail lending of certain banks in their outside retail lending areas 
as an appropriate complement to the proposed facility-based assessment 
area and retail lending assessment area frameworks. At least one of 
these commenters stated that evaluating a bank's retail lending in its 
outside retail lending area was necessary to develop a complete picture 
of the bank's retail lending performance. Another commenter favorably 
noted that the outside retail lending area approach would increase CRA 
coverage of rural lending activity outside of a bank's facility-based 
assessment areas.
    Some commenters opposed or expressed significant concerns with the 
proposed outside retail lending area approach. These commenters opposed 
the outside retail lending area proposal for several reasons, including 
commenter views that: the outside retail lending area approach is not 
aligned with the CRA statute's purpose of encouraging reinvestment of 
deposits in local communities where banks are chartered to do business; 
evaluation of a bank's retail lending performance in its outside retail 
lending area could offset or distract from the bank's retail lending 
performance in its facility-based assessment areas; and the benefits of 
evaluating a bank's retail lending in its outside retail lending area 
would not outweigh the complexity and compliance burden associated with 
the outside retail lending area evaluation, particularly because the 
share of the bank's retail loans originated outside of facility-based 
assessment areas or retail lending assessment areas is small for most 
banks.
    At least one commenter stated that the outside retail lending area 
evaluation should include not only a bank's retail loans made outside 
of its facility-based assessment areas and retail lending assessment 
areas, but also retail loans made within its facility-based assessment 
areas and retail lending assessment areas that are not evaluated as 
major product lines.
    A few commenters recommended that the evaluation of a bank's retail 
lending performance in its outside retail lending area include 
consideration of qualitative factors and performance context, including 
the bank's ability and opportunities to serve the markets in this area.

[[Page 6759]]

Final Rule
    For the reasons discussed below, the agencies are adopting the 
outside retail lending area approach in the final rule. However, in 
response to commenter feedback and in consideration of the agencies' 
policy objectives, the agencies are also adopting several modifications 
to the outside retail lending area proposal. Specifically, the final 
rule (1) adjusts the calculation of the 50 percent standard used to 
determine when an intermediate bank's outside retail lending area is 
evaluated on a mandatory basis, and applies the same standard to a 
small bank that opts to be evaluated under the Retail Lending Test; (2) 
permits an intermediate bank or small bank that does not meet this 
standard to opt to have its outside retail lending area evaluated; and 
(3) tailors the proposed geographic standard for outside retail lending 
areas to exclude those nonmetropolitan counties in which a bank did not 
originate or purchase any closed-end home mortgage loan, small business 
loan, small farm loan, or automobile loan (if automobile loans are a 
product line for the bank). In addition, the agencies are codifying the 
outside retail lending area approach is new Sec.  __.18 for better 
clarity and organization.\670\ These modifications to the proposal are 
discussed throughout this section-by-section analysis of Sec.  __.18.
---------------------------------------------------------------------------

    \670\ The agencies are renumbering proposed Sec.  __.18 as final 
Sec.  __.19.
---------------------------------------------------------------------------

    Legal authority. The agencies have considered all of the issues 
raised by commenters regarding their legal authority to evaluate the 
retail lending performance of certain banks in their outside retail 
lending areas. Consistent with the agencies' views stated in the 
proposal, and upon further deliberation and consideration, the agencies 
have concluded that the CRA authorizes the agencies to evaluate at 
least certain banks' retail lending performance in their outside retail 
lending areas. As discussed above in the section-by-section analysis of 
Sec.  __.17, the CRA requires the agencies to assess a bank's record of 
meeting the credit needs of its entire community, without defining what 
constitutes a bank's ``entire community.'' \671\ Moreover, as described 
in the section-by-section analysis of Sec.  __.17, although the CRA 
includes provisions that specifically relate to the preparation of 
written evaluations that support the conclusion that the geographic 
areas where a bank maintains deposit-taking facilities are considered 
part of the bank's entire community,\672\ the statute does not indicate 
that a bank's entire community consists of only these geographic areas.
---------------------------------------------------------------------------

    \671\ See 12 U.S.C. 2903(a)(1) (requiring that the agencies 
``assess [an] institution's record of meeting the credit needs of 
its entire community'').
    \672\ See, e.g., 12 U.S.C. 2906 (requiring the agencies to 
prepare a written evaluation of a bank's CRA performance for each 
metropolitan area and, in the case of an interstate bank, each State 
and/or multistate metropolitan area in which the bank maintains a 
branch).
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    The CRA delegates authority to the agencies to prescribe 
regulations to carry out the purposes of the CRA.\673\ To achieve its 
purposes, the CRA requires the agencies to assess whether a bank is 
meeting the credit needs of all parts of the communities it serves, 
without excluding the low- and moderate-income neighborhoods in those 
communities.\674\ The agencies have determined, based on their 
supervisory experience and expertise, that for at least certain banks, 
the bank's ``entire community'' can reasonably be considered to include 
those geographic areas where the bank's retail loan borrowers are 
located. The agencies have concluded that evaluating the retail lending 
performance of such banks in their outside retail lending areas falls 
within the requirements imposed on the agencies by the CRA to assess a 
bank's record of meeting the credit needs of its entire community, and 
properly furthers the purpose of the statute to encourage banks to meet 
the credit needs of all parts of the communities they serve. In 
addition, the agencies believe that the combination of facility-based 
assessment areas, retail lending assessment areas, and outside retail 
lending areas will allow the agencies to achieve a more comprehensive 
evaluation of the bank's performance across its entire community.
---------------------------------------------------------------------------

    \673\ See 12 U.S.C. 2905.
    \674\ See 12 U.S.C. 2903(a).
---------------------------------------------------------------------------

    Policy objectives of outside retail lending areas. In developing 
the overall outside retail lending area approach in the proposed and 
final rules, the agencies seek to achieve several different policy 
objectives. First, the outside retail lending area approach adapts to 
ongoing changes to the banking industry. The current CRA regulations 
generally define assessment areas in connection with a bank's main 
office, branches, and deposit-taking ATMs. However, the agencies 
recognize that changes in technology and in bank business models have 
resulted in banks' entire communities extending beyond the geographic 
footprint of the bank's main office, branches, and other deposit-taking 
facilities. To reflect these changes in banking, and to make the 
assessment area framework more durable over time, the agencies are 
complementing the existing facility-based assessment area framework in 
the final rule with a retail lending assessment area and outside retail 
lending area requirements tailored to certain banks.
    Second, the outside retail lending area approach improves parity in 
the evaluation framework for banks with different business models. For 
example, under the current approach, a bank that maintains branches in 
multiple States and conducts retail lending in the geographic areas 
served by those branches would have its retail lending evaluated in 
multiple assessment areas based on the location of its branches; 
however, a bank that operates exclusively online would only have its 
retail lending performance evaluated in one assessment area based on 
the location of the bank's main office, which may not be representative 
of the bank's overall retail lending performance. Under the final rule 
approach, however, the online bank's retail lending performance in 
other areas may be evaluated as part of the retail lending assessment 
area evaluation or outside retail lending area evaluation, resulting in 
more comparable CRA evaluations for both banks despite their different 
business models.
    Third, the outside retail lending area approach, in combination 
with the retail lending assessment area approach for large banks 
discussed in the section-by-section analysis of final Sec.  __.17, 
increases the share of retail lending that is considered in CRA 
evaluations for certain banks. Under the current approach, retail 
lending conducted outside of a bank's assessment areas is not evaluated 
using the lending test criteria; this lending is only considered if the 
bank has adequately addressed the needs of borrowers within its 
assessment areas, and does not compensate for poor lending performance 
within the bank's assessment areas.\675\ The outside retail lending 
area approach in the final rule applies a metrics-based evaluation 
approach to retail loans in certain banks' outside retail lending 
areas, and generally increases the share of retail lending by banks 
that is evaluated in this manner.
---------------------------------------------------------------------------

    \675\ See Q&A Sec.  __.22(b)(2) and (3)-4.
---------------------------------------------------------------------------

    Finally, the agencies seek to achieve the policy objectives 
described above while also appropriately adjusting for the level of 
complexity and impact on banks that would be evaluated in new outside 
retail lending areas. The outside retail lending area approach in the 
final

[[Page 6760]]

rule is intended to address compliance cost concerns, while 
simultaneously ensuring that the agencies' other objectives, described 
above, are achieved.
    The agencies have considered comments that the outside retail 
lending area approach will add complexity and compliance burden to CRA 
evaluations, as well as commenter views that the outside retail lending 
area approach may result in banks redirecting resources from serving 
their facility-based assessment areas. The agencies recognize that 
banks that are evaluated in outside retail lending areas under the 
final rule approach may bear some potential compliance costs, such as 
the potential costs associated with monitoring their performance and 
meeting performance standards in outside retail lending areas. However, 
the agencies believe that the final rule outside retail lending area 
approach is appropriately calibrated to achieve the agencies' policy 
objectives described above. In addition, the agencies believe that the 
compliance costs associated with the final rule outside retail lending 
area approach are reasonable because the outside retail lending area 
evaluation consolidates all of a bank's retail lending outside of its 
facility-based assessment areas and retail lending assessment areas 
into one evaluation area, such that there is one set of metrics and 
benchmarks for the entire outside retail lending area. Further, because 
the outside retail lending area does not assign conclusions to specific 
areas, the agencies believe that this approach provides flexibility by 
allowing a bank to compensate for relatively lower performance in one 
component geographic area with stronger performance in another 
component geographic area, without receiving a conclusion that reflects 
poor performance in any specific area.
    As discussed further in the section-by-section analysis of Sec.  
__.17, the agencies will develop and make freely available tools that 
would leverage reported loan data to calculate the retail lending 
distribution benchmarks that applied to a bank's outside retail lending 
area in recent years. The agencies believe that these data tools will 
help to address commenter concerns regarding the potential complexity 
and compliance burden associated with the outside retail lending area 
approach.
    Retail loans included in the outside retail lending area. The 
agencies considered, but have determined not to adopt, the alternative 
suggested by at least one commenter of including additional retail 
loans in the outside retail lending area. Specifically, in addition to 
the retail lending conducted outside of facility-based assessment areas 
and retail lending assessment areas, the agencies considered including 
in the outside retail lending area those retail loans within facility-
based assessment areas and retail lending assessment areas that are not 
evaluated as a major product line. Although the agencies have 
considered that such an approach would increase the total amount of 
retail lending that is evaluated under the Retail Lending Test, the 
agencies believe the increase in coverage is likely to be minimal in 
comparison to the final rule approach.\676\ In addition, the agencies 
believe that such an approach would add complexity because it would 
result in distinct outside retail lending areas for each product line 
(i.e., closed-end home mortgage loans, small business loans, small farm 
loans, and automobile loans if automobile loans are a product line for 
the bank). Instead, the agencies believe that a single outside retail 
lending area for all product lines would be reduce complexity for both 
the agencies and affected banks and potential compliance burden for 
affected banks, while still achieving the agencies' policy objectives.
---------------------------------------------------------------------------

    \676\ The agencies performed an analysis of retail lending data 
using the CRA Analytics Data Tables for 2018-2020 and determined 
that over 98 percent of both closed-end home mortgage and small 
business lending would have been evaluated under the proposed final 
rule major product line approach had the approach been in effect 
during those years. The figure for small farm lending would have 
been considerably lower, at around 40 percent, but the agencies note 
that the number of small farm loans and the weight assigned to the 
small farm loan product line is generally small overall.
---------------------------------------------------------------------------

    Codification in Sec.  __.18. The agencies determined that it is 
appropriate to codify the outside retail lending area approach in new 
Sec.  __.18 to increase clarity and improve organization of the final 
rule. Describing the details of the outside retail lending area 
approach in a separate section of regulatory text reflects that the 
outside retail lending area is one type of Retail Lending Test Area 
that is used in the Retail Lending Test evaluation, alongside facility-
based assessment areas (as described in Sec.  __.16) and retail lending 
assessment areas (as described in Sec.  __.17).

Section __.18(a) In General--Banks Evaluated in Outside Retail Lending 
Areas

The Agencies' Proposal
    In proposed Sec.  __.22(a)(2)(ii), the agencies proposed to 
evaluate the retail lending performance of all large banks in their 
outside retail lending areas. The agencies sought feedback on whether 
all large banks should have their retail lending in their outside 
retail lending areas evaluated, or whether the agencies should exempt 
large banks that make more than a certain percentage, such as 80 
percent, of their retail loans within facility-based assessment areas 
and retail lending assessment areas.
    In proposed Sec.  __.22(a)(3), the agencies proposed to evaluate 
the retail lending performance of certain intermediate banks in their 
outside retail lending areas. Specifically, the agencies proposed to 
evaluate an intermediate bank's retail lending performance in its 
outside retail lending area if the intermediate bank originated and 
purchased over 50 percent of its retail loans, by dollar amount, 
outside of its facility-based assessment areas over the relevant 
evaluation period.
Comments Received
    Application to large banks. Some commenters addressed the 
applicability of the outside retail lending area approach to large 
banks. For example, at least one commenter suggested only evaluating a 
large bank on a mandatory basis in its outside retail lending area if 
the large bank has at least $10 billion in assets, but that a large 
bank with less than $10 billion in assets should have the option to 
have its outside retail lending area evaluated. Another commenter 
stated that the outside retail lending area evaluation should be 
optional for all banks.
    Several commenters recommended exempting large banks that lend 
primarily or predominantly within their facility-based assessment 
areas, or within their facility-based assessment areas and retail 
lending assessment areas, from evaluation in their outside retail 
lending areas. These commenters offered a range of suggestions 
regarding the percentage at which such an exemption should apply 
(measured in terms of the percentage of the bank's retail loans that 
must be within facility-based assessment areas, or within their 
facility-based assessment areas and retail lending assessment areas), 
ranging from 50 to 98 percent. Some of these commenters emphasized that 
if the majority or substantial majority of a bank's retail lending is 
within its facility-based assessment areas, the evaluation of retail 
lending in outside retail lending areas would have little bearing on 
the bank's overall evaluation, and yet would require the bank to spread 
its CRA resources outside of its local footprint.
    In contrast, several commenters opposed providing large banks that 
lend

[[Page 6761]]

primarily within their facility-based assessment areas, or within their 
facility-based assessment areas and retail lending assessment areas, an 
exemption from being evaluated on their retail lending in outside 
retail lending areas. Commenters opposed to exempting banks from the 
outside retail lending area evaluation asserted that the proposal would 
not be unduly burdensome because the agencies' proposed approach for 
weighting assessment area and outside retail lending area retail 
lending performance to determine institution-level performance would 
appropriately tailor the outside retail lending area evaluation to 
different business models. These commenters further noted that banks 
that make significant numbers of home mortgage or small business loans 
outside of their facility-based assessment areas and/or retail lending 
assessment areas should have an obligation to low- and moderate-income 
communities in those areas.
    Application to intermediate banks. A commenter recommended that all 
intermediate banks should be evaluated in outside retail lending areas, 
rather than limiting the outside retail lending area evaluation to 
those intermediate banks that originate or purchase at least 50 percent 
of their retail loans outside of their facility-based assessment areas. 
Another commenter stated that the outside retail lending area 
evaluation should be optional for all banks.
Final Rule
    Overview. With respect to large banks, the agencies are adopting 
the proposal to evaluate the retail lending performance of all large 
banks in their outside retail lending area. As such, final Sec.  
__.18(a)(1) provides that the agencies evaluate a large bank's record 
of helping to meet the credit needs of its entire community in its 
outside retail lending area pursuant to Sec.  __.22. Final Sec.  
__.18(a)(1) clarifies that the agencies will not evaluate a large bank 
in its outside retail lending area if it did not originate or purchase 
loans in any products lines in the outside retail lending area during 
the evaluation period. The agencies believe that this limitation was 
implicit in the proposal, but believe that it is appropriate to make 
this limitation explicit in the final rule to promote clarity and 
transparency.
    With respect to other banks, the agencies are adjusting the 
standard used to determine when an intermediate bank's outside retail 
lending area is evaluated on a mandatory basis, and are applying this 
same standard to a small bank that opts to be evaluated under the 
Retail Lending Test. In addition, the agencies are permitting an 
intermediate bank or small bank that does not meet this standard to opt 
to have its outside retail lending area evaluated. As such, final Sec.  
__.18(a)(2) provides that the agencies evaluate the record of an 
intermediate bank, or a small bank that opts to be evaluated under the 
Retail Lending Test, of helping to meet the credit needs of its entire 
community in its outside retail lending area pursuant to Sec.  __.22, 
for a particular calendar year, if either (1) the bank opts to have its 
major product lines evaluated in its outside retail lending area, or 
(2) in the prior two calendar years, the bank originated or purchased 
outside the bank's facility-based assessment areas more than 50 percent 
of the bank's home mortgage loans, multifamily loans, small business 
loans, small farm loans, and automobile loans if automobile loans are a 
product line for the bank, as described in paragraph II.a.2 of final 
appendix A.
    Application to large banks. The agencies continue to believe that 
it is appropriate to evaluate the retail lending performance of all 
large banks in their outside retail lending areas. The agencies believe 
that evaluating large banks in their outside retail lending areas is 
important to achieving the agencies' policy objectives of adapting to 
ongoing changes to the banking industry, improving parity in the 
evaluation framework for banks with different business models, and 
increasing the share of retail lending that is considered in CRA 
evaluations, discussed above. Further, the agencies believe that the 
final rule outside retail lending area approach is appropriately 
calibrated to achieve the agencies' policy objectives while minimizing 
the additional complexity and compliance burden associated with outside 
retail lending areas. On balance, the agencies believe it is 
appropriate to tailor the outside retail lending area requirement to 
all large banks, but only certain other banks, recognizing that large 
banks generally have more resources and therefore greater capacity than 
small and intermediate banks to adapt to new regulatory provisions such 
as outside retail lending areas.
    To complement the facility-based assessment area approach and 
retail lending assessment area approach, the outside retail lending 
area approach would evaluate a large bank's retail lending that is too 
dispersed to be evaluated within a specific geographic area (i.e., in a 
facility-based assessment area or outside retail lending area). For 
example, if a large bank originated 50 closed-end home mortgages and 
300 small business loans in an MSA in each year of the prior two years, 
the large bank would not be required to delineate a retail lending 
assessment area in the MSA pursuant to the loan count thresholds in 
final Sec.  __.17(c), but the MSA would be included in the large bank's 
outside retail lending area. As a result, this lending would be 
considered as part of the large bank's Retail Lending Test evaluation. 
However, a conclusion would be assigned to the entirety of the bank's 
outside retail lending area, rather than for the specific MSA. The 
agencies believe that this approach is appropriate because, the sum of 
the large bank's retail lending outside of its facility-based 
assessment areas and retail lending assessment areas may constitute a 
significant percentage of a bank's overall lending, and that this 
retail lending should be considered under the Retail Lending Test to 
ensure a comprehensive evaluation of a large bank's retail lending 
performance. The agencies emphasize that the outside retail lending 
area approach is especially important for comprehensively evaluating 
the retail lending performance of predominantly branch-based large 
banks that qualify for the exemption from the retail lending assessment 
area requirement pursuant to final Sec.  __.17(a)(2).
    The agencies considered, but are not adopting, the alternative 
approach suggested by commenters to exempt large banks that conduct at 
least a certain percentage, such as 50 percent, of their retail lending 
within their facility-based assessment areas, or within their facility-
based assessment areas and retail lending assessment areas, from the 
outside retail lending area evaluation. For the reasons stated above, 
the agencies believe it is appropriate to evaluate the retail lending 
performance of all large banks in their outside retail lending areas. 
The agencies note that the final rule approach accounts for cases where 
a bank has only a small amount of retail lending in its outside retail 
lending area, because the amount of retail lending in the bank's 
outside retail lending area is one component of the weighting that the 
outside retail lending area performance conclusion receives in 
determining the bank's overall Retail Lending Test conclusion, as 
discussed in the section-by-section analysis of Sec.  __.22(h). 
Finally, the agencies note that a large bank with a relatively small 
share of lending in its outside retail lending area overall could still 
have a significant number of loans in one or more component geographic 
areas of its outside retail lending area; the agencies believe that it 
is important to evaluate

[[Page 6762]]

the extent to which the bank has met the retail lending credit needs of 
those areas.
    The agencies also considered, but are not adopting, the alternative 
approach suggested by commenters to make the evaluation of all or 
certain large banks in their outside retail lending areas optional. 
However, the agencies believe that an optional evaluation approach 
would not achieve the agencies' policy objectives since some or all 
large banks could opt out of outside retail lending areas entirely 
under this alternative. The agencies are concerned that over time, an 
optional outside retail lending area approach would make the assessment 
area framework less durable to ongoing changes in the banking industry, 
particularly with any expansion of digital banking. Specifically, if an 
increasing share of large bank retail lending occurs outside of 
facility-based assessment areas and retail lending assessment areas, 
and if the agencies could evaluate that lending in outside retail 
lending areas only at a bank's option, the policy objectives of 
increasing the share of retail lending that is considered in CRA 
evaluations and would be undermined.
    Application to intermediate banks and small banks. The final rule 
retains the proposed approach evaluating intermediate banks in their 
outside retail lending areas on a mandatory basis if the intermediate 
bank conducts a majority of its retail lending outside of its facility-
based assessment areas. This tailored approach recognizes that 
intermediate banks generally have fewer resources and therefore less 
capacity than large banks to adapt to new regulatory provisions such as 
a Retail Lending Test evaluation in outside retail lending areas. At 
the same time, the agencies believe that evaluating certain 
intermediate banks in their outside retail lending areas is important 
to achieving the agencies' policy objectives of adapting to ongoing 
changes to the banking industry, improving parity in the evaluation 
framework for banks with different business models, and increasing the 
share of retail lending that is considered in CRA evaluations, 
discussed above.
    The final rule's 50 percent threshold, the calculation of which is 
discussed below, reflects the agencies' belief that an intermediate 
bank's CRA evaluation should capture at least a majority of the bank's 
retail lending. The agencies believe that evaluating less than a 
majority of an intermediate bank's retail lending could result in 
Retail Lending Test conclusions that are not representative of the 
intermediate bank's overall retail lending performance. The agencies 
also considered that a threshold level higher than 50 percent would 
result in more comprehensive evaluations for more intermediate banks; 
however, a higher exemption threshold level would also increase the 
number of affected intermediate banks, including intermediate banks 
that already have a majority of their retail lending evaluated within 
facility-based assessment areas. In addition, the agencies considered 
that for these intermediate banks, the outside retail lending area 
evaluation would generally carry less weight in determining the 
intermediate bank's overall Retail Lending Test conclusion.
    While the proposed rule did not provide that a small bank would be 
evaluated in its outside retail lending area, the agencies determined 
that it is appropriate to treat small banks that opt into the Retail 
Lending Test consistently with intermediate banks under the final rule. 
In reaching this determination, the agencies considered that it is 
important that the Retail Lending Test evaluation capture at least a 
majority of a bank's lending. If a small bank that opts into the Retail 
Lending Test conducts a majority of its retail lending outside of its 
facility-based assessment areas, the agencies believe that the outside 
retail lending area evaluation should apply to the small bank to ensure 
that the Retail Lending Test conclusion for the institution is 
representative of the bank's overall retail lending performance. The 
agencies do not believe that this approach should significantly 
increase the compliance burden of the final rule on small banks because 
the Retail Lending Test evaluation remains optional for these banks.
    Finally, the agencies determined that intermediate banks, and small 
banks that opt into the Retail Lending Test, should have the option to 
be evaluated in their outside retail lending areas even if they do not 
conduct a majority of their retail lending outside their facility-based 
assessment areas. The agencies believe this option provides flexibility 
for an intermediate bank or small bank to consider the potential 
complexity and compliance burden associated with the outside retail 
lending area evaluation, and the impact on the bank's retail lending 
performance. The agencies also considered that without providing this 
option, an intermediate bank, or a small bank that opts into the Retail 
Lending Test, that does not conduct a majority of its retail lending 
outside of its facility-based assessment areas that prefers to have its 
outside retail lending area evaluated could need to seek approval of a 
strategic plan, which could increase the complexity of the final rule 
approach. In addition, the agencies considered that making the outside 
retail lending area evaluation optional for these banks would be 
consistent with current evaluation practices, whereby banks may receive 
consideration for retail lending outside of their assessment 
areas.\677\
---------------------------------------------------------------------------

    \677\ See Q&A Sec.  __.22(b)(2) and (3)-4
---------------------------------------------------------------------------

    Calculation of 50 percent standard. The final rule adopts a 
modified version of the proposed 50 percent standard used to determine 
when an intermediate bank (or a small bank that opts into the Retail 
Lending Test) is evaluated on a mandatory basis in its outside retail 
lending area. As specified in paragraph II.a.2 of final appendix A, the 
50 percent threshold is calculated over the prior two calendar years, 
and is based on a combination of loan dollars and loan count, as 
defined in final Sec.  __.12. The agencies are adopting these changes 
to conform the calculation of the 50 percent outside retail lending 
area standard to the calculation approach used for the 80 percent 
threshold to identify those predominantly branch-based large banks that 
are exempt from the retail lending assessment area requirement. In 
addition, the agencies note that the calculation of the 50 percent 
standard, like the calculation of the 80 percent standard for retail 
lending assessment areas, includes originated or purchased home 
mortgage loans, multifamily loans, small business loans, small farm 
loans, and automobile loans if automobile loans are a product line for 
the bank. The agencies' rationale for this calculation is further 
described in the section-by-section analysis of final Sec.  __.17(a).

Section __.18(b) Geographic Requirements of Outside Retail Lending 
Areas

The Agencies' Proposal
    In proposed Sec.  __.12, the agencies defined the outside retail 
lending area as the nationwide area outside of a bank's facility-based 
assessment areas and, as applicable, retail lending assessment areas. 
To evaluate a bank's retail lending performance in its outside retail 
lending area, and as discussed further in the section-by-section 
analysis of Sec.  __.22(e), the agencies proposed in Sec.  
__.22(b)(2)(ii) and paragraphs III.2.c and d and IV.2.c and d of 
proposed appendix A, to calculate tailored retail lending distribution 
benchmarks for a bank's outside retail lending area, by taking a 
weighted average of the benchmarks calculated for each MSA and the 
nonmetropolitan

[[Page 6763]]

area of each State included in the bank's outside retail lending area.
Comments Received
    The agencies did not receive comments that specifically discussed 
the geographic requirements for outside retail lending areas. However, 
as discussed above, the agencies received a number of comments on the 
overall outside retail lending area approach. In addition, the agencies 
received comments on the proposed approach to calculating tailored 
distribution benchmarks for a bank's outside retail lending area; these 
comments are discussed further in the section-by-section analysis of 
final Sec.  __.22(e).
Final Rule
    For the reasons discussed below, the agencies are adopting a 
tailored version of the proposed geographic requirements for outside 
retail lending areas. Specifically, relative to the proposal, a bank's 
outside retail lending area no longer includes nonmetropolitan counties 
in which the bank did not conduct any retail lending. As such, final 
Sec.  __.18(b)(1) provides that a bank's outside retail lending area 
consists of the nationwide area, excluding (1) the bank's facility-
based assessment areas and retail lending assessment areas; and (2) any 
county in a nonmetropolitan area in which the bank did not originate or 
purchase any closed-end home mortgage loans, small business loans, 
small farm loans, or automobile loans (if automobile loans are a 
product line for the bank). In addition, the agencies are specifying in 
final Sec.  __.18(b)(2) that the outside retail lending area is 
comprised of component geographic areas, and that a component 
geographic area is any MSA or the nonmetropolitan area of any State, or 
portion thereof, included within the outside retail lending area.
    Exclusion of certain nonmetropolitan counties. Upon consideration 
of commenter feedback, the agencies believe it is appropriate to 
exclude nonmetropolitan counties in which a bank did not originate or 
purchase any retail loans from the bank's outside retail lending area. 
As a result, outside retail lending areas are more targeted, relative 
to the proposal, to where a bank conducts retail lending business in 
nonmetropolitan areas. The agencies note that the final rule adopts a 
similar exclusion of these counties from retail lending assessment 
areas located in the nonmetropolitan area of a State, and that the 
agencies' rationale for the retail lending assessment area exclusion, 
described further in the section-by-section analysis of final Sec.  
__.17(b), generally also applies to outside retail lending areas.
    Component geographic areas. The agencies determine that specifying 
the component geographic areas of the outside retail lending area in 
regulatory text in final Sec.  __.18(b)(2) provides clarity. The 
agencies note that sections III and IV of final appendix A consistently 
use the term ``component geographic areas'' in describing the 
calculation of the retail lending distribution benchmarks for a bank's 
outside retail lending area. This calculation is discussed further in 
the section-by-section analysis of final Sec.  __.22(e).

Section __.19 Areas for Eligible Community Development Loans, Community 
Development Investments, and Community Development Services

Current Approach
    Under the current rule, in addition to considering a bank's 
community development loans, investments, and services conducted within 
the bank's assessment areas, the agencies may provide consideration for 
loans, investments, and services conducted in a broader statewide or 
regional area that includes one or more assessment areas.\678\ Whether 
an activity receives consideration and the geographic level to which 
the activity is allocated depends on whether the organization or 
activity has a purpose, mandate, or function of serving one or more 
assessment areas. Specifically, an activity that has a purpose, 
mandate, or function that includes serving one or more assessment areas 
is considered as part of the evaluation of: (1) one assessment area, 
when it benefits and is targeted to a single assessment area; (2) the 
State or multistate MSA, when the activity benefits or is targeted to 
two or more assessment areas, or the State or multistate MSA; and (3) 
the institution level, when the activity benefits or is targeted to a 
regional area of two or more States not in a multistate MSA or a 
regional area that includes but is larger than one multistate MSA. An 
activity that does not have a purpose, mandate, or function that 
includes serving an assessment area may enhance performance at the 
State, multistate MSA, or institution level if: (1) the bank has been 
responsive to community development needs and opportunities in its 
assessment areas; and (2) the activity benefits census tracts or 
individuals located in a State, multistate MSA, or broader regional 
area that includes one or more of a bank's assessment areas (even 
though the activity does not benefit, and is not targeted to, one or 
more assessment areas).\679\
---------------------------------------------------------------------------

    \678\ See 12 CFR __.12(h); see also Q&A Sec.  __.12(h)-6.
    \679\ See Q&A Sec.  __.21(a)-3.
---------------------------------------------------------------------------

The Agencies' Proposal
    Under proposed Sec.  __.18, a bank would receive consideration for 
community development loans, community development investments, and 
community development services (which the proposal referred to 
collectively as ``community development activities'') conducted in its 
facility-based assessment areas. In addition, proposed Sec.  __.18 
provided that a bank would also receive consideration for community 
development loans, community development investments, and community 
development services provided outside of its facility-based assessment 
areas within the States and multistate MSAs in which the bank has a 
facility-based assessment area and in a nationwide area, as provided in 
proposed Sec. Sec.  __.21, __.24 through __.26, and __.28 and proposed 
appendices C and D. The cross-references in proposed Sec.  __.18 did 
not include proposed Sec.  __.29; as a result, the consideration of 
community development activities outside of facility-based assessment 
areas would not have applied to small banks or intermediate banks that 
did not opt into the Community Development Financing Test. Under the 
proposal, community development loans, community development 
investments, and community development services conducted outside of a 
bank's facility-based assessment areas would be considered to inform 
conclusions for the State, multistate MSA, and institution.
    Recognizing that the current approach to considering community 
development loans, investments, and services in broader statewide and 
regional areas has afforded banks flexibility but sometimes contributed 
to uncertainty about whether such loans, investments, or services will 
qualify, the agencies aimed with the proposal to retain and enhance 
this flexibility while also providing greater certainty. To this end, 
the agencies included a clear statement in proposed Sec.  __.18 that a 
bank will also receive consideration for community development loans, 
investments, and services conducted outside of a bank's facility-based 
assessment areas--not only within the States and multistate MSAs in 
which the bank has a facility-

[[Page 6764]]

based assessment area, but also in the nationwide area.\680\
---------------------------------------------------------------------------

    \680\ See proposed Sec.  __.18. See also proposed Sec. Sec.  
__.21, __.24 through __.26, and __.28 and proposed appendices C and 
D (cross-referenced in proposed Sec.  __.18).
---------------------------------------------------------------------------

    The agencies sought feedback on the proposed approach, and on 
alternative approaches that would encourage banks that choose to 
conduct community development activities outside of their facility-
based assessment areas, such as requiring banks to delineate specific 
geographic areas where they would focus their community development 
outside of facility-based assessment areas. The agencies also asked 
whether all banks, including all intermediate banks, small banks, and 
banks that elect to be evaluated under an approved strategic plan, 
should have the option to have community development activities outside 
of facility-based assessment areas considered.
Comments Received
    General feedback. The agencies received numerous comments on the 
proposal regarding the areas eligible for community development loans, 
investments, or services outside of facility-based assessment areas, 
under proposed Sec.  __.18. Many commenters supported the proposal. In 
general, these commenters expressed that broadening the geographic 
eligibility of community development activities will allow banks to 
target community development loans, investments, and services to areas 
with the greatest community development needs, regardless of whether 
they are in proximity to a bank branch. For example, a number of 
commenters stated that the proposal would increase community 
development activities in underserved areas such as economically 
distressed areas, rural areas, and Native lands where there are few 
banks. Similarly, some commenters supported the proposal because they 
noted that bank branches do not always align with the neighborhoods in 
need of investment and that the flexibility of the proposal can help 
bring community development capital to these neighborhoods. Another 
commenter suggested that consideration of community development 
activities anywhere in the United States would allow banks to conduct 
community development activities that best align with the bank's 
mission, and to seek out the most advantageous financial investments.
    Other commenters supported the proposal because it provided 
flexibility for banks that have limited control over the availability 
of community development projects in their facility-based assessment 
areas. For example, commenters noted that in some areas, opportunities 
to conduct community development loans, investments, and services are 
subject to intense competition between lenders and investors.
    Commenters also described other benefits of the proposed approach. 
Some commenters noted that credit for community development activities 
outside of facility-based assessment areas would be particularly 
helpful for the growing number of banks with a limited number of 
branches. One of these commenters also noted that smaller State and 
regional development organizations would also benefit from this aspect 
of the proposal. Other commenters indicated that the proposal provides 
much-needed certainty to banks because it allows banks to get credit 
for community development activities outside of their facility-based 
assessment areas without first having to demonstrate that they have 
been responsive to the needs of their assessment areas.
    Other commenters suggested additional analysis or other 
modifications to the approach. A commenter requested that the agencies 
track banks' community development activities conducted outside of its 
assessment area to see if banks take advantage of the proposed changes. 
Another commenter indicated that community development activities 
outside of assessment areas should be optional for positive 
consideration.
    Other commenters expressed concerns regarding the proposal, with 
some suggesting alternatives that would limit or give less emphasis to 
community development activities outside of facility-based assessment 
areas relative to activities within facility-based assessment areas. 
These commenters generally stated that it would be important to 
maintain a focus on banks meeting local community needs. Commenters 
provided a range of specific recommendations including that: (1) 
community development activities should receive CRA credit only in 
facility-based assessment areas and anywhere the bank has a CRA 
obligation to serve a local community under an applicable performance 
test; (2) the agencies should provide only partial credit for community 
development activities conducted outside of a bank's assessment areas; 
(3) credit for outside facility-based assessment area community 
development activities should be weighted or emphasized less than what 
is provided inside facility-based assessment areas; and (4) 
consideration should be given only for community development activities 
outside of a bank's assessment areas if the bank received a certain 
rating, such as ``Satisfactory'' or ``Low Satisfactory,'' on its 
previous CRA exam. Some commenters expressed the sentiment that to 
receive any credit for community development activities outside of a 
bank's assessment areas, banks should be required to first meet the 
credit needs of their assessment areas. For example, a commenter 
suggested that banks provide evidence to the agencies that they had 
unsuccessfully bid on multiple community development financing 
activities within their facility-based assessment areas before 
receiving consideration for their community development activities 
outside of its facility-based assessment areas.
    Consideration of specific types of community development loans, 
community development investments, or community development services. A 
few commenters stated that allowing banks to receive CRA consideration 
for investments outside of facility-based assessment areas would 
support and expand affordable housing investments in underserved CRA 
markets. Some commenters pointed out that expanding consideration for 
community development financing outside of facility-based assessment 
areas would help smooth existing LIHTC pricing discrepancies between 
CRA hotspots and CRA deserts. A commenter further recommended that 
credit for LIHTC investments outside of assessment areas should be 
limited to the greater statewide or regional area in which the bank has 
an assessment area.
    Other commenters requested that the agencies support CRA credit for 
investments or loans with multistate CDFIs, with CDFI loan funds, or 
generally with CDFIs or MDIs outside of a bank's assessment areas. 
However, another commenter voiced concern that full consideration of 
investments with CDFIs regardless of geographic location could drain 
capital away from local CDFIs to large national CDFIs. Other activities 
that commenters suggested should receive CRA community development 
credit include lending outside of assessment areas conducted through a 
fintech partnership, activities relating to digital inclusion that 
target or benefit underserved urban and rural communities, and bank 
employee volunteer activities unrelated to the provision of financial 
services if the services are provided in any low- or moderate-income 
area.

[[Page 6765]]

    Geographic areas in which community development loans, investments, 
and services are considered. Some commenters recommended specific 
geographic areas in which a bank's community development activities 
should be considered. Some commenters suggested limiting consideration 
of community development activities that are beyond facility-based 
assessment areas to low- and moderate-income communities where a bank 
conducts business, or to four categories of geographic areas where 
commenters stated that community development needs are greater: Native 
lands, the Mississippi Delta, Central Appalachia, and the Texas-Mexico 
border.
    Several commenters also stated that consideration of a bank's 
community development activities should be restricted to specific 
geographic areas identified under the proposed community development 
impact and responsiveness review factors.\681\ One of these commenters 
further suggested that the agencies should apply this restriction 
specifically to branch-based banks when they seek to invest outside of 
a State where they have branches. Conversely, another commenter noted 
that the community development impact and responsiveness factors would 
incentivize banks to focus on underserved and other high-priority 
communities, so any geographic restriction on making community 
development loans, investments, and services outside of facility-based 
assessment areas would be unnecessary and counterproductive.
---------------------------------------------------------------------------

    \681\ See proposed Sec.  __.15(b).
---------------------------------------------------------------------------

    Delineation of specific geographic areas outside of facility-based 
assessment areas for community development loans, investments, and 
services. Some commenters addressed the agencies' request for views on 
whether banks should be required to delineate specific geographic areas 
where they will focus their outside facility-based assessment area 
community development loans, investments, and services. A few 
commenters stated that banks should not be required to delineate 
specific geographic areas because it would reduce flexibility for banks 
and it may not be feasible for banks to anticipate where there will be 
community development opportunities. In addition, some commenters 
raised concerns that requiring banks to designate areas for community 
development loans, investments, and services outside of facility-based 
assessment areas could give banks too much latitude to designate easy-
to-invest areas.
    However, some commenters supported the idea of requiring banks to 
delineate specific geographic areas for community development 
activities. For example, a commenter supported the delineation of 
geographic areas for community development activities as an alternative 
to providing full consideration for activities in the entire statewide 
area for States in which a bank has one or more branches. This 
commenter further recommended that community development areas, if 
adopted, should be composed primarily of distressed, underserved, or 
low- or moderate-income census tracts. Another commenter stated 
generally that the approval of such community development geographic 
areas should be public, consistent, and transparent across banks, and 
that an impact review process should be developed that identifies a 
specific community need and requires banks to explain how they plan to 
meet those needs. Yet another commenter suggested that the agencies 
develop a way to define ``credit deserts'' where banks can receive 
extra credit even if the bank does not maintain a branch office in that 
community.
    Credit for outside assessment area community development loans, 
investments, and services--small banks, intermediate banks, and 
strategic plan banks. Commenters also responded to the agencies' 
request for comment on whether all banks should have the option to have 
community development loans, investments, and services outside of 
facility-based assessment areas considered, including intermediate 
banks, small banks, and banks that elect to be evaluated under a 
strategic plan. All commenters addressing this question supported 
giving banks the option to have CRA consideration outside of facility-
based assessment areas regardless of a bank's size or whether the bank 
elects to be evaluated under a strategic plan. Many of these commenters 
stated that the final rule should encourage as much community 
development activity as possible, indicating that there is little or no 
reason to limit consideration of community development activities 
outside of assessment areas only to large, wholesale, and limited 
purpose banks.
    A few commenters emphasized that consideration of community 
development activities outside of a bank's assessment areas would be 
beneficial to small banks. A commenter indicated that small lenders are 
often in the best position to engage in loans, investments, or services 
in underserved areas. Another commenter stated that smaller banks may 
struggle to find community development opportunities, particularly when 
they have smaller assessment areas.
Final Rule
    The agencies are adopting proposed Sec.  __.18, renumbered as final 
Sec.  __.19, with certain revisions discussed below. Final Sec.  __.19 
states that the agencies may consider a bank's community development 
loans, community development investments, and community development 
services provided outside of its facility-based assessment areas, as 
provided in the agencies' CRA regulations. Relative to the proposal, 
the final rule expands application of this provision to include small 
and intermediate banks that do not opt into the Community Development 
Financing Test. With this expanded eligibility, the final rule in Sec.  
__.19 eliminates the proposed cross references to proposed Sec. Sec.  
__.21, __.24 through __.26, and __.28 and proposed appendices C and D 
in proposed Sec.  __.18. This change, which is also discussed in the 
section-by-section analysis of Sec.  __.29 (regarding small bank 
performance evaluation) and the section-by-section analysis of Sec.  
__.30 (regarding intermediate bank performance evaluation), allows any 
bank the ability to receive consideration for qualifying community 
development activities outside of its facility-based assessment areas 
without regard to asset size or business model.
    In adopting the final rule approach, the agencies considered 
several potential benefits of broadening the geographic scope of 
community development loans, investments, and services relative to the 
current approach. As noted by some commenters, the agencies are aware 
that community development opportunities in certain areas may be 
limited or subject to competition among banks. Principally, the 
agencies believe that the final rule approach will: (1) allow 
appropriate flexibility for banks to conduct community development 
loans, investments, and services in a variety of geographic areas; (2) 
help banks receive consideration for community development activities 
in areas with significant unmet credit needs, including areas where few 
banks maintain deposit-taking facilities; and (3) allow banks to 
identify community development opportunities that align with their 
business model and expertise, including opportunities outside of a 
bank's facility-based assessment areas.
    The final rule approach builds on and provides greater certainty 
than the

[[Page 6766]]

current approach, which, as noted, considers a bank's community 
development activities outside of facility-based assessment areas only 
for activities with a purpose, mandate, or function that includes 
serving geographic areas or individuals in the bank's assessment areas; 
or if activities benefit a broader statewide or regional area and the 
bank has been responsive to community development needs and 
opportunities in its assessment areas.\682\ Under the final rule 
approach, banks evaluated under the Community Development Financing 
Test in Sec.  __.24 or Community Development Financing Test for Limited 
Purpose Banks in Sec.  __.26 will receive consideration for eligible 
community development activities, regardless of the geographic scope of 
the activities. These performance tests emphasize meeting the community 
development needs of facility-based assessment areas while also 
considering activities outside of these areas. Thus, the agencies do 
not believe that a condition of having met the needs of facility-based 
assessment areas is necessary because a bank's performance within 
facility-based assessment areas will always be separately taken into 
account under the Community Development Financing Test and Community 
Development Financing Test for Limited Purpose Banks.\683\ In contrast, 
for small banks, the final rule retains conditions on the consideration 
of community development activities outside of facility-based 
assessment areas that are similar to the current approach, as discussed 
further below. Under the final rule, community development activities 
for intermediate banks will also be considered regardless of the 
geographic scope of the activities. However, the extent of that 
consideration will depend on how well the intermediate bank has met the 
needs of their facility-based assessment areas.
---------------------------------------------------------------------------

    \682\ See Q&A Sec.  __.12(h)-6.
    \683\ For further detail on these tests, see the section-by-
section analyses of final Sec. Sec.  __.24 and __.26. See also final 
Sec.  __.25 (Community Development Services Test) and the 
accompanying section-by-section analysis.
---------------------------------------------------------------------------

    The agencies also considered the benefits of the final rule 
approach of considering community development activities outside of 
facility-based assessment areas for banks with a variety of business 
models. For example, the agencies believe that expanded geographic 
eligibility of community development activities will support banks that 
operate primarily or entirely without branches since these banks may 
have fewer community development opportunities within their facility-
based assessment areas.
    The final rule approach revises the proposed language from stating 
that a bank ``will'' receive consideration for activities outside of 
its facility-based assessment areas in proposed Sec.  __.18 to instead 
stating that a bank ``may'' receive consideration for these activities 
in final Sec.  __.19. This change reflects the consideration of 
community development activities for small banks. For these banks, 
consideration of community development loans, investments, and services 
outside of facility-based assessment areas is dependent on other 
factors. Under Sec.  __.29(b), the agencies may adjust the rating of a 
small bank evaluated under the Small Bank Lending Test from 
``Satisfactory'' to ``Outstanding'' at the institution level based on 
making community development investments and providing community 
development services without regard to whether the activity is in one 
or more of the bank's facility-based assessment areas. Thus, in effect, 
the small bank would have to perform well in serving community credit 
needs in its facility-based assessment areas before receiving 
additional credit for community development activities irrespective of 
geographic location. Accordingly, for a small bank with an institution 
rating of ``Needs to Improve,'' community development investments and 
services would not be considered, including those outside of the bank's 
facility-based assessment areas. Moreover, as detailed in Sec.  
__.30(a)(2)(ii) of the final rule for intermediate banks evaluated 
under the Intermediate Bank Community Development Test, the extent of 
the consideration of community development activities outside of the 
bank's facility-based assessment area(s) will depend on the adequacy of 
the bank's responsiveness to the needs and opportunities for community 
development activities within the bank's facility-based assessment 
areas and applicable performance context information.
    Final Sec.  __.19 does not limit the geographic areas outside of 
facility-based assessment areas in which community development loans, 
investments, and services can receive consideration, as suggested by 
some commenters noted above. For example, final Sec.  __.19 does not 
restrict consideration for community development to only specific 
geographic areas identified under the proposed community development 
impact and responsiveness review factors, or to only Native lands, the 
Mississippi Delta, Central Appalachia, and the Texas-Mexico border, as 
some commenters suggested. The agencies believe that this suggested 
approach would limit community development opportunities, particularly 
for banks without access or relationships with community development 
providers in these areas. More generally, the agencies believe that 
limiting consideration of community development loans, investments, and 
services outside of facility-based assessment areas to any geographic 
areas could restrict the flow of community development financing to any 
area that has not been designated as eligible to receive consideration 
for community development.
    Relatedly, under final Sec.  __.19 banks will not be required to 
delineate specific geographic areas outside facility-based assessment 
areas in which to make community development loans, investments, and 
services, as suggested by some commenters. The agencies believe that 
prescriptive delineated areas would inappropriately constrain bank 
flexibility to pursue community development activities where the need 
is greatest. In determining not to adopt this suggestion, the agencies 
also weighed the comments that banks may not be able to fully 
anticipate in advance where community development needs and 
opportunities may be available.
    Under final Sec.  __.19, the agencies are also not establishing 
restrictions on the consideration of community development loans, 
investments, or services conducted outside of facility-based assessment 
areas for certain types of activities, as suggested by some commenters. 
For example, the final rule does not limit credit for LIHTC investments 
outside of facility-based assessment areas to the greater statewide or 
regional area in which the bank has a presence, and does not limit 
consideration of activities outside of facility-based assessment areas 
to those that expand affordable housing investments in underserved CRA 
markets. The agencies believe that the final rule approach allows banks 
to identify community development opportunities where its business 
model, strategy, and expertise are well aligned with a community need.
    The agencies considered, but are not adopting, commenter 
suggestions to allow consideration of activities outside of facility-
based assessment areas only if the bank provides evidence to the 
agencies that the bank had unsuccessfully bid on multiple community 
development financing activities within their facility-based assessment 
areas. The agencies considered that this approach may help

[[Page 6767]]

to encourage banks to prioritize seeking out opportunities within their 
facility-based assessment areas. However, the agencies determined that 
the approach might be difficult to enforce and increase burden as a 
result of additional documentation requirements, and may result in 
banks expending resources pursuing community development opportunities 
that are already being met by other banks in the area.
    The agencies also considered suggestions to limit consideration of 
community development activities outside of facility-based assessment 
areas to instances in which a bank received a certain overall rating, 
or Community Development Financing Test conclusion on its previous CRA 
examination, such as ``Satisfactory'' or ``Low Satisfactory.'' As noted 
above and in the section-by-section analyses of Sec. Sec.  __.29 and 
__.30, the final rule includes similar provisions for evaluating 
community development performance under the small and intermediate bank 
performance evaluations, but applied to the bank's current, rather than 
prior, evaluation period. Specifically, for a small bank, community 
development investments and services inside or outside of a bank's 
facility-based assessment area are considered only for potentially 
enhancing the bank's overall rating from a ``Satisfactory'' to an 
``Outstanding.'' For intermediate banks evaluated under the 
Intermediate Bank Community Development Test, community development 
activities outside of facility-based assessment areas are considered 
without regard to whether the activity is made in one or more of the 
bank's facility-based assessment areas; any additional consideration to 
adjust a bank's rating will depend on the adequacy of the bank's 
responsiveness to community development needs and opportunities within 
its facility-based assessment areas and applicable performance context 
information. The agencies believe that it is preferable to apply these 
conditions to the current evaluation period, rather than the prior 
evaluation period, to ensure that a bank's community development 
activities are evaluated in relation to the needs and opportunities 
that existed when the bank conducted these activities.
    The final rule approach does not adopt alternative suggestions to 
assign only partial credit for community development activities 
conducted outside of a bank's facility-based assessment areas, or to 
weight such activities less than activities inside facility-based 
assessment areas. However, the final rule includes specific weighting 
of facility-based assessment area conclusions on the Community 
Development Financing Test, the Community Development Financing Test 
for Limited Purpose Banks, and the Community Development Services Test, 
as described further in the section-by-section analysis of final Sec.  
__.28.

Section __.21 Evaluation of CRA Performance in General

    Under the current CRA regulations, the examination process is 
tailored to a bank's asset size and business model.\684\ Large banks 
are evaluated under three performance tests: \685\ a lending test, 
which assesses retail and community development loans; \686\ an 
investment test,\687\ which assesses community development investments; 
and a service test, which assesses retail services and community 
development services.\688\ Intermediate small banks are evaluated under 
a lending test and a community development test, which assesses 
community development loans, community development investments, and 
community development services.\689\ Small banks are evaluated under a 
single lending test.\690\ Both intermediate small banks and small banks 
may elect to be evaluated under the large bank performance tests if 
they collect and report the CRA data required of large banks.\691\ 
Wholesale and limited purpose banks are evaluated under a single 
community development test, which assesses community development loans, 
community development investments, and community development 
services.\692\ In addition, any bank may seek agency approval to be 
evaluated under a strategic plan.\693\
---------------------------------------------------------------------------

    \684\ See generally current 12 CFR __.12 and __.21 through 
__.27.
    \685\ See current 12 CFR __.21(a)(1).
    \686\ See current 12 CFR __.22.
    \687\ See current 12 CFR __.23.
    \688\ See current 12 CFR __.24.
    \689\ See current 12 CFR __.21(a)(1) and __.26(a)(2).
    \690\ See current 12 CFR __.21(a)(1) and __.26(a)(1).
    \691\ See current 12 CFR __.21(a)(3).
    \692\ See current 12 CFR __.21(a)(2) and __.25.
    \693\ See current 12 CFR __.21(a)(4) and __.27.
---------------------------------------------------------------------------

    In recognition of the importance that bank size, business model, 
and local conditions play when evaluating a bank's CRA performance, the 
agencies proposed tailoring the CRA evaluation framework based on three 
updated bank size categories for large banks, intermediate banks, and 
small banks. The agencies also proposed a tailored approach to 
evaluations for wholesale banks, limited purpose banks, and banks 
operating under an approved strategic plan. Overall, proposed Sec.  
__.21 described the following: performance standards for each bank 
category; treatment of bank subsidiaries, affiliates, consortia, and 
third parties; performance context information that would be considered 
in CRA evaluations; categories for bank conclusions and ratings; and 
the requirement that bank CRA activities be conducted in a safe and 
sound manner.
    The agencies are finalizing Sec.  __.21 with non-substantive 
changes. Specifically, the agencies are: revising the section heading 
and, as necessary, paragraph headings; streamlining the regulation 
text, including removing proposed Sec.  __.21(a) from the final rule as 
duplicative; removing duplicative information from final Sec.  __21(e); 
adding section headings and cross-references for clarity and ease of 
reference; and making other clarifying and conforming changes.

Section __.21(a) Application of Performance Tests and Strategic Plans

Current Approach
    Similar to the current CRA regulations, the agencies set out an 
evaluation framework in proposed Sec.  __.21(a) and (b) that is 
tailored to a bank's asset size and business model.\694\ As explained 
below, the agencies are finalizing the broader evaluation framework as 
proposed, with modifications to the individual performance tests and 
standards.
---------------------------------------------------------------------------

    \694\ See proposed Sec.  __.21(a) and (b); see also proposed 
Sec. Sec.  __.12 and __.22 through __.29.
---------------------------------------------------------------------------

Section __.21(a)(1) Large Banks
The Agencies' Proposal
    In Sec.  __.21(b)(1), the agencies proposed to apply four 
performance tests to large banks: the Retail Lending Test in proposed 
Sec.  __.22; the Retail Services and Products Test in proposed Sec.  
__.23; the Community Development Financing Test in proposed Sec.  
__.24; and the Community Development Services Test in proposed Sec.  
__.25. The agencies intended that each of these performance tests would 
measure a different aspect of how responsive a bank's retail and 
community development activities are to the credit needs of the bank's 
communities.
    As discussed in more detail in the section-by-section analysis of 
the Retail Lending Test in Sec.  __.22, the agencies proposed that the 
Retail Lending Test rely on a set of metrics and community and market 
benchmarks grounded in local data to measure how well a bank's retail 
lending meets the credit needs of

[[Page 6768]]

low- and moderate-income individuals, small businesses and small farms, 
and low- and moderate-income geographies through an analysis of lending 
volume and geographic and borrower lending distributions.\695\ More 
specifically, the agencies proposed that the bank's retail lending 
distribution metrics, calculated using the bank's number of loans, be 
compared to community and market benchmarks.\696\ The agencies also 
proposed that additional factors be considered when evaluating a bank's 
retail lending performance.\697\ The agencies proposed that conclusions 
for the Retail Lending Test be assigned for each of a large bank's 
facility-based assessment areas, retail lending assessment areas, and 
outside retail lending area, as well as at the State, multistate MSA, 
and institution levels, as applicable.\698\
---------------------------------------------------------------------------

    \695\ See proposed Sec.  __.22(d) and proposed appendix A.
    \696\ See id.
    \697\ See proposed Sec.  __.22(e).
    \698\ See proposed Sec.  __.22(f)(1).
---------------------------------------------------------------------------

    The agencies proposed that the Community Development Financing Test 
assess how well a bank meets community development financing needs, 
using dollar-based metrics and benchmarks to standardize the review of 
community development loans and community development investments, 
while also incorporating a qualitative impact review of community 
development financing activities to complement the metrics and 
benchmarks.\699\ Conclusions would reflect the agencies' qualitative 
assessments of a bank's community development financing metric relative 
to the benchmarks and the impact review. The proposed conclusions for 
the Community Development Financing Test would be assigned for each of 
a bank's facility-based assessment areas, States, and multistate MSAs, 
and at the institution level, as applicable.\700\
---------------------------------------------------------------------------

    \699\ See generally proposed Sec.  __.24 and proposed appendix 
B.
    \700\ See proposed Sec.  __.24(d)(1).
---------------------------------------------------------------------------

    The agencies' proposed Retail Services and Products Test and 
Community Development Services Test would evaluate how well a bank's 
products and services, respectively, meet community credit and 
community development needs.\701\ The agencies proposed revised 
standards for these performance tests to reflect changes in banking 
over time and to introduce standardized metrics,\702\ as well as 
benchmarks for the Retail Services and Products Test,\703\ to allow a 
more consistent evaluation approach. For both performance tests, the 
proposed conclusions would be assigned for each of a bank's facility-
based assessment areas, States, and multistate MSAs, and at the 
institution level, as applicable.\704\
---------------------------------------------------------------------------

    \701\ See generally proposed Sec.  __.23, proposed appendix A, 
proposed Sec.  __.25, and proposed appendix B.
    \702\ See generally proposed Sec. Sec.  __.23 and __.25.
    \703\ See proposed Sec.  __.23(b)(1)(i)(B).
    \704\ See proposed Sec. Sec.  __.23(d)(1) and __.25(e)(1).
---------------------------------------------------------------------------

    To reflect the increased resources and capacity of large banks that 
had assets greater than $10 billion, the agencies proposed additional 
tailoring of the Retail Services and Products Test, the Community 
Development Services Test, and the data collection and reporting 
requirements.\705\ For large banks that had assets greater than $10 
billion, the agencies proposed requiring a full evaluation under the 
Retail Services and Products Test, including the bank's digital and 
other delivery systems \706\ and deposit products responsive to the 
needs of low- and moderate-income individuals.\707\ Similarly, for the 
Community Development Services Test, the agencies proposed that only 
large banks that had assets of more than $10 billion would be required 
to be evaluated under a community development service hours 
metric.\708\
---------------------------------------------------------------------------

    \705\ See generally proposed Sec. Sec.  __.23, __.25, and __.42.
    \706\ See proposed Sec.  __.23(b)(3).
    \707\ See proposed Sec.  __.23(c)(2).
    \708\ See proposed Sec.  __.25(b)(2).
---------------------------------------------------------------------------

    In addition to requiring large banks that had assets greater than 
$10 billion to collect and maintain data for digital and other delivery 
systems and responsive deposit products,\709\ the agencies also 
proposed that these banks collect, maintain, and report deposits,\710\ 
community development services,\711\ and automobile lending data.\712\
---------------------------------------------------------------------------

    \709\ See proposed Sec.  __.42(a)(4)(ii) and (iii).
    \710\ See proposed Sec.  __.42(a)(7) and (b)(5).
    \711\ See proposed Sec.  __.42(a)(6) and (b)(4).
    \712\ See proposed Sec.  __.42(a)(2) and (b)(2).
---------------------------------------------------------------------------

Comments Received
    The agencies received numerous comments on the application of the 
four proposed tests to large banks. Many commenters offered general 
support for the proposed four-test framework, with reasons for support 
including increased test rigor, additional quantitative standards for 
assessing performance, and permitting a more comprehensive evaluation 
of CRA activities.
    Many commenters also stated that the proposed four-performance test 
framework for large banks offered significant improvements in 
performance test rigor, but that the improvements are not consistent. 
In particular, some commenters were concerned that the Retail Services 
and Products Test, the Community Development Financing Test, and the 
Community Development Services Test may replicate the high pass rates 
and ratings that banks currently receive, leading to ``grade 
inflation,'' and may not necessarily reveal significant distinctions in 
performance. These commenters suggested that the agencies extend the 
rigor of the Retail Lending Test to the other three performance tests. 
To guard against ratings inflation and ensure test rigor, several 
commenters recommended that the agencies develop guidelines for 
examiners on how to use the performance measures for some of the large 
bank performance tests such as the Community Development Financing Test 
and the Community Development Services Test.
    Some commenters made recommendations to the agencies to revise the 
proposed large bank framework of performance tests by adding to, 
eliminating, or reconfiguring one or more of the four performance 
tests. A commenter expressed support for the current large bank three-
performance-test evaluation regime with distinct lending, investment, 
and service tests, stating that this three-performance-test regime is a 
more equitable method to measure CRA performance; prevents bank 
lending, investment, and services from competing against each other for 
supremacy; and ensures that banks continue to have a focused incentive 
to meet the needs of low- and moderate-income communities.
    Some commenters suggested that the agencies eliminate the Community 
Development Services Test after combining it with the Retail Lending 
Test, the Community Development Financing Test, the Retail Services and 
Products Test, or a combination of the performance tests. These 
commenters explained that: the proposed Community Development Services 
Test was not sufficiently weighted by itself to incentivize bank 
performance; the proposed eligible service activities are limited and 
had minimal impacts; and the activities that would be evaluated under 
the performance test would be better allocated to either the Community 
Development Financing Test or the Retail Services and Products Test. 
For large banks, a commenter suggested that the agencies should 
consider combining the Community Development Financing Test and the 
Community Development Services Test, and separately combining the 
Retail Lending Test and the Retail Services and Products Test, with 
each

[[Page 6769]]

combined performance test having a 50 percent weight.
    Another commenter suggested that the agencies make the Community 
Development Services Test more of a ``tie-breaker'' by providing 
minimal credit for community development services. Another commenter 
suggested that the agencies eliminate the Community Development 
Services Test in full and instead evaluate these services as an impact 
review factor.
    A few commenters suggested that the agencies maintain separate 
evaluations for community development lending and community development 
investments. The commenters stated that, by combining community 
development lending and community development investment into a single 
performance test, banks may retreat from investments because they can 
be more complex and provide a lower rate of return than community 
development lending. For similar reasons, a commenter recommended that 
the agencies create a lending subtest and an equity investment subtest 
within the Community Development Financing Test with equal weighting 
for both subtests.
    Many commenters offered suggestions on additional tailoring for the 
large bank performance test framework. For example, a few commenters 
suggested that large banks that had less than $10 billion in assets 
should have the ability to choose an evaluation under the proposal or 
under the current examination framework.
    Many commenters objected to the fact that, under the proposal, 
large banks that had assets between $2 billion and $10 billion would 
have different and lesser obligations compared to banks that had over 
$10 billion in assets. These differences existed within: (1) the Retail 
Services and Products Test with respect to the evaluation of digital 
and other delivery systems and the evaluation of deposit products 
responsive to the needs of low- and moderate-income individuals; (2) 
the Community Development Services Test with respect to the metric for 
community development services hours; and (3) the related data 
requirements for retail services and products, community development 
services, and deposits. These commenters stated that financial 
institutions classified as a large bank should have all the CRA 
responsibilities of a large bank with no differential treatment.
Final Rule
    After considering these comments, the agencies are finalizing the 
overall evaluation framework for large banks as proposed with the four 
performance tests described above. Under Sec.  __.21(a)(1) of the final 
rule, large banks are subject to: the Retail Lending Test in final 
Sec.  __.22; the Retail Services and Products Test in final Sec.  
__.23; the Community Development Financing Test in final Sec.  __.24; 
and the Community Development Services Test in final Sec.  __.25. 
However, as discussed in the section-by-section analysis to final Sec.  
__.28, ``Assigned Conclusions and Ratings,'' the agencies are revising 
the weight of each of the four performance tests so that the two retail 
performance tests and the two community development performance tests 
collectively each have a respective weight of 50 percent.
    The agencies note that, rather than three performance tests under 
the current rule, they proposed the four performance tests for large 
banks to more easily tailor examinations by bank asset size and 
business model. This tailoring allows the agencies to use specific data 
for each performance test, including data which are already available. 
Further, the agencies believe that each individual performance test 
measures a unique aspect of how responsive a bank's retail and 
community development activities are to the credit needs of their 
communities, and that collapsing one or more of the performance tests 
to evaluate lending, investment, and services would result in a less 
robust large bank evaluation framework. Retaining the Community 
Development Services Test and the Retail Services and Products Test as 
separate performance tests for large banks appropriately emphasizes 
large bank service performance under each respective performance test. 
Maintaining the Community Development Financing Test and Community 
Development Services Test as separate performance tests underscores the 
importance of community development services for fostering partnerships 
among different stakeholders, building capacity, and creating the 
conditions for effective community development, including in rural 
areas. Further, the Community Development Financing Test and the 
Community Development Services Test each evaluate different aspects of 
the responsiveness of a bank's community development activities to the 
credit needs of its local communities. Maintaining two separate 
community development performance tests in the final rule emphasizes 
the benefits and importance of community development financing 
activities and community development services and acknowledges that, in 
comparison to smaller banks, large banks have additional capacity to 
conduct both types of activities.
    The agencies are not adopting the suggestions to make the Community 
Development Services Test more of a ``tie-breaker'' or to instead 
evaluate community development services as an impact review factor 
because these suggestions are inconsistent with the agencies' intent to 
emphasize the significance of community development service activities, 
as noted above.
    The agencies are keeping the evaluation of both community 
development lending and community development investments activities 
under the Community Development Financing Test. The agencies 
acknowledge the importance of investments, such as the LIHTC, to help 
support the creation of affordable rental housing. For that reason, as 
discussed in the section-by-section analysis of Sec.  __.24, the final 
rule establishes a separate community development investment metric in 
Sec.  __.24(e)(2)(iii) and (iv) to identify and consider these types of 
investment activities within the broader performance test. With this 
addition, the agencies believe that these activities can be evaluated 
in a single performance test without a diminution of either lending or 
investments. In addition, if the agencies observe any developments in 
which banks favor community lending or community investments to a point 
where there is an appreciable decline in one type of activity in favor 
of the other, the agencies will reevaluate whether any additional 
measures are needed, such as separate tests or distinct evaluations of 
each activity under the same test. However, agency experience does not 
indicate that the de-emphasis of community development lending or 
community investment under a single test is likely to be a significant 
concern as evidenced by the current intermediate small bank community 
development test which evaluates both loans and investments.
    Further, the agencies believe that the proposed four performance 
test framework for large banks, which uses objective and quantitative 
measures to inform bank performance conclusions and ratings and reduces 
potential opportunities for subjective judgment, is appropriately 
calibrated to evaluate the performance of large banks. Specifically, 
the framework uses metrics and benchmarks to evaluate community 
development loans and investments under the Community Development 
Financing Test and bank delivery systems under the Retail Services and 
Products Test. The Retail Lending Test

[[Page 6770]]

uses distribution metrics and benchmarks to make evaluations more 
transparent, including by specifying quantitative standards for lending 
consistent with achieving, for example, a ``Low Satisfactory'' or 
``Outstanding'' conclusion in a Retail Lending Test Area. Although the 
Community Development Services Test adopted in the final rule does not 
include any metrics or benchmarks, the agencies' supervisory experience 
will permit the use of the information and data evaluated under the 
performance test to make meaningful distinctions in bank performance. 
Further explanation of this change is discussed in the section-by-
section analysis of Sec.  __.25.
    The agencies agree with commenters' perspective with respect to 
developing guidelines for examiners on how to use the performance 
measures for some of the large bank performance tests. As the agencies 
implement the final rule, they will consider what internal guidance 
will be helpful for agency staff to accurately evaluate bank 
performance.
    In connection with each applicable performance test, the agencies 
considered the possibility of fully eliminating the proposed 
distinctions between large banks that had assets greater than $10 
billion and large banks that had assets between $2 billion and $10 
billion in the final rule, as requested by some commenters. While all 
of these proposed distinctions are not finalized,\713\ the agencies are 
adopting some of the proposed distinctions in the final rule because 
the agencies find that, although it is appropriate to apply all four 
performance tests to large banks that had assets less than $10 billion 
in assets, large banks that had assets between $2 billion and $10 
billion have a more limited capacity to comply with some requirements 
and data provisions in comparison to their counterparts that had assets 
greater than $10 billion. These provisions include the consideration of 
digital delivery systems, other delivery systems, and deposit products 
responsive to the needs of low and moderate-income individuals under 
the Retail Services and Products Test \714\ as well as the data 
requirements with respect to digital delivery systems, other delivery 
systems, and deposits.\715\ Further, the agencies believe that large 
banks that had assets greater than $10 billion is an appropriate 
threshold at which to apply the additional requirements described 
above. All three of the agencies have considerable experience in using 
$10 billion in bank assets as a demarcating boundary for heightened 
supervisory expectations or additional requirements.\716\ Furthermore, 
the agencies note that Federal legislation also uses $10 billion in 
bank assets on a frequent basis as a threshold for making certain 
requirements applicable to financial institutions.\717\ Finally, the 
agencies note that, under the final rule, large banks that had assets 
between $2 billion and $10 billion may opt into any of the proposed 
requirements applicable to large banks that had assets greater than $10 
billion. For example, a large bank with assets between $2 billion and 
$10 billion may opt to collect and maintain deposits data that is 
required for large banks that had assets greater than $10 billion.
---------------------------------------------------------------------------

    \713\ Provisions include the Bank Assessment Area Community 
Development Service Hours Metric for the Community Development 
Services Test that the agencies did not adopt from the proposal, 
along with the associated data collection, maintenance, and 
reporting requirements. The agencies also did not adopt the proposed 
distinction with respect to the requirement to collect, maintain, 
and report automobile lending data and replaced it instead with a 
requirement to collect the data if automobile loans are a product 
line for the bank.
    \714\ See final Sec.  __.23(b)(1)(iii), (b)(4), (c)(1)(ii), and 
(c)(3).
    \715\ See final Sec.  __.42(a)(4)(ii) and (iii), (a)(7), and 
(b)(3).
    \716\ See, e.g., Board, ``Community & Regional Financial 
Institutions'' (Sept. 15, 2021), https://www.federalreserve.gov/supervisionreg/community-and-regional-financial-institutions.htm 
(indicating that the Board ``defines community banking organizations 
as those with less than $10 billion in assets'' for general 
supervisory purposes); OCC, ``Community Bank Supervision'' (Sept. 
30, 2019), https://www.occ.gov/publications-and-resources/publications/comptrollers-handbook/files/community-bank-supervision/pub-ch-community-bank-supervision.pdf (providing that ``banks with 
assets of $10 billion or less are'' typically ``characterized as 
community banks'' as a general supervision category); 12 CFR 
327.8(f) and 327.16(b) (FDIC regulations generally defining a large 
institution as a ``depository institution with assets of $10 billion 
or more'' and using a separate methodology to calculate risk-based 
deposit insurance assessments for the Deposit Insurance Fund).
    \717\ See, e.g., 12 U.S.C. 1851(h)(1)(B) (making the Volcker 
Rule requirements applicable to banks with more $10 billion in total 
consolidated assets) and 12 U.S.C. 5515 (providing the CFPB with 
authority to examine banks with more than $10 billion to assess 
compliance with Federal consumer finance laws); 15 U.S.C. 1693o-
2(a)(6) (exempting banks with less than $10 billion in assets from 
regulations on interchange transaction fees with respect to an 
electronic debit transaction).
---------------------------------------------------------------------------

    The agencies also considered the suggestion that large banks that 
had assets less than $10 billion should have the ability to choose an 
evaluation under the proposal or under the current examination 
framework. However, implementing this suggestion could remove a 
significant number of large banks that play a significant role in 
fulfilling low- and moderate-income credit needs in local areas from 
the more comprehensive evaluation included in the final rule's large 
bank evaluation approach. The agencies estimate that there are 
approximately 372 banks that had assets between $2 billion and $10 
billion, representing approximately 8.0 percent of all banks with CRA 
obligations and 7.3 percent of deposits.\718\ In addition, the agencies 
continue to believe that, with appropriate tailoring incorporated in 
the final rule for large banks that had assets between $2 billion and 
$10 billion, these banks otherwise have the requisite capacity to 
engage in the range of activities that will be evaluated under the 
proposed four performance test framework.
---------------------------------------------------------------------------

    \718\ These numbers are based on 2021 and 2022 Call Report data.
---------------------------------------------------------------------------

Section __.21(a)(2) Intermediate Banks
The Agencies' Proposal
    In Sec.  __.21(b)(2), the agencies proposed that intermediate banks 
be evaluated under the following tests: (1) the Retail Lending Test 
applicable to all intermediate banks; and (2) either the current 
intermediate small bank community development test in proposed Sec.  
__.29(b)(2) as a default or, at the bank's option, the Community 
Development Financing Test. The agencies explained in the proposal that 
intermediate banks would be evaluated under the Retail Lending Test to 
improve clarity, consistency, and transparency in the evaluation of 
retail lending, and provided options for community development 
evaluation in recognition of the fact that, in comparison to large 
banks, intermediate banks have a relatively more limited capacity to 
conduct community development activities.
    Under proposed Sec.  __.21(b)(2)(ii)(A), if an intermediate bank 
chose to be evaluated under the Community Development Financing Test, 
the agencies would continue to evaluate the bank under the performance 
test until the bank opted out. Proposed Sec.  __.21(b)(2)(ii)(B) 
provided that the agencies may adjust an intermediate bank's 
institution rating from ``Satisfactory'' to ``Outstanding'' if the 
bank: (1) chose to be evaluated under the Community Development 
Financing Test; (2) requested additional consideration for activities 
that qualify under the Retail Services and Products Test or the 
Community Development Services Test; and (3) the bank would have 
received a ``Satisfactory'' before the additional consideration.
    Similar to the current CRA requirements, the proposal would not 
have required intermediate banks to collect or report any additional 
data.\719\

[[Page 6771]]

However, when an intermediate bank chose to be evaluated under the 
Community Development Financing Test, it would be required to collect 
and maintain the same data required of large banks for community 
development loans and community development investments, but in the 
format used by the bank in the normal course of business, until the 
completion of the bank's next CRA examination.\720\
---------------------------------------------------------------------------

    \719\ See proposed Sec.  __.42.
    \720\ See proposed Sec.  __.42(a)(5)(i)(B).
---------------------------------------------------------------------------

Comments Received
    The agencies received numerous comments on the application of the 
tests to intermediate banks. Some commenters supported the agencies' 
proposal for intermediate banks because it provided important 
flexibilities, specifically stating that the ability to opt into the 
Community Development Financing Test appropriately balances regulatory 
burden.
    Other commenters suggested additional changes for the intermediate 
bank performance evaluation framework. A few commenters requested that 
the final rule give intermediate banks the ability to also opt into the 
Retail Lending Test. Some commenters recommended that intermediate 
banks should have the option to continue to be evaluated under all of 
the current standards applicable to intermediate small banks, including 
the current small bank lending test.
    With respect to the evaluation of intermediate bank community 
development loans, investments, and services, commenters offered a 
variety of perspectives. A few commenters stated that community 
development services should be a mandatory part of the intermediate 
bank community development evaluation. Some commenters stated that the 
same community development obligations that apply to large banks should 
apply to all banks, an approach that would include all intermediate 
banks under the Community Development Financing Test and Community 
Development Services Test. A commenter suggested that intermediate 
banks should be required to be evaluated under a Community Development 
Financing Test and a Community Development Services Test that are 
customized for intermediate banks.
    A commenter stated that all banks, including intermediate banks, 
should have essential retail service activities reviewed, including but 
not limited to the accessibility of their products, services, and 
branch network for low- and moderate-income individuals and 
communities.
    Another commenter recommended that the agencies provide more 
guidance on how community development services could optionally be 
incorporated into the evaluations of intermediate banks.
Final Rule
    After considering the comments, the agencies are adopting the 
evaluation framework for intermediate banks as proposed. Specifically, 
Sec.  __.21(a)(2)(i) of the final rule provides that the agencies will 
evaluate intermediate banks under the Retail Lending Test in Sec.  
__.22 and the Intermediate Bank Community Development Test in Sec.  
__.30(a)(2) (renamed from the ``intermediate bank community development 
evaluation'' in the proposal), unless an intermediate bank chooses to 
have its community development loans and investments evaluated under 
the Community Development Financing Test in Sec.  __.24. Final Sec.  
__.21(a)(2)(ii) provides that, if an intermediate bank opts to be 
evaluated under the Community Development Financing Test, the agencies 
will continue to evaluate the bank under the performance test until the 
bank opts out; if the intermediate bank opts out of the Community 
Development Financing Test, the agency reverts to evaluating the bank 
pursuant to the Intermediate Bank Community Development Test, starting 
with the evaluation period preceding the bank's next CRA examination. 
Furthermore, final Sec.  __.21(a)(2)(iii) provides that, pursuant to 
final Sec.  __.30(b), intermediate banks may request additional 
consideration for the services and products that qualify under the 
Retail Services and Products Test or the Community Development Services 
Test. In contrast to proposed Sec.  __.21(b)(2)(ii)(B), which provided 
additional consideration only to intermediate banks choosing an 
evaluation under the Community Development Financing Test, final Sec.  
__.21(a)(2)(iii) permits additional consideration for any intermediate 
bank and references the substantive provisions concerning the 
evaluation of intermediate banks.
    As proposed, intermediate banks generally do not have any required 
data collection, maintenance, or reporting requirements under the final 
rule.\721\
---------------------------------------------------------------------------

    \721\ The only exception is the requirement that if an 
intermediate bank chooses to be evaluated under the Community 
Development Financing Test, it must collect and maintain community 
development loans and community development investments data. See 
final Sec.  __.42(a)(5)(i)(B).
---------------------------------------------------------------------------

    The agencies believe that applying the Retail Lending Test to 
intermediate banks will improve the clarity, consistency, and 
transparency of retail lending evaluations. Further, the agencies 
believe it is appropriate to apply the Retail Lending Test to 
intermediate banks because they generally have fewer capacity 
constraints than small banks, putting them in a better position to 
comply with Retail Lending Test requirements.
    The agencies also note that various aspects of the Retail Lending 
Test are tailored in the final rule to accommodate intermediate banks. 
For example, relative to large banks, the final rule minimizes the data 
intermediate banks must collect and maintain for evaluation under the 
Retail Lending Test; \722\ limits the geographic scope in which the 
performance test applies; \723\ and provides additional accommodations 
for intermediate banks on various components of the test, such as the 
Retail Lending Volume Screen.\724\
---------------------------------------------------------------------------

    \722\ See generally final Sec.  __.42(a) and (b) (primarily 
exempting intermediate banks from the requirements to collect, 
maintain, or report data used to assess Retail Lending Test 
performance).
    \723\ See final Sec. Sec.  __.17 (making retail lending 
assessment applicable to large banks only) and __.18 (exempting 
intermediate banks and small banks that opt into the Retail Lending 
Test from the outside retail lending area evaluation requirements if 
more than 50 percent of the relevant loans were purchased or 
originated inside the bank's facility-based assessment areas over 
the previous two calendar years).
    \724\ See final Sec.  __.22(c)(3)(iii)(B) (intermediate banks 
lacking an acceptable basis for not meeting the Retail Lending 
Volume Screen in the facility-based assessment area receive a Retail 
Lending Test recommended conclusion).
---------------------------------------------------------------------------

    Commenters noted that the proposed the Retail Lending Test would 
apply to some intermediate small banks that are currently evaluated 
under the small bank lending test. However, the agencies are finalizing 
the proposal to apply the Retail Lending to all intermediate banks to 
confer greater clarity, consistency, and transparency to evaluations of 
retail lending. The agencies believe this approach is appropriate 
considering that some aspects of the Retail Lending Test are tailored 
to intermediate banks. In making this decision, the agencies considered 
whether banks with assets of more than $600 million in assets but less 
than $1.503 billion could reasonably be expected to transition from the 
status quo small bank lending test to the Retail Lending Test and have 
determined that, based on supervisory experience, these banks have the 
capacity and resources to comply with all applicable aspects of the 
test.

[[Page 6772]]

    The agencies considered whether they should require intermediate 
banks to be evaluated under the Community Development Financing Test as 
suggested by commenters. Although the agencies concluded that requiring 
intermediate banks to participate in the Community Development 
Financing Test provided the added benefit of metrics and benchmarks for 
community development activities, the agencies also believe that the 
additional burden from requiring the transition to the Community 
Development Financing Test could not be justified for all intermediate 
banks, some of which have more limited capacity.
    The agencies also considered whether, similar to the approach taken 
for the Retail Lending Test, they could tailor the Community 
Development Financing Test for intermediate banks so that the 
performance test could be applied to all intermediate banks. Although 
the agencies saw potential in this approach, they were unable to make 
modifications to the point that could simultaneously accommodate the 
capacity constraints of some intermediate banks and maintain a set of 
metrics and benchmarks that permitted a meaningful comparison amongst 
all banks under the test. The agencies believe that the more prudent 
approach in the final rule is to retain the Intermediate Bank Community 
Development Test as the default evaluation method for intermediate 
banks.
    The agencies also considered whether the Community Development 
Services Test should apply to intermediate banks as a required part of 
their CRA performance evaluation. The agencies decided that the 
application was not necessary. For intermediate banks subject to the 
default Intermediate Bank Community Development Test, ``community 
development services'' is already one of the four criteria described in 
final Sec.  __.30(a)(2), making simultaneous evaluation under the 
Community Development Services Test redundant. The agencies also 
explained in the proposal that, for the default evaluation, they would 
retain the expectation that intermediate banks may not ignore one or 
more of the categories of community development activities covered by 
the criteria, such as community development services, and that the 
appropriate levels of each activity would depend on the bank's capacity 
and business strategy, along with community development needs and 
opportunities that are identified by the bank.\725\ This expectation 
also applies under the final rule.
---------------------------------------------------------------------------

    \725\ See Q&A Sec.  __.26(c)-1.
---------------------------------------------------------------------------

    For intermediate banks choosing an evaluation under the Community 
Development Financing Test, although community development services are 
not evaluated under the performance test, the final rule permits these 
banks to submit activities that qualify under the Community Development 
Services Test for additional consideration if the bank has an overall 
institution rating of ``Satisfactory.'' Although this does not make the 
evaluation of community development services mandatory, the agencies 
have decided that this tailoring is appropriate to avoid the 
application of an additional new performance test for intermediate 
banks with more pronounced capacity constraints than their large bank 
counterparts. The agencies agree that additional guidance on how 
community development services could optionally be incorporated into 
the evaluations of intermediate banks may be appropriate, and will 
consider issuing such guidance in the future.
    Although the agencies do not believe that the Retail Services and 
Products Test should be applied to all intermediate banks because of 
capacity constraints, the agencies have created an evaluation framework 
that allows the agencies to consider any retail services an 
intermediate bank may conduct when certain conditions are met. An 
intermediate bank evaluated under either the Intermediate Bank 
Community Development Test or the Community Development Financing Test 
may request additional consideration for retail banking services and 
retail products and programs that qualify under the Retail Services and 
Products Test, provided the bank achieves an overall institution rating 
of at least ``Satisfactory.'' \726\
---------------------------------------------------------------------------

    \726\ See final Sec. Sec.  __.21(a)(2)(iii) and __.30(b)(2).
---------------------------------------------------------------------------

Section __.21(a)(3) Small Banks
The Agencies' Proposal
    In Sec.  __.21(b)(3)(i), the agencies proposed to evaluate small 
banks under the current lending test for small banks as the default 
evaluation method; however, small banks could opt instead to be 
evaluated under the Retail Lending Test. The agencies explained in the 
preamble to the proposed rule that this approach not only recognized 
that small banks have capacity constraints and a more targeted focus on 
retail lending than larger banks, but it also made a metrics-based 
approach available to small banks as an option to increase the clarity, 
consistency, and transparency of how their retail lending is evaluated.
    If a small bank chose to be evaluated under the Retail Lending 
Test, the agencies proposed in Sec.  __.21(b)(3)(ii)(A) to evaluate the 
small bank under all Retail Lending Test provisions applicable to an 
intermediate bank, with the exception that no small bank would be 
evaluated on its retail lending outside of its facility-based 
assessment areas. This exception was intended by the agencies to tailor 
the Retail Lending Test to small banks' more limited capacities. 
Proposed Sec.  __.21(b)(3)(ii)(B) provided that the agencies would 
continue to evaluate a small bank that chose to be evaluated under the 
Retail Lending Test under that performance test until the bank opted 
out. If a small bank opted out of the Retail Lending Test, the agency 
would revert to evaluating the bank under the small bank performance 
standards as provided in proposed Sec.  __.29(a), starting with the 
entire evaluation period preceding the bank's next CRA 
examination.\727\
---------------------------------------------------------------------------

    \727\ See proposed Sec.  __.21(b)(3)(ii)(B).
---------------------------------------------------------------------------

    In addition, proposed Sec.  __.21(b)(3)(ii)(C) provided that a 
small bank that chose to be evaluated under the Retail Lending Test may 
request additional consideration for activities that qualify under the 
Retail Services and Products Test, the Community Development Financing 
Test, or the Community Development Services Test and, after considering 
the activities, the agencies may adjust the bank's rating from 
``Satisfactory'' to ``Outstanding'' at the institution level.\728\ 
Guidance for the current regulations contains a similar provision with 
respect to community development activities or retail services 
activities.\729\
---------------------------------------------------------------------------

    \728\ See also proposed Sec.  __.29(a)(2).
    \729\ See Q&A Sec.  [thinsp]__.26(d)-1.
---------------------------------------------------------------------------

    Similar to current CRA requirements, the agencies proposed that 
small banks would have no prescribed data collection or reporting 
requirements.\730\
---------------------------------------------------------------------------

    \730\ See proposed Sec.  __.42.
---------------------------------------------------------------------------

Comments Received
    The agencies received many comments on the application of the 
proposed test to small banks. Although some commenters supported the 
proposed evaluation framework for small banks, other commenters 
suggested alternative or additional performance tests. A commenter 
suggested that the agencies apply the Retail Lending Test to all small 
banks and, if necessary, provide accommodations, such as a longer 
transition period. Another commenter

[[Page 6773]]

suggested that the final rule require the evaluation of small bank 
retail service activities. A commenter requested that the final rule 
apply the same community development obligations to small banks as to 
large banks. Another commenter stated that the agencies should scale 
community development activities appropriately for small banks, which 
should not be totally exempt from having these activities evaluated. A 
commenter recommended that the agencies provide more guidance on how 
community development services could optionally be incorporated into 
the evaluations of small banks. A commenter suggested that all banks, 
including small banks, should have incentives to engage in community 
development financing. Another commenter suggested that, at a minimum, 
intermediate small banks under the current CRA regulations that become 
small banks under the proposal should continue to have their community 
development activities evaluated.
Final Rule
    After considering the comments, the agencies are adopting the 
performance test framework for small banks with some modifications to 
accommodate other changes in the final rule. Specifically, Sec.  
__.21(a)(3)(i) of the final rule provides that the agencies apply the 
Small Bank Lending Test (renamed from the ``small bank performance 
standards'' in the proposal) in final Sec.  __.29(a)(2), unless the 
bank opts to be evaluated under the Retail Lending Test in final Sec.  
__.22. If a small bank opts to be evaluated under the Retail Lending 
Test, final Sec.  __.21(a)(3)(ii)(A) specifies that the agencies use 
the same provisions used to evaluate intermediate banks pursuant to the 
Retail Lending Test. As discussed further in the section-by-section 
analysis of Sec.  __.18 and, in comparison to the proposal, this 
provision modifies the treatment of small banks evaluated under the 
Retail Lending Test by extending uniform treatment to small banks and 
intermediate banks with respect to the bank's outside retail lending 
area.\731\ This modification ensures that small banks with significant 
concentrations of home mortgage loans, multifamily loans, small 
business loans, small farm loans, or automobile loans outside of their 
facility-based assessment areas are subject to evaluation of any 
product lines which meet the major product line standards, described 
further in the section-by-section analysis of Sec.  __.22.
---------------------------------------------------------------------------

    \731\ See final Sec.  __.18(a)(2); see also final appendix A, 
paragraph II.a.2.
---------------------------------------------------------------------------

    Final Sec.  __.21(a)(3)(ii)(B) indicates that small banks that opt 
to be evaluated under the Retail Lending Test will be evaluated under 
this test for the evaluation period preceding the bank's next CRA 
examination and will continue to be evaluated under that performance 
test until the bank opts out; if the small bank opts out, the bank will 
be evaluated under the Small Bank Lending Test, starting with the 
evaluation period preceding the bank's next CRA examination.
    In addition, final Sec.  __.21(a)(3)(iii) provides that, pursuant 
to final Sec.  __.29(b), a small bank may request additional 
consideration for loans, investments, services, products, and other 
activities described in that paragraph. In contrast to proposed Sec.  
__.21(b)(3)(ii)(C), which would have provided additional consideration 
only to small banks choosing an evaluation under the Retail Lending 
Test, final Sec.  __.21(a)(3)(iii) permits additional consideration for 
any small bank and references the substantive provisions concerning the 
evaluation of small banks.
    As proposed, and similar to the current CRA requirements, small 
banks have no required data collection, maintenance, or reporting 
requirements under the final rule.\732\
---------------------------------------------------------------------------

    \732\ See final Sec.  __.42.
---------------------------------------------------------------------------

    The agencies decline to apply the Retail Lending Test to all small 
banks because the agencies believe that providing small banks the 
option to have their retail lending evaluated under either the Retail 
Lending Test or the Small Bank Lending Test better recognizes the 
capacity constraints of small banks. If a particular small bank prefers 
to be evaluated under the Retail Lending Test's metrics-based approach, 
the final rule provides the flexibility for that bank to be evaluated 
under that performance test in a manner which accommodates the bank's 
asset size.
    The agencies also decline to apply the Community Development 
Financing Test and the Community Development Services Test to small 
banks because these performance tests are specifically tailored to 
evaluate the community development loans, investments, and services of 
larger banks. The Community Development Financing Test in the final 
rule includes metrics and benchmarks primarily focused on the 
performance of large banks; and both the Community Development 
Financing Test and the Community Development Services Test require 
banks to collect, maintain, or report data to assess bank performance. 
The agencies do not believe that the benefit of imposing new community 
development investment or community development service requirements on 
small banks outweighs the potential burden that this change would 
impose on those banks. However, in recognition of their limited 
capacities, the agencies continue to believe that any considerations of 
small bank community development loans, investments, or services should 
be optional and that the better approach is to allow small banks the 
ability to request additional consideration for any community 
development loans, investments, or services they conduct. As described 
in final Sec.  __.29, the optional consideration of these community 
development loans, community development investments, and community 
development services will result in positive consideration only, so 
that small banks that do not engage in (or do not receive additional 
consideration for) these activities will not experience an adverse 
assessment of their CRA performance.
    The agencies note that they will consider providing guidance with 
respect to how community development services could optionally be 
incorporated into the evaluations of small banks, as recommended by a 
commenter.
    For similar reasons, the final rule does not require the evaluation 
of a small bank's retail banking services or retail banking products. 
Instead, small banks may request that the agencies consider retail 
banking services or retail banking products that they provide. However, 
given the limited capacity of small banks the agencies believe that it 
would not be appropriate to impose a mandatory evaluation with respect 
to small bank retail banking services or retail banking products 
performance.
Section __.21(a)(4) Limited Purpose Banks
The Agencies' Proposal
    The agencies proposed in Sec.  __.21(b)(4)(i) to evaluate wholesale 
and limited purpose banks under a Community Development Financing Test 
for Wholesale and Limited Purpose Banks.\733\ The agencies proposed in 
Sec.  __.21(b)(4)(ii) to give wholesale and limited purpose banks the 
option to have activities that qualify under the Community Development 
Services Test considered for a possible adjustment from 
``Satisfactory'' to ``Outstanding'' for the bank's overall institution 
rating.
---------------------------------------------------------------------------

    \733\ See also proposed Sec.  __.26.

---------------------------------------------------------------------------

[[Page 6774]]

Comments Received
    The agencies received many comments on the application of the 
proposed test to wholesale and limited purpose banks. Commenters 
expressed a variety of views on whether the wholesale and limited 
purpose bank designations should continue with an independent test. 
Several commenters expressed support for continued designations and 
evaluations under a Community Development Financing Test for Wholesale 
and Limited Purpose Banks because some banks have business models that 
do not align with the proposal's otherwise generally applicable 
performance tests based on asset size. These commenters also explained 
that they supported continuation of the wholesale and limited purpose 
bank category because these types of banks frequently have retail 
products that represent minimal amounts in comparison to the bank's 
loans or assets. Other commenters expressed concern that the proposed 
wholesale and limited purpose bank designation and proposed performance 
test could permit some banks to avoid evaluation of retail products, 
such as credit cards.
Final Rule
    After considering the comments, the agencies are adopting as 
proposed the limited purpose bank provision in Sec.  __.21(a)(4)(i) of 
the final rule, with technical edits. As noted in the section-by-
section analysis to Sec.  __.12, the agencies have combined the 
``wholesale bank'' definition with the ``limited purpose bank'' 
definition and eliminated the former definition. Final Sec.  
__.21(a)(4)(i) provides that limited purpose banks are evaluated 
pursuant to the Community Development Financing Test for Limited 
Purpose Banks in Sec.  __.26. In Sec.  __.21(a)(4)(ii), the final rule 
provides that, pursuant to Sec.  __.26(b)(2), a limited purpose bank 
may request additional consideration for low-cost education loans and 
services described in that paragraph. In contrast to proposed Sec.  
__.21(b)(4)(ii), which provided additional consideration for wholesale 
or limited purpose bank activities qualifying under the community 
development services test, final Sec.  __.21(a)(4)(ii) references the 
substantive provisions concerning the evaluation of limited purpose 
banks.
    The agencies believe the limited purpose bank category and test 
appropriately accommodates banks with unique business models and the 
particular products they offer under those models by accurately 
measuring a bank's volume of community development loans and 
investments relative to its capacity. Because limited purpose banks do 
not typically offer the loans evaluated under the Retail Lending Test, 
the evaluation of the bank focused primarily on community development 
loans and community development investments represents an effective 
means to assess the bank's record of serving the credit needs of its 
communities.
    The agencies are sensitive to commenter concerns that the Community 
Development Financing Test for Limited Purpose Banks should not become 
a means for banks to avoid an evaluation of their retail lending 
products that would otherwise be subject to an evaluation under the 
Retail Lending Test. For that reason, the agencies have revised the 
definition of ``Limited purpose bank'' in Sec.  __.12 to only include 
banks that do not offer the types of loans evaluated under the Retail 
Lending Test or otherwise provide the loans solely on an incidental and 
accommodation basis.
Section __.21(a)(5) Military Banks
The Agencies' Proposal
    In addition to proposing a definition for the term ``military 
bank'' in Sec.  __.12, the agencies proposed in Sec.  __.16(d) that 
they would continue the practice of allowing a bank to delineate its 
entire customer deposit base as its assessment area, provided that the 
bank's business predominantly consists of serving the needs of military 
personnel or their dependents who are not located within a defined 
geographic area. While this aspect of the proposal preserved a 
flexibility available to these banks that exists in the current CRA 
regulations \734\ and is required by CRA statute,\735\ the agencies did 
not comprehensively explain how this option would be operationalized 
with respect to the applicable performance tests and standards. The 
agencies also did not describe how they would approach the evaluation 
of a military bank with a single assessment area.
---------------------------------------------------------------------------

    \734\ See current 12 CFR __.41(f).
    \735\ See 12 U.S.C. 2902(4).
---------------------------------------------------------------------------

Comments Received
    On the issue of military banks as they relate to the overall 
evaluation framework, a commenter stated that while military banks 
should not necessarily be given a distinct bank classification, such as 
was done in the proposal for wholesale and limited purpose banks, the 
agencies should clarify that, in comparison to other banks, the 
military banks' business models may be significantly more narrow in 
scope. The commenter also indicated that the agencies should 
accommodate the unique business models of military banks that are often 
tailored to the specific needs of military and veteran communities.
Final Rule
    In response to this comment, and to provide additional clarity 
regarding the treatment of military banks in the final rule, the 
agencies are adopting a new paragraph (a)(5) in Sec.  __.21 of the 
final rule.\736\ First, to clarify that military banks are not a 
distinct bank category with their own unique set of performance tests, 
final Sec.  __.21(a)(5)(i) provides that the agencies evaluate a 
military bank pursuant to the applicable performance tests described in 
Sec.  __.21(a); military banks are evaluated as a large bank, 
intermediate bank, small bank, or limited purpose bank, as appropriate. 
The agencies also note that, as with other banks, a military bank may 
be evaluated pursuant to an approved strategic plan. Second, if a 
military bank delineates the entire United States and its territories 
as its sole facility-based assessment area pursuant to final Sec.  
__.16(d), final Sec.  __.21(a)(5)(ii) provides that the agencies 
evaluate the bank exclusively at the institution level based on its 
performance in its sole facility-based assessment area. This provision 
is intended by the agencies to minimize potential ambiguity regarding 
how the performance evaluation is conducted.
---------------------------------------------------------------------------

    \736\ See also the section-by-section analysis of final Sec.  
__.12 (discussing definition of ``military bank'').
---------------------------------------------------------------------------

    The agencies considered commenter suggestions to accommodate 
military bank business models. The agencies believe that by permitting 
military banks to continue to designate a single facility-based 
assessment area when their customer base is dispersed accommodates the 
unique business model of these banks that is primarily focused on 
meeting the credit needs of servicemembers, veterans, or their 
dependents. In addition, the agencies believe that the performance 
tests applicable to military banks permit a comprehensive evaluation of 
the military bank's record of serving its communities. The agencies' 
approach in the final rule also accommodates the ability of military 
banks to designate a single facility-based assessment area.
Section __.21(a)(6) Banks Operating Under a Strategic Plan
The Agencies' Proposal
    Proposed Sec.  __.21(b)(5) retained the current rule's strategic 
plan option by

[[Page 6775]]

providing that the agencies would evaluate the CRA performance of a 
bank that chooses to be evaluated under a CRA strategic plan approved 
under Sec.  __.27 in accordance with the goals set forth in such 
plan.\737\ The agencies explained that retaining this alternative 
evaluation method would give banks flexibility to meet their CRA 
obligations in a manner that is tailored to community needs and 
opportunities as well as to their own capacities, business strategies, 
and expertise. To ensure that banks evaluated under a strategic plan 
meet their CRA obligations, the agencies proposed that the plans: (1) 
in most circumstances, incorporate the metrics-based analysis of all of 
the performance tests that would otherwise apply without a plan; \738\ 
(2) include the same geographic areas that would be included in the 
absence of a plan; \739\ and (3) require banks to report the same data 
required in Sec.  __.42 as would be required in the absence of a 
plan.\740\
---------------------------------------------------------------------------

    \737\ See proposed Sec. Sec.  __.21(b)(5) and __.27.
    \738\ See proposed Sec.  __.27(f)(1).
    \739\ See proposed Sec.  __.27(f)(2).
    \740\ See proposed Sec.  __.27(b).
---------------------------------------------------------------------------

Comments Received
    Many commenters provided feedback on the proposed framework for 
strategic plans. Almost all of these commenters expressed support for 
the strategic plan option and recommended that the option remain 
available to banks in a final rule. These commenters believed that the 
strategic plan could be useful for many banks, especially banks with 
unique business models or particular business strategies.
    Another commenter, however, suggested that the agencies fully 
eliminate the strategic plan option because it adds complexity to the 
evaluation framework. This commenter questioned whether the option 
should be kept if banks must keep the same assessment areas and 
performance test requirements that would otherwise apply without a 
strategic plan. Another commenter suggested that the strategic plan 
option should only be made available to banks that persuade their 
regulator that they would fail the traditional examination process 
through no fault of their own.
Final Rule
    After considering comments on the proposed strategic plan 
framework, the agencies are retaining the option for banks to be 
evaluated under an approved strategic plan in Sec.  __.21(a)(6) of the 
final rule. The agencies believe this approach provides banks 
additional flexibility to meet their CRA obligations in a manner that 
is tailored to community credit needs and opportunities and the bank's 
own capacity, business strategy, and expertise. The agencies believe 
that retaining this flexibility outweighs any concern regarding 
potential complexity associated with an additional performance 
standard. The agencies note that they have revised the strategic plan 
provision in the final rule based on comments received, as discussed in 
the section-by-section analysis to Sec.  __.27, Strategic Plans.
    The agencies have made clarifying and technical changes to final 
Sec.  __.21(a)(6) to conform with the strategic plan provisions in 
final Sec.  __.27. Specifically, the agencies are indicating that they 
evaluate the performance of a bank that has an approved strategic plan 
as provided in Sec.  __.27. The agencies have also removed references 
to strategic plan goals that were previously included because, under 
final Sec.  __.27, although a bank may include goals in its plan, goals 
are not required in plans.
Additional Comments on the Evaluation Framework
    A few commenters suggested that the final rule evaluation framework 
should be further tailored to account for other types of financial 
institutions.
    A commenter recommended that the agencies consider the business 
model of CDFI banks in the CRA framework, stating that it would be 
appropriate to tailor evaluation aspects for CDFI banks given the 
complementary goals of CRA and the CDFI program. Although the agencies 
agree that the CRA and CDFI program have complementary goals, they also 
believe that the applicable performance tests and strategic plan in the 
final rule are drafted to apply appropriately to CDFI banks that 
provide financial services in low- and moderate-income communities and 
to persons with limited access to financing. Consequently, the agencies 
anticipate minimal benefits from introducing additional complexity in 
the form of provisions specific to CDFI banks.
    Another commenter suggested that specific CRA consideration should 
be given for banks organized under mutual holding companies because 
their depositors are ultimately the members or owners of the bank, and 
these institutions provide unique services for their customers and 
communities. As with CDFI banks, the agencies do not believe that 
tailored evaluations are required for these banks. Instead, the final 
rule performance tests and standards are appropriate for evaluating 
whether these institutions meet the credit needs of their communities.

Section __.21(b) Loans, Investments, Services, and Products of 
[Operations Subsidiaries or Operating Subsidiaries] and Other 
Affiliates

Current Approach
    Under the current CRA regulations, the agencies define an 
``affiliate'' as a company that controls, is controlled by, or is under 
common control with another company.\741\ In subsequent guidance, the 
agencies have clarified that bank subsidiaries are a type of 
affiliate.\742\
---------------------------------------------------------------------------

    \741\ Current 12 CFR __.12(a).
    \742\ See Q&A Sec.  __.12(a)-1.
---------------------------------------------------------------------------

    The current evaluation framework provides large banks the option to 
include affiliate lending,\743\ community development investments,\744\ 
and community development services,\745\ as applicable, in the bank's 
evaluation. Similar options to include affiliate loans, investments, 
and services are also available for wholesale and limited purpose 
banks,\746\ banks evaluated under an approved strategic plan,\747\ and 
small and intermediate small banks.\748\ If a bank elects to include 
affiliate lending, investments, or services in its evaluation, the bank 
must collect, maintain, and report the affiliate data if the bank is 
subject to the data collection and reporting requirements,\749\ or 
maintain sufficient information for examiners to evaluate the activity 
if it is not subject to those requirements.\750\
---------------------------------------------------------------------------

    \743\ See current 12 CFR __.22(c). A bank may elect to have only 
a particular category of its affiliate's lending considered. The 
basic categories of loans that can be considered are home mortgage 
loans, small business loans, small farm loans, community development 
loans and the five categories of consumer loans (automobile loans, 
credit card loans, home equity loans, other secured loans, and other 
unsecured loans). See Q&A Sec.  __.22(c)(1)-1.
    \744\ See current 12 CFR __.23(c).
    \745\ See current 12 CFR __.24(c).
    \746\ See current 12 CFR __.25(d).
    \747\ See current 12 CFR __.27(c)(3).
    \748\ See Q&A Sec.  __.26-1.
    \749\ See current 12 CFR __.42(d).
    \750\ See Q&A Sec.  __.26-1.
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed in Sec.  __.21(c) to require the inclusion of 
relevant activities of a State member bank's ``operations 
subsidiaries'' and the ``operating subsidiaries'' of a national bank, 
Federal savings association, State non-member bank, or State savings 
association in the evaluation of the relevant bank's CRA performance, 
unless the bank subsidiary is independently subject to its own CRA

[[Page 6776]]

requirements or another bank claims, for purposes of CRA, the same 
qualifying activity.\751\ The agencies explained that because banks 
exercise a high level of ownership, control, and management of their 
subsidiaries, the activities of those subsidiaries should reasonably be 
attributable to the bank.
---------------------------------------------------------------------------

    \751\ See proposed Sec.  __.21(c) introductory text and (c)(1).
---------------------------------------------------------------------------

    The agencies also proposed to maintain the current flexibility for 
banks to choose to include the relevant activities of other bank 
affiliates that are not operations subsidiaries or other subsidiaries 
unless the affiliate is independently subject to its own CRA 
requirements or another bank claims, for purposes of CRA, the same 
qualifying activity.\752\ The agencies also proposed that, with respect 
to the activities of other bank affiliates, if a bank elected to have 
the agencies consider retail loans within a particular retail loan 
category made by one or more of the bank's affiliates in a particular 
facility-based assessment area, retail lending assessment area, or its 
outside retail lending area, the bank must elect to have the agencies 
consider all of the retail loans within that loan category made by all 
of the bank's affiliates in that particular facility-based assessment 
area, retail lending assessment area, or in its outside retail lending 
area.\753\
---------------------------------------------------------------------------

    \752\ See proposed Sec.  __.21(c) introductory text and (c)(2). 
The terms ``operating subsidiary'' and ``operations subsidiary'' 
were defined in the Board's, the FDIC's, and the OCC's respective 
versions of proposed Sec.  __.12.
    \753\ See proposed Sec.  __.21(c)(2)(iii).
---------------------------------------------------------------------------

    The proposal also required banks to collect, maintain, and report 
data on the activities of operations subsidiaries and operating 
subsidiaries and pursuant to proposed Sec.  __.42.\754\ Pursuant to 
proposed Sec.  __.42, if the bank chose to include other affiliate 
activity in its evaluation, the proposal required banks to collect, 
maintain, and report data on the activities of the other 
affiliate.\755\
---------------------------------------------------------------------------

    \754\ See proposed Sec.  __.21(c)(1); see also proposed Sec.  
__.42(c).
    \755\ See proposed Sec.  __.21(c)(2)(ii); see also proposed 
Sec.  __.42(d).
---------------------------------------------------------------------------

    The agencies sought feedback on what other factors, if any, the 
agencies should consider with respect to requiring the inclusion of 
activities of a bank's operations subsidiaries and operating 
subsidiaries as part of its CRA evaluation. The agencies also requested 
feedback regarding whether, when a bank chooses to have the agencies 
consider retail loans within a retail loan category that are made or 
purchased by one or more of the bank's affiliates in a particular 
assessment area, the agencies should consider: (1) all of the retail 
loans within that retail loan category made by all of the bank's 
affiliates only in that particular assessment area; or (2) all of the 
retail loans made by all of the bank's affiliates within that retail 
loan category in all of the bank's assessment areas.
Comments Received
    The agencies received numerous comments addressing the proposed 
treatment of operations subsidiaries, operating subsidiaries, and other 
affiliates.
    Operations Subsidiaries and Operating Subsidiaries. Some commenters 
supported the proposal's automatic inclusion of the activities of bank 
operations subsidiaries and operating subsidiaries in CRA examinations. 
A commenter stated that when the degree of separation between banks and 
their subsidiaries is nonexistent, the activities of the subsidiary 
should be considered activities of the bank. Another commenter 
suggested that the agencies should allow the subsidiaries sufficient 
time to obtain a level of operating efficiency with respect to new 
products and services before including them in a bank's performance 
evaluation. The commenter indicated that it takes a bank about two 
years to achieve efficient, mature operations for new products and 
markets. A commenter recommended that loans made or purchased via 
subsidiaries should automatically count towards the major product line 
calculations and towards the delineation of retail lending assessment 
areas. Another commenter recommended that, when multiple options are 
available, banks should retain the flexibility to elect which 
performance test applies to the activities of an evaluated subsidiary.
    A few commenters did not support the mandatory inclusion of 
activities conducted by a bank's applicable subsidiaries because, from 
their perspective, it reduces flexibility in comparison to the current 
regulations. Another commenter argued that the agencies should exempt 
functionally regulated subsidiaries from the mandatory inclusion of 
operating or operations subsidiary activities in a bank's performance 
evaluation and data collection and reporting requirements because the 
mandatory inclusion of these subsidiaries within CRA examinations would 
exceed the agencies' statutory authority under 12 U.S.C. 1831v(a). A 
commenter suggested that the final rule should not expand data 
collection and reporting requirements to operations subsidiaries or 
operating subsidiaries that are required by other regulations. Another 
commenter stated that it was not clear in the proposal how community 
development financing would be considered in the context of 
subsidiaries.
    Other Affiliates. A few commenters expressed support for the 
agencies' proposal to continue the current practice of providing banks 
with the option to have the CRA activities of other affiliates (that 
are not operations subsidiaries or operating subsidiaries) considered 
because it provides banks with flexibility and accommodates different 
bank business models. However, other commenters stated that the 
agencies should require all bank affiliates to be subject to CRA 
evaluations, with no optionality, because the affiliates are engaging 
in particular types of activities on behalf of the bank and banks 
should not be able to choose which affiliate activities they include or 
exclude from an evaluation.
    A few commenters stated that, when a bank chooses to have the 
agencies consider qualifying retail loans by one or more of a bank's 
affiliates, loans purchased by the affiliate should not be able to 
compensate for the absence of bank loan origination activity. The 
commenters suggested that these loans purchased by an affiliate should 
have less relevance in evaluating a bank's CRA performance than loans 
that were actually made by its affiliates. A commenter suggested that a 
bank's affiliate's loans should be given a lower qualitative weight in 
the CRA evaluation. Some commenters noted that because the agencies did 
not propose evaluating limited purpose credit card banks on the 
distribution or impact of their credit card loans, these banks should 
not be allowed to exclude those activities by affiliate lenders. 
Another commenter stated that it is not clear in the proposal how 
community development financing would be considered in the context of 
affiliates and recommended that any community development financing 
activity engaged in by an affiliate should be included at the bank's 
request.
    Some commenters supported the alternative suggested by the agencies 
that would consider all of the retail loans within a particular retail 
loan category made by all bank affiliates within all of the bank's 
assessment areas, if a bank elects to have an affiliate's retail 
lending considered. Commenters stated that this alternative would 
include a more comprehensive evaluation of retail lending activity and 
would limit opportunities for banks to conceal poor performance. 
Another commenter stated that it preferred the agencies' proposal to 
consider all of an

[[Page 6777]]

affiliate's retail loans within a particular retail loan category made 
in specific assessment areas. Another commenter recommended that loans 
made or purchased via subsidiaries and affiliates should automatically 
count towards the major product line calculations and towards the 
delineation of retail lending assessment areas.
    Some commenters addressed third-party activities with respect to 
affiliates. A commenter suggested that the agencies clarify that their 
proposal does not prohibit consideration for a loan that an affiliate 
originates and a third party purchases, or vice versa, consistent with 
the treatment of activities conducted directly by the bank. A number of 
commenters stated that the agencies should extend CRA requirements to 
third-party partnerships, such as those between banks and non-bank 
entities to make loans and offer other services. Other commenters 
similarly stated that CRA requirements should extend to any retail 
lending that uses the bank's underwriting or benefits from use of the 
bank's charter. Other commenters stated that considering third-party 
bank lending relationships could help to address ``rent-a-bank'' 
schemes or situations where a lender collaborates with a bank to offer 
products or services in order to avoid State interest rate limits.
Final Rule
    Operations Subsidiaries and Operating Subsidiaries. The agencies 
are adopting the proposal's approach to operations subsidiaries and 
operating subsidiaries in paragraphs (b)(1) and (2) of Sec.  __.21 of 
the final rule with technical and conforming changes.\756\ For example, 
the agencies are referring to the loans, investments, services, and 
products of subsidiaries to conform to paragraphs (c) and (d) of final 
Sec.  __.42 and more precisely describe the ``qualifying activities'' 
the agencies indicated that they would consider under the proposal. The 
agencies are also adding an ``as applicable'' indicator after the first 
reference to operations subsidiaries, operating subsidiaries, and other 
affiliates in final Sec.  __.21(b)(1) to indicate that the substantive 
provisions apply to either subsidiaries or other affiliates that are 
not subsidiaries. Furthermore, the agencies are integrating the 
definition of ``depository institution'' in final Sec.  __.21(b)(1) so 
that a bank does not receive consideration for loans, investments, 
services, or products if they are already claimed by another depository 
institution. Additional discussion of ``depository institution'' is 
included in the section-by-section analysis of Sec.  __.12.
---------------------------------------------------------------------------

    \756\ See supra note 145.
---------------------------------------------------------------------------

    In final Sec.  __.21(b)(2), the agencies provide that they will 
consider the loans, investments, services, and products of a bank's 
operations subsidiaries or operating subsidiaries unless the bank's 
subsidiary is independently subject to the CRA.\757\ To prevent the 
simultaneous allocation of a particular loan, investment, service, or 
product across multiple bank charters, the agencies specify in final 
Sec.  __.21(b)(1) that this consideration does not apply if a different 
bank, operations subsidiary, operating subsidiary, or other affiliate 
already claims the loan, investment, service, or product in a CRA 
performance evaluation. In final Sec.  __.21(b)(2), the bank must 
collect, maintain, and report data on the loans, investments, services, 
and products of its operations subsidiaries or operating subsidiaries, 
as provided in final Sec.  __.42(c) so that relevant loans, 
investments, services, and products of the subsidiaries are included in 
the CRA evaluation.
---------------------------------------------------------------------------

    \757\ If an operations subsidiary or operating subsidiary is 
independently subject to the CRA because it is a financial 
institution, the agencies are required by CRA statute to assess the 
subsidiaries' record of meeting the credit needs of its entire 
community. See 12 U.S.C. 2903(a).
---------------------------------------------------------------------------

    In a technical edit to final Sec.  __.21(b)(2), the agencies are 
correcting the second reference to operations subsidiaries and 
operating subsidiaries to read as ``[operations subsidiary or operating 
subsidiary].'' The proposed regulation text in Sec.  __.21(c)(1) 
errantly referred to ``operations subsidiary'' twice.
    The agencies believe that their final rule approach appropriately 
captures the activities of bank operations subsidiaries and operating 
subsidiaries over which the bank exerts a significant degree of 
ownership, control, and management. The agencies acknowledge that 
evaluating the loans, investments, services, and products of an 
operations subsidiary or an operating subsidiary in a bank's 
performance evaluation reduces some flexibilities available to banks 
relative to the current CRA regulations, which permit banks to 
optionally include the activities under the affiliate activities 
provisions. However, the agencies believe that this concern is 
outweighed by the benefits of including these subsidiaries as part of a 
more comprehensive review of a bank's record of serving the credit 
needs of its communities through both activities conducted by the bank 
and activities that are appropriately ascribed to the bank.
    The agencies disagree with commenter suggestions to provide 
subsidiaries more time to become operationally familiar with new 
products and services before including them in a bank's CRA evaluation. 
The agencies believe that this would be inconsistent with the final 
rule's approach to evaluating loans, investments, services, and 
products conducted during an evaluation period and would delay a more 
holistic consideration of a bank's activities. The agencies also 
believe that, as appropriate, they may consider through performance 
context the concerns identified by the commenter, such as information 
that a subsidiary has recently entered a market or is offering a new 
product or service.
    The agencies agree with commenter recommendations that, for banks 
subject to the Retail Lending Test, loans made or purchased by an 
operations subsidiary or operating subsidiary should count towards the 
thresholds for delineation of retail lending assessment areas and 
identifying major product lines. Subject to the requirements of the 
regulation text in paragraphs (b)(1) and (2) in final Sec.  __.21, as 
well as Sec.  __.17 and appendix A, the closed-end home mortgage loans 
and small business loans of a bank's operations subsidiary or operating 
subsidiary are considered in the delineation of Retail Lending 
Assessment Areas. And subject to the requirements of paragraphs (b)(1) 
and (2) in final Sec.  __.21, as well as the Sec.  __.12 definition of 
``product line'', Sec.  __.22, and appendix A, the closed-end home 
mortgage loans, small business loans, small farm loans, and automobile 
loans of a bank's operations subsidiary or operating subsidiary are 
considered in determining a bank's major product lines in a Retail 
Lending Test Area.
    Regarding commenter input that the agencies lack statutory 
authority under 12 U.S.C. 1831v(a) to include the CRA activities of 
functionally regulated subsidiaries in a bank's evaluation, the 
agencies note that as written, 12 U.S.C. 1831v(a) makes the provisions 
of 12 U.S.C. 1844(c) applicable to the Board, the FDIC, and the OCC 
with respect to functionally regulated subsidiaries.\758\

[[Page 6778]]

While 12 U.S.C. 1844(c) limits the authority of the Board ``to require 
reports, make examinations, impose capital requirements, or take any 
other direct or indirect action with respect to any functionally 
regulated affiliate of a depository institution, subject to the same 
standards and requirements as are applicable to the Board under those 
provisions,'' section 1844(c) itself does not prohibit the Board from 
examining functionally regulated subsidiaries. Instead, the statute 
requires the Board to, whenever possible, minimize the duplication of 
efforts with other relevant State and Federal regulators by using 
existing reports and other supervisory information.\759\ Section 
1844(c) also provides that the Board must coordinate with the 
appropriate State and Federal regulators by providing notice to, and 
consulting with, them before beginning an examination of an entity that 
is a functionally regulated subsidiary.\760\ Because the requirements 
applicable to the Board in section 1844(c) also apply to the FDIC and 
the OCC due to the requirements of section 1831v(a), all three agencies 
will comply with these statutory requirements when considering the 
loans, investments, services, and products provided by operations 
subsidiaries and operating subsidiaries that are functionally regulated 
subsidiaries.
---------------------------------------------------------------------------

    \758\ See 12 U.S.C. 1831v(a) (providing that the provisions of 
12 U.S.C. 1844(c) that limit the authority of the Board of Governors 
of the Federal Reserve System to require reports from, to make 
examinations of, or to impose capital requirements on holding 
companies and their functionally regulated subsidiaries or that 
require deference to other regulators shall also limit whatever 
authority that a Federal banking agency might otherwise have under 
any statute or regulation to require reports, make examinations, 
impose capital requirements, or take any other direct or indirect 
action with respect to any functionally regulated affiliate of a 
depository institution, subject to the same standards and 
requirements as are applicable to the Board under those 
provisions.); see also 12 U.S.C. 1813(z) (defining ``Federal banking 
agency'' to mean ``the Comptroller of the Currency, the Board of 
Governors of the Federal Reserve System, or the Federal Deposit 
Insurance Corporation'').
    \759\ See 12 U.S.C. 1844(c)(1) and (c)(2).
    \760\ 12 U.S.C. 1844(c)(2)(C).
---------------------------------------------------------------------------

    The agencies note that final Sec.  __.21(b) does not expand the 
data collection, maintenance, or reporting requirements for operations 
subsidiaries or operating subsidiaries by imposing requirements that 
are required by other regulations. The final rule only imposes parallel 
data requirements in Sec.  __.42(c) that align with the data 
requirements applicable to banks under Sec.  __.42(a) and (b).
    With respect to commenter uncertainty regarding how community 
development financing will be considered in the context of operations 
subsidiaries or operating subsidiaries, the agencies' position is that 
because all of their relevant activities are attributed to the bank 
itself, they will be considered in the bank's performance evaluation, 
pursuant to final Sec.  __.21(b)(2). Specifically, community 
development loans and community development investments made by a 
bank's operations subsidiary or operating subsidiary would be combined 
and collectively evaluated with the bank's loans and investments 
pursuant to the community development performance test applicable to 
the bank.
    With respect to commenter concerns regarding the need for 
flexibility in the application of performances tests to a bank's 
operations subsidiary or operating subsidiary, the agencies believe 
that the final rule approach that applies the same performance tests 
which apply to the bank is the better approach. The significant degree 
of ownership, control, and management a bank exerts over an operations 
subsidiary or operating subsidiary makes the inclusion of the 
subsidiary's loans, investments, services or products under the bank's 
applicable performance tests a reasonable requirement. For that reason, 
the agencies do not believe the usage of alternative performance tests 
is warranted to evaluate the loans, investments, services, or products 
conducted in the subsidiary.
    Other Affiliates. The agencies are finalizing the proposed 
provisions regarding the optional evaluation of a bank's other 
affiliates that are not operations subsidiaries or operating 
subsidiaries in the bank's evaluation, with some technical and 
conforming changes noted below. As with paragraphs (b)(1) and (2) of 
final Sec.  __.21, the agencies are referring to the loans, 
investments, services, and products of affiliates in final Sec.  
__.21(b)(3) to conform with final Sec.  __.42(d) and more precisely 
describe the ``qualifying activities'' the agencies indicated that they 
would consider under the proposal.
    Pursuant to final Sec.  __.21(b)(3), the agencies will consider the 
loans investments, services, and products of affiliates of a bank that 
are not operations subsidiaries or operating subsidiaries, at the 
bank's option. This optional consideration is subject to three primary 
requirements applicable to the loans, investments, services, and 
products. First, as required by final Sec.  __.21(b)(1), a different 
depository institution may not claim the loan, investment, service, or 
product in a CRA evaluation. This requirement prevents the simultaneous 
allocation of a particular loan, investment, service, or product across 
multiple bank charters. Second, as required by final Sec.  
__.21(b)(3)(i), the affiliate may not be independently subject to the 
CRA.\761\ Third, as required by final Sec.  __.21(b)(3)(ii), the bank 
must collect, maintain, and report data on the loans, investments, 
services, and products of its affiliate, as provided in Sec.  __.42(d).
---------------------------------------------------------------------------

    \761\ This requirement is informed by the consideration that if 
a bank's affiliate is independently subject to the CRA because it is 
a financial institution, the agencies are required by CRA statute to 
assess the affiliates' record of meeting the credit needs of its 
entire community. See 12 U.S.C. 2903(a).
---------------------------------------------------------------------------

    For banks that opt to have affiliate loans that are closed-end home 
mortgage loans, small business loans, small farm loans, or automobile 
loans considered under the Retail Lending Test, the agencies are 
adopting final Sec.  __.21(b)(3)(iii) with conforming changes to 
maintain consistency with the Retail Lending Test. Final Sec.  
__.21(b)(3)(iii) provides that, under the Retail Lending Test, a bank 
may opt to have an agency consider closed-end home mortgage loans, 
small business loans, small farm loans, or automobile loans that the 
bank's affiliate originated or purchased.\762\ When a bank opts for 
this consideration, the particular loans are included in all aspects of 
the Retail Lending Test.\763\
---------------------------------------------------------------------------

    \762\ To conform with the Retail Lending Test, the agencies 
revised ``retail loans within a retail lending category'' in 
proposed Sec.  __.21(c)(2)(iii) to specify the particular types of 
loans evaluated under the Retail Lending Test in final Sec.  
__.21(b)(3)(iii): closed-end home mortgage loans, small business 
loans, small farm loans, or automobile loans. The agencies also 
revised proposed Sec.  __.21(c)(2)(iii) to indicate that the loans 
can be ``originated or purchased'' as opposed to ``made or 
purchased,'' another change intended to conform to the applicable 
test.
    \763\ This approach is the same as in proposed Sec.  
__.21(c)(2)(iii).
---------------------------------------------------------------------------

    More specifically, final Sec.  __.21(b)(3)(iii) provides that the 
agencies consider the loans in the bank's particular Retail Lending 
Test Area, as defined in final Sec.  __.12, that potentially includes a 
bank's facility-based assessment areas, and, as applicable, retail 
lending assessment areas and outside retail lending area.\764\ 
Furthermore, as proposed, final Sec.  __.21(b)(3)(iii) specifies that 
for a given bank product line (closed-end home mortgage loans, small 
business loans, small farm loans, or automobile loans) in a particular 
Retail Lending Test Area, the agencies will consider all of the loans 
made by all of the bank's

[[Page 6779]]

affiliates in that product line and in that particular Retail Lending 
Test Area.\765\
---------------------------------------------------------------------------

    \764\ The agencies revised the two references to ``facility-
based assessment area, retail lending assessment area, outside 
retail lending area, state, or multistate MSA, or nationwide'' in 
proposed Sec.  __.21(c)(2)(iii) to refer instead to ``Retail Lending 
Test Area'' in final Sec.  __.21(b)(3)(iii). This change covers the 
same geographic areas that contribute to the bank's ratings at the 
state, multistate MSA, and for the institution.
    \765\ This requirement substantively adopts the same requirement 
contained in proposed Sec.  __.21(c)(2)(iii). The requirement also 
reflects agency practice in the current CRA regulations requiring 
agency consideration of all affiliate loans from all affiliates with 
respect to a particular lending category in a particular assessment 
area. See current 12 CFR __.22(c)(2)(ii); see also Q&A Sec.  
[thinsp]__.22(c)(2)(ii)-1.
---------------------------------------------------------------------------

    Based on commenter input, the agencies are making an additional 
substantive and clarifying change by adding final Sec.  
__.21(b)(3)(iv). The agencies are specifying that, if a large bank opts 
to have an affiliate's closed-end home mortgage loans or small business 
loans considered in any Retail Lending Test Area, the agencies will 
consider all of the closed-end home mortgage loans or small business 
loans originated by all of the bank's affiliates in the nationwide area 
when delineating retail lending assessment areas pursuant to final 
Sec.  __.17(c). This change ensures that, if a bank opts to have an 
affiliate's closed-end home mortgage loans or small business loans 
considered, then the closed-end home mortgage loans or small business 
loans of all of its affiliates are also attributed to the bank and are 
used to determine the bank's obligations to delineate retail lending 
assessment areas.
    The agencies also considered the commenter suggestion that 
affiliate loans considered by the agencies should be used to determine 
the bank's major product lines in the geographic area evaluated. The 
agencies note that because major product line determinations are part 
of the Retail Lending Test, Sec.  __.21(b)(3)(iii) of the final rule 
incorporates affiliate loans in those determinations.
    Further, in response to commenter input requesting additional 
clarity regarding consideration of affiliate community development 
financing activity, the agencies are adding Sec.  __.21(b)(3)(v) to the 
final rule, which specifies that, at the bank's option, the agencies 
will consider community development loans or investments that are 
originated, purchased, refinanced, or renewed by one or more of the 
bank's affiliates in the bank's evaluation pursuant to the community 
development performance test or strategic plan applicable to the bank. 
This provision also indicates that the consideration only applies if 
the affiliate is not independently subject to the CRA and the bank 
collects, maintains, and reports the data as provided in Sec.  
__.42(d).
    The agencies believe the final rule approach regarding affiliates 
preserves important flexibility for banks that is available under the 
current CRA rule. The agencies do not believe a mandatory approach to 
considering affiliate loans, investments, services, and products is 
appropriate because, relative to operations subsidiaries and operating 
subsidiaries, a bank may have a lesser degree of ownership, control, 
and management over a non-subsidiary affiliate. Requiring mandatory 
evaluation of every affiliate loan, investment, service, or product 
could also potentially include activities that cannot reasonably be 
attributed to the bank in every circumstance. The agencies believe 
that, as under the current CRA regulations, banks should continue to 
have the ability to determine whether affiliate loans, investments, 
services, and products are evaluated, in order to accommodate diverse 
bank corporate structures and business models.
    The agencies considered, but are not adopting, the more stringent 
alternative described in the proposal that would consider all affiliate 
retail loans for a select product line within all of the bank's Retail 
Lending Test Areas if a bank elects to have an affiliate's retail 
lending considered. The agencies believe the proposed approach to 
include all affiliate loans for a select product line within a selected 
facility-based assessment area, retail lending assessment area, or 
outside retail lending area provides banks with appropriate flexibility 
while safeguarding against a bank ``cherry-picking'' affiliate loans 
for consideration.\766\
---------------------------------------------------------------------------

    \766\ See Q&A Sec.  [thinsp]__.22(c)(2)(ii)-1.
---------------------------------------------------------------------------

    The agencies also decline to alter the weight attributed to loans 
evaluated under the Retail Lending Test on the basis of whether they 
were originated or purchased by a bank or an affiliate. The agencies 
believe that such an approach would introduce unnecessary complexity 
into the evaluation process. Further, the agencies do not agree with 
altering the weight of an otherwise identical loan, investment, 
service, or product solely on the basis that it was conducted by the 
bank itself or by an affiliate; the agencies do not believe alteration 
of the weights is warranted in the situation described because the 
loan, investment, service, or product has an equivalent impact, 
regardless which entity originated or purchased the loan or investment 
or performed the service. Likewise, the agencies do not agree with 
commenter input that loans purchased by an affiliate are less relevant 
to evaluating a bank's CRA performance than loans that were originated 
by that or another bank affiliate. An affiliate's purchased loans, like 
any institution's purchased loans, can provide liquidity to banks and 
other lenders and increase their ability to originate additional retail 
loans. In addition, the agencies believe that they have established 
adequate safeguards in the final rule to discourage ``loan churning'' 
and similar practices that could manipulate Retail Lending Test 
conclusions. The final rule allows for consideration of retail loans 
purchased by a bank affiliate.
    Further, while the agencies understand commenter suggestions that 
it would be preferable to evaluate all or most of the loans, 
investments, services, and products in a bank's affiliates to the 
fullest extent possible (such as the consideration of affiliate credit 
card loans in the context of a limited purpose bank), the final rule 
does not except affiliates' relevant loans, investments, services, or 
products from consideration under any applicable performance tests or 
otherwise treat the activity differently than it would be considered if 
the bank had performed the same activity. The agencies believe that a 
simplified approach where all relevant affiliate loans, investment, 
services, or products may be considered at a bank's option is 
preferable to a more complex approach where some affiliate activities 
receive differential treatment based on a particular bank type, 
applicable performance test or standard, or affiliate activity.
    In response to commenter input, the agencies are confirming that 
the final rule does not prohibit consideration for a loan that an 
affiliate originates and a third party purchases, or vice versa, 
provided that no other bank claims that loan for CRA consideration. 
Additionally, with respect to comment sentiment regarding third-party 
relationships, the agencies note that although third-party risk 
management is outside the scope of this rulemaking, they do expect 
banks to have an appropriate third-party risk management compliance 
framework and controls.

Section __.21(c) Community Development Lending and Community 
Development Investment by a Consortium or a Third Party

Current Approach
    Under the current CRA regulations, community development loans 
originated or purchased by a consortium in which the bank participates 
or by a third party in which the bank has invested are considered at 
the bank's

[[Page 6780]]

option.\767\ If the bank requests consideration for these activities, 
the bank must report the data pertaining to these loans.\768\
---------------------------------------------------------------------------

    \767\ See current 12 CFR __.22(d) and __.25(d)(2); see also Q&A 
Sec.  [thinsp]__.26(b)-3 (indicating that small and intermediate 
small banks may also receive consideration of community development 
loans originated or purchased by a consortium or third party).
    \768\ See current 12 CFR __.42(e); see also Q&A Sec.  
[thinsp]__.26(b)--3 (indicating that, to receive consideration, 
small and intermediate small banks must maintain sufficient 
information for examiners to evaluate community development loans 
originated or purchased by a consortium or third party).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to retain the current flexibility regarding 
consideration for community development loans and investments by a 
consortium in which the bank participates or by a third party in which 
the bank has invested. Consistent with current regulations, the 
agencies proposed that a bank's community development loans or 
community development investments as part of a consortium or by a third 
party in which the bank invests may be considered, at a bank's 
option,\769\ subject to the following requirements: (1) the activity 
may not be claimed by another participant or investor; \770\ (2) the 
bank may claim only its percentage share of the total activity made by 
the consortium or third party; \771\ and (3) the bank must collect, 
maintain, and report the lending and investments data.\772\
---------------------------------------------------------------------------

    \769\ See proposed Sec.  __.21(d).
    \770\ See proposed Sec.  __.21(d)(ii).
    \771\ See proposed Sec.  __.21(d)(iii).
    \772\ See proposed Sec. Sec.  __.21(d)(i) and __.42(e).
---------------------------------------------------------------------------

Comments Received
    The agencies received several comments on the treatment of 
community development loans and community development investments by a 
consortium or a third party. A number of commenters supported the 
agencies' proposed approach to community development financing by a 
consortium or a third party. A commenter specifically stated that it 
supported the aspect of the proposal that provides banks the option to 
choose to take pro rata credit for the investments or loans of a fund 
into underlying portfolio companies or projects. Another commenter 
stated that it supported retaining CRA consideration on a pro rata 
basis according to a bank's percentage share of community development 
loans and investments made by third-party entities.
    Some commenters suggested that the agencies clarify certain issues 
surrounding community development financing by a consortium or a third 
party. A few commenters recommended that the agencies permit the bank 
or recipient to identify a reasonable geographic allocation for the 
loan or investment such as location of the recipient, where the 
recipient has historically worked, or where the recipient intends to 
work. Some commenters recommended that, for community development 
financing by a consortium or third party, the agencies preserve the 
practice of allowing banks to rely on the use of side letters from the 
CDFI, consortium, or fund sponsor to provide additional detail on the 
geographic distribution of activities allocated to the bank.
    A commenter suggested that, when banks provide working capital to 
CDFIs through a consortium or third party, the working capital provided 
to the CDFI should count at the point in time when the commitment of 
funds to the recipient is made, irrespective of when the funds are 
deployed. The commenter explained that their suggested approach would 
give banks certainty that they will receive CRA consideration and 
provide CDFIs with flexibility to use funds consistent with business 
needs and avoid pressure to draw on specific lines by specific dates.
    Another commenter suggested that the agencies clarify that, in 
relation to consortia and third parties, the agencies are not 
restricting two financial institutions from receiving CRA consideration 
for the same loan or investment if the loan or investment is sold from 
one institution to the other.
Final Rule
    The agencies are finalizing as proposed the provisions on the 
consideration of community development loans and investments by a 
consortium in which the bank participates or by a third party in which 
the bank has invested, with technical and conforming changes. In final 
Sec.  __.21(c), the agencies are adding ``invests in'' to the 
regulation text in recognition that a bank may invest in a consortium 
that engages in community development loans or community development 
investments. Similarly, the agencies are revising ``makes'' in Sec.  
__.21(c) to ``originates, purchases, refinances, or renews'' to conform 
with the applicable community development financing performance tests 
and more precisely indicate that a consortium or a third party that a 
bank invests in or participates in may originate, purchase, refinance, 
or renew community development loans or community development 
investments.
    Accordingly, final Sec.  __.21(c) provides that if a bank invests 
in or participates in a consortium that originates, purchases, 
refinances, or renews community development loans or community 
development investments, or if a bank invests in a third party that 
originates, purchases, refinances, or renews such loans or investments, 
either those loans or investments may be considered, at the bank's 
option. The consideration is subject to certain limitations: (1) the 
bank must collect, maintain, and report the data pertaining to these 
community development loans and community development investments 
pursuant to Sec.  __.42(e), as applicable; \773\ (2) if the 
participants or investors choose to allocate the community development 
loans or community development investments among themselves for 
consideration under this section, no participant or investor may claim 
a loan origination, loan purchase, or investment for community 
development consideration if another participant or investor claims the 
same loan origination, loan purchase, or investment; and (3) the bank 
may not claim community development loans or community development 
investments accounting for more than its percentage share, based on the 
level of its participation or investment, of the total loans or 
investments made by the consortium or third party.\774\ Under final 
Sec.  __.21(c), the agencies do not intend to provide CRA consideration 
for particular community development loans or community development 
investments in a manner that would consider the same loan or investment 
more than once or provide consideration in excess of the bank's share 
or level of participation in the consortium or third party.
---------------------------------------------------------------------------

    \773\ In final Sec.  __.21(c)(1), the agencies are making a 
conforming edit to state that a bank must ``collect, maintain, and 
report'' data as required in final Sec.  __.42(e). Furthermore, in 
recognition that final Sec.  __.42(e) only requires the bank to 
collect, maintain, and report data on community development 
financing by a consortium or a third party if the data must be 
collected, maintained or reported pursuant to paragraph (a)(5) or 
(b)(2) of final Sec.  __.42, the agencies are adding an ``as 
applicable'' indicator.
    \774\ In paragraphs (c)(2) and (3) of final Sec.  __.21, the 
agencies are removing the word ``qualifying'' from the proposed 
regulation text that preceded ``loans or investments.'' The agencies 
are making this change because community development loans and 
community development investments are defined terms that have a 
fixed meaning under the final rule.
---------------------------------------------------------------------------

    The agencies believe that this approach, as with the current 
regulations, provides banks with flexibility to make community 
development loans and community

[[Page 6781]]

development investments while maintaining the safeguards against more 
than one institution claiming CRA consideration for the same loan or 
investment at the same time.
    The agencies are not adding specific provisions regarding the 
allocation of community development financing activities in Sec.  
__.21(c) of the final rule, as requested by a commenter, because the 
allocation of these loans and investments is already addressed in 
appendix B of the final rule. Further, the agencies do not believe that 
it is appropriate to make alternative provisions that depart from the 
uniform rules of allocation for community development loans or 
investments. The agencies believe that the methodology described in 
appendix B provides a reasonable methodology for the geographic 
allocation of community development loans or investments by a 
consortium or a third party.
    With respect to commenter input regarding side letters, the 
agencies are maintaining their current practice with respect to side 
letters, which are not required but remain a permissible means through 
which to facilitate receiving CRA consideration for a loan or 
investment. The agencies also note that allocations made via side 
letters must conform with the allocation requirements for community 
development loans or investments described in appendix B of this final 
rule.
    Regarding input on timing considerations around commitment of funds 
to a recipient, the agencies agree with commenter sentiment that 
working capital provided to a CDFI by a bank through a consortium or 
third party should count at the point in time when the commitment of 
funds to the recipient is made, irrespective of when the funds are 
deployed. This is why final appendix B includes a reference to legally 
binding commitments to extend credit or to invest.\775\ The definitions 
of ``community development investment'' and ``community development 
loan'' in the final rule also leverage the concept of a legally binding 
commitment to determine whether a particular loan or investment 
qualifies for CRA consideration.
---------------------------------------------------------------------------

    \775\ See final paragraph of appendix B, paragraph I.a.1.i.A.
---------------------------------------------------------------------------

    Regarding commenter concerns about the agencies restricting two or 
more financial institutions from receiving CRA consideration for the 
same community development loan or community development investment if 
the loan or investment is sold from one institution to the other, the 
agencies' intent in the proposal was to prevent banks from 
simultaneously claiming and receiving credit for the same loan or 
investment. The agencies did not intend to eliminate CRA credit for 
sequential transactions in such a way that one bank could not receive 
any CRA credit for a loan or investment if the loan or investment was 
purchased from another bank. Final Sec.  __.21(c)(2) provides that, if 
participants or investors choose to allocate loans or investments among 
themselves for consideration, no participant or investor may claim a 
loan origination, loan purchase, or investment for community 
development consideration if another participant or investor claims the 
same loan or investment. However, if one participant or investor 
transfers the loan or investment to another participant or investor and 
relinquishes any ongoing claim to the loan or investment for CRA 
purposes, the participant to which the loan or investment is 
transferred may then receive agency consideration of the loan or 
investment. As with other types of loans or investments, the agencies 
may consider whether loans and investments are purchased or sold a 
number of times for purposes of artificially inflating CRA 
performance.\776\
---------------------------------------------------------------------------

    \776\ See final Sec.  __.21(d)(7).
---------------------------------------------------------------------------

Section __.21(d) Performance Context Information Considered

Current Approach
    Under the current CRA regulations, the agencies consider specific 
performance context factors in the application of relevant performance 
tests and standards and in the decision to approve a bank's strategic 
plan.\777\ The factors encompass a broad range of economic, 
demographic, and institution- and community-specific information that 
an examiner reviews to understand the context in which a bank's record 
of performance should be evaluated.\778\
---------------------------------------------------------------------------

    \777\ See current 12 CFR __.21(b).
    \778\ See Q&A Sec.  __.21(b)-1.
---------------------------------------------------------------------------

The Agencies' Proposal
    In proposed Sec.  __.21(e), the agencies identified the performance 
context information that they would consider in applying performance 
tests and standards, as well as in determining whether to approve a 
strategic plan.\779\ Consistent with performance context information 
considered under the current CRA framework, the agencies proposed that 
consideration may be given to: (1) a bank's institutional capacity and 
constraints; (2) a bank's past performance; (3) demographic data 
pertaining to the geographic areas in which the bank is evaluated; (4) 
retail banking and community development needs in the geographic area 
in which the bank is evaluated; (5) the bank's business strategy and 
product offerings; (6) information in the bank's public file, including 
oral and written comments submitted to the bank or the agency; and (7) 
any other information deemed relevant by the agency.\780\ Given that 
the proposed performance tests, including relevant metrics and 
benchmarks, were designed to incorporate certain key performance 
context considerations, the agencies expressly proposed to consider 
performance context information to the extent that it is not otherwise 
considered as part of a proposed performance test.\781\ For example, 
the proposed community benchmarks for the Retail Lending Test metrics, 
as described in section IX of the preamble to the proposed rule, would 
reflect information about an assessment area, such as the percentage of 
owner-occupied housing units, the percentage of low-income families, 
and the percentage of small businesses or small farms. Similarly, the 
proposed market benchmarks for the Retail Lending Test would reflect 
the aggregate lending to targeted geographic areas or targeted 
borrowers by all lenders operating in the same assessment area.
---------------------------------------------------------------------------

    \779\ See proposed Sec.  __.21(e).
    \780\ See proposed Sec.  __.21(e)(1) through (7).
    \781\ See proposed Sec.  __.21(e).
---------------------------------------------------------------------------

    The agencies requested feedback on the performance context factors 
in proposed Sec.  __.21(e), including ways to bring greater clarity to 
the use of performance context factors as applied to different 
performance tests.
Comments Received
    The agencies received many comments with respect to the agencies' 
proposal to consider performance context information. Many of these 
commenters expressed general support for the agencies' proposal to 
apply performance context information in performance tests, standards, 
and strategic plan approval determinations.
    A commenter stated that the agencies should not direct examiners to 
consider performance context information only to the extent that it is 
not otherwise considered as part of a proposed performance test. The 
commenter indicated that this approach appears to deemphasize 
performance context by implying that a broad range of information and 
circumstances are already covered by the applicable performance tests 
and standards; to address this issue, the commenter

[[Page 6782]]

recommended removing this language from the proposal and clarifying 
that performance context factors are considered in addition to the 
proposed performance tests and standards, consistent with the current 
regulations. Other commenters made related suggestions, stating that 
the proposal's emphasis on quantitative factors such as metrics and 
thresholds deemphasized performance context in potentially undesirable 
ways.
    A commenter suggested that the agencies should fully integrate 
performance context into all bank conclusions and ratings.
    Some commenters offered suggestions on additional performance 
context factors that the agencies could potentially add to proposed 
Sec.  __.21(d). For example, a commenter requested that the agencies 
allow examiners to consider innovative and responsive credit products 
and programs as beneficial performance context across any of the 
performance tests to which they are relevant. Another commenter 
requested that the agencies incorporate a measure of the availability 
and affordability of childcare facilities as performance context. A 
commenter stated that a final rule should explicitly document that CDFI 
certification must be considered as a fundamental and essential element 
of CRA performance context for a CDFI bank and the factor should be 
considered before and after the application of performance tests. 
Another commenter suggested that the agencies use performance context 
to determine whether an activity qualifies for CRA purposes, especially 
for newer, less common, more complex, or innovative activities. The 
commenter also suggested that examiner judgment and performance context 
could be helpful when a bank engages in an activity that is not already 
on the agencies' proposed illustrative list of activities eligible for 
CRA consideration.
    A commenter recommended that the agencies apply the following 
performance context factors: whether a substantial majority or a 
significant portion of the bank's retail activities are loan products 
and services not defined as major product lines for purposes of the 
Retail Lending Test and, therefore, not included in the quantitative 
metrics and benchmarks; the bank's business strategy; geographic 
dispersion of retail loan products and services; data anomalies; and 
institutional capacity and constraints.
    Some commenters requested that the agencies leverage performance 
context data that succinctly summarizes conditions in localities and 
suggested these could include measures such as: housing vacancy rates; 
housing cost burden ratios; unemployment levels; poverty rates; levels 
of segregation; and measures of health and environmental quality 
standards. Similarly, to clarify the use of performance context 
factors, a commenter suggested that the agencies implement models that 
measure a community's capacity and demand for investment, financial 
services, and financial products and publish the results in banks' 
performance evaluations.
    A number of commenters suggested that performance context should be 
used by the agencies as an additional means to encourage stakeholder 
participation in CRA examinations and that the agencies could solicit 
comment from local stakeholders, including historically underserved 
groups, on local community needs and whether banks are meeting those 
needs. The commenters noted that responses to those questions could 
then be considered by the agencies as additional performance context 
information that enables examiners to conduct additional analysis if 
significant concerns are raised that impact a bank's ratings.
    A commenter stated that performance context should be defined and 
updated in real time in conjunction with banks, with a particular 
emphasis on research-based understanding of the credit and community 
development needs and opportunities. The commenter stated this could 
help banks evaluate their own performance and tailor their services.
    Some commenters noted that the agencies will need dedicated staff 
with specific training to correctly apply performance context. A few 
commenters stated that trained experienced staff would be able to 
consider performance context and evaluate CRA performance relative to a 
bank's size, business strategy, and other relevant information. Another 
of these commenters asked the agencies to centralize performance 
context with a comprehensive community needs assessment; the commenter 
also suggested that the agencies could have dedicated staff to analyze 
public input, local data, and local studies.
    A commenter requested that the agencies limit examiner discretion 
to adjust scores downward based on performance context factors, such as 
by requiring the agencies to provide a bank with prior notice and the 
opportunity to respond if such downward adjustments would adversely 
affect the bank's institution rating.
    A commenter expressed concern that the proposed performance context 
factors do not offer assurances that banks with unique business models 
will be able to pass their CRA examinations under the proposed 
framework.
    A commenter indicated that it supported the creation of a data-
driven performance context dashboard.
Final Rule
    After considering the comments, the agencies are adopting the 
proposed performance context factors in the final rule, with technical 
and conforming changes. In final Sec.  __.21(d), the agencies are 
clarifying that performance context may be considered when applying the 
performance tests or strategic plans pursuant to final Sec.  __.21(a) 
and when determining whether to approve a strategic plan pursuant to 
final Sec.  __.27(h). In final Sec.  __.21(d)(1), the agencies are also 
clarifying that the ``retail banking or community development 
activities'' described in the proposal include ``retail lending, retail 
banking services and retail banking products, community development 
loans, community development investments, or community development 
services.''
    In final Sec.  __.21(d)(1), the agencies are removing the reference 
to ``facility-based assessment areas'' that was included in the 
proposal. Similarly, in paragraphs (d)(3) and (4) of final Sec.  __.21, 
the agencies are removing the references to ``the geographic areas in 
which the bank is evaluated.'' By removing all three of these 
references to specific geographic areas, the agencies' intention is to 
permit the consideration of all of the performance factors in any 
relevant geographic area. Similar to the current CRA regulations, this 
approach allows the consideration of performance context factors where 
a bank's actual performance is evaluated. The agencies believe that 
this approach preserves important flexibility for the agencies to 
consider relevant performance context as needed.
    In final Sec.  __.21(d)(6), with respect to performance context 
related to the bank's public file, the agencies are removing the 
reference to ``oral'' comments that was included in the proposal. After 
further consideration, the agencies have decided that, consistent with 
the current CRA regulations, it is preferable to only accept written 
comments submitted to the bank or the agency for the bank's public 
file. The agencies believe that use of written comments in relation to 
the public file better ensures the accuracy of the comments and 
eliminates additional processing steps associated with oral comments. 
The agencies note that this change from the proposal does not affect 
the use of community contacts and

[[Page 6783]]

other oral sources of public feedback used in CRA examinations.
    With these changes, final Sec.  __.21(d) provides that, when 
applying performance tests and strategic plans pursuant to final Sec.  
__.21(a), and when determining whether to approve a strategic plan 
pursuant to final Sec.  __.27(h), the agencies may consider the 
following performance context information to the extent that it is not 
considered as part of the tests and standards: (1) a bank's 
institutional capacity and constraints, including the size and 
financial condition of the bank, safety and soundness limitations, or 
any other bank-specific factors that significantly affect the bank's 
ability to provide retail lending, retail banking services and retail 
banking products, community development loans, community development 
investments, or community development services; (2) the bank's past 
performance; (3) demographic data on income levels and income 
distribution, nature of housing stock, housing costs, economic climate, 
or other relevant data; (4) any information about retail banking and 
community development needs and opportunities provided by the bank or 
other relevant sources, including but not limited to members of the 
community, community organizations, State, local, and tribal 
governments, and economic development agencies; (5) the bank's business 
strategy and product offerings; (6) the bank's public file, including 
any written comments about the bank's CRA performance submitted to the 
bank or appropriate agency and the bank's responses to those comments; 
and (7) any other information deemed relevant by the agency.
    The agencies have considered commenter suggestions to remove 
proposed language stating that the agencies will consider performance 
context factors to the extent they are not already considered as part 
of performance tests or standards. The agencies are retaining this 
language in the final rule because certain performance context 
information is now incorporated in the tests and standards, and the 
agencies believe that this practice places an appropriate emphasis on 
performance context information. For example, the Retail Lending Test 
metrics and benchmarks incorporate data on income levels and income 
distribution, as is also noted in Sec.  __.21(d)(3). The agencies 
emphasize, however, that performance context will continue to be 
considered by the agencies in evaluating all banks, as the agencies 
recognize that diverse banks operate in a wide variety of circumstances 
that quantitative measures alone might not capture. Similarly, while 
data about an economic downturn or economic conditions precipitating a 
decline in lending would fall within the scope of Sec.  __.21(d)(3), 
the agencies anticipate that this information would usually not be used 
to adjust a Retail Lending Test conclusion because it generally would 
already be reflected in the relevant Retail Lending Test market 
benchmarks; however, the agencies also believe there might be some 
unique circumstances in which data about economic conditions are not 
fully reflected in the relevant Retail Lending Test market benchmarks.
    The agencies acknowledge that the current CRA regulations consider 
performance context in addition to the applicable performance tests and 
standards. However, to accommodate new aspects of the final rule 
framework, such as the quantitative approach implemented through 
standardized metrics and benchmarks, the agencies believe that 
performance context should fully yield to an applicable performance 
test when a performance context factor considers the same information 
that is incorporated in the performance test or standard. This approach 
ensures that performance context and the applicable tests function in a 
complementary and consistent manner. The agencies believe that this 
approach better maintains the integrity of the performance tests and 
standards and prevents similar or even redundant information from 
obfuscating analysis included in the performance tests or standards.
    Regarding commenter sentiment that performance context should be 
fully integrated into conclusions and ratings, the agencies agree with 
this suggestion and have integrated the consideration of final Sec.  
__.21(d) performance context factors in each applicable performance 
test. To accomplish this, the agencies have expressly described the 
role that the final Sec.  __.21(d) performance context factors play in 
the ``conclusions and ratings'' paragraph of each respective 
performance test adopted under the final rule framework.
    Regarding commenter suggestions that innovative and responsive 
credit products should be considered under performance context 
considerations, the agencies note that the final rule incorporates 
assessments of responsiveness in the Retail Services and Products Test, 
the Community Development Financing Test, the Community Development 
Financing Test for Limited Purpose Banks and the Community Development 
Services Test. Specifically, the final Retail Services and Products 
Test considers the responsiveness of a bank's credit products and 
programs. For this reason, the final Retail Lending Test does not also 
consider the responsiveness of a bank's credit products. Similarly, an 
impact and responsiveness review pursuant to final Sec.  __.15 is 
captured in the evaluations of the Community Development Financing Test 
in final Sec.  __.24, the Community Development Services Test in final 
Sec.  __.25, and the Community Development Financing Test for Limited 
Purpose Banks in final Sec.  __.26. As discussed elsewhere in this 
SUPPLEMENTARY INFORMATION, the final rule does not adopt the term 
``innovative'' or otherwise use the term.
    The agencies have considered commenter feedback with respect to 
including the availability and affordability of childcare facilities as 
performance context, and the agencies have determined not to adopt this 
suggestion because bank activities that support childcare or childcare 
facilities qualify as community development activities, as described in 
the section-by-section analysis of Sec.  __.13. Similarly, the agencies 
believe that it is not necessary to make CDFI certification a 
performance context factor because final Sec.  __.21(d)(5) considers 
the business strategy and product offerings of a bank.
    The agencies also decline to adopt commenter suggestions to use 
performance context to determine whether an activity qualifies for CRA 
purposes, especially for newer, less common, more complex, or 
innovative activities that may not be already on the agencies' proposed 
illustrative list of activities eligible for CRA consideration. The 
agencies note that other final rule provisions specify the particular 
retail and community development activities that qualify for CRA 
consideration. The agencies believe that the use of performance context 
to create exceptions to these requirements for qualifying activities 
would compromise the clarity and transparency of the framework, 
introduce additional complexity, and potentially minimize the incentive 
for banks to meet the requirements of the regulations.
    However, the agencies agree with commenter sentiment that if a 
significant portion of a bank's retail lending activities are loan 
products that are potentially evaluated under the Retail Lending Test 
but that do not qualify as major product lines, the loan products could 
be considered as part of performance context information under Sec.  
__.21(d)(5) of the final rule.
    With respect to commenter suggestions that the agencies consider a 
bank's business strategy and a bank's institutional capacity and 
constraints as performance context, the agencies note

[[Page 6784]]

that these considerations are included as performance context factors 
under paragraphs (d)(1) and (5) of final Sec.  __.21.
    The agencies considered whether they should add performance context 
factors for the geographic dispersion of retail loan products and data 
anomalies. The agencies are not adding a performance context factor for 
the geographic dispersion of retail loans and products because the 
Retail Lending Test and Small Bank Lending Test already evaluate the 
distribution of the loan products under each respective test. With 
respect to data anomalies, the Retail Lending Test already considers 
missing or faulty data as an additional factor under Sec.  __.22(g)(4). 
With respect to other applicable tests, data anomalies may be 
considered as other potentially relevant information under Sec.  
__.21(d)(7) of the final rule.
    In response to commenter suggestions that the agencies should 
consider localized data focused on particular community needs, the 
agencies note that under final Sec.  __.21(d)(4), State, local, and 
tribal governments, and economic development agencies may submit any 
information regarding retail banking and community development needs 
and opportunities. Under this approach, the agencies would consider 
this variety of information to the extent that it is not already 
considered in relevant performance tests.
    After considering comments on the importance of stakeholder 
feedback, the agencies have decided to preserve feedback from 
stakeholders as part of a bank's relevant performance context as 
proposed. To achieve this, paragraphs (d)(4) and (6) of final Sec.  
__.21 permit the agencies to consider relevant stakeholder feedback 
submitted: directly to the agencies on retail banking and community 
development needs and opportunities; directly to the agencies via 
written comments on the bank's CRA performance; indirectly via comments 
included in the bank's public file; or indirectly via bank response to 
a written comment.
    With respect to commenter suggestions that the performance context 
should be updated with the most recent information possible, the 
agencies note that they intend to apply the most recent performance 
context information that is available at the time of the examination.
    In relation to suggestions that the agencies should have dedicated 
staff with specific training on applying performance context, the 
agencies plan to provide dedicated training to supervisory staff on all 
aspects of the final rule, including performance context. As the final 
rule is implemented, the agencies will make determinations as to which 
particular staff are best situated to consider and apply performance 
context information and what specific, additional training would be 
helpful to achieve agency objectives.
    The agencies also expect that their quantitative approach to 
assessing bank performance will provide additional transparency and 
consistency in the examination process. To provide further 
predictability and transparency, the agencies will consider the 
possibility of additional interagency guidance with respect to their 
discretion to adjust a bank's conclusions or ratings through 
performance context consistent with Sec.  __.21(d). However, at this 
time, the agencies do not find it appropriate to limit examiner 
discretion in the final rule to adjust scores downward. In relation to 
a comment that the proposed performance context factors do not offer 
assurances that banks with unique business models will be able to pass 
their CRA examinations under the proposed framework, the agencies note 
that the proposed performance context factors were not intended to 
provide assurances of how a bank will perform in a CRA examination. In 
addition, the final rule also provides banks with the option to seek 
approval to be evaluated under a strategic plan, and the option to seek 
limited purpose bank designations, both of which are a means of 
accommodating banks with unique business models that might otherwise 
experience challenges with being evaluated under otherwise applicable 
performance tests or standards.
    The agencies will work together to provide greater performance 
context information to the public, including to banks. This will 
include tools to provide information on factors that may impact 
community credit needs. As noted in the SUPPLEMENTARY INFORMATION of 
the agencies' proposal, the agencies believe that this information will 
help provide greater consistency and transparency, while also enhancing 
public participation. In addition, as noted elsewhere, the agencies 
will provide online tools that will leverage reported data and provide 
information related to metrics and benchmarks.
Section __.21(e) Conclusions and Ratings
Current Approach
    Pursuant to the CRA statute,\782\ the current CRA regulations 
provide that a bank is assigned a rating of ``Outstanding,'' 
``Satisfactory,'' ``Needs to Improve,'' or ``Substantial 
Noncompliance'' at the institution level.\783\ The assigned rating 
reflects the bank's record of helping to meet the credit needs of its 
entire community, including low- and moderate-income neighborhoods.
---------------------------------------------------------------------------

    \782\ See 12 U.S.C. 2906(b)(2).
    \783\ See current 12 CFR __.21(c).
---------------------------------------------------------------------------

The Agencies' Proposal
    In proposed Sec.  __.21(f), the agencies proposed to assign banks 
conclusions, ratings, and performance scores. Specifically, pursuant to 
Sec.  __.21(f)(1), the agencies would assign conclusions to banks for 
the bank's performance on applicable performance tests and standards. 
For large banks, intermediate banks, and wholesale and limited purpose 
banks, these conclusions would be ``Outstanding,'' ``High 
Satisfactory,'' ``Low Satisfactory,'' ``Needs to Improve,'' or 
``Substantial Noncompliance.'' For small banks, these conclusions would 
be ``Outstanding,'' ``Satisfactory,'' ``Needs to Improve,'' or 
``Substantial Noncompliance.''
    Pursuant to proposed Sec.  __.21(f)(2), the agencies would assign a 
bank a rating of ``Outstanding,'' ``Satisfactory,'' ``Needs to 
Improve,'' or ``Substantial Noncompliance'' regarding its overall CRA 
performance, as applicable, in each State, in each multistate MSA, and 
for the institution that reflected the bank's record of helping to meet 
the credit needs of its entire community, including low- and moderate-
income neighborhoods, consistent with the safe and sound operation of 
the bank. This paragraph retained existing language from the current 
CRA rule.
    Proposed Sec.  __.21(f)(3) provided that the agencies would develop 
performance scores in connection with assigning conclusions and ratings 
for a bank, other than a small bank evaluated under the small bank 
performance standards, a wholesale or limited purpose bank evaluated 
under the Community Development Financing Test for Wholesale or Limited 
Purpose Banks, or a bank evaluated based on an approved strategic plan. 
As described further in appendices C and D of the proposal, the 
agencies proposed a scoring system based on the following 10-point 
scale: ``Outstanding'' (10 points); ``High Satisfactory'' (7 points); 
``Low Satisfactory'' (6 points); ``Needs to Improve'' (3 points); or 
``Substantial Noncompliance'' (0 points). The agencies intended for the 
performance scores to provide greater transparency regarding a bank's 
overall performance.

[[Page 6785]]

Comments Received
    The agencies received many comments on the agencies' proposal with 
respect to conclusions, ratings, and performance scores. Some 
commenters supported the conclusions, ratings, and performance score 
approach in the proposed rule. A few commenters stated that they 
appreciated the additional transparency and precision that the agencies 
proposed regarding ratings by assigning both a conclusion and a score 
for each performance test at the assessment area level, with one of 
these commenters noting that the change will provide additional clarity 
as to how well banks are performing. A commenter supported the 
proposal's increased rigor in the form of assigning points to the 
ratings in the CRA's subtests, as detailed in the proposed appendices C 
and D. Another commenter stated that it would welcome clearer 
expectations for each of the four proposed ratings.
    Some commenters expressed support for the proposed 10-point 
performance scoring system but also suggested changes to point values 
corresponding to various ratings. For example, a few commenters 
suggested that, to provide more distinction between the conclusions, 
the agencies could adopt an alternative scale where an ``Outstanding'' 
receives 10 points, a ``High Satisfactory'' receives 8 points, a ``Low 
Satisfactory'' receives 5 points, and a ``Needs to Improve'' receives 2 
points. Similarly, some commenters encouraged the agencies to otherwise 
make a greater distinction between the ``Low Satisfactory'' and ``High 
Satisfactory'' conclusions to incentivize better bank performance and 
to ensure poor bank performance does not result in a rating above 
``Needs to Improve.'' Some commenters requested that the agencies adopt 
a point system that better reveals distinctions in performance and 
minimizes the potential for CRA grade inflation. For example, a 
commenter suggested an approach where the agencies would assign a 
numeric score between 1 and 100 and assign ratings relative to the 
scale.
    Another commenter recommended that the agencies separate banks into 
one of the following three equally weighted categories for CRA scores: 
``below average,'' ``average,'' and ``above average.'' From there, the 
commenter suggested that the agencies could identify a subset of banks 
from the below average category for ``Needs to Improve'' results and a 
subset of banks from the above average category for ``Outstanding'' 
results. A few commenters recommended a scoring system that makes 
receiving an ``Outstanding'' rating more easily achievable under the 
applicable performance tests.
Final Rule
    After reviewing and considering the comments, the agencies are 
adopting the proposed approach to conclusions and ratings. As described 
in further detail in the section-by-section analysis of Sec.  __.28 
(``Assigned conclusions and ratings'') the agencies believe that the 
final rule approach creates a consistent and quantifiable framework for 
assigning conclusions for bank performance and State, multistate MSA, 
and institution ratings. The agencies believe that their adopted 
approach will increase transparency and provide clarity regarding a 
bank's CRA performance.
    To streamline the regulation text of the final rule, the agencies 
are making a series of technical edits to Sec.  __.21(e). With respect 
to conclusions in final Sec.  __.21(e)(1), the agencies are specifying 
that, for all banks, conclusions are assigned pursuant to final Sec.  
__.28. The agencies are also indicating in final Sec.  __.21(e)(1) 
that: for large banks and limited purpose banks, conclusions are 
assigned pursuant to final appendix C; for intermediate banks and small 
banks, conclusions are assigned pursuant to final appendices C and E; 
and for banks with a strategic plan, conclusions are assigned pursuant 
to paragraph g of final appendix C. Furthermore, because the 
information is also covered in final Sec.  __.28(a)(1), the agencies 
are not including references to specific conclusions such as 
``Outstanding'' and ``Needs to Improve.''
    In final Sec.  __.21(e)(2), the agencies are indicating that, as 
provided in final Sec.  __.28 and final appendices D and E, they assign 
an overall CRA institution performance rating to a bank. As applicable, 
overall CRA performance ratings are also assigned for each State and 
each multistate MSA. Because the information is already included in 
final Sec.  __.28, the agencies have removed the reference to the 
specific ratings that may be assigned to a bank, as well as the 
statement that the ratings reflect the bank's record of helping to meet 
the credit needs of the bank's entire community, including low- and 
moderate-income neighborhoods, consistent with the safe and sound 
operation of the bank.
    The agencies are not adopting proposed Sec.  __.21(f)(3) in final 
Sec.  __.21 pertaining to performance scores. The agencies believe that 
the performance scores are appropriately described in paragraphs (a) 
and (b) of final Sec.  __.28 and additional discussion in final Sec.  
__.21 would be duplicative.
    The agencies have considered the performance scoring system 
alternatives suggested by commenters involving more granular scoring 
systems or systems that would lend themselves to more distinct 
gradations. However, the agencies are adopting the proposed 10-point 
scale in the final rule because the agencies believe it provides 
appropriate transparency and facilitates a greater understanding of 
bank performance in comparison to other alternatives. With specific 
reference to commenter input suggesting the need for a more detailed 
performance scoring approach, such as a 100-point scale, the agencies 
believe that doing so would provide at best a limited benefit because 
both the proposal and final rule approach involve translating 
performance scores into an ``Outstanding,'' ``High Satisfactory,'' 
``Low Satisfactory,'' ``Needs to Improve,'' or ``Substantial 
Noncompliance'' conclusion or rating. In addition, the agencies believe 
that the potential for CRA grade inflation with respect to performance 
scores is minimized with established performance thresholds in the 
Retail Lending Test and by the direct roll-up of assessment area 
performance scores to conclusions at the State level, multistate MSA 
level, and for the institution in all large bank performance tests. To 
the extent examiner judgment is involved in assigning a performance 
score, the agencies also believe that examiner training and guidance 
will minimize potential ``grade inflation'' risks.
    The agencies have also considered alternatives suggested by 
commenters to assign different point values within the 10-point 
performance scoring system to correspond with a particular conclusion 
or rating. However, the agencies believe that finalizing the point 
value as proposed is preferable because it produces a more accurate 
overall score when there are variations in subcomponent performance. 
Additionally, these point values result in appropriate aggregation of 
geographic area conclusions into State, multistate MSA, and institution 
conclusions and ratings. Regarding comments to develop a scale with a 
greater difference in the number of points assigned to ``Low 
Satisfactory'' and ``High Satisfactory,'' the agencies believe that the 
proposed approach is appropriate. Specifically, the agencies consider 
``Low Satisfactory'' and ``High Satisfactory'' performance to be less 
distinct from one another than other neighboring categories, such as 
``Needs to Improve''

[[Page 6786]]

and ``Low Satisfactory.'' Further, the agencies do not agree with 
commenter input that the 10-point system inhibits strong performance by 
banks. Instead, the agencies believe that the 10-point scoring 
methodology appropriately identifies distinctions in bank performance 
and assists the agencies in assigning corresponding conclusions and 
ratings.

Section __.21(f) Safe and Sound Operations

Current Approach
    Pursuant to the CRA statute and the current CRA regulations, a bank 
is not required to make loans or investments or to provide services 
that are inconsistent with the safe and sound operation of the 
bank.\784\ Instead, current CRA regulations specify that banks are 
expected by the agencies to provide safe and sound loans, investments, 
and services on which they expect to make a profit.\785\ Furthermore, 
banks may only develop and apply flexible underwriting standards for 
loans that benefit low- or moderate-income geographies or individuals 
if the standards are consistent with safe and sound operations.\786\
---------------------------------------------------------------------------

    \784\ See 12 U.S.C. 2901(b) and 2903(a); see also current 12 CFR 
__.11(b) and __.21(d).
    \785\ See current 12 CFR __.21(d).
    \786\ See id.
---------------------------------------------------------------------------

The Agencies' Proposal
    In proposed Sec.  __.21(g), the agencies retained the current 
regulatory provision that provides that neither the CRA statute nor the 
CRA regulations require a bank to make loans or investments or to 
provide services that are inconsistent with safe and sound banking 
practices, with the proposed clarification that this includes the 
bank's underwriting standards.\787\ Similarly, the agencies also 
proposed to retain the language in that provision indicating that, 
although banks may employ flexible underwriting standards for lending 
that benefits low- or moderate-income individuals and low- or moderate- 
income census tracts, they must also be consistent with safe and sound 
operations.\788\ The agencies proposed certain revisions to the 
language in this section for clarity, including an express statement 
that banks may employ flexible underwriting standards for not only 
loans that benefit low- or moderate-income individuals and low- or 
moderate-income census tracts, but also for loans that benefit small 
businesses or small farms, if consistent with safe and sound 
operations.\789\ The agencies proposed to eliminate the statement that 
they anticipate that banks will provide safe and sound loans, 
investments, and services on which they expect to make a profit because 
they deemed this to be redundant to include.
---------------------------------------------------------------------------

    \787\ See proposed Sec.  __.21(g).
    \788\ See current 12 CFR __.21(d) and proposed Sec.  __.21(g).
    \789\ See proposed Sec.  __.21(g).
---------------------------------------------------------------------------

Comments Received
    The agencies received a few comments that offered general support 
for the agencies' proposed safety and soundness requirements. A 
commenter stated that because operating in a safe and sound manner is a 
prudent business practice and a regulatory requirement, a final CRA 
rule should not lose sight of, or compromise, the ability of banks to 
operate in such a manner. Another commenter stated that the agencies 
should not abandon safe and sound safeguards against systemic risk.
Final Rule
    The agencies are adopting the safe and sound operations requirement 
in Sec.  __.21(f) of the final rule with a single technical change. The 
agencies are revising ``make'' in the first sentence to ``originate or 
purchase'' in order to more precisely indicate that banks originate or 
purchase loans or investments. The requirements in final Sec.  __.21(f) 
reinforces the statutory requirement that banks meet the credit needs 
of their communities in a manner that is consistent with the safe and 
sound operation of the bank. This requirement has general applicability 
to the entire CRA framework.

Section __.22 Retail Lending Test

Section __.22 Overview of the Retail Lending Test Approach

Current Approach
    Under the current CRA regulations, the large bank lending test 
includes both quantitative and qualitative criteria. The agencies 
consider originations and purchases of loans in the following 
categories of retail lending: home mortgage loans; small business 
loans; and small farm loans.\790\ These categories of retail lending 
are generally evaluated if the bank has originated or purchased loans 
in the category. In addition, consumer loans, which include motor 
vehicle loans, credit card loans, other secured consumer loans, or 
other unsecured consumer loans, are considered at the bank's option, or 
if these loans constitute a substantial majority of the bank's 
business.\791\
---------------------------------------------------------------------------

    \790\ See current 12 CFR __.22(a)(1) and (2). For this purpose, 
home mortgage loans include home purchase loans, home improvement 
loans, home refinance loans, multifamily loans, and loans for the 
purchase of manufactured homes. See Q&A Sec.  __.12(l)-1.
    \791\ See current 12 CFR __.22(a)(1); current 12 CFR __.12(j) 
(definition of ``consumer loan''). The 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.
---------------------------------------------------------------------------

    The agencies evaluate large banks' retail lending based on three 
primary criteria: lending activity; geographic distribution; and 
borrower characteristics. The lending activity criterion considers the 
volume of retail lending, in terms of the number and dollar amount of 
home mortgage loans, small business loans, small farm loans, and 
consumer loans, as applicable, within a bank's assessment areas.\792\ 
The agencies identify the number and dollar amount of loans in 
assessment areas and evaluate the bank's lending volume considering the 
bank's resources, business strategy, and other performance context 
information.\793\
---------------------------------------------------------------------------

    \792\ See current 12 CFR __.22(b)(1).
    \793\ See Interagency Large Institution CRA Examination 
Procedures (April 2014) at 6.
---------------------------------------------------------------------------

    In addition, to consider whether the bank is helping to meet the 
credit needs of low- and moderate-income census tracts, and of low- and 
moderate- income individuals, small businesses, and small farms, the 
agencies review the geographic distribution and borrower distribution 
of those loans.\794\
---------------------------------------------------------------------------

    \794\ See current 12 CFR __.22(b)(2) and (3).
---------------------------------------------------------------------------

    For the geographic distribution criterion, the agencies evaluate 
the proportion of the bank's lending in the bank's assessment areas, 
the dispersion of lending in the bank's assessment areas, and the 
number and amount of a bank's retail loans in low-, moderate-, middle-, 
and upper-income geographies in the bank's assessment areas.\795\ The 
agencies 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 geographic income category, the agencies compare: 
small business lending to the percentage distribution of businesses; 
small farm lending to the percentage distribution of farms; and 
consumer lending to the percentage distribution of households in each 
geographic income category, as applicable. The agencies supplement 
these distribution analyses by also reviewing the dispersion of a 
bank's loans throughout geographies of different income levels in its 
assessment areas to determine if there are

[[Page 6787]]

unexplained conspicuous lending gaps.\796\
---------------------------------------------------------------------------

    \795\ See current 12 CFR __.22(b)(2).
    \796\ See Interagency Large Institution CRA Examination 
Procedures (April 2014) at 7.
---------------------------------------------------------------------------

    For the borrower distribution criterion, the agencies evaluate the 
distribution of a bank's retail loans across borrower incomes or gross 
annual revenues of small businesses and small farms.\797\ The agencies 
use the following demographic comparators to inform the borrower 
distribution analysis: for home mortgage lending, families by income 
level; for small business lending, businesses with gross annual 
revenues of $1 million or less; for small farm lending, farms with 
gross annual revenues of $1 million or less; and for consumer lending, 
households by income level.
---------------------------------------------------------------------------

    \797\ See current 12 CFR __.22(b)(3).
---------------------------------------------------------------------------

    The agencies evaluate small banks and intermediate small banks 
using similar, but simplified, standards that do not rely on required 
data collection or reporting.\798\ Specifically, a small bank or an 
intermediate small bank is evaluated on: the bank's loan-to-deposit 
ratio (based on the balance sheet dollar values at the institution 
level); the percentage of its loans and lending-related activities 
within the bank's assessment areas; the bank's record of lending to 
and, as appropriate, engaging in other lending-related activities for 
borrowers of different income levels and businesses and farms of 
different sizes; the geographic distribution of the bank's loans; and 
the bank's record of taking action in response to written complaints 
about its performance in helping to meet credit needs in its assessment 
areas.\799\ The geographic and borrower distribution evaluation for 
small banks and intermediate small banks is similar to that of large 
banks, but may use bank data collected in the ordinary course of 
business or information obtained through loan samples.\800\ For small 
banks, the agencies evaluate the same categories of retail lending as 
for other banks, except that only those consumer loan categories that 
are considered primary products are evaluated.
---------------------------------------------------------------------------

    \798\ See current 12 CFR __.26.
    \799\ See current 12 CFR __.26(b).
    \800\ See Interagency Small Institution CRA Examination 
Procedures (July 2007) at 5; Interagency Intermediate Small 
Institution CRA Examination Procedures (July 2007) at 6.
---------------------------------------------------------------------------

    The purpose of evaluating lending activity for small banks, 
intermediate small banks, and large banks is the same--to determine 
whether a bank has a sufficient volume and distribution of lending in 
its assessment areas in light of a bank's performance context, 
including its capacity and the lending opportunities in its assessment 
areas.\801\ The current approach, however, does not specify what level, 
or percentage, of lending is sufficient to achieve ``Outstanding'' or 
``Satisfactory'' performance, for example, and relies on examiner 
discretion to draw a conclusion about a bank's level of lending using 
the descriptions of performance under each of the criteria and ratings 
categories.\802\
---------------------------------------------------------------------------

    \801\ See current 12 CFR __.21(b), __.22(a)(1), and__.26(a).
    \802\ See, e.g., current appendix A to part __(Ratings).
---------------------------------------------------------------------------

    Retail lending conducted outside of assessment areas is not 
evaluated using the lending test criteria. However, the Interagency 
Questions and Answers allow for consideration of loans to low- and 
moderate-income individuals, small business loans, and small farm loans 
outside of a bank's assessment areas.\803\
---------------------------------------------------------------------------

    \803\ See Q&A Sec.  __.22(b)(2) and Q&A Sec.  __.22(b)(3)-4.
---------------------------------------------------------------------------

The Agencies' Proposal--Overview
    The agencies proposed a Retail Lending Test in Sec.  __.22 to 
measure how well a bank's retail lending meets the credit needs of its 
facility-based assessment areas, retail lending assessment areas, and 
outside retail lending area, as applicable, through an analysis of the 
bank's retail lending volume and retail lending distribution.\804\ The 
proposed Retail Lending Test used a metrics-based approach that 
incorporated specific quantitative standards in order to increase 
consistency in evaluations and provide improved transparency and 
predictability regarding the retail lending performance needed to 
achieve a particular conclusion, ranging from ``Outstanding'' to 
``Substantial Noncompliance.''
---------------------------------------------------------------------------

    \804\ See generally proposed Sec.  __.22.
---------------------------------------------------------------------------

    Under the proposed Retail Lending Test, the agencies would apply 
two sets of metrics. First, in facility-based assessment areas, the 
agencies proposed to apply a retail lending volume screen to assess a 
bank's retail lending volume, calculated as a bank volume metric, 
relative to peer banks in the facility-based assessment area, 
calculated as a market volume benchmark. Specifically, the agencies 
proposed a bank volume metric calculated as the ratio of a bank's total 
dollars of closed-end home mortgage loans, open-end home mortgage 
loans, multifamily loans, small business loans, small farm loans, and 
automobile loans compared to the bank's dollars of deposits in the 
facility-based assessment area. The proposed market volume benchmark 
was the aggregate ratio of retail lending compared to deposits among 
all large banks that operated a branch in the facility-based assessment 
area.
    Under the proposal, a bank with a bank volume metric that met or 
surpassed the Retail Lending Volume Threshold--30 percent of the market 
volume benchmark--would be assigned a recommended conclusion for the 
facility-based assessment area based on the proposed distribution 
analysis described below. For a bank with a bank volume metric that did 
not meet or surpass the threshold, the agencies proposed to consider a 
set of factors to determine whether the bank had an acceptable basis 
for not meeting or surpassing the threshold. Under the proposed 
approach, a large bank that lacked an acceptable basis for not meeting 
or surpassing the threshold would be limited to receiving a Retail 
Lending Test conclusion of ``Needs to Improve'' or ``Substantial 
Noncompliance'' for that facility-based assessment area.
    Second, the agencies proposed to evaluate the geographic and 
borrower distributions of a bank's major product lines in its facility-
based assessment areas, retail lending assessment areas, and outside 
retail lending area, as applicable. Under the proposal, a bank's 
originated and purchased closed-end home mortgage loans, open-end home 
mortgage loans, multifamily loans, small business loans, and small farm 
loans would qualify as a major product line in a particular area if the 
loans in the product line comprised 15 percent or more, by dollar 
amount, of the bank's retail lending in the area. In addition, a bank's 
originated and purchased automobile loans would qualify as a major 
product line in a particular area if the bank's automobile loans 
comprised 15 percent or more of the bank's retail lending in the area, 
based on a combination of the dollar amount and number of loans.
    For a large bank, the agencies proposed to evaluate the geographic 
and borrower distributions of the bank's major product lines in its 
facility-based assessment areas, retail lending assessment areas, and 
outside retail lending area. For an intermediate bank, or a small bank 
that opted to be evaluated under the Retail Lending Test, the agencies 
proposed to evaluate the geographic and borrower distributions of the 
intermediate bank's or small bank's major product lines in its 
facility-based assessment areas. In addition, if an intermediate bank 
conducted a majority of its retail lending, by dollar amount, outside 
of its facility-based assessment areas, the agencies would evaluate the 
intermediate bank's

[[Page 6788]]

geographic and borrower distributions in its outside retail lending 
area.
    To evaluate the geographic and borrower distributions of a bank's 
major product lines, the agencies proposed a series of bank metrics and 
benchmarks covering a total of four categories of lending for each 
major product line: low-income census tracts; moderate-income census 
tracts; low-income borrowers (or small businesses or small farms with 
gross annual revenues of less than $250,000); and moderate-income 
borrowers (or small businesses or small farms with gross annual 
revenues of greater than $250,000 but less than or equal to $1 
million).\805\ For the geographic distribution analysis, the proposed 
bank metrics would measure the level of the bank's lending in low- and 
moderate-income census tracts in the facility-based assessment area, 
retail lending assessment area, or outside retail lending area, as 
applicable. For the borrower distribution analysis, the proposed bank 
metrics would measure the level of the bank's lending to low- and 
moderate-income borrowers, respectively, and to lower-revenue small 
businesses and small farms, respectively, in the area. The proposed 
geographic and borrower bank metrics would be compared to:
---------------------------------------------------------------------------

    \805\ See the section-by-section analysis of final Sec.  
__.22(f) for additional detail.
---------------------------------------------------------------------------

     Market benchmarks that reflect the aggregate lending to 
low- and moderate-income census tracts or low- and moderate-income 
borrowers and lower-revenue small businesses and small farms in the 
area by reporting lenders; and
     Community benchmarks that reflect local demographic data.
    Under the proposal, a bank's geographic and borrower distribution 
analyses (evaluating the four categories of lending described above for 
each major product line) would be translated into a performance 
conclusion using multipliers and performance ranges. Specifically, for 
each distribution with respect to each major product line evaluated in 
a facility-based assessment area, retail lending assessment area, or 
outside retail lending area, the agencies proposed to assign the 
performance conclusion that corresponds to:
     The relevant market benchmark, multiplied by a specified 
multiplier; or
     The relevant community benchmark, multiplied by a 
specified multiplier, whichever is lower.
    For example, under the proposal, if the geographic bank metric for 
closed-end home mortgage loans in low-income census tracts in a 
particular facility-based assessment area just exceeded (1) 110 percent 
of the corresponding geographic market benchmark or (2) 90 percent of 
the corresponding geographic community benchmark, whichever is lower, 
then the agencies would assign a ``High Satisfactory'' conclusion to 
the bank's performance on the particular geographic distribution in the 
facility-based assessment area.
    The agencies proposed a transparent approach for combining the four 
performance conclusions assigned to each of a bank's major product 
lines in an area pursuant to the geographic and borrower distribution 
analyses. Under the proposed approach, for a particular major product 
line, the two geographic distribution performance conclusions would be 
combined using a weighted average calculation to determine a geographic 
performance score and the two borrower distribution performance 
conclusions would be combined using a weighted average calculation to 
determine a borrower performance score. Then, these geographic and 
borrower performance scores would be averaged to develop a product line 
average for each major product line.
    Next, the agencies would develop a recommended conclusion for the 
Retail Lending Test for each facility-based assessment area, retail 
lending assessment area, and outside retail lending area. This 
recommended conclusion would be developed by combining the product line 
averages for all of a bank's major product lines in the facility-based 
assessment area, retail lending assessment area, or outside retail 
lending area. For purposes of combining the product line averages, the 
agencies proposed to weight each of a bank's major product lines by the 
dollar volume of lending the bank engaged in for the product line in 
the area. The resulting recommended conclusion would serve as the basis 
for the performance conclusion on the Retail Lending Test in the 
particular facility-based assessment area, retail lending assessment 
area, or outside retail lending area under the proposed approach.
    Recognizing that the proposed distribution metrics and benchmarks 
may not capture all factors that should be considered when evaluating a 
bank's retail lending performance, the agencies proposed a set of 
additional factors that examiners may consider with respect to a bank's 
retail lending performance in a particular area. Based on the Retail 
Lending Test recommended conclusion, the additional factors, and the 
bank's performance on the retail lending volume screen (in the case of 
a facility-based assessment area), examiners would assign a Retail 
Lending Test conclusion to each of a bank's facility-based assessment 
areas, retail lending assessment areas, and its outside retail lending 
area, as applicable, under the proposed approach. The agencies would 
also consider applicable performance context factors not included in 
the metrics-based framework.
    Finally, the agencies proposed a transparent and standardized 
approach for combining Retail Lending Test conclusions assigned to a 
bank's facility-based assessment areas, retail lending assessment 
areas, and outside retail lending areas, as applicable, to calculate 
Retail Lending Test conclusions for the bank at the State, multistate 
MSA, and institution levels. For example, to calculate a large bank's 
Retail Lending Test conclusion for a particular State, the agencies 
proposed to combine the Retail Lending Test conclusions for each of the 
large bank's facility-based assessment areas and retail lending 
assessment areas in the State, weighting each assessment area 
conclusion based on a combination of the percentage of the large bank's 
retail loans made in the particular facility-based assessment area or 
retail lending assessment area and the percentage of the bank's 
deposits sourced from the particular facility-based assessment area or 
retail lending assessment area.
Summary of Final Rule Retail Lending Test
    Overview. The agencies are finalizing the proposed Retail Lending 
Test, with substantive modifications, clarifications, and technical 
revisions, as described throughout the section-by-section analysis of 
final Sec.  __.22. The final rule retains the overall structure and key 
features of the proposed Retail Lending Test, including:
     A Retail Lending Volume Screen applied to facility-based 
assessment areas, pursuant to final Sec.  __.22(c);
     A major product line standard to identify a bank's most 
significant retail product lines in its facility-based assessment 
areas, retail lending assessment areas, and outside retail lending 
area--individually and collectively referred to as ``Retail Lending 
Test Areas'' in the final rule--pursuant to final Sec.  __.22(d);
     Metrics and benchmarks, drawn from the current approach, 
used to evaluate the following four categories of lending for each of a 
bank's major product lines in each Retail Lending Test Area, pursuant 
to final Sec.  __.22(e):
    [cir] Loans in low-income census tracts;
    [cir] Loans in moderate-income census tracts;

[[Page 6789]]

    [cir] Loans to low-income borrowers (or to businesses or farms with 
gross annual revenues of $250,000 or less); \806\ and
---------------------------------------------------------------------------

    \806\ For purposes of evaluating a bank's small business lending 
performance under the Retail Lending Test, the agencies consider the 
bank's loans to non-farm businesses only, and do not consider the 
bank's loans to farms. A bank's loans to farms are considered in the 
evaluation of the bank's small farm lending performance.
---------------------------------------------------------------------------

    [cir] Loans to moderate-income borrowers (or to businesses or farms 
with gross annual revenues greater than $250,000 but less than or equal 
to $1 million).\807\
---------------------------------------------------------------------------

    \807\ The transition amendments included in this final rule 
will, once effective, amend the definitions of ``small business'' 
and ``small farm'' to instead cross-reference to the definition of 
``small business'' in the CFPB Section 1071 Final Rule. This will 
allow the CRA regulatory definitions to adjust if the CFPB increases 
the threshold in the CFPB Section 1071 Final Rule definition of 
``small business.'' This is consistent with the agencies' intent 
articulated in the preamble to the proposal and elsewhere in this 
final rule to conform these definitions with the definition in the 
CFPB Section 1071 Final Rule. The agencies will provide the 
effective date of these transition amendments in the Federal 
Register after section 1071 data is available.
---------------------------------------------------------------------------

     Multipliers and performance ranges, based on the 
benchmarks described above, that determine a bank's supporting 
conclusion for each of the four categories of lending for certain major 
product lines, pursuant to final Sec.  __.22(f);
     Product line scores for a bank's performance on each major 
product line--by averaging together the supporting conclusions for each 
of the four categories of lending for a major product line--in a Retail 
Lending Test Area;
     A recommended conclusion for each Retail Lending Test Area 
based on the bank's product line scores on all major product lines in 
that area, pursuant to final Sec.  __.22(f);
     Additional factors that the agencies consider to 
supplement the geographic and borrower distribution analyses, pursuant 
to final Sec.  __.22(g); and
     Conclusions assigned to each Retail Lending Test Area, and 
a weighted average approach to determine Retail Lending Test 
conclusions at the State, multistate MSA, and institution levels, 
pursuant to final Sec.  __.22(h).
    The final rule also includes key modifications from the proposed 
Retail Lending Test, discussed in further detail below, including:
     A reduction in the number of major product lines by 
removing multifamily loans and open-end home mortgage loans from the 
distribution analysis and by narrowing the standard for when automobile 
loans are evaluated;
     Changes to the methodology for determining a bank's major 
product lines in its facility-based assessment areas and outside retail 
lending area, namely by considering a combination of loan dollars and 
loan count, as defined in final Sec.  __.12;
     Changes to the methodology for determining a large bank's 
major product lines in retail lending assessment areas, based on 
whether the large bank made a sufficient number of closed-end home 
mortgage loans or small business loans to trigger the retail lending 
assessment area delineation requirement, as described further in the 
section-by-section analysis of final Sec.  __.17;
     For automobile lending, limiting the evaluation to 
majority automobile lenders, as described below, and to banks that opt 
to have their automobile lending evaluated, and eliminating the 
proposed data reporting requirements, market benchmarks, and 
performance ranges;
     A reduction in several of the multiplier values used to 
calculate performance ranges, to ensure that the performance ranges are 
generally attainable and appropriately aligned with the conclusion 
categories; \808\
---------------------------------------------------------------------------

    \808\ See the section-by-section analysis of final Sec.  
__.22(f) and the below discussion of the analysis of the final rule 
using historical data.
---------------------------------------------------------------------------

     Changes to the methodology for combining performance in 
each major product line to determine the recommended conclusion in each 
Retail Lending Test Area, namely by considering a combination of loan 
dollars and loan count;
     Additions and revisions to the proposed additional factors 
to account for more circumstances in which adjustments to the 
recommended conclusion for a Retail Lending Test Area may be warranted; 
and
     Changes to the approach for calculating a weighted average 
of Retail Lending Test Area conclusions to determine conclusions at the 
State, multistate MSA, and institution levels.
    In addition to these substantive changes, the final rule adopts 
non-substantive clarifications and technical revisions to the 
regulatory text, including final appendix A, to improve readability and 
enhance clarity.
    Retail lending volume screen. As under the proposal, the final rule 
Retail Lending Test applies two sets of metrics. First, in facility-
based assessment areas only, the agencies will apply the Retail Lending 
Volume Screen to assess a bank's retail lending volume relative to its 
volume of deposits compared to peer lenders in the area. Specifically, 
under the final rule, a bank's Bank Volume Metric is the ratio of the 
bank's total dollars of lending in specified categories (closed-end 
home mortgage loans, open-end home mortgage loans, multifamily loans, 
small business loans, small farm loans, and automobile loans, as 
applicable), compared to the bank's dollars of deposits in the 
facility-based assessment area. The Bank Volume Metric is compared to 
the aggregate ratio of retail lending to deposits among all banks that 
operated a branch in the area, as measured by a Market Volume 
Benchmark. The Bank Volume Metric and Market Volume Benchmark under the 
final rule are substantially similar to the proposal, except that: (1) 
a bank's automobile loans are only included in the Bank Volume Metric 
if the bank is a majority automobile lender or opts to have its 
automobile loans evaluated under the Retail Lending Test; and (2) 
automobile lending is not included in the Market Volume Benchmark.
    As under the proposal, the final rule provides that a bank with a 
Bank Volume Metric that meets or surpasses a Retail Lending Volume 
Threshold of 30 percent of the Market Volume Benchmark will be assigned 
a recommended conclusion for the facility-based assessment area based 
on the distribution analysis described below. With respect to a bank 
with a Bank Volume Metric that does not meet the Retail Lending Volume 
Threshold in a facility-based assessment area, the agencies will 
consider a set of factors to determine whether the bank has an 
acceptable basis for not meeting the threshold. As under the proposal, 
under the final rule a large bank that lacks an acceptable basis for 
not meeting the threshold is limited to receiving a Retail Lending Test 
conclusion of ``Needs to Improve'' or ``Substantial Noncompliance'' for 
the facility-based assessment area. An intermediate bank, or a small 
bank that opted into being evaluated under the Retail Lending Test, 
that lacks an acceptable basis for not meeting the threshold would 
remain eligible for all possible conclusion categories.
    Geographic and borrower distribution analysis. Consistent with the 
proposal, the agencies will next evaluate the geographic and borrower 
distributions of a bank's major product lines in its Retail Lending 
Test Areas. The final rule adopts a revised approach to determine what 
is a major product line for facility-based assessment areas and outside 
retail lending areas. In a facility-based assessment area or outside 
retail lending area, a bank's originated and purchased closed-end home 
mortgage loans, small business loans, small farm loans, and automobile 
loans, as applicable, would qualify as a major product line if the

[[Page 6790]]

loans in the product line comprise 15 percent or more, based on a 
combination of loan dollars and loan count, of the bank's lending 
across all these product lines in the area. The final rule also adopts 
a revised approach for determining what is a major product line for 
retail lending assessment areas. In a retail lending assessment area, a 
large bank's originated and purchased closed-end home mortgage loans or 
small business loans, respectively, would qualify as a major product 
line if the large bank originated a sufficient number of closed-end 
home mortgage loans or small business loans to require delineation of a 
retail lending assessment area pursuant to final Sec.  __.17 (i.e., at 
least 150 reported closed-end home mortgage loans or at least 400 
reported small business loans in each year of the prior two calendar 
years). As noted above, unlike in the proposal, the distribution of a 
bank's open-end home mortgage loans and multifamily loans are not 
evaluated under the final Retail Lending Test.
    As under the proposal, the agencies will evaluate the geographic 
and borrower distributions of a large bank's major product lines in its 
facility-based assessment areas, retail lending assessment areas, and 
outside retail lending area. For an intermediate bank, or a small bank 
that opts to be evaluated under the Retail Lending Test, the agencies 
evaluate the geographic and borrower distributions of the bank's major 
product lines in its facility-based assessment areas. Furthermore, an 
intermediate bank or a small bank is evaluated in its outside retail 
lending area if the bank conducts a majority of its retail lending, by 
a combination of loan dollars and loan count outside of its facility-
based assessment areas, or at the bank's option. For a small bank that 
opts to be evaluated under the Retail Lending Test, the final rule 
treats these small banks the same as intermediate banks with respect to 
the Retail Lending Test Areas in which the small bank's major product 
lines are evaluated.
    As under the proposal, the agencies will calculate a series of bank 
metrics and benchmarks to evaluate the geographic and borrower 
distributions of a bank's major product lines. The final rule generally 
adopts the geographic and borrower distribution metrics and benchmarks 
as proposed, evaluating four separate categories of lending for each 
major product line in each Retail Lending Test Area:
     Low-income census tracts;
     Moderate-income census tracts;
     Low-income borrowers or businesses or farms with gross 
annual revenues of less than $250,000; and
     Moderate-income borrowers or businesses or farms with 
gross annual revenues of greater than $250,000 but less than or equal 
to $1 million.
    The bank's metrics are compared to:
     Market benchmarks that reflect the aggregate lending to 
low- and moderate-income census tracts or low- and moderate-income 
borrowers or lower-revenue small businesses or small farms in the 
Retail Lending Test Area by reporting lenders; and
     Community benchmarks that reflect local demographic data.
    As in the proposal, the final rule evaluates a bank's performance 
on the geographic and borrower distribution analyses for closed-end 
home mortgage loans, small business loans, and small farm loans using 
performance ranges calculated with benchmarks and multipliers. 
Specifically, for each category of lending that is evaluated as part of 
a major product line in a Retail Lending Test Area, the agencies assign 
a supporting conclusion that corresponds to a performance range 
determined by: (1) the relevant market benchmark, multiplied by a 
specified multiplier; and (2) the relevant community benchmark, 
multiplied by a specified multiplier, whichever is lower.
    Relative to the proposal, the final rule adjusts several of the 
proposed multiplier values downward; the agencies believe that the 
final rule multipliers are appropriately aligned with supporting 
conclusions, and that supporting conclusions of ``Outstanding,'' ``High 
Satisfactory,'' and ``Low Satisfactory'' are generally attainable. For 
example, the market multiplier for a ``High Satisfactory'' was adjusted 
from the proposed value of 110 percent to 105 percent, and the 
community multiplier for a ``High Satisfactory'' was adjusted from the 
proposed value of 90 percent to 80 percent. As a result, under the 
final rule, if the Geographic Bank Metric for closed-end home mortgage 
loans in low-income census tracts in a particular facility-based 
assessment area just exceeded (1) 105 percent of the corresponding 
Geographic Market Benchmark or (2) 80 percent of the corresponding 
Geographic Community Benchmark, whichever is lower, then the agencies 
would assign a ``High Satisfactory'' supporting conclusion to the 
bank's performance on closed-end home mortgage lending to low-income 
census tracts in the facility-based assessment area.
    Product line score. The final rule generally adopts the proposed 
approach to combining the four supporting conclusions assigned to each 
of a bank's major product lines in a Retail Lending Test Area pursuant 
to the geographic and borrower distribution analyses. For each major 
product line, the agencies will combine these four supporting 
conclusions as follows. First, the agencies will determine a geographic 
distribution average using a weighted average calculation of the 
performance scores associated with the two geographic distribution 
supporting conclusions. For example, the agencies would combine a 
bank's closed-end home mortgage lending performance in low-income 
census tracts and moderate-income census tracts. Second, the agencies 
will determine a borrower distribution average using a weighted average 
of performance scores associated with the two borrower distribution 
supporting conclusions. For example, the agencies would combine a 
bank's closed-end home mortgage lending performance to low-income 
borrowers and moderate-income borrowers. Lastly, the agencies will 
average together the geographic and borrower distribution averages to 
arrive at a product line score (renamed from the proposed term 
``product line average'').
    Recommended conclusion for a Retail Lending Test Area. Next, the 
product line scores for all of a bank's major product lines in a Retail 
Lending Test Area are combined to produce a recommended conclusion for 
the Retail Lending Test Area. For purposes of combining product line 
scores, under the final rule, a bank's major product lines are weighted 
based on a combination of loan dollars and loan count in the product 
line, rather than by the volume of loan dollars alone, as under the 
proposal. The resulting Retail Lending Test recommended conclusion 
serves as the basis for the conclusion on the Retail Lending Test in 
the particular Retail Lending Test Area.
    Additional factors and performance context. As in the proposal, the 
final rule recognizes that the distribution metrics and benchmarks may 
not capture all factors that should be considered when evaluating a 
bank's retail lending performance. For this reason, the final rule 
adopts an expanded set of additional factors in final Sec.  __.22(g) 
relative to the proposal that the agencies may consider with respect to 
a bank's retail lending performance in a particular Retail Lending Test 
Area. The agencies will assign a Retail Lending Test conclusion to each 
of a bank's Retail Lending Test Areas based on the bank's performance 
on the Retail Lending Volume Screen (in the case of a facility-based 
assessment area), the Retail Lending

[[Page 6791]]

Test recommended conclusion, performance context factors provided in 
final Sec.  __.21(d), and these additional factors.
    Retail Lending Test conclusions for a State, multistate MSA, and 
institution. Lastly, the final rule generally adopts the proposed 
approach for combining Retail Lending Test conclusions assigned to a 
bank's Retail Lending Test Areas using a weighted average calculation 
to develop conclusions for the bank at the State, multistate MSA, and 
institution levels. For example, to calculate a large bank's Retail 
Lending Test conclusion for a particular State, the agencies will 
combine the Retail Lending Test conclusions for each of the large 
bank's facility-based assessment areas and retail lending assessment 
areas in the State. Each Retail Lending Test Area's conclusion will be 
weighted using a combination of the percentage of the large bank's 
product line loans (using a combination of loan dollars and loan count) 
in the area and deposits in the area. Under this example for a 
conclusion in a State, the percentages of the bank's product line loans 
and deposits in each area are calculated relative to the bank's total 
product line loans and deposits sourced from facility-based assessment 
areas and retail lending assessment areas in the State.
Retail Lending Test--General Topics
    This section discusses topics that relate to the Retail Lending 
Test as a whole or to multiple aspects of the Retail Lending Test. 
Topics specific to a particular aspect of the Retail Lending Test are 
discussed in more detail in the section-by-section analysis below.
Overall Metrics-Based Approach
Comments Received
    Metrics-Based Approach Generally. The agencies received numerous 
comments supportive of the proposed metrics-based approach to 
evaluating banks' retail lending performance. Many of these commenters 
indicated that the retail lending metrics would provide rigor on the 
proposed Retail Lending Test, address what some commenters referred to 
as CRA grade inflation, and incentivize banks to increase lending to 
underserved communities.
    Conversely, many other commenters raised concerns about the 
proposed metrics-based approach to evaluating retail lending. As 
described below, these commenters stated that the Retail Lending Test 
was overly complex, did not sufficiently account for differences in 
bank business models, was overly stringent, and did not incorporate 
qualitative factors that should be considered in connection with a 
bank's retail lending performance.
    Complexity of the metrics-based approach. Some commenters stated 
that the metrics-based Retail Lending Test approach was overly complex, 
with feedback including the recommendation that the agencies instead 
consider a less complicated approach with thresholds that can be 
modified by examiners based on performance context. Some commenters 
noted that the complexity of the proposed Retail Lending Test 
necessitated a more extended comment period to allow commenters time to 
fully understand the approach and its potential impact.
    In addition to comments concerning the complexity of the Retail 
Lending Test as a whole, the agencies received numerous comments 
concerning the complexity of particular aspects of the performance 
test, such as the retail lending distribution metrics and benchmarks. 
These comments are discussed in the section-by-section analysis of 
final Sec.  __.22(e) below.
    Application of metrics-based approach to different bank business 
models. Other commenters stated that the Retail Lending Test did not 
sufficiently account for differences in banks' business models. For 
example, a commenter asserted that a bank primarily focused on 
commercial lending and with little retail lending would be unable to 
perform well on the Retail Lending Test.
    Retail Lending Test stringency. Many commenters stated that banks 
would have difficulty achieving an ``Outstanding'' conclusion on the 
Retail Lending Test due to the performance test's stringency. In 
addition to comments concerning the stringency of the Retail Lending 
Test as a whole, the agencies received numerous comments concerning the 
stringency of particular aspects of the performance test, such as the 
multipliers used to establish performance ranges. These comments are 
discussed in the section-by-section analysis of final Sec.  __.22(f) 
below.
    Inclusion of qualitative factors. Some commenters suggested that 
the proposed Retail Lending Test lacked sufficient consideration of 
qualitative factors, including performance context, that should be 
considered in connection with a bank's retail lending performance. In 
this regard, a commenter asserted that the agencies' proposed metrics-
based approach was too heavy on quantitative metrics and left little 
room for necessary qualitative analysis. Relatedly, other commenters 
conveyed that the proposed metrics-based approach would overshadow the 
qualitative aspects of retail lending that are beneficial to low- and 
moderate-income individuals and communities. Likewise, a commenter 
warned against overly standardizing the evaluation process with 
quantitative measurements at the expense of capturing more qualitative 
impacts, which could stifle creativity and diversity in the CRA market.
    Several commenters recommended that the agencies incorporate impact 
factor reviews proposed for use with the Community Development 
Financing Test and the Community Development Services Test into the 
Retail Lending Test (as well as the Retail Services and Products Test). 
Relatedly, a commenter suggested that, to increase the incentive for 
banks to engage in community development financing activities, the 
agencies should provide banks with the option of receiving qualitative 
consideration for community development lending under the Retail 
Lending Test.
    Numerous commenters asserted that the agencies' evaluation of home 
mortgage loans should not be a purely quantitative evaluation, and 
should consider qualitative factors related to the responsiveness of a 
bank's lending. Some commenters advocated for an impact review of home 
mortgage lending, with some of these commenters expressing the view 
that home purchase loans should receive more credit than other types of 
home mortgage lending. A few commenters urged the agencies to continue 
to evaluate a bank's use of innovative or flexible lending practices to 
address credit needs of low- and moderate-income individuals and 
geographic areas. Several commenters opined on the importance of home 
mortgage loans, particularly to minority, low-, moderate-, and middle-
income individuals, and first-generation homebuyers, with a few 
commenters asserting that loans to these borrowers should receive extra 
consideration. A commenter stated that the agencies should award 
``extra credit'' to banks for originating home mortgages involving 
community land trusts because such programs are designed to preserve 
affordable housing and prevent displacement. Another commenter 
suggested that banks should receive consideration for home mortgage 
products that address barriers to homeownership for underserved 
communities, such as appraisal bias and lack of down payment 
assistance. A commenter suggested that certain income-restricted 
mortgage assistance loans, including those made to middle-income 
borrowers, should receive positive consideration to incentivize

[[Page 6792]]

banks to continue participating in these programs.
    Some commenters asserted that the agencies should employ analysis 
of loan pricing and product terms to ensure that products are meeting 
local needs instead of extracting wealth. These commenters further 
recommended that the agencies evaluate how well loan products match 
local needs. Some commenters also suggested that the agencies should 
review the affordability and quality of loan terms in Retail Lending 
Test evaluations. Several of these commenters noted that banks should 
be penalized for offering high-cost loans that exceed State usury caps 
and borrowers' abilities to repay. A commenter emphasized that the 
agencies should review banks' small business lending and small farm 
lending qualitatively for predatory characteristics such as exorbitant 
interest rates or prepayment penalties.
Final Rule
    The agencies are finalizing the proposed Retail Lending Test, with 
substantive modifications, clarifications, and technical revisions as 
described throughout the section-by-section analysis of final Sec.  
__.22. As in the proposal, the Retail Lending Test adopted in the final 
rule generally incorporates metrics, but also includes qualitative 
aspects. Under the final rule, this metrics-based approach is 
supplemented with consideration of qualitative factors that are 
relevant to evaluating a bank's lending performance or lending 
opportunities, but that are not captured in the metrics, including the 
performance context factors in final Sec.  __.21(d) and the additional 
factors in final Sec.  __.22(g). In addition, as discussed in the 
section-by-section analysis of final Sec.  __.23, the agencies note 
that the responsiveness of a bank's credit products and programs is 
considered under the Retail Services and Products Test.
    Metrics-based Approach Generally. The agencies believe that it is 
appropriate to adopt a Retail Lending Test that leverages metrics. In 
particular, the agencies believe that the approach adopted in the final 
rule will facilitate robust examinations and positively increase 
transparency and consistency in retail lending evaluations compared to 
the current regulations. For example, the final rule sets clearer 
retail lending performance expectations by incorporating performance 
ranges for evaluating the distribution of a bank's closed-end home 
mortgage loans, small business loans, and small farm loans. These 
performance ranges incorporate market and community benchmarks to set 
thresholds for conclusion categories. Although this approach to use 
performance ranges represents a change from the current regulations, 
the agencies note that the final rule distribution metrics and 
benchmarks closely resemble the metrics and benchmarks used in CRA 
evaluations today.\809\
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    \809\ See Interagency Large Institution CRA Examinations 
Procedures (April 2014) at 6-8; Interagency Intermediate Small 
Institution CRA Examination Procedures (July 2007) at 4-6; 
Interagency Small Institution CRA Examination Procedures (July 2007) 
at 4-6.
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    Complexity of the metrics-based approach. The agencies have 
considered concerns expressed by a number of commenters regarding the 
complexity of the proposed Retail Lending Test. The agencies believe 
that the final rule Retail Lending Test appropriately balances the 
agencies' objectives of ensuring that CRA evaluations of retail lending 
performance are robust and comprehensive, providing greater consistency 
and transparency, and limiting overall complexity. As discussed 
throughout the section-by-section analysis of final Sec.  __.22, the 
final rule includes various changes, relative to the proposal, to 
simplify the Retail Lending Test while still achieving the agencies' 
objectives. For example, the final rule reduces the number of product 
lines considered under the Retail Lending Test and, for large banks, 
the number of product lines that would be evaluated in any retail 
lending assessment area. However, the agencies believe that certain 
aspects of the Retail Lending Test that were viewed by some commenters 
as complex are necessary to advance the agencies' objectives of 
increasing the consistency and transparency of CRA evaluations and 
maintaining robust evaluation standards that take into account the 
performance context of an area, including the local credit needs and 
opportunities. In particular, these aspects include the evaluation of 
the geographic and borrower distributions of a bank's major product 
lines, the use of performance ranges to translate the bank's 
performance with respect to certain major product lines into supporting 
conclusions, and a standardized approach to developing Retail Lending 
Test conclusions for each Retail Lending Test Area and at the State, 
multistate MSA, and institution levels.
    To further address concerns regarding the complexity of the Retail 
Lending Test, the agencies intend to develop data tools that will 
provide banks and the public with CRA information on specific Retail 
Lending Test Areas, including Retail Lending Test metrics, benchmarks, 
and performance ranges based on recent data. The agencies believe that 
these data tools will help banks monitor their retail lending 
performance relative to benchmarks and increase their familiarity with 
operation of the Retail Lending Test.
    Application of metrics-based approach to different bank business 
models. The agencies have also considered feedback from some commenters 
that the proposed Retail Lending Test does not sufficiently account for 
differences in banks' business models. The agencies believe that the 
final rule Retail Lending Test approach appropriately accounts for 
differences in bank business models while also affirming the statute's 
focus on banks helping to meet the credit needs of their entire 
communities. In particular, the agencies believe that multiple elements 
of the final rule Retail Lending Test help to account for differences 
in bank business models, such as the following:
     Tailored approaches to delineating retail lending 
assessment areas for large banks and to evaluating small banks and 
intermediate banks in their outside retail lending areas, depending on 
a bank's asset size and percentage of lending within its facility-based 
assessment areas, as discussed in the section-by-section analyses of 
final Sec. Sec.  __.16 through __.18;
     Tailored evaluation of automobile loans for banks that are 
majority automobile lenders or that opt to have their automobile loans 
evaluated under the Retail Lending Test, as discussed below;
     Consideration of all of a bank's home mortgage loans, 
multifamily loans, small business loans, small farms loans, and 
automobile loans, as applicable, under the Retail Lending Volume 
Screen, as discussed in the section-by-section analysis of final Sec.  
__.22(c);
     For a bank that does not meet or surpass the Retail 
Lending Volume Threshold in a facility-based assessment area, 
consideration of the bank's business strategy as one of several 
``acceptable basis'' factors, as discussed in the section-by-section 
analysis of final Sec.  __.22(c)(3);
     Major product line standards that identify a bank's most 
significant product lines in a Retail Lending Test Area for evaluation 
under the distribution analysis, as discussed in the section-by-section 
analysis of final Sec.  __.22(d);
     Calculation of bank distribution metrics based on the 
percentage, rather than the absolute number, of the bank's loans in a 
major product line in

[[Page 6793]]

categories of designated census tracts and to categories of designated 
borrowers, as discussed in the section-by-section analysis of final 
Sec.  __.22(e);
     Weighting a bank's performance on each of its major 
product lines based on a combination of loan dollars and loan count, as 
discussed in the section-by-section analysis of final Sec.  __.22(f);
     Consideration of performance context and additional 
factors in assigning Retail Lending Test conclusions, as discussed in 
the section-by-section analyses of final Sec.  __.22(g) and (h); and
     Retention of the strategic plan option, which could result 
in appropriate modifications to the Retail Lending Test, as discussed 
in the section-by-section analysis of final Sec.  __.27.
    Retail Lending Test stringency. The agencies have considered 
commenters' concerns that the proposed Retail Lending Test as a whole 
was overly stringent and that achieving Retail Lending Test conclusions 
of ``Outstanding,'' ``High Satisfactory,'' or ``Low Satisfactory'' 
would be overly difficult. The agencies analyzed historical CRA data to 
estimate the distribution of institution-level Retail Lending Test 
conclusions across banks, as well as recommended conclusions for 
different Retail Lending Test areas. A large majority of banks included 
in the historical analysis are estimated to have performed at a level 
consistent with an institution-level conclusion of ``Outstanding,'' 
``High Satisfactory,'' or ``Low Satisfactory'' based on the final rule 
provisions. The analysis informed the agencies' determination that the 
performance ranges for a ``Low Satisfactory'' or higher conclusion are 
generally attainable across a variety of circumstances, such as 
different Retail Lending Test Areas, bank asset-size categories, 
metropolitan and nonmetropolitan areas, and time periods. This analysis 
and results are discussed further in the historical analysis subsection 
of this section of this SUPPLEMENTARY INFORMATION. In addition, the 
agencies have considered the stringency of particular aspects of the 
Retail Lending Test, such as the Retail Lending Volume Screen, 
discussed further in the section-by-section analysis of final Sec.  
__.22(c), and the multipliers used to establish performance ranges, 
discussed further in the section-by-section analysis of final Sec.  
__.22(f).
    Inclusion of qualitative factors. Although the agencies believe the 
Retail Lending Test should generally be informed by metrics, they also 
believe that a purely metrics-based approach to evaluating a bank's 
retail lending performance could be inflexible and provide an 
incomplete picture of a bank's retail lending performance. For this 
reason, the final rule supplements the use of metrics with 
consideration of qualitative additional factors that are relevant to 
evaluating a bank's lending performance or lending opportunities, but 
that are not captured in the metrics or benchmarks, as discussed in the 
section-by-section analyses of final Sec.  __.22(c)(3) and (g). 
Additionally, the final rule specifies that the agencies will consider 
applicable performance context factors included in final Sec.  __.21(d) 
when assigning Retail Lending Test conclusions, as discussed in the 
section-by-section analysis of final Sec.  __.22(h). Together, the 
agencies believe that these qualitative aspects of the Retail Lending 
Test will enhance examiners' evaluation of a bank's performance as 
captured by the Retail Lending Test's metrics and provide a more 
accurate picture of the bank's overall retail lending performance.
    The agencies considered commenter suggestions that specific 
qualitative factors, such as impact factors, should be incorporated 
into the Retail Lending Test, such as consideration of retail loan 
pricing and product terms and accounting for retail loans with 
predatory lending characteristics. The agencies believe that these 
considerations are appropriately addressed in other parts of the final 
rule. For example, the final rule includes a qualitative evaluation of 
a bank's responsive credit products and programs under the Retail 
Services and Products Test.\810\ In addition, examiners may consider 
the affordability and quality of retail loan terms in consumer 
compliance examinations, and discriminatory or other illegal credit 
practices identified in these examinations would be taken into 
consideration in assigning a bank's CRA ratings, as discussed in the 
section-by-section analysis of final Sec.  __.28(d).
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    \810\ As discussed in the section-by-section analyses of final 
Sec. Sec.  __.21, __.23, __.29, and __.30, large banks are subject 
to the Retail Services and Products Test, with banks of other sizes 
optionally subject to evaluation of credit and deposit products.
---------------------------------------------------------------------------

    In addition, the agencies considered commenter feedback to provide 
banks with the option of receiving qualitative consideration for 
community development lending under the Retail Lending Test. However, 
the agencies believe that community development lending is 
appropriately, and comprehensively, considered under the Community 
Development Financing Test, the Community Development Financing Test 
for Limited Purpose Banks, the Intermediate Bank Community Development 
Test, and the Small Bank Lending Test, as applicable. For this reason, 
the final rule does not include qualitative consideration of community 
development loans under the Retail Lending Test. However, under the 
final rule, certain home mortgage loans, small business loans, and 
small farm loans considered under the distribution analysis of the 
Retail Lending Test may also be considered under the Community 
Development Financing Test or the Intermediate Bank Community 
Development Financing Test, as discussed in the section-by-section 
analyses of final Sec. Sec.  __.24 and __.30.
Banks Evaluated for Automobile Lending
The Agencies' Proposal
    The agencies proposed to evaluate automobile lending for banks 
evaluated under the proposed Retail Lending Test. Specifically, under 
the proposed Retail Lending Volume Screen, discussed further in the 
section-by-section analysis of final Sec.  __.22(c), a bank's 
originated and purchased automobile loans in a facility-based 
assessment area would have been included in the Bank Volume Metric, 
which would be compared to a Market Volume Benchmark that would have 
included all originated automobile loans in counties wholly or 
partially within the facility-based assessment area reported by large 
banks that operated a branch in those counties.\811\ In addition, under 
the proposed retail lending distribution analysis, discussed further in 
the section-by-section analysis of final Sec.  __.22(d) through (f), 
the agencies would have evaluated the geographic and borrower 
distributions of a bank's automobile loans in a facility-based 
assessment area, retail lending assessment area, or outside retail 
lending area in which the bank's automobile loans constituted a major 
product line.
---------------------------------------------------------------------------

    \811\ The agencies proposed to require large banks with assets 
greater than $10 billion to collect, maintain, and report to the 
agencies certain automobile lending data, as discussed further in 
the section-by-section analysis of final Sec.  __.42.
---------------------------------------------------------------------------

Comments Received
    As discussed further in the section-by-section analysis of final 
Sec.  __.22(d), the agencies received numerous comments concerning the 
proposed evaluation approach for automobile lending under the Retail 
Lending Test, with some commenters supporting the evaluation of 
automobile loans using the

[[Page 6794]]

proposed metrics-based approach but with most commenters opposing or 
expressing significant concerns with the proposed approach.
    A few commenters specifically addressed the applicability of the 
proposed Retail Lending Test evaluation approach for automobile loans 
to different types of banks. These commenters stated that the metrics-
based approach should only apply to automobile loans at a bank's option 
or, according to one commenter, if automobile loans constituted a 
majority of a bank's retail lending.
Final Rule
    The agencies are finalizing the proposal to evaluate banks' 
automobile lending under the Retail Lending Test, with substantive 
modifications including a narrower standard for when a bank is required 
to be evaluated for automobile lending relative to the proposed 
approach. Specifically, under the final rule, the agencies will 
evaluate automobile loans under the Retail Lending Test only if the 
bank is a majority automobile lender, or the bank opts to have its 
automobile loans evaluated.\812\ For banks that meet these criteria, 
automobile loans are included in their Bank Volume Metric in a 
facility-based assessment area, as discussed further in the section-by-
section analysis of final Sec.  __.22(c). In addition, the agencies 
will evaluate the distribution of these banks' automobile loans in a 
facility-based assessment area or outside retail lending area in which 
automobile loans are a major product line, as discussed further in the 
section-by-section analysis of final Sec.  __.22(d).
---------------------------------------------------------------------------

    \812\ As discussed in the section-by-section analysis of final 
Sec.  __.12 (definition of ``product line''), automobile loans are a 
Retail Lending Test product line for a majority automobile lender or 
a bank that opts to have its automobile loans evaluated.
---------------------------------------------------------------------------

    Majority automobile lenders. As discussed further in the section-
by-section analysis of final Sec.  __.12, the agencies have decided 
that the Retail Lending Test evaluation of automobile lending will be 
mandatory for banks that are majority automobile lenders. In 
incorporating the majority automobile lending standard, the agencies 
considered that the ``substantial majority'' standard in the current 
regulations applies to all consumer loans for large banks \813\ and 
that a majority standard is, therefore, appropriate for evaluating 
automobile loans, which are a component of consumer loans. In addition, 
in deciding on a majority standard for when an evaluation of a bank's 
automobile lending is required, the agencies sought to balance the 
benefits of achieving a more comprehensive evaluation of a bank's 
retail lending, recognizing that adding automobile lending as a major 
product line would require an affected bank to collect and maintain 
automobile lending data, and considering that evaluations of consumer 
lending are currently only required for banks that meet a substantial 
majority standard. As a result of employing a majority standard, 
relative to a lower standard and to the proposed approach, the agencies 
believe that the final rule approach will reduce complexity because the 
automobile lending evaluation and related data requirements will apply 
to a smaller number of banks. Furthermore, the agencies further believe 
that the final rule provision to allow banks that are not a majority 
automobile lender to opt into the evaluation automobile loans 
appropriately increases flexibility for banks.
---------------------------------------------------------------------------

    \813\ See current 12 CFR __.22.
---------------------------------------------------------------------------

    The agencies considered, but are not adopting, an alternative 
approach to remove automobile lending entirely from the Retail Lending 
Test, or to make evaluation of automobile lending optional for all 
banks. The agencies believe that while this alternative approach would 
even further reduce complexity and data requirements for certain banks 
compared to the final rule approach, it could also result in evaluating 
a majority automobile lender under the Retail Lending Test without 
considering the bank's automobile loans. The agencies determined that 
evaluating the automobile lending of a majority automobile lender is 
important for an accurate and comprehensive evaluation of these banks, 
and that this approach appropriately takes into consideration the 
different tradeoffs discussed above.\814\
---------------------------------------------------------------------------

    \814\ Similarly, the agencies consider a bank's consumer loans 
under the current lending test if consumer lending constitutes a 
substantial majority of a bank's business. See Q&A Sec.  
__.22(a)(1)-2 (interpreting the ``substantial majority'' standard in 
current 12 CFR __.22(a)(1)).
---------------------------------------------------------------------------

    Based on supervisory experience and analysis of available data, the 
agencies anticipate that only a small number of banks are majority 
automobile lenders that would be required to have this product line 
evaluated under the Retail Lending Test.\815\
---------------------------------------------------------------------------

    \815\ For example, the agencies estimate that five banks with 
assets greater than $2 billion would currently meet the majority 
automobile lender standard based on Call Report automobile loan 
data, loans secured by residential properties, loans to small 
businesses, and loans to small farms from 2021-2022. Because of a 
lack of publicly available data on automobile loan originations and 
purchases, this analysis estimates the number of majority automobile 
lenders using Call Report data on the dollar value of outstanding 
loans on bank balance sheets, instead of the data on loans 
originated or purchased during the two years preceding the start of 
the evaluation period as described in final appendix A, paragraph 
II.b.3.
---------------------------------------------------------------------------

    As discussed further in the section-by-section analysis of final 
Sec.  __.12, the agencies will consider a bank to be a majority 
automobile lender if the following ratio, calculated at the institution 
level, exceeds 50 percent, based on a combination of loan dollars and 
loan count:
     The sum, over the two calendar years preceding the first 
year of the evaluation period, of the bank's automobile loans 
originated or purchased overall; divided by
     The sum, over the two calendar years preceding the first 
year of the evaluation period, of the bank's automobile loans, home 
mortgage loans, multifamily loans, small business loans, and small farm 
loans originated or purchased overall.
    The agencies believe that this approach should promote consistency 
and predictability by ensuring that a bank with an anomalously high 
volume of automobile loans in a single year is not automatically 
considered a majority automobile lender.
    Banks that opt to have their automobile lending evaluated. The 
agencies believe it is appropriate to provide banks that are not 
majority automobile lenders the flexibility to opt to have their 
automobile loans evaluated because this product line can meaningfully 
serve low- and moderate-income individuals and communities and may be 
an important part of a bank's strategy for meeting community credit 
needs. Further, the agencies believe that providing this option will 
help tailor examinations to account for differences in bank business 
models, consistent with the agencies' objectives for CRA modernization.
Exclusion of Consumer Loans Other Than Automobile Loans
The Agencies' Proposal
    The agencies did not include consumer loans other than automobile 
loans as a major product line on the Retail Lending Test in proposed 
Sec.  __.22(a)(4)(i). Specifically, consumer credit card loans and 
other types of consumer loans that are not automobile loans would not 
be evaluated under the proposed Retail Lending Test, neither as part of 
the Retail Lending Volume Screen in facility-based assessment areas, 
nor within the distribution analysis of each of a bank's major product 
lines in a facility-based assessment area, retail lending assessment 
area, or outside retail

[[Page 6795]]

lending area. The agencies explained in the preamble to the proposed 
rule that consumer loans other than automobile loans span several 
product categories that are heterogeneous in meeting low- or moderate-
income credit needs and are difficult to evaluate on a consistent 
quantitative basis under the Retail Lending Test. Further, the agencies 
stated that credit card lending is concentrated among a relatively 
small number of lenders (with many currently designated as limited 
purpose banks), and that evaluating consumer credit card loans using a 
metrics-based approach under the Retail Lending Test may require new 
data collection and reporting requirements because banks may not 
currently retain or have the capability to capture borrower income (at 
origination or subsequently as cardholders maintain their accounts), 
location, or other data fields relevant to constructing appropriate 
benchmarks for credit card lending. For these reasons, the agencies 
proposed to consider consumer loans other than automobile loans only 
under the responsive credit products and programs evaluation of the 
Retail Services and Products Test; this evaluation would assess whether 
a bank's credit products and programs are, in a safe and sound manner, 
responsive to the needs of low- and moderate-income individuals, and 
would not include a distribution analysis.\816\
---------------------------------------------------------------------------

    \816\ See the section-by-section analysis of final Sec.  __.23.
---------------------------------------------------------------------------

    The agencies requested feedback on whether consumer credit card 
loans should be included in CRA evaluations, whether those credit card 
loans should be evaluated quantitatively under the proposed Retail 
Lending Test or only qualitatively under the proposed Retail Services 
and Products Test, and whether data collection and reporting challenges 
for consumer credit card loans could adversely affect the accuracy of 
metrics. The agencies also sought feedback on whether they should adopt 
a qualitative approach to evaluate consumer loans and whether the 
qualitative evaluation should be limited to certain consumer loan 
categories or types.
Comments Received
    General comments on the evaluation of consumer loans other than 
automobile loans. Many commenters opined generally on the importance of 
consumer loans to low- and moderate-income individuals and communities, 
with several commenters suggesting that responsible consumer lending by 
banks can be a valuable alternative to predatory lending (such as 
payday loans, pawn shop loans, and high-cost credit card loans) and can 
help borrowers build credit. For example, a commenter stated that 
consumer loans can provide a record of payment-reporting to credit 
bureaus and can be an introduction to the banking system for the 
unbanked, benefitting low- and moderate-income borrowers. A commenter 
recommended consideration for consumer loan products that help low- and 
moderate-income borrowers refinance high-cost or predatory consumer 
loans. Another commenter stated that consumer loan products that banks 
develop collaboratively with MDIs, WDIs, LICUs, and CDFIs should 
receive full consideration, whereas consumer loan products developed in 
collaboration with fintechs should receive credit only if the borrower 
is low- or moderate-income or is located in a low- or moderate-income 
or underserved geographic area.
    Other commenters expressed general concerns with consumer loan 
programs offered by banks in cooperation with third parties. For 
example, several commenters stated that the agencies should scrutinize 
consumer loans that banks offer through partnerships with fintechs, 
especially so-called ``rent-a-bank'' partnerships, which commenters 
said could be used to evade interest rate caps and consumer protections 
established under State laws. Some of these commenters stated that such 
partnerships should be banned, while another commenter characterized 
these partnerships as wealth-stripping. A commenter also recommended 
that intermediate bank consumer lending should be evaluated, because 
many banks that partner with non-banks to engage in indirect consumer 
lending would fall into the new intermediate bank asset-size category.
    Support for a quantitative evaluation of consumer loans. Some 
commenters supported consideration of consumer loans under the Retail 
Lending Test, and addressed how one or more of these loan categories 
should be evaluated as a major product line under the Retail Lending 
Test. For example, recommendations included: evaluating consumer loans 
and a category for small-dollar loans; combining automobile loans, 
credit card loans, and other consumer loans into a single major product 
line; evaluating automobile loans, credit card loans, and small-dollar 
loans each as a separate product line; evaluating direct and indirect 
consumer loans as a major product line under the Retail Lending Test; 
and including only direct consumer loans as a major product line. In 
addition, a commenter stated that, to incentivize banks to provide 
small-dollar loans to low- and moderate-income borrowers, the agencies 
should allow a bank to elect which subset of its consumer loans in any 
category are evaluated, without requiring the bank to have all loans in 
that category evaluated. A commenter stated that the agencies should 
ensure that small-dollar loans with interest rates above 36 percent are 
included in CRA evaluations and offered the view that examiners exclude 
these loans under the current rule, thus discouraging banks from 
offering these products. Conversely, another commenter recommended 
adding unsecured personal loans as a distinct major product line on the 
Retail Lending Test (separate from automobile loans, credit card loans, 
and other secured or unsecured loans), but defining this category to 
exclude ``covered loans'' under the CFPB's Payday Lending Rule to avoid 
incentivizing high-cost personal loans with annual percentage rates 
above 36 percent. This commenter also offered the perspective that 
automobile loans and personal loans have similarities, and that both 
should be evaluated under the Retail Lending Test using a distribution 
analysis; the commenter further stated that the proposal represented a 
step backward compared to the current rule under which consumer loans 
are evaluated under the lending test if consumer lending constitutes a 
substantial majority of a bank's business or at the bank's option.
    With respect to factors that should trigger an evaluation of 
consumer loan products as a major product line under the Retail Lending 
Test, commenters generally recommended a number of options. First, some 
commenters suggested that consumer loans should be evaluated only at 
the bank's option. For example, a commenter stated that making the 
evaluation of consumer loans optional would keep the focus of the 
Retail Lending Test on products that have been historically 
underrepresented in low- and moderate-income communities (namely, home 
mortgage loans, small business loans, and small farm loans). Second, 
some commenters stated that consumer loans should be automatically 
evaluated if they constitute a substantial portion or a majority of a 
bank's business, with a few commenters recommending retaining the 
current practice of evaluating consumer loans when they constitute a 
substantial majority or if a bank elects to have consumer loans 
considered and has collected and maintained the data.

[[Page 6796]]

Third, some commenters recommended applying a version of the proposed 
approach for other product lines tailored specifically to consumer 
loans. For example, a commenter recommended that consumer loans should 
trigger a major product line if they represent at least 30 percent of a 
bank's retail loans by number and 15 percent by dollar volume within an 
assessment area. A group of commenters suggested that the major product 
line standard for consumer loans should be the lesser of 15 percent by 
lending dollars or 50 loans. Another commenter recommended using an 
average of loan count and lending dollars in light of the fact that 
consumer loans tend to be smaller in loan amount.
    Support for a qualitative evaluation of consumer loans other than 
automobile loans. Some commenters supported the proposal to 
qualitatively evaluate consumer loans other than automobile loans only 
under the Retail Services and Products Test, rather than also 
evaluating these loans quantitatively under the Retail Lending Test. 
For example, a commenter specified that consumer loans should be 
evaluated under the Retail Services and Products Test because that 
performance test allows for greater consideration of performance 
context, such as whether a bank ensures that a student loan borrower 
has exhausted any available Federal funds before taking out private 
loans. A few commenters also stated that evaluating consumer loans 
qualitatively allows the agencies to ascertain the purpose of consumer 
loans, emphasizing that minority business owners are more likely to 
request personal lines of credit and consumer loans for small business 
purposes and more likely to own businesses without employees.
    Support for an evaluation of consumer loans under both the Retail 
Lending Test and the Retail Services and Products Test. Some commenters 
supported the evaluation of consumer loans other than automobile loans 
under both the Retail Lending Test and the Retail Services and Products 
Test. These commenters recommended a quantitative evaluation for 
consumer loans under the Retail Lending Test in combination with a 
qualitative evaluation under the proposed Retail Services and Products 
Test. These commenters offered a variety of rationales in support of 
this approach. For example, a few commenters stated that evaluating 
consumer loans under both performance tests would increase competition 
in the market for consumer loans to low- and moderate-income consumers 
and communities. Another commenter stated that the number and volume of 
consumer loans is considerable and that the importance of well-designed 
consumer loans to low- and moderate-income communities is substantial, 
making a qualitative-only evaluation of these loans inappropriate. A 
commenter expressed concern that evaluating consumer loans only under 
the Retail Services and Products Test, and not also under the Retail 
Lending Test, would result in insufficient consideration of these 
loans, particularly given the low proposed weighting assigned to that 
performance test. Another commenter reasoned that a quantitative 
analysis would help determine whether a bank is making consumer loans 
equitably in terms of geography and borrower income level, whereas a 
qualitative analysis would reveal whether the bank offers consumer 
loans that are accessible and affordable to low- and moderate-income 
borrowers and responsive to their credit needs.
    Most commenters responding to the agencies' request for feedback 
specifically on how to evaluate consumer credit card loans also 
recommended that the agencies evaluate consumer credit card loans under 
both the Retail Services and Products Tests and, when credit card loans 
constitute a major product line, under the proposed Retail Lending 
Test. In general, these commenters stated that a purely quantitative 
evaluation of consumer credit card loans would be insufficient and 
could encourage unaffordable and abusive high-interest credit card 
lending. As such, some commenters that supported the hybrid evaluation 
of consumer credit card loans identified specific factors that should 
be included in the qualitative evaluation, including repayment rates, 
the affordability of terms (e.g., interest rates, fees, and penalties), 
and safeguards or features that minimize adverse credit outcomes. 
Another commenter identified difficulties in obtaining information that 
the commenter viewed as necessary for evaluating the responsiveness of 
a consumer credit card loan, such as how and why a consumer is using a 
credit card loan (as opposed to another loan product), whether the 
credit card loan terms are responsive to the consumer's needs, and how 
equitable the terms are for low- and moderate-income and minority 
consumers compared to other consumers.
    A few commenters that supported evaluation of consumer credit card 
loans under the Retail Lending Test and Retail Services and Product 
Test addressed the agencies' request for feedback on what data 
collection and reporting challenges, if any, might exist for credit 
cards that could adversely affect the accuracy of metrics and 
benchmarks. These commenters disputed the proposal's suggestion that 
banks may not currently retain or have the capability to capture credit 
card borrower income, at origination or subsequently, as the reason not 
to evaluate this product line under the Retail Lending Test. These 
commenters asserted that banks generally collect borrower income 
information on consumer credit card applications or at the time a 
credit card is issued, and suggested that the benefits of a metrics-
based approach to evaluating consumer credit card lending (including 
more competition and better rates for low- and moderate-income 
consumers) would outweigh the modest cost of requiring banks to report 
this data. However, a commenter, opposing credit card lending in CRA 
evaluations altogether, expressed a different view that banks make 
underwriting decisions primarily based on an applicant's 
creditworthiness as revealed through credit bureaus, and borrower 
income information is not usually validated by banks; this commenter 
further stated that the operational nature of credit card lending would 
not easily support the need for data collection and reporting.
    Opposition to CRA evaluation of consumer lending. There were also 
commenters that expressed opposition to the consideration of consumer 
loans under either the Retail Lending Test or the Retail Services and 
Products Test. For example, a few commenters opposed the proposal to 
qualitatively evaluate consumer loans and suggested that consumer loans 
should not be evaluated in CRA examinations. These commenters 
emphasized that a bank's consumer loans are already subject to 
examination under consumer lending laws, and asserted that evaluating 
these same loans under the CRA would be duplicative and cause 
inefficiencies for both bank staff and the agencies. Additionally, a 
few commenters specifically advocated for the exclusion of consumer 
credit card lending from CRA evaluations. These commenters argued that 
including consumer credit card loans in CRA evaluations could 
incentivize banks to provide this high-cost form of financing to 
consumers. One of these commenters additionally stated that including 
consumer credit card loans would distract from more important wealth-
building credit products, such as home mortgage loans, small business 
loans, and small farm loans. Relatedly, a commenter advised that the 
agencies should carefully assess

[[Page 6797]]

whether to include consumer credit card loans in CRA evaluations, 
weighing the desire for a comprehensive evaluation of a bank's lending 
performance against the risk of supporting lending that may be harmful 
to households.
Final Rule
    For the reasons discussed below, final Sec.  __.22(d)(1) retains 
the proposed approach of not including consumer loans other than 
automobile loans as a major product line for evaluation using 
distribution metrics in the Retail Lending Test. Under the final rule, 
as under the proposal, consumer loans other than automobile loans by 
large banks will be evaluated under the Retail Services and Products 
Test (see the section-by-section analysis of final Sec.  __.23(c)(2)). 
Also, as proposed, intermediate banks, and small banks that opt into 
the Retail Lending Test, may seek additional consideration for consumer 
lending products and programs that qualify for evaluation under the 
Retail Services and Products Test.\817\ Additionally, these loans are 
not quantitatively considered in the Retail Lending Volume Screen, 
although they may be considered as an acceptable basis for not meeting 
the Retail Lending Volume Threshold pursuant to final Sec.  
__.22(c)(3)(i)(A).
---------------------------------------------------------------------------

    \817\ See the section-by-section analysis of final Sec.  __.21.
---------------------------------------------------------------------------

    The agencies have considered, but decline to adopt, commenter 
feedback either to evaluate consumer loans other than automobile loans 
only under the Retail Lending Test or to evaluate these loans under 
both the Retail Lending Test and the Retail Services and Products Test. 
In determining that consumer loans other than automobile loans should 
be evaluated only under the Retail Services and Products Test, the 
agencies considered challenges and downsides of a quantitative 
distribution analysis of these loans under the Retail Lending Test. The 
agencies continue to believe that the heterogeneity of consumer loan 
products other than automobile loans would make these products 
challenging to evaluate appropriately under a distribution analysis. In 
particular, to evaluate consumer loans other than automobile loans 
under the Retail Lending Test, the agencies would need to define one or 
more categories of consumer loan products that may be reasonably 
compared across banks, so that bank metrics and corresponding 
benchmarks are sufficiently comparable. The agencies believe that the 
diversity of consumer product line delineations suggested by commenters 
illustrates the challenge of this approach. In addition, even if 
consumer loan products other than automobile loans could be reasonably 
disaggregated into discrete categories, doing so may introduce multiple 
new product lines into the Retail Lending Test, with the possibility 
that the bank has too few loans of any specific category to evaluate as 
a major product line. The additional product lines would involve 
additional metrics, benchmarks, and weights, thereby increasing the 
complexity of the evaluation. The agencies considered that including 
consumer loans other than automobile loans as a major product line 
under the Retail Lending Test would impose additional data collection 
and maintenance requirements on banks. Specifically, for the agencies 
to evaluate these loans using a distribution analysis, banks would need 
to collect and maintain data including borrower income and census 
tract, among other indicators, for each loan. The agencies also 
considered the potential unintended effects of a distribution analysis 
if these loans were evaluated under the Retail Lending Test--for 
example, evaluation under a distribution analysis could inadvertently 
encourage a bank to issue credit cards to customers who already have 
access to a consumer credit card, which may not be responsive to 
community credit needs. In addition, the agencies considered that a 
distribution analysis would not account for any fees or interest rates 
associated with these products, which the agencies believe is important 
to determining whether the products are serving the credit needs of the 
community.
    In determining to evaluate consumer loans other than automobile 
loans under the Retail Services and Products Test, rather than 
excluding these loans entirely from the CRA evaluation, the agencies 
have considered the importance of these loans to consumers. 
Specifically, the agencies have considered feedback from some 
commenters noting the importance of credit card and personal loans, 
including that these loans can represent a foundational credit product 
that serves as a point of access to the banking system, by which 
consumers can build a positive credit history and that these loans can 
further serve as an alternative to higher-priced financing options 
provided by non-banks. Conversely, the agencies have also considered 
that some commenters disagreed with evaluating these loans under the 
Retail Services and Products Test, with a few suggesting that other 
consumer lending laws are sufficient and that an evaluation would be 
duplicative, that providing small-dollar and personal loans would not 
be incentivized, and that evaluating credit cards would distract from 
more wealth-building products (e.g., home mortgage loans, small 
business loans, and small farm loans). However, the agencies believe 
that a qualitative evaluation of consumer lending, including consumer 
loans other than automobile loans, would contribute to an evaluation of 
whether a bank is meeting the credit needs of its entire community.
    In adopting the final rule approach, the agencies have also 
determined that the responsive credit product evaluation in the Retail 
Services and Products Test is well suited to consider the different 
aspects of a bank's consumer loans other than automobile loans, 
including aspects of these loans raised by commenters. The final rule 
approach in the Retail Service and Products Test includes a responsive 
credit products and programs evaluation that qualitatively reviews a 
bank's responsiveness to community credit needs, including low- and 
moderate-income individuals and communities; this provision is 
discussed in more detail in the section-by-section analysis of final 
Sec.  __.23(c)(2). For example, under the Retail Services and Products 
Test, the agencies will review the responsiveness of a bank's consumer 
loans, which may include the type of consumer product offered, the 
number of low- and moderate-income customers served, and whether the 
loan product has any accommodative features such as alternative credit 
scoring or underwriting. The responsive credit products evaluation 
could also consider other factors, such as whether the bank offers 
small-dollar loans with reasonable terms, offers credit-building 
opportunities via secured credit cards or secured personal loans, or 
engages in responsible cash flow-based underwriting for customers with 
thin or no credit files. The agencies have considered commenter 
feedback that there will not be adequate information to assess the 
responsiveness of a consumer credit product or program. However, the 
agencies expect that examiners will have the necessary information for 
this evaluation, including by obtaining information from banks at the 
time of their examination, as is the case in examinations today, as 
well as considering public feedback and other available information.
    The agencies have also considered commenter feedback that the final 
rule approach for consumer loans that are not automobile loans is a 
step backward,

[[Page 6798]]

as well as commenter feedback that there will be insufficient 
consideration of consumer loans with a 15 percent weight assigned to 
the proposed Retail Services and Products Test. The agencies believe 
that the final rule takes an appropriate approach to evaluating 
consumer loans that are not automobile loans, as discussed above. In 
addition to the points raised above, the agencies have also considered 
that banks with a sizeable consumer lending portfolio that would meet 
the agencies' substantial majority standard under current guidance may 
elect an alternative evaluation under the final rule. For example, a 
bank that does a significant amount of consumer lending could seek 
approval under the strategic plan option.\818\ Under an approved 
strategic plan, a bank may add additional product lines outside those 
that are considered under the Retail Lending Test, in its plan, such as 
consumer lending products other than automobile loans. Alternatively, a 
bank, such as a credit card lender may request designation as a limited 
purpose bank as provided in final Sec.  __.26(a), the Community 
Development Financing Test for Limited Purpose Banks. If approved, the 
bank would only be evaluated under the Community Development Financing 
Test for Limited Purpose Banks and consumer lending would not be 
considered in evaluating the bank's performance. For further discussion 
of this aspect of the final rule, see the section-by-section analyses 
of final Sec. Sec.  __.12 (definition of ``limited purpose bank'') and 
__.26.
---------------------------------------------------------------------------

    \818\ See final Sec.  __.27(g)(1) and the accompanying section-
by-section analysis.
---------------------------------------------------------------------------

    The agencies have considered commenter concerns about requiring the 
evaluation of an intermediate bank's consumer lending, citing that many 
banks that partner with non-banks to engage in indirect consumer 
lending would fall into the new intermediate bank asset-size category. 
The agencies note that, under final Sec.  __.21(a)(2)(i), intermediate 
banks will be evaluated under Retail Lending Test and the Intermediate 
Bank Community Development Test, unless an intermediate bank chooses to 
have its community development loans and investments evaluated under 
the Community Development Financing Test. Therefore, consumer lending 
other than automobile lending will only be evaluated if an intermediate 
bank opts for additional consideration \819\ under the Retail Services 
and Products Test as this test does not apply to intermediate banks. 
The agencies believe that the final rule approach for intermediate 
banks balances the agencies' objectives of tailoring performance 
standards for banks of different sizes while still allowing appropriate 
consideration of consumer loans, other than automobile loans, under the 
Retail Services and Products Test.
    The agencies have also considered commenter sentiment to limit 
consideration provided for consumer loan programs offered in 
cooperation with third parties, specifically with fintechs, when there 
is not an explicit purpose to serve low- and moderate-income census 
tracts and borrowers or if the third party provides loans at rates 
higher than State laws allow. The agencies note that, as part of 
evaluating credit product and programs as responsive under the Retail 
Services and Products Test, examiners would consider whether loan terms 
are affordable for low-and moderate-income consumers. The agencies also 
note that evaluation of banks' third-party risk management is outside 
the scope of this rulemaking.
Inclusion of Purchased Loans
The Agencies' Proposal
    The agencies proposed to include a bank's purchased loans in a 
bank's metrics for purposes of the Retail Lending Test.\820\ 
Specifically, under the proposal, a bank's purchased loans would be 
included in the bank volume metric used in the retail lending volume 
screen and the retail lending distribution metrics used to evaluate a 
bank's major product lines.\821\
---------------------------------------------------------------------------

    \820\ The agencies consider a bank's origination and purchase of 
loans under the current lending test. See current 12 CFR 
__.22(a)(2).
    \821\ However, as discussed in the section-by-section analyses 
of final Sec.  __.22(c) and (e), the agencies proposed to exclude 
purchased loans from the market benchmarks against which a bank's 
metrics would be compared.
---------------------------------------------------------------------------

    In proposing to include purchased loans in a bank's Retail Lending 
Test metrics, the agencies explained that purchased loans can provide 
liquidity to banks and other lenders, such as CDFIs, and extend their 
capacity to originate loans to low- and moderate-income individuals and 
in low- and moderate-income areas. The agencies noted that banks may 
also purchase loans to develop business opportunities in markets where 
they otherwise lack the physical presence to originate loans.
    At the same time, the agencies acknowledged stakeholder concerns 
that purchased loans should not receive the same consideration as 
originated loans under the Retail Lending Test, because purchases 
require fewer business development and borrower outreach resources than 
originations. In addition, the agencies noted that despite their 
potential value in increasing secondary market liquidity, loan 
purchases may do less to extend the availability of credit than new 
originations, especially where loan purchases do not directly provide 
liquidity to the originator.\822\
---------------------------------------------------------------------------

    \822\ Further, the agencies specifically acknowledged the 
possibility that loans made to low- or moderate-income borrowers or 
in low- or moderate-income census tracts could be purchased and sold 
repeatedly by different banks, with each bank receiving credit under 
the Retail Lending Test equivalent to the bank that originated the 
loans. In such cases, the agencies noted that the repurchase of 
loans would not provide additional liquidity to the originating bank 
nor additional benefit for low- and moderate-income borrowers and 
areas. For this reason, the agencies proposed to consider as an 
additional factor in assigning Retail Lending Test conclusions 
whether a bank purchased retail loans for the sole or primary 
purpose of influencing its retail lending performance evaluation. 
This proposed additional factor is discussed further in the section-
by-section analysis of final Sec.  __.22(g).
---------------------------------------------------------------------------

    The agencies sought feedback on whether retail loan purchases 
should be treated as equivalent to loan originations in a bank's 
metrics for purposes of the Retail Lending Test. If so, the agencies 
asked whether only certain loan purchases should be included, such as 
loans purchased from a CDFI or directly purchased from the originator, 
and whether other restrictions should be placed on the inclusion of 
purchased loans in a bank's Retail Lending Test metrics.
Comments Received
    The agencies received feedback on the proposed inclusion of 
purchased loans in a bank's Retail Lending Test metrics from a variety 
of commenters, summarized below.
    Support for including purchased loans in a bank's Retail Lending 
Test metrics. Many commenters generally supported including purchased 
loans in a bank's metrics for purposes of the retail lending volume 
screen and the distribution analysis component of the Retail Lending 
Test. These commenters pointed to various reasons why purchased loans 
should be included in a bank's Retail Lending Test metrics, including 
that: purchased loans provide essential liquidity to the affordable 
housing finance ecosystem and extend the capacity of mission-driven 
lenders; including purchased loans encourages banks to serve as 
correspondent lenders and allows banks to test and learn about business 
opportunities in markets where they lack on-the-ground resources to 
originate loans, ultimately increasing credit availability; and banks 
purchasing seasoned delinquent loans from other lenders and acting as 
loan servicers can help borrowers maintain homeownership. A few 
commenters

[[Page 6799]]

suggested that excluding purchased loans from a bank's metrics would 
force some banks to alter their safe and sound business plans because 
they have few options other than to purchase loans to obtain CRA 
credit. Commenters also indicated that originating CRA-qualifying loans 
(e.g., loans to low-income borrowers) in certain high-cost areas can be 
difficult for some banks due to significant market competition for 
those loans.
    Some commenters stressed the importance of including particular 
types of purchased loans in a bank's metrics for purposes of the Retail 
Lending Test, especially home mortgage loans. For example, a commenter 
warned that banks would exit the home mortgage market if purchased home 
mortgage loans do not receive positive CRA credit. A commenter noted 
that excluding purchased small business loans from a bank's metrics 
would punish certain banks that provide indirect commercial automobile 
loans, which are categorized as purchased loans.
    Limitations on the inclusion of purchased loans in a bank's Retail 
Lending Test metrics. Many commenters stated that the inclusion of 
purchased loans in a bank's Retail Lending Test metrics should be 
subject to limitations. In general, these commenters stated that only 
certain purchased loans should be included in a bank's metrics, 
depending on characteristics of the purchased loan, including its 
impact, or the originating lender.
    Several commenters stated generally that the Retail Lending Test 
should prioritize loan originations over loan purchases. A few 
commenters recommended weighting purchased loans less than originations 
in a bank's metrics for purposes of the Retail Lending Test, with some 
of these commenters emphasizing that originating a loan requires more 
time and effort than purchasing a loan, particularly in the case of 
low-income borrowers and minority borrowers. Additionally, one of these 
commenters pointed out that purchased loans have lower upfront 
investment costs. A few commenters recommended evaluating purchased 
loans separately from originations under the Retail Lending Test, with 
one of these commenters stating that purchased loans should be a 
separate major product line under the distribution analysis component 
and receive less weight than originations in determining a bank's 
Retail Lending Test conclusions.
    Some commenters stated that any evaluation of purchased loans under 
the Retail Lending Test should focus on their impact on communities, 
including how purchased loans facilitate wealth-building and increase 
access to credit for low- and moderate-income and minority borrowers. 
Some commenters expressed the view that most purchased loans should be 
excluded from a bank's Retail Lending Test metrics, but that an 
exception should be made for purchased loans that result in a 
demonstrable benefit to low- and moderate-income borrowers, such as 
more favorable loan terms or a reduction in loan principal.
    Other commenters suggested different treatment of purchased loans 
based on the extent of secondary market access of the originating 
lender. For example, a commenter suggested that loans purchased from an 
originator with limited access to the secondary market should be 
weighted equally to a bank's originations for purposes of a bank's 
Retail Lending Test metrics, while loans purchased from an originator 
with access to the secondary markets should be weighted less than loans 
originated by the bank.
    A number of commenters recommended that only retail loans purchased 
from mission-driven lenders, such as CDFIs, MDIs, and WDIs, should be 
included in a bank's metrics for purposes of the Retail Lending Test. 
One of these commenters stated that mission-driven lenders face 
liquidity challenges that inhibit their ability to make non-housing 
loans, given the lack of maturity and smaller scale of these markets, 
and that giving banks CRA credit for the purchase of such loans would 
free up balance sheet space for mission-driven lenders to make 
additional housing loans. A commenter explained that including loans 
purchased from CDFIs in a bank's metrics would be appropriate because 
CDFIs are certified for their ability to reach underserved borrowers, 
while another commenter suggested that including such purchased loans 
in a bank's metrics would encourage banks to enter into broader 
partnerships with mission-driven lenders that support small businesses 
where they operate.
    Some commenters recommended that only retail loans purchased from 
the originator, but not subsequent purchases, should be included in a 
bank's Retail Lending Test metrics, with a commenter noting that this 
treatment would ensure a sufficient level of liquidity without 
inappropriately promoting loan purchases. A few commenters stated that 
including the initial purchase of a retail loan in a bank's metrics 
would benefit banks that serve as master servicer to state housing 
finance programs, which commenters indicated is a vital service for 
low- and moderate-income areas. In a similar vein, a few commenters 
suggested that initial loan purchases should be included in a bank's 
Retail Lending Test metrics as equivalent to loan originations, but 
subsequent purchases should receive less credit in order to eliminate 
the incentive to continually resell the same loans. For example, a 
commenter stated that retail loans should not be included in a bank's 
Retail Lending Test metrics beyond the second purchase (excluding any 
initial, contractually required purchase by the bank from a vendor-
originator), stating that this limit would accommodate intermediaries 
that frequently purchase loans to enhance the liquidity of the 
originator. Another commenter stated that the agencies should establish 
a reasonable limit on the number of times a loan could be sold before 
the loan would cease to be included in a purchasing bank's Retail 
Lending Test metrics.
    Finally, other commenters suggested different parameters regarding 
the inclusion of purchased loans in a bank's metrics for purposes of 
the Retail Lending Test, including a recommendation to exclude loans 
purchased from nonbank originators. For example, a commenter noted that 
including purchased loans with excessively high interest rates in a 
bank's metrics would undermine the goals of the CRA, citing as an 
example small business loans with extremely high annual percentage 
rates purchased by banks from fintech companies. The same commenter 
also suggested excluding purchased loans for which the risk of loss is 
effectively maintained at the originating lender, such as when the 
purchasing bank has the right to request a substitution of the loan if 
the borrower defaults without providing any additional capital to the 
originating lender.
    Opposition to including purchased loans in a bank's Retail Lending 
Test metrics. A few commenters opposed including any purchased loans in 
a bank's metrics for purposes of the Retail Lending Test, with some of 
these commenters stating that a bank should not be allowed to buy its 
way to a passing CRA rating, and that by including both loan 
originations and loan purchases in the Retail Lending Test metrics, the 
agencies would be double counting the same loans. Commenters also 
indicated that purchased loans are generally less responsive to the 
credit needs of low- and moderate-income areas than originations. For 
example, a commenter pointed to a research paper indicating that the 
inclusion of purchased loans in

[[Page 6800]]

CRA examinations did not increase access to credit for low- and 
moderate-income borrowers and communities.\823\ Another commenter 
similarly stated that purchased loans originated by another bank are 
low-impact activities that should be ineligible for CRA credit.
---------------------------------------------------------------------------

    \823\ See Kenneth P. Brevoort, Bd. of Governors of the Fed. 
Rsrv. Sys., ``Does Giving CRA Credit for Loan Purchases Increase 
Mortgage Credit in Low-to-Moderate Income Communities?'' Finance and 
Economics Discussion Series 2022-047 (June 7, 2022), https://www.federalreserve.gov/econres/feds/files/2022047pap.pdf.
---------------------------------------------------------------------------

    Treatment of purchased small business loans. Several commenters 
requested clarification regarding whether purchased small business 
loans would be included in a bank's Retail Lending Test metrics 
following the transition to using section 1071 data because the CFPB 
Section 1071 Proposed Rule stated that purchased loans would not be 
reported.\824\ A few of these commenters suggested that the agencies 
should give banks the option to report purchased small business loans 
for inclusion in the bank's Retail Lending Test metrics if the CFPB's 
final rule does not include purchased loans.
---------------------------------------------------------------------------

    \824\ See 86 FR 56356, 56413 (Oct. 8, 2021).
---------------------------------------------------------------------------

Final Rule
    For the reasons discussed below, the agencies are finalizing the 
proposal to include purchased loans in a bank's metrics for purposes of 
the Retail Lending Test. Specifically, under the final rule, a bank's 
purchased loans are included in the Bank Volume Metric used in the 
Retail Lending Volume Screen as well as in the bank's metrics used in 
the distribution analysis of the bank's major product lines.\825\
---------------------------------------------------------------------------

    \825\ As discussed in the section-by-section analysis of final 
Sec.  __.22(e), purchased loans are excluded from the market 
benchmarks against which the bank's metrics are compared, consistent 
with the proposal. In addition, as discussed in the section-by-
section analysis of final Sec.  __.22(g), in assigning Retail 
Lending Test conclusions to a bank, the agencies consider 
information indicating that the bank purchased closed-end home 
mortgage loans, small business loans, small farm loans, or 
automobile loans for the sole or primary purpose of inappropriately 
enhancing its retail lending performance.
---------------------------------------------------------------------------

    Including purchased loans in a bank's metrics for purposes of the 
Retail Lending Test reflects the agencies' belief that purchased loans 
can support originations of loans to low- and moderate-income 
individuals and in low- and moderate-income census tracts. 
Specifically, loan purchases can enhance the liquidity of originated 
loans and thereby make capital available for lenders that are actively 
originating loans to low- and moderate-income borrowers and in low- and 
moderate-income census tracts, when their capacity to originate 
additional loans might otherwise be constrained. The agencies believe 
that excluding purchased loans from a bank's metrics could potentially 
disadvantage originating lenders that have limited access to the 
secondary market, such as a lender that is not an approved seller or 
servicer with Fannie Mae or Freddie Mac. In addition, the agencies 
considered that including purchased loans in evaluating retail lending 
performance is consistent with the current lending test evaluation 
approach.
    As in the proposal, the final rule includes both originated loans 
and purchased loans in a bank's metrics without assigning greater 
weight to loan originations. In reaching this determination, the 
agencies considered commenter sentiment that purchased loans should 
receive a lower weight than originations because of the viewpoint that 
they require less effort and upfront investment costs compared to 
originations and that they may be less impactful than originated loans. 
However, the agencies also considered that weighting loan originations 
and purchases differently would make the Retail Lending Test metrics 
more complex and may have unintended consequences of reducing liquidity 
for loans to low- and moderate-income borrowers and communities, as 
noted above. The agencies also considered that it would be challenging 
to determine a fixed weight to assign to purchased loans that 
appropriately reflects the impact of those purchases relative to 
originated loans because the impact of a bank's originations and 
purchases of loans could vary based on a number of factors, including 
the credit needs and opportunities of the community. Furthermore, to 
address the potential downsides of including purchased loans in the 
Retail Lending Test metrics used to evaluate a bank, the agencies have 
included an additional factor in final Sec.  __.22(g)(1), which is 
discussed in the section-by-section analysis of final Sec.  __.22(g).
    In addition, the agencies have also considered the impact of 
including purchased loans in a bank's metrics for purposes of the 
Retail Lending Test (and weighting loan purchases equal to loan 
originations) using historical data from 2018-2020. In this analysis, 
the agencies compared the distribution of estimated Retail Lending Test 
conclusions across facility-based assessment areas that would have 
resulted had the final rule approach been in effect during those years 
to the distribution of estimated conclusions that would have resulted 
from including only loan originations in a bank's distribution metrics. 
Based on the agencies' estimates, roughly similar percentages of 
facility-based assessment areas for banks included in the analysis 
would have received higher recommended conclusions (6.5 percent) or 
lower recommended conclusions (8.2 percent) if loan purchases were not 
included in the bank's metrics.\826\ Given these results, the agencies 
have concluded that the impact of removing purchased loans from the 
Retail Lending Test bank metrics could have different impacts on 
different banks. As discussed above, the agencies have determined to 
include purchased loans in bank metrics, coupled with the additional 
factor in final Sec.  __.22(g)(1). The agencies believe that this 
approach strikes an appropriate balance of avoiding unintended 
consequences of reducing liquidity for loans to low- and moderate-
income borrowers and communities while also putting in place provisions 
to help ensure that loan purchases are not used for the purpose of 
inappropriately enhancing a bank's retail lending performance.
---------------------------------------------------------------------------

    \826\ This analysis was calculated over the 2018-2020 period for 
a set of intermediate banks and large banks that are both CRA and 
HMDA reporters. Bank asset size was determined using 2019 and 2020 
year-end assets data. Wholesale banks, limited purpose banks, 
strategic plan banks, and banks that did not have at least one 
facility-based assessment area in a U.S. State or the District of 
Columbia were excluded from the analysis. Facility-based assessment 
areas that were not delineated in 2020 were also excluded. The 
analysis used home mortgage lending, small business lending, small 
farm lending, and deposits data from the CRA Analytics Data Tables. 
This analysis did not incorporate the Retail Lending Volume Screen.
---------------------------------------------------------------------------

    The agencies considered, but are not adopting, a commenter 
suggestion to disaggregate loan originations from loan purchases by 
evaluating purchased loans as a separate major product line under the 
distribution analysis component of the Retail Lending Test. The 
agencies believe that disaggregating originations from purchases is 
contrary to the intent discussed above in deciding to evaluate a bank's 
originations and purchased loans as part of the same analysis. In 
addition, the agencies believe that evaluating purchased loans as a 
separate product line would add to the complexity of the distribution 
analysis without sufficiently compensating benefits. The agencies also 
considered that there may not be sufficient data to construct robust 
market benchmarks based on only purchased small business and small farm 
loans once the agencies transition to using section 1071 data, which 
will not include purchased loans.
    The agencies also considered, but are not adopting, alternative 
approaches suggested by commenters of including only certain purchased 
loans in a bank's

[[Page 6801]]

Retail Lending Test metrics, or excluding certain purchased loans from 
a bank's Retail Lending Test metrics. The agencies believe that 
identifying particular types of purchased loans and either including or 
excluding these loan purchases from the banks' metrics adds a level of 
complexity to the Retail Lending Test and the reporting of purchased 
loans, and presents implementation challenges due to data availability. 
For example, loans originated or purchased by a financial institution 
that is not a HMDA reporter are not captured in HMDA data, and as a 
result, it is not possible to consistently identify how many times a 
purchased loan has been purchased since its origination, or identify 
the initial originator of the loan. Similarly, HMDA data do not 
identify the extent of access to the secondary market for all 
originating lenders that banks may be purchasing loans from. CRA small 
business and small farm data are even more limited in that these data 
do not identify the originating lender of a small business loan that is 
purchased by a bank, and do not indicate the number of times a loan has 
been sold.
    With respect to comments suggesting that any evaluation of 
purchased loans should focus on community impact, such as increasing 
access to credit for low- and moderate-income and minority borrowers, 
or increasing loans purchased from mission-driven lenders, the agencies 
recognize the importance of supporting such institutions in their 
efforts to provide access to credit and other financial services in 
traditionally underserved communities. The agencies note that the final 
rule includes as part of the Retail Services and Products Test an 
evaluation of whether a bank's credit products and programs--including 
loans purchased from MDIs, WDIs, LICUs, and CDFIs--are, in a safe and 
sound manner, responsive to the needs of low- and moderate-income 
individuals, residents of low- and moderate-income census tracts, small 
businesses, and small farms. This provision is discussed further in the 
section-by-section analysis of final Sec.  __.23(c). In addition to 
considering the responsiveness of a bank's purchased loans 
qualitatively under the Retail Services and Products Test, the agencies 
believe that it is also important to evaluate a bank's purchased loans 
quantitatively under the Retail Lending Test because loan purchases may 
help to meet the credit needs of low- and moderate-income borrowers, 
small businesses and small farms, and low- and moderate-income census 
tracts.
    Treatment of purchased small business loans and small farm loans. 
As discussed further in the section-by-section analysis of final Sec.  
__.42, the final rule provides that once section 1071 data is used in 
CRA evaluations, a bank may, at its option, have purchased small 
business loans included in its Retail Lending Test metrics if the bank 
collects and maintains data on these loans. The agencies have 
considered that the CFPB Section 1071 Final Rule does not require the 
reporting of purchased loans.\827\ However, the agencies determined 
that it is appropriate to provide banks with the option to collect and 
maintain data on their purchased small business loans and small farm 
loans for consideration in Retail Lending Test metrics once the 
agencies transition to using section 1071 data for CRA evaluations. The 
agencies believe that the optional inclusion of purchased small 
business loans and small farm loans in a bank's metrics appropriately 
tailors the evaluation approach to different bank business models, 
including those that involve purchases of these loan types as part of 
the bank's strategy for meeting the credit needs of the community. In 
addition, the agencies believe the final rule approach of allowing 
banks to continue to include purchased small business and small farm 
loans in the bank's metrics once the agencies transition to using 
section 1071 data will provide continuity with the current approach, 
which includes purchased small business loans in a bank's distribution 
metrics.
---------------------------------------------------------------------------

    \827\ A covered entity under the CFPB Section 1071 Final Rule 
will not be required to report small business lending data on 
purchased loans because purchased loans are not considered ``covered 
credit transactions.'' See 12 CFR 1002.104(b) and associated 
Official Interpretation.
---------------------------------------------------------------------------

Section __.22(a) and (b) Retail Lending Test--In General and 
Methodology Overview

The Agencies' Proposal
    Proposed Sec.  __.22(a) addressed the scope of the Retail Lending 
Test. Proposed Sec.  __.22(a)(1) provided that the Retail Lending Test 
would evaluate a bank's record of helping to meet the credit needs of 
its facility-based assessment areas through a bank's origination and 
purchase of retail loans in each facility-based assessment area. In 
addition, proposed Sec.  __.22(a) set forth the geographic areas in 
which large banks and intermediate banks would be evaluated under the 
proposed Retail Lending Test and the major product lines that would 
have been evaluated under the distribution analysis. The proposed major 
product line standard is discussed in the section-by-section analysis 
of final Sec.  __.22(d).
    Proposed Sec.  __.22(b) described the methodology of the proposed 
Retail Lending Test. Specifically, proposed Sec.  __.22(b)(1) provided 
that the agencies would first review numerical metrics, developed under 
proposed Sec.  __.22(c), regarding a bank's retail lending volume in 
each facility-based assessment area. Proposed Sec.  __.22(b)(2) 
provided that the agencies would also employ numerical metrics, 
developed under proposed Sec.  __.22(d), to evaluate the geographic and 
borrower distribution of a bank's major product lines in each facility-
based assessment area, retail lending assessment area, and outside 
retail lending area, as applicable. Proposed Sec.  __.22(b)(3) provided 
that the agencies would also use the additional factors described in 
proposed Sec.  __.22(e) to evaluate a bank's retail lending performance 
in its facility-based assessment areas.
Comments Received
    Although the agencies received numerous comments, discussed above, 
on the overall Retail Lending Test framework, including the use of a 
metrics-based approach in general, the agencies did not receive 
comments on the specific language of proposed Sec.  __.22(a) and(b).
Final Rule
    The agencies are finalizing a modified version of proposed Sec.  
__.22(a) and (b). Similar to the proposal, final Sec.  __.22(a) and (b) 
address the general scope and methodology of the Retail Lending Test. 
However, the agencies have modified final Sec.  __.22(a) and (b) from 
the proposal to reflect changes to the Retail Lending Test framework 
discussed throughout the section-by-section analysis of final Sec.  
__.22.
     Final Sec.  __.22(a)--Retail Lending Test--clarifies which 
product lines will be evaluated pursuant to the Retail Lending Test and 
further clarifies when automobile loans will be evaluated. 
Specifically, final Sec.  __.22(a)(1)--In general--provides generally 
that the Retail Lending Test evaluates a bank's record of helping to 
meet the credit needs of its entire community through the bank's 
origination and purchase of home mortgage loans, multifamily loans, 
small business loans, and small farm loans.
     Final Sec.  __.22(a)(2)--Automobile loans--provides that 
the Retail Lending Test also evaluates a bank's record of helping to 
meet the credit needs of its entire community through the bank's 
origination and purchase of automobile

[[Page 6802]]

loans if the bank is a majority automobile lender or if the bank opts 
to have it automobile loans evaluated under the Retail Lending Test.
     Final Sec.  __.22(b)--Methodology overview--describes the 
Retail Lending Test's methodology with additional detail than provided 
in proposed Sec.  __.22(b) in order to increase clarity.
     Final Sec.  __.22(b)(1)--Retail Lending Volume Screen--
provides that the agencies consider whether a bank meets or surpasses 
the Retail Lending Volume Threshold in each facility-based assessment 
area pursuant to the Retail Lending Volume Screen in final Sec.  
__.22(c).
     Final Sec.  __.22(b)(2)--Retail lending distribution 
analysis--provides that except as provided in final Sec.  __.22(b)(5), 
the agencies evaluate the geographic and borrower distributions of each 
of a bank's major product lines in each Retail Lending Test Area, as 
provided in final Sec.  __.22(d) and (e).
     Final Sec.  __.22(b)(3)--Retail Lending Test recommended 
conclusions--provides that except as provided in final Sec.  
__.22(b)(5), the agencies develop a Retail Lending Test recommended 
conclusion pursuant to final Sec.  __.22(f) for each Retail Lending 
Test Area.
     Final Sec.  __.22(b)(4)--Retail Lending Test conclusions--
provides that the agencies' determination of a bank's Retail Lending 
Test conclusion for a Retail Lending Test Area is informed by the 
bank's Retail Lending Test recommended conclusion for the Retail 
Lending Test Area, performance context factors as provided in final 
Sec.  __.21(d), and the additional factors provided in final Sec.  
__.22(g).
     Final Sec.  __.22(b)(5)--Exceptions--describes two 
exceptions to the general four-step methodology discussed above.
     Final Sec.  __.22(b)(5)(i)--No major product line-- 
provides that if a bank has no major product line in a facility-based 
assessment area, the agencies assign the bank a Retail Lending Test 
conclusion for that facility-based assessment area based upon the 
bank's performance on the Retail Lending Volume Screen pursuant to 
final Sec.  __.22(c), the performance context factors provided in final 
Sec.  __.21(d), and the additional factors provided in final Sec.  
__.22(g). This final rule provision specifies that the distribution 
analysis in final Sec.  __.22(d) through (f) does not apply to a 
facility-based assessment area in which there are no major product 
lines. There may not be a major product line, for example, where a bank 
maintains a deposit-taking facility and only conducts consumer lending 
other than automobile lending. The agencies determined that this 
provision adds clarity regarding evaluation procedures in cases where 
the proposed distribution analysis does not apply to a bank's business 
model in a facility-based assessment area.
     Final Sec.  __.22(b)(5)(ii)--Banks that lack an acceptable 
basis for not meeting the Retail Lending Volume Threshold--provides how 
the agencies assign a Retail Lending Test conclusion for a facility-
based assessment area in which a bank lacks an acceptable basis for not 
meeting the Retail Volume Threshold. Consistent with the proposed 
approach, these facility-based assessment areas do not receive a Retail 
Lending Test recommended conclusion based on a distribution analysis. 
The agencies have revised the final's rule regulatory text relative to 
the proposal to make more clear that, as described in the section-by-
section analysis of final Sec.  __.22(c)(3)(iii), the agencies will 
instead consider such a bank's performance on the Retail Lending Volume 
Screen, the distribution analysis, the performance context factors in 
final Sec.  __.21(d), and the additional factors in final Sec.  
__.22(g) in assigning a conclusion. As discussed in the section-by-
section analysis of Sec.  __.22(c), and consistent with the proposed 
approach, a large bank that lacks an acceptable basis for not meeting 
the screen is limited to a Retail Lending Test conclusion of either 
``Needs to Improve'' or ``Substantial Noncompliance'' in that facility-
based assessment area. An intermediate bank, or a small bank that opts 
to be evaluated under the Retail Lending Test, that lacks an acceptable 
basis for not meeting the screen is eligible for any Retail Lending 
Test conclusion in that facility-based assessment area.

Section __.22(c) Retail Lending Volume Screen

    In final Sec.  __.22(c) and section I of final appendix A, the 
agencies are adopting the proposal to incorporate in the evaluation of 
a bank's retail lending performance a Retail Lending Volume Screen, 
which will measure the total dollar amount of a bank's retail lending 
relative to its presence and capacity to lend, based on deposits, in a 
facility-based assessment area compared to other lenders.\828\ The 
agencies developed the Retail Lending Volume Screen to provide more 
rigor, clarity, consistency, and transparency in the evaluation of 
retail lending for banks evaluated under the final Retail Lending Test.
---------------------------------------------------------------------------

    \828\ See final Sec.  __.22(c) and final appendix A, section I; 
see also supra note 145.
---------------------------------------------------------------------------

    The final rule's Retail Lending Volume Screen reflects certain 
substantive, technical, and clarifying revisions to the proposed Retail 
Lending Volume Screen, as discussed below. The agencies have also 
reorganized the proposed regulatory text to provide additional clarity 
and consistency by: (1) in final Sec.  __.22(c)(1), defining the volume 
screen components; (2) in final Sec.  __.22(c)(2), outlining the 
agencies' approach regarding banks that meet or surpass the volume 
screen's threshold; and (3) in final Sec.  __.22(c)(3), outlining the 
agencies' approach regarding banks that do not meet the screen's 
threshold.
    Consistent with the proposal, final Sec.  __.22(c)(1) provides 
that, for a bank evaluated under to the Retail Lending Test, the Retail 
Lending Volume Screen will measure the bank's lending volume relative 
to its deposits in a facility-based assessment area, calculated as a 
Bank Volume Metric, and compare the Bank Volume Metric to a Market 
Volume Metric, which measures the lending of all banks in the facility-
based assessment area relative to their deposits. The bank will meet 
the Retail Lending Volume Threshold in that facility-based assessment 
area if the bank has a Bank Volume Metric of 30 percent or greater of 
the Market Volume Benchmark.
    Final Sec.  __.22(c)(2) and (c)(3)(ii) provide that, for a bank 
that meets or surpasses the Retail Lending Volume Threshold in a 
facility-based assessment area, or that has an acceptable basis for not 
meeting or surpassing the threshold--as provided in final Sec.  
__.22(c)(3)(i) and discussed further below-- the agencies will develop 
a Retail Lending Test recommended conclusion for the facility-based 
assessment area, which could range from ``Outstanding'' to 
``Substantial Noncompliance.'' \829\
---------------------------------------------------------------------------

    \829\ See final Sec.  __.22(d) and (f) and the accompanying 
section-by-section analyses.
---------------------------------------------------------------------------

    Additionally, final Sec.  __.22(c)(3)(iii)(A) provides that large 
banks that lack an acceptable basis for not meeting the Retail Lending 
Volume Threshold will be limited to receiving a ``Needs to Improve'' or 
``Substantial Noncompliance'' Retail Lending Test conclusion in a 
facility-based assessment area, determined based upon: the large bank's 
retail lending volume and the extent by which it did not meet the 
threshold; the distribution analysis in final Sec.  __.22(d) and (f); 
the performance context factors in final Sec.  __.21(d); and 
consideration of the

[[Page 6803]]

additional factors in final Sec.  __.22(g).\830\
---------------------------------------------------------------------------

    \830\ For detailed information about the referenced final rule 
provisions, see the section-by-section analyses of final Sec. Sec.  
__.21(d) and __.22(d), (f), and (g).
---------------------------------------------------------------------------

    Final Sec.  __.22(c)(3)(iii)(B) provides that for intermediate 
banks, and small banks that opt to be evaluated under the Retail 
Lending Test, which lack an acceptable basis for not meeting the Retail 
Lending Volume Threshold, the agencies will consider a bank's 
performance under the lending distribution analysis in final Sec.  
__.22(d) and (f) before assigning a Retail Lending Test recommended 
conclusion--which could range from ``Outstanding'' to ``Substantial 
Noncompliance.'' The agencies will also consider a bank's retail 
lending volume and the extent by which it did not meet the threshold, 
along with performance context factors and the additional factors, 
before assigning a Retail Lending Test conclusion.
Overall Retail Lending Volume Screen Approach
The Agencies' Proposal
    In proposed Sec.  __.22(c), the agencies provided for a retail 
lending volume screen that would measure the total dollar volume of a 
bank's retail lending relative to its presence and capacity to lend in 
a facility-based assessment area compared to peer banks.\831\ The 
agencies indicated that the screen would serve to ensure that a bank's 
performance evaluation reflects the amount of a bank's retail lending 
relative to its presence and lending capacity in an assessment area. 
They also indicated that a bank would fail to meet the credit needs of 
its entire community if it makes too few loans relative to its 
community presence, capacity, and local opportunities, even if those 
loans happened to be concentrated among, for example, low- and 
moderate-income borrowers and low- and moderate-income census tracts.
---------------------------------------------------------------------------

    \831\ See proposed Sec.  __.22(c).
---------------------------------------------------------------------------

Comments Received
    The agencies received many comments on the proposed ``retail 
lending volume screen'' from a variety of stakeholders.
    Many commenters that addressed the proposed retail lending volume 
screen supported its inclusion in the proposed Retail Lending Test, 
with a number of these commenters recommending a more stringent Retail 
Lending Volume Threshold than proposed by the agencies, as discussed 
below. Many of these commenters asserted that a retail lending volume 
screen would help to reduce perceived ratings inflation in CRA 
evaluations.
    However, many other commenters that addressed the proposed retail 
lending volume screen opposed it or raised concerns about the screen, 
with some suggesting modifications to the proposed screen and its 
incorporation into the CRA framework. For example, some commenters 
expressed concerns that the proposed retail lending volume screen would 
not account for all bank business strategies and that certain types of 
banks could have difficulty passing the screen. Points made by these 
commenters included, for example, that: a bank that operates without 
branches could have trouble meeting the screen in the facility-based 
assessment area delineated around its home office; the screen would 
disadvantage depository CDFIs that maintain branches in economically 
distressed areas where there is less demand for large loans; the screen 
would penalize and disadvantage banks with business models that do not 
focus on retail lending; and (banks that specialize in consumer lending 
might fail the screen because they did not engage in sufficient home 
mortgage lending, small business lending, and small farm lending.
    A commenter suggested that the agencies apply a materiality 
standard such that the retail lending volume screen would not apply if 
a bank did not have a sufficient volume of both retail lending and 
deposits in a facility-based assessment area. Another commenter 
suggested that banks should be exempt from the retail lending volume 
screen if they demonstrate that their business structure is 
incompatible with originating a meaningful number of loans as a 
percentage of their deposits in facility-based assessment areas.
    Various commenters expressed concerns that applying the retail 
lending volume screen might discourage banks from maintaining branches 
with low deposits even though those branches provide services to low-
deposit customers. Commenters suggested that this could discourage 
banks from maintaining facilities in rural markets or markets that are 
incidental to the banks' business strategies or lead to consolidation 
or branch closures among banks, including depository CDFIs, serving 
rural or underserved areas. Concerns were also raised that the retail 
lending volume screen represented a pass/fail approach that would lead 
to banks prioritizing retail lending dollar volume at the expense of 
developing innovative products and services responsive to unbanked or 
underbanked consumers and microbusinesses.
    A few commenters raised concerns that some lenders in certain 
markets could face challenges in meeting the threshold due to local 
lending conditions. For example, a commenter stated that in some rural 
and economically challenged assessment areas, loan demand is low, which 
could cause a bank to fail the proposed retail lending screen even if 
the bank is committed to providing a range of banking services to these 
communities. A commenter indicated that the screen would not account 
for a variety of scenarios that are common in suburban, exurban, and 
urban areas where large banks have high concentrations of deposits.
    Some commenters also raised legal arguments with respect to the 
retail lending volume screen. A commenter suggested that the retail 
lending volume screen exceeds the agencies' statutory authority because 
it is not explicitly authorized by the CRA statute. Other commenters 
stated that the retail lending volume screen would conflict with 
congressional intent because section 109 of the Riegle-Neal Interstate 
Banking and Branching Efficiency Act of 1994 (section 109) instructs 
the agencies to use a loan-to-deposit ratio to determine whether a bank 
engaged in interstate branching meets the credit needs of the 
communities it serves.\832\ In addition, a commenter suggested that if 
the retail lending volume screen prompts banks to close any branches to 
avoid adverse consequences under the Retail Lending Test the outcome 
would be contrary to the statutory purposes of the CRA.
---------------------------------------------------------------------------

    \832\ See Public Law 103-328, sec. 109, 12 U.S.C. 1835a, as 
amended (section 109), implemented by subpart E to 12 CFR part 25 
(OCC), 12 CFR 208.7 (Board), and 12 CFR part 369 (FDIC). Section 
109(c)(1) specifies a threshold of ``half the average of total loans 
in the host State relative to total deposits from the host State.''
---------------------------------------------------------------------------

Final Rule
    As noted above, final Sec.  __.22(c) and section I of final 
appendix A adopt the proposed Retail Lending Volume Screen, with 
certain clarifying, technical, and substantive edits described in more 
detail below. Based on the agencies' consideration of the comments and 
further analysis and deliberation, the agencies continue to believe 
that the Retail Lending Volume Screen is an appropriate baseline 
measure of the amount of a bank's retail lending relative to its 
presence and lending capacity in a facility-based assessment area, as 
indicated by the volume of deposits received from the

[[Page 6804]]

area surrounding the bank's deposit-taking facilities. The agencies 
also believe that a holistic evaluation of whether a bank is meeting 
the credit needs of its facility-based assessment areas necessarily 
includes consideration of not only a bank's loan distribution, but also 
the bank's lending volume relative to its presence and capacity.
    The final rule reflects the agencies' view that the Retail Lending 
Volume Screen and the distribution metrics are both important to 
ensuring a complete and accurate evaluation of whether a bank has met 
the credit needs of its community. Specifically, the agencies generally 
do not believe that a bank with lending levels well below its community 
presence and capacity is meeting the credit needs of its entire 
community, regardless of the bank's distribution of loans to low- and 
moderate-income borrowers and low- and moderate-income census tracts. 
In this regard, the agencies considered that removing the screen from 
the Retail Lending Test approach for evaluating facility-based 
assessment areas would mean that a bank could achieve ``Outstanding'' 
performance by making only a very small number of loans relative to the 
bank's capacity, if a high percentage of those loans are to designated 
borrowers (i.e., low-income borrowers, moderate-income borrowers, 
businesses with gross annual revenues of $250,000 or less, businesses 
with gross annual revenues of more than $250,000 but less than or equal 
to $1 million, farms with gross annual revenues of $250,000 or less, or 
farms with gross annual revenues of more than $250,000 but less than or 
equal to $1 million) and designated census tracts (i.e., low-income 
census tracts or moderate-income census tracts).
    The Retail Lending Volume Screen is based on standardized metrics 
and will apply across banks evaluated in facility-based assessment 
areas under the Retail Lending Test, to ensure clarity, consistency, 
and transparency in this important volume-based assessment of a bank's 
retail lending. The agencies considered that the final rule approach 
builds upon the current evaluation approach, under which the agencies 
consider a bank's volume of retail lending in an assessment area 
without quantitative benchmarks or thresholds indicating what level of 
lending is adequate.
    The agencies considered comments that it could be challenging for a 
bank to meet the Retail Lending Volume Threshold in markets with low 
levels of retail lending demand. However, the agencies determined that 
the final rule approach accounts for this concern both through the 
Market Volume Benchmark and the acceptable basis factors for not 
meeting the threshold, finalized in final Sec.  __.22(c)(3)(i) and 
discussed in more detail further below. Specifically, the Market Volume 
Benchmark is based on retail loans and deposits from all banks with a 
branch in a geographic area, which will reflect the level of credit 
demand in that area. In addition, the acceptable basis factors include 
performance context information that could explain a bank's low level 
of lending in an area, such as the bank's business strategy and any 
other circumstances unique to a facility-based assessment area. These 
factors are designed to help address scenarios raised by commenters 
such as that of an internet bank not meeting the Retail Lending Volume 
Threshold in a headquarters facility-based assessment area and of a 
CDFI bank serving an area with lower loan demand.
    The agencies understand that banks operate in variable conditions, 
and that they have different characteristics, business strategies, and 
customer bases. For this reason, the Retail Lending Volume Screen--both 
as proposed and as finalized--does not operate on a ``pass/fail'' 
basis. Rather, the Retail Lending Volume Screen is one aspect of the 
agencies' evaluation of a bank's retail lending performance; it 
functions as a key piece of the framework under which the agencies 
determine the appropriate approach for evaluating the retail lending 
performance of a particular bank in its facility-based assessment 
areas. For example, for a bank with a Bank Volume Metric above the 
Retail Lending Volume Threshold in a facility-based assessment area, 
the agencies believe it is appropriate to determine a recommended 
conclusion based on a distribution analysis of the bank's retail 
lending. In contrast, for a bank with a Bank Volume Metric below the 
Retail Lending Volume Threshold in a facility-based assessment area, 
the agencies believe it is important to first assess whether the bank 
had an acceptable basis for exhibiting a very low level of retail 
lending prior to applying the distribution analysis. The acceptable 
basis factors will address a variety of circumstances that could limit 
a bank's ability to lend in a facility-based assessment area. 
Accordingly, the agencies have not included any references in final 
Sec.  __.22(c) to a bank ``failing'' to meet the Retail Lending Volume 
Threshold, as the agencies acknowledge that a bank may have a 
relatively low Bank Volume Metric due to the bank's business model or 
other acceptable basis factors that are not indicative of ``failing'' 
performance.
    The agencies also considered, but are not adopting, a commenter 
suggestion to apply a materiality standard such that the Retail Lending 
Volume Screen would not apply if a bank did not have a sufficient 
volume of both retail lending and deposits in a facility-based 
assessment area. The agencies determined that it is beneficial to have 
consistent standards that apply to all facility-based assessment areas 
such that, for each bank evaluated in its facility-based assessment 
areas under the Retail Lending Test, a volume-based assessment of a 
bank's lending is a component of evaluating whether a bank is meeting 
the retail lending needs of these communities. In addition, the 
agencies believe that applying a materiality standard could result in 
less robust evaluation standards in smaller markets, rural areas, and 
low-income areas where banks may tend to conduct less lending and 
source lower volumes of deposits.
    The agencies also considered, but are not adopting, a commenter 
suggestion that banks should be exempt from the Retail Lending Volume 
Screen if they demonstrate that their business structure is 
incompatible with originating a meaningful number of loans as a 
percentage of their deposits in facility-based assessment areas. Based 
on further consideration of this suggestion, the agencies determined 
that the variety of bank business strategies and structures presents 
significant challenges to establishing an appropriate exemption. Thus, 
the agencies believe that it is preferable to apply the Retail Lending 
Volume Screen and, if warranted, determine whether a bank has an 
acceptable basis for not meeting the Retail Lending Volume Threshold. 
As discussed elsewhere in this section-by-section analysis, the 
acceptable basis factors in final Sec.  __.22(c)(3)(i) include 
consideration of a bank's business strategy and other aspects of the 
performance context of the area.
    The agencies have also carefully reviewed and considered comments 
presenting legal considerations. The CRA statute's grant of rulemaking 
authority to the agencies empowers them to carry out the purpose of the 
statute.\833\ As discussed in section I of

[[Page 6805]]

this SUPPLEMENTARY INFORMATION, in enacting the CRA, Congress was 
focused on the relationship between a bank's deposit-taking activity in 
an area and its lending activity, and on ensuring that banks meet not 
only the deposit needs but also the credit needs of their 
communities.\834\ Thus, the agencies view consideration of a bank's 
loan-to-deposit ratios as within the appropriate purview of the 
agencies' approach to CRA examinations. The agencies also note that 
this reflects a longstanding position of the agencies; for example, 
since 1995, the agencies have used loan-to-deposit ratios as a 
criterion to evaluate small bank performance.\835\ Further, based on 
supervisory experience, the agencies believe that the loan-to-deposit 
ratios of other banks in a facility-based assessment area are 
informative of credit needs in a community, and thus a useful point of 
comparison as part of a larger framework for determining whether a bank 
is meeting the credit needs of its community.
---------------------------------------------------------------------------

    \833\ See 12 U.S.C. 2905. See also 12 U.S.C. 2901(b) (``It is 
the purpose of this title to require each appropriate Federal 
financial supervisory agency to use its authority when examining 
financial institutions, to encourage such institutions to help meet 
the credit needs of the local communities in which they are 
chartered consistent with the safe and sound operation of such 
institutions.'').
    \834\ See 12 U.S.C. 2901(a). See also 123 Cong. Rec. 17630 
(1977) (statement of Sen. Proxmire) (discussing enactment of the CRA 
as a response to banks taking their deposits from a community 
without reinvesting them in that community).
    \835\ See current 12 CFR __.26(b)(1).
---------------------------------------------------------------------------

    Regarding commenters' mention of provisions of section 109, the 
agencies have considered the distinct policy objectives, calculation 
methodologies, and applications of section 109 and of the CRA, and do 
not believe that section 109 precludes the agencies from implementing 
the Retail Lending Volume Screen in the final rule. First, section 109 
was enacted 17 years after the CRA statute, but did not change or 
displace the agencies' CRA rulemaking authority. Second, although the 
section 109 loan-to-deposit ratios used by the agencies may have some 
conceptual similarities with the Retail Lending Volume Screen, their 
distinct policy objectives, calculation methodologies, and applications 
require separate metrics to achieve their respective purposes, as 
discussed in more detail further below. Congress enacted section 109 to 
ensure that a bank's interstate branches would not take deposits from a 
host state (or other host jurisdiction) without the bank reasonably 
helping to meet the credit needs of that host state. The application of 
section 109 requirements involves a loan-to-deposit ratio test that 
measures the lending and deposit activities of a bank's interstate 
branches and then compares the bank's statewide loan-to-deposit ratio 
with the relevant host state's loan-to-deposit ratio, which is based on 
host state banks' lending and deposits volumes.\836\ If the bank's 
statewide loan-to-deposit ratio is at least one-half of the relevant 
host state loan-to-deposit ratio, the bank passes the section 109 
evaluation and no further review is required.\837\ If the bank fails 
the loan-to-deposit ratio test (or the loan-to-deposit ratio cannot be 
calculated because data are not sufficient or are not reasonably 
available), the agencies will determine whether the bank is reasonably 
helping to meet the credit needs of the communities served by the bank 
in the host state--this step requires examiners to review the 
activities of the bank, such as its performance under the CRA.\838\ The 
Retail Lending Volume Screen is therefore a complement to, and not a 
substitute for, the section 109 evaluation of whether a bank with 
interstate branches impermissibly uses those branches to primarily 
engage in deposit production rather than serving the credits needs of 
its communities. Accordingly, the agencies do not believe that the 
Retail Lending Volume Screen intrudes on or otherwise conflicts with 
prior congressional decisions on interstate banking prescribed in 
statute.
---------------------------------------------------------------------------

    \836\ See 12 CFR 25.63 (OCC), 208.7(c) (Board), and 369.3 
(FDIC).
    \837\ Id.
    \838\ See 12 CFR 25.64 (OCC), 208.7(d) (Board), and 369.4 
(FDIC).
---------------------------------------------------------------------------

    The agencies have also considered commenter sentiment that the 
Retail Lending Volume Screen is onerous and would therefore result in 
banks closing branches in markets where their Bank Volume Metric may 
not meet the Retail Lending Volume Threshold. However, in considering 
these comments and additional agency analysis, the agencies believe 
that the Retail Lending Volume Screen is appropriately calibrated and 
that the Retail Lending Volume Threshold is generally attainable. In 
reaching this determination, the agencies considered a number of 
factors. First, the agencies considered that the current evaluation 
framework includes assessing a bank's volume of retail lending, and for 
small banks includes a loan-to-deposit ratio. The agencies believe that 
the Retail Lending Volume Screen is therefore grounded in the current 
approach and will not introduce significant new burden or complexity 
for banks. Second, the agencies considered that based on estimates 
using available data from 2018-2020, and as discussed more fully below, 
the Bank Volume Metric exceeds the Retail Lending Volume Threshold in 
approximately 96 percent of banks' facility-based assessment areas. The 
agencies also considered that this analysis was applied to years when 
the screen was not in effect. In future years when the screen is in 
effect, banks will have access to information such as recent estimates 
of relevant metrics and benchmarks in different geographic areas, which 
could be used to help monitor performance. Third, the agencies 
considered that the acceptable basis factors in final Sec.  
__.22(c)(3)(i) cover circumstances in which a bank's Bank Volume Metric 
does not meet the Retail Lending Volume Threshold due to performance 
context factors or other legitimate business reasons, such as a bank's 
business model. Taking into account these considerations, the agencies 
anticipate that the screen will appropriately evaluate whether a bank 
has conducted retail lending that is commensurate with peer lending in 
facility-based assessment areas, and is not unduly complex or 
burdensome.
    Specific components of the Retail Lending Volume Screen are 
discussed below in the section-by-section analysis of final Sec.  
__.22(c)(1). The section-by-section analyses of final Sec.  __.22(c)(2) 
and (3) address the ways in which a bank's performance on the Retail 
Lending Volume Screen informs the blend of quantitative and qualitative 
factors considered by the agencies in determining a bank's Retail 
Lending Test conclusion in a facility-based assessment area.
Section __.22(c)(1) Retail Lending Volume Threshold
    Consistent with the proposal, final Sec.  __.22(c)(1) and section I 
of final appendix A provide that, for a bank evaluated under to the 
Retail Lending Test, the Retail Lending Volume Screen will compare its 
Bank Volume Metric against a Market Volume Benchmark in a facility-
based assessment area. The bank will meet or surpass the Retail Lending 
Volume Threshold in that facility-based assessment area with a Bank 
Volume Metric of 30 percent or greater of the Market Volume Benchmark. 
The Bank Volume Metric, the Market Volume Benchmark, and the 30 percent 
threshold are discussed in turn below.
Bank Volume Metric
The Agencies' Proposal
    To provide a consistent measure of how much of a bank's local 
capacity has been oriented toward retail lending, the agencies proposed 
that the retail lending volume screen would consist, in part, of a 
``bank volume metric.'' \839\ The

[[Page 6806]]

proposed bank volume metric would be calculated as a ratio comparing 
bank lending against bank deposits. The numerator would have included 
the annual average of the year-end dollar amount of a bank's originated 
and purchased automobile loans, closed-end home mortgage loans, open-
end home mortgage loans, multifamily loans, small business loans, and 
small farm loans in a facility-based assessment area.\840\
---------------------------------------------------------------------------

    \839\ See proposed Sec.  __.22(c)(3) and proposed appendix A, 
section I.
    \840\ See proposed appendix A, section I.
---------------------------------------------------------------------------

    The denominator would include the annual average amount of the 
bank's deposits in that facility-based assessment area over the 
evaluation period, if the bank collected and maintained this data.\841\ 
Specifically, the agencies proposed that collecting and maintaining 
deposits data would be required for large banks with assets of over $10 
billion and would be optional for large banks with assets of $10 
billion or less, intermediate banks, and small banks that opted to be 
evaluated under to the Retail Lending Test.\842\ For any bank evaluated 
under to the Retail Lending Test that did not collect and maintain 
deposits data, the agencies proposed to use the deposits assigned to 
the banks' branches in each assessment area as reported in the FDIC's 
Summary of Deposits data to calculate the local deposit base, in the 
denominator.\843\ The agencies requested feedback on using alternative 
sets of deposits data than proposed, based on bank asset size, to 
construct the bank volume metric.
---------------------------------------------------------------------------

    \841\ See id.
    \842\ See proposed Sec.  __.42(a)(7) and (b)(5); see also 
proposed Sec.  __.12 (defining ``small bank,'' ``intermediate 
bank,'' and ``large bank''). For further discussion of the final 
rule on deposits and deposits data collection, maintenance, and 
reporting, see the section-by-section analyses of final Sec. Sec.  
__.12 (``deposits'' and ``deposit location'') and __.42(a)(7) 
(deposits data collection and maintenance) and (b)(3) (deposits data 
reporting).
    \843\ See proposed appendix A, section I.
---------------------------------------------------------------------------

Comments Received
    Numerator. Some commenters offered suggestions and requested 
clarification regarding the numerator of the proposed bank volume 
metric. A commenter indicated that the numerator should include 
personal loans, credit card loans, and other non-automobile consumer 
loans, while another commenter similarly expressed the view that the 
bank volume metric numerator should include personal loans, because 
some small business owners, particularly self-employed individuals, 
often use personal loans for commercial purposes.
    Another commenter indicated that the agencies needed to clarify 
whether loan renewals would be considered in the bank volume metric 
numerator, asserting that the exclusion of loan renewals could 
adversely affect banks' performance under the Retail Lending Test (as 
well as under the Community Development Financing Test). Other 
commenters asserted that the proposal was unclear as to whether loans 
originated and sold before year-end would be included in the numerator, 
with a commenter specifically emphasizing a lack of clarity in the 
proposed numerator's description (``the annual average of the year-end 
total dollar amount of the bank's originated and purchased . . . 
loans'').
    A commenter expressed concern that banks whose core retail lending 
businesses are excluded from the numerator of the bank volume metric 
may not meet the Retail Lending Volume Threshold as proposed.\844\ 
Another commenter asserted that calculating the bank volume metric 
using dollar amounts would negatively affect small business lending, 
which the commenter stated represents only a small portion of overall 
retail lending, on a dollar amount basis, for some banks.
---------------------------------------------------------------------------

    \844\ As discussed in the section-by-section analysis of final 
Sec.  __.22(d), the agencies proposed to consider home mortgage 
loans, multifamily loans, small business loans, small farm loans, 
and automobile loans under the proposed Retail Lending Test.
---------------------------------------------------------------------------

    Denominator. Regarding the denominator for the proposed bank volume 
metric, a few commenters indicated that a bank's deposit base was not 
an appropriate measure of a bank's capacity and obligation to conduct 
retail lending.\845\
---------------------------------------------------------------------------

    \845\ See the section-by-section analyses of final Sec. Sec.  
__.12 (``deposits'') and __.42(a)(7) and (b)(3), for an overview of 
deposits considerations in general and deposits data collection, 
maintenance, and reporting considerations in particular.
---------------------------------------------------------------------------

    Some other commenters supported requiring large banks of all sizes 
to collect and maintain deposits data, including for calculating the 
bank volume metric, with one commenter expressly supporting this 
requirement for intermediate banks as well. Another commenter asserted 
that applying the deposits data collection and reporting requirements 
to all large banks would improve the accuracy of the bank volume metric 
because, as proposed, the metric mixed bank-collected data with the 
FDIC's Summary of Deposits data that is less accurate in capturing 
depositor location.
    A commenter expressed concern that the proposal to give large banks 
with assets of $10 billion or less the option of separately collecting 
and maintaining deposits data would result in banks in predominantly 
rural communities feeling compelled to collect and maintain deposits 
data despite relatively limited resources. This commenter believed that 
collecting and maintaining deposits data might represent the only way 
that these banks might be able to pass the retail lending volume 
screen, as otherwise they might be adversely impacted by their 
relatively low retail lending volume when compared to their deposit 
volume in a facility-based assessment area based on the FDIC's Summary 
of Deposits data.
    Some commenters suggested alternative ways to compute bank deposits 
(for large banks reporting deposits, as opposed to banks for which the 
FDIC's Summary of Deposits data would be used). A number of these 
commenters argued for removing corporate deposits from the bank volume 
metric based on their view that including corporate deposits could 
unfavorably skew a bank's performance on the retail lending volume 
screen, making it more difficult for a bank to pass the screen in the 
corresponding facility-based assessment area. These commenters pointed 
to various reasons to exclude corporate deposits, including that they 
can be large and fluctuate unpredictably and are typically centralized 
in a single branch location, as well as that commercial lending to 
larger entities would not be included in the numerator. Other 
commenters also suggested that including corporate deposits could lead 
to additional CRA hot spots in, or banks otherwise diverting lending 
to, urban areas at the expense of rural and suburban areas, because 
banks would endeavor to increase retail lending in these urban areas 
(where they have more deposits) to avoid failing the screen.
    Some commenters made similar arguments for excluding government 
deposits from the proposed bank volume metric denominator. A commenter 
recommended that the agencies include bank deposits from domestic 
limited liability companies and trusts in a bank's bank volume metrics, 
noting that these are domestic deposits in substance and thus 
appropriately considered as part of a CRA metrics framework. A 
commenter noted that health savings account deposits that lack 
depositor location should be excluded from the bank volume metric and 
other relevant metrics.
Final Rule
    Final Sec.  __.22(c)(1) and paragraph I.a of final appendix A adopt 
the proposal to employ a Bank Volume Metric as the measure of how much 
of a bank's local capacity has been oriented toward retail lending. In 
light of comments received

[[Page 6807]]

and based on further deliberations, the agencies are making 
substantive, technical, conforming, and clarifying edits in the final 
rule to increase clarity and consistency when calculating the Bank 
Volume Metric.
    Numerator. As provided in paragraph I.a.1 of final appendix A, the 
numerator of the Bank Volume Metric will be the sum of the annual 
dollar volume of a bank's originations and purchases of all volume 
metric loans for the facility-based assessment area over the years in 
the evaluation period. The bank's annual dollar volume of volume metric 
loans is the total dollar volume of all home mortgage loans, 
multifamily loans, small business loans, small farm loans,\846\ and 
automobile loans (for banks for which automobile lending is a product 
line) originated or purchased by the bank in the facility-based 
assessment area in that year. The agencies are finalizing a calculation 
based on the sum of the annual dollar volume of lending over the years 
in the evaluation period, rather than an annual average of the year-end 
dollar total amount as proposed, to reduce complexity in the 
calculation of the Bank Volume Metric by reducing the number of steps 
required without affecting the result of the calculations. The use of 
the term volume metric loans is intended to increase clarity.
---------------------------------------------------------------------------

    \846\ The transition amendments included in this final rule 
will, once effective, amend the definitions of ``small business'' 
and ``small farm'' to instead cross-reference to the definition of 
``small business'' in the CFPB Section 1071 Final Rule. This will 
allow the CRA regulatory definitions to adjust if the CFPB increases 
the threshold in the CFPB Section 1071 Final Rule definition of 
``small business.'' This is consistent with the agencies' intent 
articulated in the preamble to the proposal and elsewhere in this 
final rule to conform these definitions with the definition in the 
CFPB Section 1071 Final Rule. The agencies will provide the 
effective date of these transition amendments in the Federal 
Register after section 1071 data is available.
---------------------------------------------------------------------------

    The numerator of the Bank Volume Metric is based on the dollar 
volume of a bank's lending instead of the number of loans (as is the 
numerator of the Market Volume Benchmark). The agencies understand 
commenter concerns about the potential for a bank that makes a high 
volume of small-dollar loans and few or no larger dollar loans to have 
a relatively low Bank Volume Metric. For this reason, as discussed in 
further detail below, the agencies selected a Retail Lending Volume 
Threshold level that is significantly below the Market Volume Benchmark 
(specifically, 30 percent of the Market Volume Benchmark). In addition, 
the agencies note that the acceptable basis factors would include 
consideration of a bank's business model, such as a bank's 
specialization in small-dollar lending. In light of these 
considerations, the agencies believe that lending volume metrics 
comparing both loans and deposits in terms of dollars is an effective 
and appropriate measure of how fully a bank has utilized its lending 
capacity, and is also consistent with the CRA's emphasis on banks 
reinvesting their deposits back into their communities.
    With respect to commenter sentiment indicating that the proposal 
was unclear as to whether loans originated and sold before year-end 
would be included in the numerator, the agencies are clarifying that 
the dollar volume of a bank's originations and purchases of all volume 
metric loans for the facility-based assessment area in any year of the 
evaluation period may be included in the Bank Volume Metric, even those 
loans that are subsequently sold. The agencies believe that this 
approach will appropriately give positive consideration to loan 
originations made through a variety of bank business models, including 
banks that sell originated loans on the secondary market to increase 
liquidity, which can increase a bank's capacity to lend and further 
meet the credit needs of the community.
    Once the agencies have transitioned to using section 1071 data, as 
discussed in the section-by-section analyses of final Sec. Sec.  __.12 
and __.51, the numerator will include purchased small business loans 
and small farm loans only at the bank's option (because section 1071 
data does not include loan purchases). Specifically, a bank may opt to 
have the agencies include in its Bank Volume Metric numerator purchases 
of loans that meet the definition of a ``covered credit transaction'' 
under the CFPB Section 1071 Final Rule. The agencies believe that the 
inclusion of purchased small business loans and small farm loans 
reflects the different ways in which banks may meet the credit needs of 
communities. Once the agencies transition to using section 1071 data, 
the agencies have determined that the inclusion of these loan purchases 
should be optional to reduce data collection and maintenance 
requirements.
    The agencies are also clarifying that, consistent with the 
treatment of reportable business loans pursuant to the CFPB Section 
1071 Final Rule, once that data is used by the agencies, small business 
loan renewals and small farm loan renewals will be counted in the Bank 
Volume Metric only if the renewal increases the credit amount or credit 
line amount.\847\ Generally, home mortgage loan renewals are not 
reportable pursuant to HMDA; \848\ consistent with this standard, the 
agencies will not include home mortgage loan renewals in the Bank 
Volume Metric.
---------------------------------------------------------------------------

    \847\ See 12 CFR 1002.103(a)(1).
    \848\ See 12 CFR 1003.2 and supplement I to part 1003, comment 
2(o)-2.
---------------------------------------------------------------------------

    In the final rule, automobile loans are included in the bank's 
annual dollar amount of volume metric loans only if automobile loans 
are a product line for the bank (i.e., if the bank is a majority 
automobile lender or opts to have its automobile loans evaluated). For 
those banks that collect and maintain automobile lending data pursuant 
to final Sec.  __.42(a)(2), the numerator will include the annual 
dollar amount of the bank's originated and purchased automobile loans. 
The agencies determined that automobile loans should only be included 
in a bank's Bank Volume Metric for banks that have their automobile 
lending evaluated as a product line, in order to ensure a comprehensive 
evaluation. As a result, a bank that has automobile lending considered 
as part of the Bank Volume Metric would also have its automobile 
lending evaluated under the distribution analysis pursuant to final 
Sec.  __.22(e) and (f) if its automobile lending is a major product 
line in one or more facility-based assessment areas or its outside 
retail lending area. The agencies determined that an alternative 
approach of considering automobile loans as part of the Bank Volume 
Metric for a bank that does not have automobile lending as a product 
line would result in a less comprehensive evaluation because the bank 
would receive favorable consideration for these loans in the Bank 
Volume Metric without any evaluation of the distribution of those loans 
to low- and moderate-income borrowers or in low- and moderate-income 
census tracts.
    As in the proposal, the numerator of the Bank Volume Metric does 
not include non-automobile consumer loans. This decision reflects the 
lack of non-automobile consumer lending data and is also intended to 
align the Bank Volume Metric's numerator with the final rule's 
treatment of non-automobile consumer loans--namely, that they will not 
be evaluated as a product line under the Retail Lending Test, but will 
be considered pursuant to the Retail Services and Products Test. This 
aspect of the final rule is discussed in more detail in the section-by-
section analyses of final Sec. Sec.  __.22(d) and __.23. To the extent 
that commenters expressed concerns that not including non-automobile 
consumer lending in the

[[Page 6808]]

numerator of the Bank Volume Metric would disadvantage banks, the 
agencies note that they will apply the acceptable basis factors in 
final Sec.  __.22(c)(3)(i), as discussed below, as part of the 
operation of the Retail Lending Volume Screen for banks that do not 
meet the Retail Lending Volume Threshold. Specifically, pursuant to 
final Sec.  __.22(c)(3)(i)(A), the agencies will take into account a 
bank's dollar volume of non-automobile consumer loans.
    Denominator. The agencies are also making substantive, technical, 
and clarifying edits in the final rule regarding calculating the 
denominator of the Bank Volume Metric. As provided in paragraph I.a.2 
of final appendix A, the denominator of the Bank Volume Metric will be 
the sum of a bank's annual dollar volume of deposits from that 
facility-based assessment area over the years in the evaluation period. 
The agencies are making revisions that clarify that a bank's annual 
dollar volume of deposits is: for a bank that reports deposits data 
pursuant to final Sec.  __.42(b)(3), the total of annual average daily 
balances of deposits reported by the bank in counties in the facility-
based assessment area in that year; and, for all other banks, the total 
of deposits assigned to branches reported by the bank in the FDIC's 
Summary of Deposits data in counties in the facility-based assessment 
area in that year. The agencies are finalizing a calculation based on 
the sum of the annual dollar volume of deposits over the years in the 
evaluation period, rather than an annual average as proposed, to reduce 
complexity in the calculation of the Bank Volume Metric by reducing the 
number of steps required without affecting the result of the 
calculations.
    Pursuant to final Sec.  __.42(a)(7) and (b)(3), collecting, 
maintaining, and reporting deposits data will be required for large 
banks with assets greater than $10 billion. Deposits data collection 
and maintenance will be optional for large banks with assets less than 
or equal to $10 billion, intermediate banks, and small banks that opt 
into the Retail Lending Test. Should a bank with assets less than or 
equal to $10 billion elect to collect and maintain deposits data 
pursuant to final Sec.  __.42(a)(7), the bank will be required to 
report deposits data pursuant to final Sec.  __.42(b)(3). The agencies 
have considered comments recommending that they modify their proposal 
to require large banks with assets greater than $10 billion to collect, 
maintain, and report deposits data and to allow large banks with assets 
less than or equal to $10 billion the option to collect and maintain 
this data. The agencies are finalizing this element of the Retail 
Lending Volume Screen as proposed, to appropriately balance the trade-
off between maximizing the accuracy of the screen and corresponding 
data burden.
    Deposits data that are collected and reported pursuant to final 
Sec.  __.42(b)(3) will facilitate metrics that accurately reflect a 
bank's deposits inside and outside of its facility-based assessment 
areas. By contrast, the FDIC's Summary of Deposits data necessarily 
assigns all deposits to bank branch locations and does not identify the 
amount or percentage of deposits sourced from outside of a bank's 
facility-based assessment areas. As a result, a bank with assets less 
than or equal to $10 billion that sources deposits from outside of its 
facility-based assessment areas that elects to collect, maintain, and 
report deposits data could meaningfully increase its Bank Volume Metric 
in a facility-based assessment area by decreasing the dollar amount of 
deposits included in the denominator of the metric. Conversely, 
electing not to collect and maintain deposits for such a bank may 
result in a lower Bank Volume Metric, because deposits sourced from 
outside of the facility-based assessment area would then be included in 
the denominator of the metric.
    Regarding comments that requiring all intermediate banks, and large 
banks with assets less than or equal to $10 billion, to report deposits 
data would improve the accuracy and consistency of the Bank Volume 
Metric, to balance data collection burden the agencies decline to 
require these banks to all collect, maintain, and report deposits data. 
The agencies again note, however, that if a large bank with assets less 
than or equal to $10 billion, intermediate bank, or small bank that 
opts into the Retail Lending Test wishes to use more specific deposits 
data in the Retail Lending Test, then the bank must collect, maintain, 
and report this data.
    With respect to comments recommending using the FDIC's Summary of 
Deposits data across all large banks to inform the Bank Volume Metric, 
the agencies decline to adopt this approach. The agencies considered 
that although this alternative approach would reduce data burden, the 
FDIC's Summary of Deposits data alone would be less accurate in 
capturing the location of depositors than the final rule's combination 
of bank-collected deposits and the FDIC's Summary of Deposits data. As 
discussed below, using the FDIC's Summary of Deposits data for all 
large banks would also result in the inclusion of U.S. Government 
deposits, state and local government deposits, domestically held 
deposits of foreign governments or official institutions, or 
domestically held deposits of foreign banks or other foreign financial 
institutions in deposit calculations for these banks. The combination 
of these two factors, in conjunction with the fact that large banks 
with assets greater than $10 billion hold over 80 percent of all 
deposits,\849\ would have a disruptive impact on the functioning of the 
Retail Lending Volume Screen, both with regard to their own metrics and 
the impact of their deposits on construction of Market Volume 
Benchmarks.
---------------------------------------------------------------------------

    \849\ See FDIC, ``Summary of Deposits'' (June 2020), https://www7.fdic.gov/sod/sodMarketBank.asp?barItem=2.
---------------------------------------------------------------------------

    The agencies have considered comments recommending that, when 
possible, government and foreign deposits should be excluded from the 
Bank Volume Metric. The agencies note that the definition of 
``deposits'' in proposed Sec.  __.12 specifically excluded: U.S. 
Government deposits; state and local government deposits; domestically 
held deposits of foreign governments or official institutions; or 
domestically held deposits of foreign banks or other foreign financial 
institutions. Accordingly, under the proposal, the denominator of the 
bank volume metric did not include government or foreign deposits for 
banks with assets of greater than $10 billion. As described further in 
the section-by-section analysis of final Sec.  __.12, the final rule's 
definition of ``deposits'' continues to exclude these types of 
deposits. However, the agencies are not excluding government and 
foreign deposits from the Bank Volume Metric for banks that do not 
collect and report deposits data (i.e., banks that use deposits 
reported under the FDIC's Summary of Deposits data). This is because 
these government and foreign deposits are included in the FDIC's 
Summary of Deposits data at the aggregate (institution) level, without 
any information regarding how government and foreign deposits are 
distributed across a bank's individual branches or across the counties 
where these branches are located. This information about how these 
deposits are distributed would be necessary to accurately remove the 
deposits from the facility-based assessment areas for which Bank Volume 
Metrics are calculated. The agencies note that any bank that takes the 
position that it might be materially disadvantaged by the inclusion of 
these government and foreign deposits may choose to collect and report 
the more

[[Page 6809]]

limited set of deposits data for use in the Retail Lending Volume 
Screen and elsewhere in the CRA regulations.
    The agencies are not excluding corporate deposits, health savings 
account deposits, and trust deposits from the Bank Volume Metric. The 
agencies find that in cases where large corporate or health savings 
account deposits or government or foreign deposits unfavorably skew a 
bank's performance on the Retail Lending Volume Screen, examiners could 
consider this factor as an acceptable basis pursuant to final Sec.  
__.22(c)(3)(i)(E) and (F) for a bank not meeting the Retail Lending 
Volume Threshold in a facility-based assessment area.
Market Volume Benchmark
The Agencies' Proposal
    To assess the level of a bank's retail lending volume relative to 
local opportunities in a facility-based assessment area, the agencies 
proposed to compare the bank volume metric to a ``market volume 
benchmark.'' \850\ As provided in paragraph I.2 of proposed appendix A, 
the market volume benchmark would have been comprised of the annual 
average of the year-end total dollar amount of automobile loan, closed-
end home mortgage loan, open-end home mortgage loan, multifamily loan, 
small business loan, and small farm loan originations in the facility-
based assessment area by all large banks that operated a branch in 
counties wholly or partially within the facility-based assessment area, 
in the numerator, divided by the annual average amount of deposits 
collected by those same banks from that facility-based assessment area, 
in the denominator.\851\ The dollars of deposits in the denominator 
would have been based on: the annual average of deposits in counties in 
the facility-based assessment area reported by all large banks with 
assets greater than $10 billion that operate a branch in the assessment 
area in the years of the evaluation period during which they operated a 
branch at the end of the year; and the annual average of deposits 
assigned to branches in the facility-based assessment area by all large 
banks with assets less than or equal to $10 billion, according to the 
FDIC's Summary of Deposits data, over the evaluation period.\852\
---------------------------------------------------------------------------

    \850\ See proposed Sec.  __.22(c)(3) and proposed appendix A, 
paragraphs I.2 and I.3.
    \851\ See proposed appendix A, paragraph I.2.
    \852\ See id.
---------------------------------------------------------------------------

    The agencies requested feedback on using alternative sets of 
deposits data than proposed, based on bank asset size, to construct the 
market volume benchmark.
Comments Received
    Some commenters expressed concerns that the market volume benchmark 
would be based on the lending and deposits of a limited subset of 
banks--large banks with branches in the relevant facility-based 
assessment area--rather than the total number of banks active in a 
facility-based assessment area.\853\ In this regard, one commenter 
asserted that setting the market volume benchmark based on a subset of 
market participants would make the market volume benchmark susceptible 
to collusion, and indicated that the agencies would need to guard 
against such market manipulation.
---------------------------------------------------------------------------

    \853\ See the section-by-section analyses of Sec. Sec.  __.12 
(``deposits'') and __.42(a)(7) and (b)(3) for an overview of 
deposits considerations in general and deposits data collection, 
maintenance, and reporting considerations in particular.
---------------------------------------------------------------------------

    Other commenters contended that the market volume benchmark, as 
proposed, would fail to provide banks or other stakeholders with 
appropriate notice regarding performance expectations. Some of these 
commenters expressed concerns that banks would not have the ability to 
adjust performance during an evaluation period, because the benchmark 
would be unknown until their evaluation periods have ended and their 
CRA examinations have started.
    Commenters also raised concerns that the market volume benchmark 
would not sufficiently capture unique characteristics of a given 
market. For example, some commenters asserted that, in areas with one 
or a few dominant lenders, other lenders would be disadvantaged in 
meeting the proposed Retail Lending Volume Threshold, while another 
commenter suggested that the market volume benchmark should account for 
market loan demand.
Final Rule
    In final Sec.  __.22(c)(1) and section I.b of final appendix A, the 
agencies are making clarifying, technical, and substantive edits to the 
proposal to use a Market Volume Benchmark, to increase clarity, 
consistency, and readability.
    Numerator. As provided in paragraph I.b.1 of final appendix A, the 
numerator of the Market Volume Benchmark will be the annual dollar 
volume of volume benchmark loans originated in the facility-based 
assessment area and reported by benchmark banks, over the years in the 
evaluation period.\854\ Volume benchmark loans are the total dollar 
volume of all closed-end home mortgage loans, open-end home mortgage 
loans, multifamily loans, small business loans, and small farm loans 
originated in the facility-based assessment area in that calendar year 
that are reported loans originated by benchmark banks. A benchmark bank 
for a particular year is a bank that, in that year, was subject to 
reporting pursuant to final Sec.  __.42(b)(1), 12 CFR part 1003, or 
both, and operated a facility included in the FDIC's Summary of 
Deposits data in the facility-based assessment area. In contrast to the 
proposed approach, benchmark banks under the final rule will include 
small banks, intermediate banks, and large banks that report loan data.
---------------------------------------------------------------------------

    \854\ For a discussion of the exclusion of purchased loans from 
market benchmarks, see the section-by-section analysis of final 
Sec.  __.22(e).
---------------------------------------------------------------------------

    The agencies believe that this approach will increase the amount of 
data included in the Market Volume Benchmark and will result in a more 
robust and representative benchmark, without any increase in data 
burden or complexity, since there are no additional data requirements 
associated with this change. The use of the sum of the dollar volume 
rather than annual average of the year-end total dollar amount, as 
provided in the proposal, and the focus on banks that operated a 
facility included in the FDIC's Summary of Deposits data during a 
calendar year, rather than banks that operated a branch at year-end of 
a calendar year, represent changes from the proposal intended to 
increase clarity and reduce complexity in the calculation of the Market 
Volume Benchmark. The use of the terms benchmark bank and volume 
benchmark loans is intended to increase clarity.
    The agencies are also specifying that the numerator of the Market 
Volume Benchmark is comprised of reported loan originations, and not 
all originations as proposed. The agencies are making this change to 
ensure the operability of the metrics-based approach, because data on 
loan originations that are not reported would not be available to 
include in the calculation of the benchmark. Accordingly, automobile 
loan originations would not be included. The agencies have determined 
that this approach appropriately balances the trade-off between, on the 
one hand, including automobile loans in this benchmark to support a 
more comprehensive analysis that accounts for different bank business 
models and

[[Page 6810]]

strategies and, on the other hand, limiting the data collection, 
maintenance, and reporting requirements for automobile lending data.
    The agencies have determined that including the activity of 
reporting small banks and intermediate banks, and not just large banks 
as proposed, in the Market Volume Benchmark numerator will make the 
Market Volume Benchmark more reflective of the aggregate lending 
activity of the facility-based assessment area. As noted earlier, this 
only applies to small banks and intermediate banks that already 
reported data pursuant to CRA small business loan or small farm loan 
reporting requirements (or section 1071 data once the transition 
provisions discussed in the section-by-section analysis of Sec.  __.51 
take effect) or HMDA reporting requirements, and as a result this 
approach does not add any new data reporting requirements to these 
institutions.
    Denominator. As described in paragraph I.b.2 of final appendix A, 
the denominator of the Market Volume Benchmark will be the sum over the 
years in the evaluation period of the annual dollar volume of deposits 
for benchmark banks. The annual dollar volume of deposits for benchmark 
banks is the sum across benchmark banks of: (1) the total of annual 
average daily balances of deposits reported by banks that report 
deposits data pursuant to final Sec.  __.42(b)(3) in counties in the 
facility-based assessment area in that year; and (2) the total of 
deposits assigned to branches reported by banks in the FDIC's Summary 
of Deposits data in counties in the facility-based assessment area in 
that year for benchmark banks that do not report deposits data pursuant 
to final Sec.  __.42(b)(3). As above, the agencies are finalizing a 
calculation based on the sum of the annual dollar volume of deposits 
over the years in the evaluation period, rather than an annual average 
as proposed, and with a focus on banks that operated a facility 
included in the FDIC's Summary of Deposits data during a calendar year, 
rather than banks that operated a branch at year-end of a calendar year 
as proposed, to increase clarity and to reduce complexity in the 
calculation of the Market Volume Benchmark, including because it would 
be difficult to determine based upon available data whether a branch 
was in operation at year-end. Furthermore, as noted above, the agencies 
have considered the comments that the proposed benchmark was limited by 
only including large bank data and that they should consider the 
lending and deposits data of a larger universe of banks.
    The agencies acknowledge trade-offs in this adopted approach for 
establishing the denominator of the Market Volume Benchmark using both 
reported deposits data and the FDIC's Summary of Deposits data instead 
of requiring deposits data to be reported by all banks. The agencies 
believe, however, that the approach incorporated in the final rule 
strikes an appropriate balance between the additional precision 
provided by deposits data reporting relative to the FDIC's Summary of 
Deposits data and data reporting burden. The combination of reported 
deposits data and the FDIC's Summary of Deposits data will provide for 
the construction of more comprehensive and beneficial aggregate 
deposits data against which to measure bank performance.
    The agencies have also considered comments that the Market Volume 
Benchmark, as proposed, would not provide banks with adequate notice 
regarding performance expectations, and that banks would not know the 
precise Market Volume Benchmark in advance of an evaluation period. The 
agencies believe that it is important that the Market Volume Benchmark 
reflect the level of retail credit needs and opportunities in the 
facility-based assessment area during the bank's evaluation period. 
Employing benchmarks that reflect the performance context of a 
facility-based assessment area further decreases the need to rely on 
examiner discretion to interpret bank retail lending performance. The 
agencies determined that the final rule approach will therefore result 
in greater consistency and standardization compared to an alternative 
approach in which the Market Volume Benchmark is calculated using years 
of data prior to the bank's evaluation period. Conversely, the agencies 
considered that under such an alternative, the benchmarks may not 
reflect the needs and opportunities of the facility-based assessment 
area and would not align with the years of data used to calculate the 
bank's Bank Volume Metric. The agencies note that Market Volume 
Benchmarks for facility-based assessment areas will be published in 
performance evaluations or through other means, such as data tools, to 
provide a historical guideline for retail lending activity.
    In addition, the agencies note that under the final rule approach, 
the agencies would not automatically assign a ``Needs to Improve'' or 
``Substantial Noncompliance'' conclusion for a bank with a Bank Volume 
Metric below the Retail Lending Volume Threshold; instead, the final 
rule provides for an evaluation of whether a bank has an acceptable 
basis for not meeting the threshold. The agencies note that the 
acceptable basis factors, discussed below, may address certain 
circumstances that result in relatively sudden changes in the Market 
Volume Benchmark, which the agencies believe may help to address the 
advance notice concerns described by commenters. For example, if a 
large competitor lender enters into, or exits from, a bank's facility-
based assessment area, resulting in a significant change in the bank's 
lending opportunities or in the Market Volume Benchmark, the agencies 
may consider this circumstance as an acceptable basis for not meeting 
the Retail Lending Volume Screen pursuant to final Sec.  
__.22(c)(3)(i)(C).
Retail Lending Volume Threshold
The Agencies' Proposal
    The agencies proposed that banks would meet or surpass the retail 
lending volume screen in a facility-based assessment area with a bank 
volume metric of 30 percent or more of the market volume 
benchmark.\855\ The agencies provided that, in the absence of an 
acceptable basis for failing to meet the Retail Lending Volume 
Threshold pursuant to proposed Sec.  __.22(c)(2)(iii), banks that do 
not meet at least 30 percent of the market volume benchmark are 
substantially underperforming their peers in terms of meeting the 
credit needs of their communities.\856\ The agencies proposed to set 
the threshold at a level that is well below local averages so that 
banks with various business strategies could meet the threshold, 
including banks that generally hold loans on their balance sheet rather 
than selling loans on the secondary market. This threshold was also 
informed by agency analysis of historical lending data. The agencies 
also requested feedback on whether it would be appropriate for banks 
with retail lending volume performance that falls below a threshold 
lower than the proposed 30 percent threshold--such as a 15 percent 
threshold--to receive a Retail Lending Test recommended conclusion of 
``Substantial Noncompliance'' in that facility-based assessment area.
---------------------------------------------------------------------------

    \855\ See proposed Sec.  __.22(c)(3) and paragraph proposed 
appendix A, paragraph I.3.
    \856\ See 87 FR 33884, 33935 (June 3, 2022).
---------------------------------------------------------------------------

Comments Received
    Many commenters supported a Retail Lending Volume Threshold of at 
least 30 percent, with several advocating for

[[Page 6811]]

certain adjustments. Some recommended that the agencies should adjust 
the threshold upward from 30 percent for underserved communities 
identified through statistical or other methods, with several 
commenters recommending that the proposed 30 percent threshold should 
be raised to at least 50 percent to more effectively ensure that banks 
are deploying their deposits. One of these commenters indicated that a 
threshold of 60 percent or 70 percent would be feasible and would help 
to prevent deposit harvesting and redlining. A number of commenters 
jointly stated their view that the 30 percent threshold would be too 
low based on their comparison of this threshold to the much higher 
threshold for lending activity provided in section 109, which requires 
interstate banks to meet certain statewide (or other jurisdiction) 
loan-to-deposit ratios with respect to their operations outside of 
their home states. Some commenters stated that if the agencies 
establish a retail lending volume screen, they should incorporate the 
section 109 standards into CRA.
    Other commenters generally opposed the 30 percent threshold, 
indicating that it was set too high. A few commenters indicated that a 
30 percent threshold was unreasonable, particularly for banks with 
substantial personal loan originations. Another commenter noted that it 
would be difficult for banks to meet the 30 percent threshold in 
facility-based assessment areas with high market penetration and 
dominant lenders. Relatedly, a commenter recommended that the 30 
percent threshold be lowered in rural or economically distressed 
assessment areas with low loan demand.
    Several commenters suggested alternative threshold levels. For 
example, a commenter suggested that the agencies set two thresholds--30 
percent and 15 percent--and provide that no bank that surpassed the 15 
percent threshold would receive a ``Substantial Noncompliance'' 
conclusion, with another commenter suggesting somewhat more stringent 
corresponding thresholds of 34 percent and 17 percent of the market 
volume benchmark. Another commenter proposed that the agencies set 
ranges for performance conclusions--for example, 30 percent would 
reflect ``Low Satisfactory'' performance and 35 percent would reflect 
``Satisfactory'' performance--with examiners having the ability to 
adjust these results based upon performance context. A commenter also 
argued for separate Retail Lending Volume Thresholds based on bank 
size, with different thresholds for large banks with $10 billion or 
less in assets and large banks with over $10 billion in assets; this 
commenter indicated that the largest banks could unfavorably impact the 
results of the retail lending volume screen for other banks in urban 
areas where they have high concentrations of retail lending. Another 
commenter expressed the view that a bank that passes the screen in a 
facility-based assessment area should receive a presumption of at least 
``Satisfactory'' Retail Lending Test performance in that assessment 
area. A commenter indicated that the proposed retail lending volume 
screen was insufficient because it was based on a bank's loan-to-
deposit ratio benchmarked against other banks in the same geographic 
area. The commenter indicated that, consequently, banks would all pass 
the screen if they collectively reduced their lending volume. Instead, 
this commenter indicated, the agencies should base a screen on the 
``loan price'' of deposits--for example, that a bank's annual loan 
origination value in a geography should exceed 10 percent of its annual 
average deposits.
    Other commenters questioned whether the proposed 30 percent 
threshold was based on quantitative analysis, and expressed concern 
that neither banks nor other stakeholders currently have access to 
market volume benchmarks in order to self-assess how they would perform 
pursuant to the retail lending volume screen.
Final Rule
    As provided in final Sec.  __.22(c)(1) and section I.c of final 
appendix A, the agencies are finalizing their proposal that banks will 
meet or surpass the Retail Lending Volume Threshold in a facility-based 
assessment area with a Bank Volume Metric of 30 percent or greater of 
the Market Volume Benchmark. Pursuant to final Sec.  __.22(c)(2), if a 
bank meets or surpasses the applicable threshold the agencies will 
develop a Retail Lending Test recommended conclusion pursuant to the 
distribution analysis in final Sec.  __.22(d) through (f).
    The agencies have considered commenter suggestions for both a 
higher or lower Retail Lending Volume Threshold, as well as alternative 
approaches for setting a threshold such as basing it on the loan price 
of deposits, and the reasons offered for these suggestions. On balance, 
the agencies believe that the final rule's threshold, set at 30 percent 
of the Market Volume Benchmark, provides a meaningful baseline measure 
of whether a bank is meeting the credit needs of its community, while 
necessarily accounting for the wide variety of bank business strategies 
that exist today and that will evolve in the future. The agencies note 
that the 30 percent threshold is set well below the Market Volume 
Benchmark, which is the local marketwide average loan-to-deposit ratio. 
The agencies determined that by setting a 30 percent threshold rather 
than a threshold closer to the Market Volume Benchmark, such as 50 
percent or 70 percent, banks with various business strategies could 
reasonably be expected to meet or surpass the threshold.
    In further considering an appropriate threshold, the agencies 
conducted a quantitative analysis of historical lending data on 
approximately 6,600 intermediate bank and large bank facility-based 
assessment areas from 2018-2020, summarized in Table 6. The analysis 
showed that bank performance in 96.4 percent of these facility-based 
assessment areas would have met or surpassed a 30 percent Retail 
Lending Volume Threshold during this period. Moreover, the same 
analysis showed that the share of these banks' facility-based 
assessment areas that would meet or surpass the threshold declines 
materially as the threshold is increased from 30 percent. For example, 
applying a 50 percent threshold to this same data results in 89.2 
percent of these banks' facility-based assessment areas meeting or 
surpassing the threshold, and applying a threshold of 70 percent of the 
Market Volume Benchmark results in 79.8 percent of these banks' 
facility-based assessment areas meeting or surpassing the threshold. 
The agencies intend the Retail Lending Volume Screen to identify only 
those situations in which banks are far below average in terms of their 
lending relative to deposits in a facility-based assessment area. The 
agencies believe that applying a relatively narrow standard for 
identifying such banks is more consistent with current practice under 
the lending test, which primarily bases conclusions on the retail 
lending distribution analysis. As discussed earlier, the agencies 
believe that the screen helps to supplement the distribution analysis, 
and should not itself be the primary basis for assigning conclusions 
for the Retail Lending Test for a substantial segment of banks 
evaluated under this performance test. Accordingly, the agencies 
believe that the higher threshold alternatives recommended by some 
commenters would potentially overemphasize the screen relative to the 
distribution analysis.

[[Page 6812]]

    By contrast, based on the same quantitative analysis, the agencies 
determined that decreasing the Retail Lending Volume Threshold below 30 
percent would further increase the numbers of these banks' facility-
based assessment areas that meet or surpass the threshold. More 
specifically regarding comments suggesting that the threshold be set at 
or near 15 percent (either as a stand-alone threshold or as one 
threshold of a tiered threshold approach), the agencies found that the 
rate at which facility-based assessment areas for banks included in the 
analysis met or surpassed a threshold of least 15 percent was 98.8 
percent (versus 96.4 percent for a 30 percent threshold, as noted 
above).
    The agencies' analysis of historical data also suggests that 
facility-based assessment areas of large banks included in the analysis 
with assets less than or equal to $10 billion are slightly more likely 
to fall below the Retail Lending Volume Threshold than those of large 
banks included in the analysis with assets greater than $10 billion. 
The same analysis reflected that the facility-based assessment areas of 
intermediate banks included in the analysis were the least likely to 
fall below the Retail Lending Volume Threshold. At the final rule 
threshold of 30 percent, historical data suggests that approximately 
2.4 percent of facility-based assessment areas of intermediate banks 
included in the analysis and 4.2 percent of facility-based assessment 
areas of large banks included in the analysis with assets less than or 
equal to $10 billion would not meet or surpass the Retail Lending 
Volume Threshold. In contrast, approximately 4.1 percent of facility-
based assessment areas of large banks included in the analysis with 
assets of $10 billion to $50 billion and 3.3 percent of facility-based 
assessment areas of large banks included in the analysis with assets 
greater than $50 billion would not meet or surpass the Retail Lending 
Volume Threshold. The agencies therefore believe that the 30 percent 
threshold is appropriate, and is generally attainable, including for 
intermediate banks and large banks of all asset sizes.
BILLING CODE 4810-33-P;6714-01-P

[[Page 6813]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.005

BILLING CODE 4810-33-C;6714-01-C
    In considering commenter feedback, the agencies have also 
reevaluated whether a 30 percent Retail Lending Volume Threshold 
accomplishes the policy objective of identifying banks for which retail 
lending is extraordinarily low, such that additional qualitative 
analysis of these banks' loans is warranted. In this regard, the 
agencies' quantitative analysis supports a conclusion that the 30 
percent threshold establishes a material distinction between banks that 
meet or surpass this threshold and banks that do not. Specifically, the 
agencies' analysis showed that the median Bank Volume Metric of 15 
percent for facility-based assessment areas of banks included in the 
analysis meeting or surpassing a 30 percent threshold was more than 
seven times greater than the median Bank Volume Metric of 2 percent for 
facility-based assessment areas of banks included in the analysis that 
would not have met the threshold, as a result indicating that banks 
that do not meet the threshold generally exhibit very low levels of 
retail lending relative to deposits. Barring information considered 
pursuant to the final rule in determining whether the bank has an 
acceptable basis in not meeting the threshold, banks that do not meet a 
Retail Lending Volume Threshold set at 30 percent or greater of the 
Market Volume Benchmark are substantially underperforming their peers 
in terms of meeting the credit needs of their communities.
    The agencies have also reevaluated the analysis included in the 
proposal

[[Page 6814]]

that used historical data to compare the actual assessment area 
conclusions received by banks on the current lending test with how 
those banks would have performed if they were evaluated under the 
Retail Lending Volume Screen at different threshold levels, including 
the proposed level of 30 percent of the Market Volume Benchmark. This 
updated analysis includes additional historical performance evaluation 
data compiled by the agencies. The agencies' updated analysis found 
that a 30 percent threshold is associated with a significant 
distinction between bank assessment areas that received 
``Satisfactory'' conclusions and bank assessment areas that received 
``Needs to Improve'' conclusions on prior evaluations under the current 
lending test.\857\ Some threshold levels greater than 30 percent were 
associated with an even greater distinction between bank conclusion 
categories on past examinations under the current Lending Test. 
However, for the reasons described above, the agencies have concluded 
that it is appropriate to retain the proposed level of 30 percent, 
rather than increase the threshold level. Additionally, the agencies 
believe that retaining the proposed level of 30 percent will account 
for banks that are adequately meeting the credit needs of their 
communities but that have a business model or strategy that results in 
a lower-than-average loan-to-deposit ratio. The agencies continue to 
believe that setting the Retail Lending Volume Threshold at 30 percent 
is both appropriate and provides a meaningful baseline measure for 
identifying banks whose retail lending volume in a facility-based 
assessment area is extraordinarily low.
---------------------------------------------------------------------------

    \857\ The agencies found that, when replicating the analysis 
included in the proposal using the same historical performance 
evaluation data that was available at the time of the original 
analysis, the distinction at the 30 percent threshold level was 
slightly lower than the distinction at other, higher threshold 
levels. Nevertheless, the distinction in passing rates at the 30 
percent threshold level was significant.
---------------------------------------------------------------------------

    The agencies will apply the Retail Lending Volume Screen to all 
banks evaluated in facility-based assessment areas under the Retail 
Lending Test, including banks with different business strategies; as a 
result, as commenters noted, some banks may perform differently on the 
screen relative to others. However, as discussed above, the Retail 
Lending Volume Threshold is set so as to ensure that meeting the 
threshold will be reasonably achievable for banks with a range of 
business strategies. The screen is intended to identify those facility-
based assessment areas where a bank may be lending significantly below, 
rather than moderately or slightly below, its presence and capacity.
    Although the 30 percent Retail Lending Volume Threshold is designed 
to account for a wide range of bank business strategies, the agencies 
are sensitive to concerns raised by commenters that some banks might 
have difficulty meeting the 30 percent threshold, particularly in 
facility-based assessment areas with high market penetration and 
dominant lenders. The agencies have considered commenter feedback that 
market circumstances particular to rural or economically distressed 
assessment areas with low retail loan demand could affect a bank's 
ability to meet the 30 percent threshold. For these reasons, the 
agencies are finalizing an approach whereby examiners will determine 
whether a bank has an acceptable basis for not meeting the threshold, 
by considering specified acceptable basis factors as provided in final 
Sec.  __.22(c)(3)(i). This aspect of the Retail Lending Volume Screen 
is discussed in greater detail below.
    The agencies have considered, but decline to adopt, suggestions 
that large banks should receive a Retail Lending Test conclusion of 
``Substantial Noncompliance'' for performance below the 30 percent 
threshold in a facility-based assessment area as well as, conversely, 
suggestions that a large bank with performance above the 30 percent 
threshold should receive a presumption of a ``Satisfactory'' conclusion 
or should never receive a ``Substantial Noncompliance'' conclusion, in 
a facility-based assessment area. The agencies have determined that it 
is preferable to retain discretion to assign a conclusion based on a 
range of factors relevant to a bank's retail lending performance. As 
discussed above, the agencies expect banks to demonstrate a baseline 
level of lending relative to their presence and capacity, which the 
agencies believe is reasonably demonstrated by meeting or surpassing 
the 30 percent threshold. Additionally, as explained earlier, the 
agencies believe that a holistic evaluation of whether a bank is 
meeting the credit needs of its facility-based assessment areas should 
generally include consideration of a bank's lending volume relative to 
presence and capacity and the distribution of its loans. For example, 
the agencies believe that a ``Substantial Noncompliance'' conclusion 
could be warranted for a bank that meets or surpasses the Retail 
Lending Volume Threshold, but has substantial deficiencies in its loan 
distribution performance in the facility-based assessment area pursuant 
to final Sec.  __.22(d) through (f).
    The agencies believe that large banks that do not meet the Retail 
Lending Volume Threshold and lack an acceptable basis for this should 
receive a final Retail Lending Test conclusion not exceeding ``Needs to 
Improve'' in a facility-based assessment area. However, the agencies 
believe that either a ``Substantial Noncompliance'' or ``Needs to 
Improve'' conclusion could be appropriate. Specifically, which of these 
two conclusions a large bank receives for a facility-based assessment 
area will be determined as provided in final Sec.  __.22(c)(3)(iii)(A), 
as discussed below.
    The agencies also considered comments that the Retail Lending 
Volume Screen would allow all banks to pass if they collectively 
reduced their lending volume because of the use of the market benchmark 
and an alternative approach, suggested by a commenter, to set a 
threshold based on a fixed number rather than a market benchmark. The 
agencies believe that the Market Volume Benchmark coupled with the 
applicable threshold reflects the credit needs and opportunities of an 
area, in contrast to a fixed performance standard, such as an 
expectation that the Bank Volume Metric always exceed 10 percent in 
every facility-based assessment area, as suggested by the commenter. 
However, the agencies acknowledge that the Market Volume Benchmark and 
Retail Lending Volume Threshold would both adjust downward in the event 
that all banks in a facility-based assessment area reduced their 
lending volume relative to deposits. The agencies note that the 
additional factor provided in final Sec.  __.22(g)(7) allows the 
agencies to take into account ``information indicating that the credit 
needs of the facility-based assessment area or retail lending 
assessment area are not being met by lenders in the aggregate, such 
that the relevant benchmarks do not adequately reflect community credit 
needs.'' This could include circumstances in which all banks in a 
facility-based assessment area have significantly reduced their lending 
levels such that the Market Volume Benchmark does not reflect community 
credit needs. In addition, the agencies intend to continue to monitor 
this issue and would consider appropriate steps to take if this emerged 
as an issue warranting further consideration.
    The agencies also considered comments that neither banks nor other 
stakeholders currently have access to benchmarks in order to self-
assess how they would perform pursuant to the

[[Page 6815]]

Retail Lending Volume Screen. The agencies intend to create data tools 
that would provide information such as estimates of the Market Volume 
Benchmark in different geographic areas based on recent data. 
Initially, prior to the availability of reported deposits data, the 
agencies would estimate these benchmarks using the FDIC's Summary of 
Deposits data.
    Finally, the agencies have considered comments that section 109 
standards be used in lieu of the Retail Lending Volume Screen or that 
the threshold for the screen should be based on loan-to-deposit ratios 
used under section 109. Upon consideration of the comments, the 
agencies have determined that importation of, or reliance on, section 
109 standards would not effectuate the same evaluation that the screen 
is designed to further as part of the Retail Lending Test. As discussed 
above, Congress enacted section 109 to serve a specific purpose--
namely, to prohibit interstate banks from acquiring or establishing a 
branch outside of their home state (or other jurisdiction) primarily 
for the purpose of deposit production, which is distinct from the 
agencies' CRA evaluations to assess whether a bank is meeting the 
credit needs of its entire community. In addition, as discussed 
earlier, the specified calculations used to derive the loan-to-deposit 
ratios pursuant to section 109 do not align with the specific approach 
adopted in the final rule for measuring a bank's volume of retail 
lending in a facility-based assessment area against its capacity to 
lend in that facility-based assessment area. For example, section 109 
standards do not apply to a bank in its home state, are geographically 
limited in how they are calculated to the host state level, and do not 
incorporate non-host state banks in their benchmark calculations. As 
discussed above, section 109 has a specific focus on ensuring that a 
bank's interstate branches do not take deposits from a host state (or 
other host jurisdiction) without the bank reasonably helping to meet 
the credit needs of that host state.
Section __.22(c)(2) Banks That Meet or Surpass the Retail Lending 
Volume Threshold in a Facility-Based Assessment Area
The Agencies' Proposal
    The agencies proposed to evaluate a bank's major product lines 
pursuant to the distribution metrics approach, if the bank met or 
surpassed the Retail Lending Volume Threshold.\858\ The bank would then 
be eligible for any Retail Lending Test recommended conclusion in that 
facility-based assessment area.
---------------------------------------------------------------------------

    \858\ See proposed Sec.  __.22(c)(1).
---------------------------------------------------------------------------

Comments Received
    The agencies did not receive any comments that were directly 
responsive to this component of the proposal.
Final Rule
    As provided in final Sec.  __.22(c)(2), the agencies are finalizing 
the proposal that, for a bank that meets or surpasses the Retail 
Lending Volume Threshold in a facility-based assessment area, the 
agencies will develop a Retail Lending Test recommended conclusion for 
the facility-based assessment area pursuant to final Sec.  __.22(d) 
through (f). The bank will be eligible for any Retail Lending Test 
recommended conclusion in that facility-based assessment area.
Section __.22(c)(3) Banks That Do Not Meet the Retail Lending Volume 
Threshold in a Facility-Based Assessment Area
Section __.22(c)(3)(i) Acceptable Basis Factors
The Agencies' Proposal
    The agencies proposed that if the bank volume metric for a 
particular bank was less than 30 percent of the market volume benchmark 
in a facility-based assessment area the agencies would determine 
whether the bank had an acceptable basis for not meeting the 30 percent 
threshold \859\ by reviewing qualitative factors that might have 
affected the bank's ability to lend in the facility-based assessment 
area.\860\ The proposal recognized that not all performance context 
factors are captured in the metrics and, as a result, the agencies 
proposed specified additional factors that might serve as an acceptable 
basis for why a bank did not meet the threshold. Specifically, 
examiners would consider institutional capacity and constraints--
including the financial condition of a bank, the presence or lack 
thereof of other lenders in the geographic area, safety and soundness 
limitations, the bank's business strategy, and other factors that limit 
the bank's ability to lend in the facility-based assessment area.\861\ 
If the qualitative assessment concluded that the bank had an acceptable 
basis for not meeting the threshold, the agencies would then evaluate 
the retail loan distribution for each of the bank's major product 
lines.\862\
---------------------------------------------------------------------------

    \859\ See proposed Sec.  __.22(c)(2)(i).
    \860\ See proposed Sec.  __.22 (c)(2)(iii).
    \861\ Id.
    \862\ See proposed Sec.  __.22(c)(2)(i).
---------------------------------------------------------------------------

    If these qualitative factors did not account for the bank's 
insufficient volume of bank retail lending in the facility-based 
assessment area, the agencies proposed to consider the bank to not have 
an acceptable basis for failing to meet the threshold.
Comments Received
    The agencies received a few comments on this component of the 
proposal. Those commenters raised concerns that the proposal lacked 
clarity regarding how examiners would consider the qualitative factors 
that the agencies had proposed when determining whether a bank had an 
acceptable basis for failing the screen.
Final Rule
    As provided in final Sec.  __.22(c)(3)(i), the agencies are 
adopting their proposal that if a bank does not meet the Retail Lending 
Volume Threshold in a facility-based assessment area, the agencies will 
determine whether the bank has an acceptable basis for not meeting the 
Retail Lending Volume Threshold by considering specific qualitative 
factors. Specifically, final Sec.  __.22(c)(3)(i) provides that the 
agency will consider: the bank's dollar volume of non-automobile 
consumer loans; the bank's institutional capacity and constraints, 
including the financial condition of the bank; the presence or lack of 
other lenders in the facility-based assessment area; safety and 
soundness limitations; the bank's business strategy; and other factors 
that limit the bank's ability to lend in the facility-based assessment 
area.
    Recognizing that not all relevant performance context factors are 
captured in the Retail Lending Volume Screen, the agencies believe that 
this qualitative review will allow examiners to consider a bank's 
performance on the screen within the larger context of a bank's overall 
circumstances, which in turn may reveal appropriate grounds for why a 
bank's retail lending volume was otherwise insufficient relative to the 
Retail Lending Volume Threshold.
    The agencies have added to the final rule's list of acceptable 
basis factors consideration of a bank's dollar volume of non-automobile 
consumer loans in the facility-based assessment area. This aspect of 
the final rule will allow the agencies to account for instances in 
which a bank has engaged in a substantial amount of such unreported 
lending (e.g., personal loans) that is not otherwise considered under 
the Retail Lending Test, but has very few, if any, closed-end home 
mortgage loans, small business loans, small farm loans, or automobile 
loans.

[[Page 6816]]

    With respect to commenter concerns regarding clarity about 
application of the acceptable basis factors, the agencies intend to 
routinely consider these qualitative factors in all instances where a 
bank does not meet the threshold in a facility-based assessment area. 
The agencies' consideration of acceptable basis factors will 
necessarily be situation-specific, with the objective in each instance 
being that of determining whether there were sufficient grounds to 
explain the bank's lack of lending volume relative to the threshold.
Section __.22(c)(3)(ii) Banks That Have an Acceptable Basis for Not 
Meeting the Retail Lending Volume Threshold in a Facility-Based 
Assessment Area
The Agencies' Proposal
    That agencies proposed that if they determined that a bank had an 
acceptable basis for not meeting the Retail Lending Volume Threshold 
they would then consider the distribution metrics pursuant to proposed 
Sec.  __.22(d) in order to assign a Retail Lending Test recommended 
conclusion and consider the additional factors provided in proposed 
Sec.  __.22(e) to determine whether to adjust that recommended 
conclusion.\863\ A bank with an acceptable basis for not meeting the 
threshold would be eligible for all possible recommended conclusions: 
``Outstanding,'' ``High Satisfactory,'' ``Low Satisfactory,'' ``Needs 
to Improve,'' and ``Substantial Noncompliance.'' As discussed above, 
this approach would allow examiners to consider performance context 
factors that may not necessarily be captured in the metrics, such as 
institutional capacity and constraints.
---------------------------------------------------------------------------

    \863\ See proposed Sec.  __.22(c)(2)(i).
---------------------------------------------------------------------------

Comments Received
    The agencies did not receive any comments that were directly 
responsive to this component of the proposal.
Final Rule
    The agencies are finalizing this provision in final Sec.  
__.22(c)(3)(ii). The final rule provision does not include specific 
references to assignment and adjustment of Retail Lending Test 
recommended conclusions because this is provided for in final Sec.  
__.22(f) and (g).
Section __.22(c)(3)(iii)(A) Banks That Lack an Acceptable Basis for Not 
Meeting the Retail Lending Volume Threshold in a Facility-Based 
Assessment Area--Large Banks
Section __.22(c)(3)(iii)(B) Banks That Lack an Acceptable Basis for Not 
Meeting the Retail Lending Volume Threshold in a Facility-Based 
Assessment Area--Intermediate Banks or Small Banks
The Agencies' Proposal
    The agencies proposed that if an agency determined that a large 
bank did not have an acceptable basis for failing to meet the Retail 
Lending Volume Threshold, the agency would assign the bank a Retail 
Lending Test conclusion in that facility-based assessment area of 
either ``Needs to Improve'' or ``Substantial Noncompliance'' based on 
three factors: (1) the bank's retail lending volume and the extent by 
which it failed to meet the Retail Lending Volume Threshold; (2) the 
bank's retail loan distribution for each major product line pursuant to 
proposed Sec.  __.22(d); and (3) the additional factors provided in 
proposed Sec.  __.22(e).\864\
---------------------------------------------------------------------------

    \864\ See proposed Sec.  __.22(c)(2)(ii)(A).
---------------------------------------------------------------------------

    The agencies proposed for intermediate banks, or small banks that 
opt to be evaluated under the Retail Lending Test, that failed to pass 
the Retail Lending Volume Threshold in a facility-based assessment area 
with no acceptable basis for doing so that the agency would review the 
bank's performance relative to the Retail Lending Volume Threshold as 
an additional indicator of lending performance when determining the 
bank's Retail Lending Test recommended conclusion in the facility-based 
assessment area.\865\ Unlike a large bank without an acceptable basis 
for failing to meet the threshold, the agencies proposed that if an 
intermediate bank, or a small bank that opted into the Retail Lending 
Test, did not have an acceptable basis, the bank would not be limited 
to receiving only a conclusion of ``Needs to Improve'' or ``Substantial 
Noncompliance'' in that facility-based assessment area. The agencies 
explained that the proposed approach resulting in differential 
treatment of large banks compared with intermediate banks and small 
banks was justified because: the agencies recognized that intermediate 
banks and small banks have less capacity to ensure that their lending 
is commensurate with their deposits in comparison to large banks; and 
the agencies recognized that the FDIC's Summary of Deposits data used 
as the default in the bank volume metric calculations for intermediate 
banks and small banks may not always accurately reflect the location of 
depositors.
---------------------------------------------------------------------------

    \865\ See proposed Sec.  __.22(c)(2)(ii)(B).
---------------------------------------------------------------------------

Comments Received
    Some commenters supported the agencies' proposal that an 
intermediate bank or a small bank that did not pass the retail lending 
volume screen would have the outcome reviewed as an additional 
indicator of lending performance when determining the bank's Retail 
Lending Test recommended conclusion in the facility-based assessment 
area. A few other commenters asserted that the agencies should extend 
this same treatment to large banks that did not pass the screen.
Final Rule
    Large banks that lack an acceptable basis for not meeting the 
Retail Lending Volume Threshold. Final Sec.  __.22(c)(3)(iii)(A) 
provides that if, after reviewing the factors in final Sec.  
__.22(c)(3)(i), the agencies determine that a large bank lacks an 
acceptable basis for not meeting the Retail Lending Volume Threshold in 
a facility-based assessment area, the agencies will assign the bank a 
Retail Lending Test conclusion of ``Needs to Improve'' or ``Substantial 
Noncompliance'' for the facility-based assessment area. In determining 
whether ``Needs to Improve'' or ``Substantial Noncompliance'' is the 
appropriate conclusion, the agency considers: the bank's retail lending 
volume and the extent by which it fell short of the threshold; the 
bank's distribution analysis pursuant to final Sec.  __.22(d) through 
(f); the performance context factors in Sec.  __.21(d); and the 
additional factors in final Sec.  __.22(g).
    The agencies' reason for the different treatment of large banks 
that lack an acceptable basis for not meeting the Retail Lending Volume 
Screen remains that large banks have greater capacity than intermediate 
banks and small banks to ensure that their lending is commensurate with 
their deposits and to voluntarily collect and maintain deposits data in 
cases where the bank's FDIC's Summary of Deposits data do not 
accurately reflect the location of their depositors.
    The agencies have considered commenter feedback that the Retail 
Lending Volume Screen should be employed solely as performance context, 
including for large banks. For intermediate banks and small banks that 
opt into the Retail Lending Test, the screen already serves as an 
additional indicator of lending performance when

[[Page 6817]]

determining the bank's Retail Lending Test recommended conclusion in a 
facility-based assessment area. The agencies believe that adopting that 
approach would not be desirable for large banks that significantly 
underperform relative to their presence and capacity to lend and lack 
an acceptable basis for doing so. The agencies find it unnecessary to 
provide additional examiner discretion for large banks with respect to 
assigning facility-based assessment area conclusions. The agencies note 
that the fact that a large bank does not meet the Retail Lending Volume 
Threshold does not automatically lead to assignment of any conclusion 
in any facility-based assessment area. Rather, as provided in final 
Sec.  __.22(c)(3)(i), the agencies will also consider whether a bank 
meets any of the acceptable basis factors.
    Intermediate and small banks that lack an acceptable basis for not 
meeting the Retail Lending Volume Threshold. Final Sec.  
__.22(c)(3)(iii)(B) provides that if, after reviewing the factors in 
final Sec.  __.22(c)(3)(i), the agencies determine that an intermediate 
bank, or a small bank that opts to be evaluated under the Retail 
Lending Test, lacks an acceptable basis for not meeting the Retail 
Lending Volume Threshold in a facility-based assessment area, the 
agencies will develop a Retail Lending Test recommended conclusion for 
the facility-based assessment area pursuant to final Sec.  __.22(d) 
through (f). In turn, the agencies' determination of the bank's Retail 
Lending Test conclusion for the facility-based assessment area is 
informed by: the bank's Retail Lending Test recommended conclusion for 
the facility-based assessment area; the bank's retail lending volume 
and the extent by which it did not meet the Retail Lending Volume 
Threshold; performance context factors provided in final Sec.  
__.21(d); and the additional factors in final Sec.  __.22(g). 
Consistent with the proposal, unlike large banks, these banks will not 
be limited to receiving a conclusion of ``Needs to Improve'' or 
``Substantial Noncompliance'' in the facility-based assessment area.
    The agencies believe that this approach accounts for the lower 
capacity of intermediate banks and small banks that opt into the Retail 
Lending Test to ensure that their lending is commensurate with their 
deposits. In addition, this approach would account for the proposed use 
of the FDIC's Summary of Deposits data to calculate the Bank Volume 
Metric for intermediate banks and for small banks (if these banks do 
not voluntarily collect and maintain deposits data pursuant to final 
Sec.  __.42(a)(7) and, in turn, report that data pursuant to final 
Sec.  __.42(b)(3)).

Section Sec.  __.22(d) Scope of Retail Lending Distribution Analysis

Section Sec.  __.22(d)(1) Product Lines Evaluated in a Retail Lending 
Test Area
    To evaluate a bank's retail lending performance in its facility-
based assessment areas, retail lending assessment areas, and outside 
retail lending area, as applicable, under the Retail Lending Test, the 
agencies proposed in Sec.  __.22(a)(4) to identify a bank's major 
product lines in a geographic area from among six retail lending 
categories: closed-end home mortgage loans, open-end home mortgage 
loans, multifamily loans, small business loans, small farm loans, and 
automobile loans. For purposes of identifying a bank's major product 
lines in a geographic area, the agencies proposed to use a 15 percent 
standard based on loan dollars for closed-end home mortgage loans, 
open-end home mortgage loans, multifamily loans, small business loans, 
and small farm loans; the agencies proposed to use a 15 percent 
standard based on a combination of loan dollars and loan count for 
automobile loans. The agencies would evaluate the geographic and 
borrower distributions of a bank's major product lines under the 
distribution analysis component of the Retail Lending Test described in 
proposed Sec.  __.22(d).
    The agencies received numerous comments regarding each of the 
proposed retail lending product lines, and the proposed standards for 
identifying a bank's major product lines. Comments regarding each of 
the six proposed retail lending products are discussed in turn below. 
Comments regarding the proposed major product line standards as 
discussed in the section-by-section analysis of final Sec.  
__.22(d)(2), below.
    For the reasons discussed below, the agencies are modifying, 
relative to the proposal, the scope of the distribution analysis 
component of the final rule Retail Lending Test. Under the final rule, 
only four retail product lines--closed-end home mortgage loans, small 
business loans, small farm loans, and automobile loans \866\--may be 
evaluated under the distribution analysis in a facility-based 
assessment area or outside retail lending area. The agencies will not 
evaluate open-end home mortgage loans and multifamily loans under the 
distribution analysis in final Sec.  __.22(e).\867\ In addition, only 
closed-end home mortgage loans and small business loans may be 
evaluated as a major product line in a large bank's retail lending 
assessment areas.\868\
---------------------------------------------------------------------------

    \866\ As discussed in introduction to the section-by-section 
analysis of final Sec.  __.22, automobile loans are only evaluated 
under the Retail Lending Test if the bank is a majority automobile 
lender or the bank opts to have its automobile loans evaluated under 
the Retail Lending Test.
    \867\ However, open-end home mortgage loans and multifamily 
loans are included in the bank's metrics for purposes of the Retail 
Lending Volume Screen, as discussed in the section-by-section 
analysis of final Sec.  __.22(c).
    \868\ For further discussion of the product lines that may be 
evaluated in a retail lending assessment area, see the section-by-
section analysis of final Sec.  __.17(d).
---------------------------------------------------------------------------

    As such, final Sec.  __.22(d)(1) provides that in each applicable 
Retail Lending Test Area, the agencies evaluate originated and 
purchased loans in each of the following product lines that is a major 
product line, as described in Sec.  __.22(d)(2): \869\
---------------------------------------------------------------------------

    \869\ The agencies have determined that it is appropriate to 
relocate the provisions describing the scope of the distribution 
analysis component of the Retail Lending Test from proposed Sec.  
__.22(a) to final Sec.  __.22(d), so that these scoping provisions 
immediately precede the regulatory text regarding the distribution 
analysis itself in final Sec.  __.22(e).
---------------------------------------------------------------------------

     Closed-end home mortgage loans in a bank's facility-based 
assessment areas and, as applicable, retail lending assessment areas 
and outside retail lending area;
     Small business loans in a bank's facility-based assessment 
areas and, as applicable, retail lending assessment areas and outside 
retail lending area;
     Small farm loans in a bank's facility-based assessment 
areas and, as applicable, outside retail lending area; and
     Automobile loans in a bank's facility-based assessment 
areas and, as applicable, outside retail lending area.
    Each of the four product lines included in the final rule Retail 
Lending Test distribution analysis is discussed in turn below. 
Following this discussion, the two product lines excluded from the 
final rule Retail Lending Test distribution analysis are discussed.
Product Lines Included in the Retail Lending Test Distribution Analysis
Section __.22(d)(1)(i) Closed-End Home Mortgage Loans
    In final Sec.  __.22(d)(1)(i), the agencies are adopting with 
certain substantive, clarifying, and technical revisions their proposed 
approach of evaluating closed-end home purchase, home refinance, home 
improvement, and other purpose home mortgage loans as a single major 
product line under the Retail Lending Test's distribution analysis. The

[[Page 6818]]

agencies have decided that open-end home mortgage loans will not be 
evaluated under the Retail Lending Test, but rather, responsive open-
end home mortgage loans will be considered under the Retail Services 
and Products Test, as discussed in the section-by-section analysis of 
final Sec.  __.23.
The Agencies' Proposal
    As discussed above, the agencies currently evaluate a bank's ``home 
mortgage'' lending under the lending test, which includes both closed-
end home mortgage loans and open-end home mortgage loans.\870\ The 
agencies proposed to evaluate closed-end home mortgage loans secured by 
a one-to-four family dwelling as a single major product line under the 
Retail Lending Test.\871\ As proposed, this category would include one-
to-four family closed-end home mortgage loans of all purposes, 
including home purchase loans, home refinance loans, home improvement 
loans, and other purpose closed-end home mortgage loans, but not 
including multifamily loans.\872\ The agencies noted that, in 
comparison to a potential alternative in which closed-end home mortgage 
loans with different purposes are evaluated separately, the proposed 
rule would consolidate closed-end home mortgage loans in a single major 
product line, thereby streamlining the evaluation process and reducing 
complexity. As a major product line, the proposal contemplated that 
closed-end home mortgage loans would be evaluated using the 
distribution metrics included in the Retail Lending Test.\873\
---------------------------------------------------------------------------

    \870\ See current 12 CFR __.12(l) and __.22(a)(1).
    \871\ See proposed Sec.  __.22(a)(4)(i)(A). The agencies 
proposed in proposed Sec.  __.12 to define ``closed-end home 
mortgage loan'' to have ``the same meaning given to the term 
`closed-end mortgage loan' in 12 CFR 1003.2(d)'' (the CFPB's 
Regulation C, implementing HMDA), but excluding multifamily loans. 
For further discussion of the definition of ``closed-end home 
mortgage loan'' under the final rule, see the section-by-section 
analysis of final Sec.  __.12 (``closed-end home mortgage loan'').
    \872\ See proposed Sec.  __.22(a)(4)(i)(A). As under the CFPB's 
Regulation C, ``other purpose'' refers to any loan purpose other 
than home purchase, refinance, or home improvement. See also 12 CFR 
1003.4(a)(3) and associated Official Interpretations.
    \873\ See proposed Sec.  __.22(b) through (d).
---------------------------------------------------------------------------

    The agencies sought feedback on whether to evaluate closed-end home 
mortgage loans of different purposes individually or collectively given 
that the factors driving demand for home purchase loans, home refinance 
loans, home improvement loans, and other purpose home mortgage loans 
can vary over time. In addition, the agencies noted that these closed-
end home mortgage products can meet different credit needs for low- and 
moderate-income borrowers and communities. The agencies also requested 
feedback on whether aggregation could lead to less transparency in the 
reported metrics when one loan purpose category takes prominence over 
another. For example, a bank's home purchase lending performance could 
be obscured during periods of high home mortgage refinance lending, and 
a bank's home mortgage refinance lending performance could be similarly 
obscured during periods of high home purchase lending activity. The 
agencies sought feedback on the magnitude of this risk, and whether it 
outweighs the efficiency gained from more streamlined closed-end home 
mortgage lending evaluations.
    The agencies also sought feedback on whether to evaluate home 
improvement loans and other purpose closed-end home mortgage loans 
reported under HMDA under both the Retail Lending Test and the Retail 
Services and Products Test or only under the Retail Services and 
Products Test. In addition, the agencies sought commenter views on the 
proposal to continue the current practice of evaluating closed-end home 
mortgage loans secured by one-to-four family owner-occupied properties 
and non-owner-occupied properties together.\874\
---------------------------------------------------------------------------

    \874\ See proposed Sec.  __.22(a)(4)(i)(A). This treatment would 
have obtained for the proposed separately evaluated open-end home 
mortgage lending product line as well. See proposed Sec.  
__.22(a)(4)(i)(B).
---------------------------------------------------------------------------

Comments Received
    The agencies received many comments on evaluating closed-end home 
mortgage lending and open-end home mortgage lending pursuant to a CRA 
final rule.
    Aggregation of closed-end home mortgage loans regardless of loan 
purpose. A number of commenters supported the proposed evaluation of 
all closed-end home mortgage loans on a combined basis, regardless of 
loan purpose. Some commenters expressed concerns that evaluating 
closed-end home mortgage loans separately by different loan purposes 
would introduce additional complexity into the proposed Retail Lending 
Test. A few commenters questioned whether, on balance, separating home 
purchase loans and refinance loans would affect a bank's performance 
sufficiently to offset added complexity. Other commenters preferred 
evaluating closed-end home mortgage loans as a single category because 
demand for closed-end home mortgage loans of different purposes varies 
over time for reasons beyond a bank's control.
    However, other commenters expressed a preference for separately 
evaluating closed-end home mortgage loans of different purposes. In 
general, these commenters emphasized that different home mortgage 
products meet different credit needs and demand for such products can 
vary based on market conditions over time, with some highlighting the 
differences between home purchase loans and home refinance loans. These 
commenters favored separate evaluation of these products as a way to 
allow for more precise measurement of whether banks are meeting the 
needs of low- and moderate-income borrowers. For example, a commenter 
suggested that the agencies separately evaluate different types of 
closed-end home mortgage loans to avoid obscuring important differences 
among loan types; however, this commenter acknowledged that such 
disaggregation might not be possible in all assessment areas, 
especially rural areas with insufficient loan activity for separate 
evaluation. Another commenter recommended separately evaluating four 
categories of closed-end home mortgage loans--home purchase loans, home 
refinance loans, home improvement loans, and other purpose home 
mortgage loans--without distinguishing between closed-end home mortgage 
loans and open-end home mortgage loans, stating that this approach 
would promote a more standard comparison between like transactions. In 
addition, a commenter that supported disaggregating home purchase and 
home refinance loans suggested that the agencies should also separate 
cash-out refinances from rate-term refinances or remove cash-out 
refinances entirely from the Retail Lending Test because such loans 
could be used for equity stripping.
    Home improvement and other purpose closed-end home mortgage loans. 
Many commenters supported the agencies' proposal to include home 
improvement loans and other purpose home mortgage loans as part of the 
closed-end home mortgage loan major product line. A number of 
commenters emphasized the ways in which home improvement loans can 
benefit low- and moderate-income borrowers and communities, such as by 
increasing the value of homes owned by low- and moderate-income 
borrowers and meeting significant credit needs. For example, a 
commenter emphasized the critical updating and maintenance needs of 
aging affordable housing stock and asserted that products such as 
combined purchase-rehabilitation loans

[[Page 6819]]

are important for supporting sustainable homeownership. Another 
commenter stated that considering home improvement and other purpose 
loans only under the Retail Services and Products Test would reduce the 
level of quantitative rigor applied to their evaluation. In addition, a 
number of commenters noted that evaluating home improvement loans and 
other purpose loans under the Retail Lending Test would create greater 
incentives for banks to offer these products to low- and moderate-
income borrowers and to develop innovative products. However, another 
commenter suggested that home improvement loans and other purpose home 
mortgage loans should only be evaluated under the Retail Lending Test 
if the bank can demonstrate that the loans were made to increase home 
value, improve livability and accessibility, generate income through 
business space, allow for services in the home, or make the home more 
energy efficient. In addition, a number of commenters recommended that 
home improvement loans and other purpose home mortgages should be 
evaluated both quantitatively under the Retail Lending Test and 
qualitatively under the Retail Services and Products Test, which one 
commenter noted could consider the innovativeness of a bank's lending 
products.
    A few commenters addressed whether the agencies should establish a 
separate product line under the Retail Lending Test for home 
improvement loans and other purpose home mortgage loans, noting that 
these loans are distinct from home purchase loans and refinancing 
loans. A commenter recommended that home improvement loans and other 
purpose home mortgage loans lending should be considered separately in 
a third category if the agencies determined to consider home purchase 
loans and refinance loans separately. Another commenter suggested that 
home improvement loans be evaluated either separately or together with 
other retail loans under the Retail Lending Test, if there is a 
sufficient volume of these loans.
    A few commenters opposed the evaluation of home improvement loans 
and other purpose home mortgage loans under the Retail Lending Test. 
Some of these commenters stated that the Retail Lending Test should 
focus on home purchase loans and refinance loans. Other commenters 
stated that home improvement loans and other purpose home mortgage 
loans should be evaluated solely under the Retail Services and Products 
Test, with a commenter noting that these loans would rarely trigger a 
major product line. Another commenter supported evaluating these loans 
only qualitatively, but recommended the agencies consider implementing 
a quantitative evaluation if demand for this type of loan increases.
    Non-owner-occupied home mortgage loans. A few commenters supported 
the proposal to include loans secured by one-to-four family non-owner-
occupied housing in the closed-end home mortgage loan product line, 
noting that these loans represent an investment in low- and moderate-
income communities and play an important role in ensuring access to 
naturally occurring affordable housing.
    However, many other commenters opposed including non-owner-occupied 
housing loans in the evaluation of closed-end home mortgage loans. Some 
commenters stated that non-owner-occupied housing loans should be 
excluded altogether because such loans do not represent access to 
credit for low- and moderate-income individuals and can fuel 
gentrification and displacement. Another commenter similarly raised 
concerns that granting credit for non-owner-occupied housing loans to 
investors would not address inequities in credit access for minority 
individuals and communities.
    Several commenters provided other suggestions related to the 
evaluation of non-owner-occupied housing loans. A few commenters 
recommended that non-owner-occupied home loans should be evaluated 
under the Retail Services and Products Test. Some commenters stated 
generally that owner-occupied home loans should be prioritized over 
loans secured by investor-owned properties. For example, a commenter 
suggested that the agencies include non-owner-occupied housing loans in 
the Retail Lending Test, but assign them less weight than loans secured 
by owner-occupied homes; this commenter also supported non-owner-
occupied housing loans being considered under the Community Development 
Financing Test. Some commenters also advocated for an impact review of 
non-owner-occupied home loans to ensure that these loans build wealth 
and do not displace or harm low- and moderate-income or minority 
individuals. Relatedly, a number of commenters recommended that only 
certain non-owner-occupied housing loans be included in the bank's 
evaluation, such as loans made to low- and moderate-income, minority, 
or mission-driven nonprofit organization borrowers, or loans originated 
by mission-driven nonprofit organizations.
    Other closed-end home mortgage loan products. Several commenters 
provided feedback related to evaluating other specific closed-end home 
mortgage loan products. For example, a commenter encouraged the 
agencies to evaluate manufactured housing loans as a separate category 
under the Retail Lending Test to incentivize more manufactured home 
lending. This commenter stated that manufactured homes tend to be 
affordable options for low- and moderate-income individuals and 
suggested that the agencies separately track home mortgage loans titled 
as personal property.
    A few commenters submitted feedback regarding construction loans. A 
commenter stated that the agencies should include construction loans to 
home builders and borrowers for the construction of one-to-four family 
residential properties under the Retail Lending Test to incentivize 
banks to make more construction loans and increase the housing supply. 
A few commenters suggested that construction loans be eligible for CRA 
consideration even if the occupant is not a low- or moderate-income 
individual, as long as the home sale price does not exceed four times 
the area median family income. These commenters indicated that this 
would help address the lack of supply of affordable starter homes and 
encourage community stabilization and revitalization.
    A few commenters offered views on the treatment of reverse mortgage 
loans. For example, a commenter asserted that reverse mortgage loans 
are essential to aging borrowers and stated that banks should consider 
the needs of their aging deposit customers with reverse mortgages to 
avoid foreclosure and displacement. In contrast, another commenter 
suggested that reverse mortgage loans should not be encouraged and 
should be excluded from the Retail Lending Test because they have the 
potential to impact the borrower negatively.
    A commenter suggested that certain income-restricted home mortgage 
assistance loans and programs, such as downpayment assistance, should 
be counted as closed-end home mortgage loans under the Retail Lending 
Test to incentivize banks to continue participating in these special 
programs. Another commenter stated that the agencies should award 
``extra credit'' to banks for originating home mortgages involving 
community land trusts because such programs are designed to preserve 
affordable housing and prevent displacement.
Final Rule
    Final Sec.  __.22(d)(1)(i) adopts the proposed approach of 
evaluating closed-

[[Page 6820]]

end home purchase, home refinance, home improvement, and other purpose 
home mortgage loans as a single major product line pursuant to the 
Retail Lending Test's distribution analysis.\875\
---------------------------------------------------------------------------

    \875\ As discussed in the section-by-section analysis of final 
Sec.  __.12, the final rule defines ``closed-end home mortgage 
loan'' as follows: ``Closed-end home mortgage loan has the same 
meaning given to the term `closed-end mortgage loan' in 12 CFR 
1003.2, excluding loan transactions set forth in 12 CFR 1003.3(c)(1) 
through (10) and (13) and multifamily loans as defined in [Sec.  
__.12].''
---------------------------------------------------------------------------

    Aggregation of closed-end home mortgage loans regardless of loan 
purpose. The agencies' decision to adopt the proposal is based on a 
number of factors. First, the agencies believe that a combined 
evaluation of closed-end home purchase loans, home refinance loans, 
home improvement loans, and other purpose home mortgage loans allows 
for an appropriate degree of flexibility for a bank to meet the closed-
end home mortgage credit needs of its community, accounting for diverse 
bank business models and strategies. Under this approach, a bank may 
achieve strong performance in the closed-end home mortgage product line 
by serving low- and moderate-income borrowers and low- and moderate-
income census tracts through any combination of home purchase loans, 
home refinance loans, home improvement loans, or other purpose closed-
end home mortgage loans.
    The agencies also believe that a combined evaluation of closed-end 
home mortgage loans will result in greater stability and consistency of 
associated metrics and benchmarks over time. The agencies determined 
that, as some commenters noted, a combined market benchmark may be less 
volatile than separate market benchmarks for home purchase loans and 
home refinance loans.
    Additionally, the agencies believe that a combined evaluation of 
closed-end home mortgage loans is more consistent with the current 
regulations and introduces fewer complexities than separately 
evaluating home mortgage loans of different purposes. For example, 
agency analysis of lending data from 2018-2020 demonstrated that 
evaluating home purchase loans and refinance loans as separate product 
lines would likely result in an increase in the number of major product 
lines for approximately 4,040 facility-based assessment areas, which is 
approximately 58 percent of all large bank and intermediate bank 
facility-based assessment areas.\876\
---------------------------------------------------------------------------

    \876\ This analysis is based on a set of intermediate and large 
banks that are both CRA and HMDA reporters. Wholesale banks, limited 
purpose banks, strategic plan banks, and banks that do not have at 
least one facility-based assessment area in a U.S. State or District 
of Columbia are excluded from the analysis.
---------------------------------------------------------------------------

    Finally, the agencies considered that establishing separate product 
lines for closed-end home purchase, home refinance, home improvement, 
and other purpose home mortgage loans could result in instances where a 
bank does not have a sufficient number of loans in one or more of these 
individual categories to conduct a robust distribution analysis. For 
example, the agencies believe that in evaluation years in which home 
mortgage refinance activity is relatively low, some banks might have 
too little activity to count as a separate product line. However, a 
combined approach will ensure that these loans are subject to a 
distribution analysis as part of a larger aggregate category for 
closed-end home mortgage loans. The agencies also note that if separate 
product lines were created for home purchase loans and home refinance 
loans, a similar potential loss of coverage from a distribution 
analysis might occur for home improvement loans and other purpose home 
mortgage loans, because these loans too would by default then need to 
be evaluated separately.
    The agencies also considered the potential benefits of an 
alternative approach of separately evaluating closed-end home mortgage 
loans based on loan purpose. In particular, as some commenters noted, 
home purchase, home refinance, home improvement, and other purpose home 
mortgage loans fulfill different purposes. For example, home purchase 
loans facilitate access to homeownership, while home refinance loans 
can help borrowers to obtain a lower monthly payment when interest 
rates fall. A separate evaluation of these categories could provide 
more specific visibility into a bank's record of meeting important yet 
distinct closed-end home mortgage credit needs, clarifying instances in 
which a bank had lower relative performance for either home purchase 
lending or home refinance lending. The agencies also considered that 
different benchmarks, thresholds, and performance ranges for these 
categories might reflect differences in the credit needs and 
opportunities in an area more specifically than a combined product line 
category for all closed-end home mortgage lending, thus informing the 
efforts of the agencies, banks, and other stakeholders to identify and 
address community credit needs.
    However, on balance, the agencies have determined that these 
potential benefits of separately evaluating home purchase, home 
refinance, home improvement, and other purpose home mortgage loans are 
outweighed by the considerations discussed above. These include the 
agencies' determination that designating a combined closed-end home 
mortgage loan category is more adaptive to a diversity of both bank 
business models and community credit needs. At the same time, the 
agencies appreciate the potential benefits of greater precision in 
understanding the ways that banks meet community credit needs, and note 
that they will consider ways to provide information to the public about 
the breakdown of home purchase and home refinance loans within the 
combined closed-end home mortgage loan category.
    Home improvement and ``other purpose'' closed-end home mortgage 
loans. The final rule also adopts the proposed approach of including 
closed-end home improvement loans and other purpose home mortgage loans 
as part of the overall closed-end home mortgage loan product line under 
the Retail Lending Test's distribution analysis. The agencies believe 
that this approach is appropriate because low- and moderate-income 
borrowers and communities have needs for closed-end home improvement 
loans and other purpose home mortgage loans. Furthermore, the agencies 
have considered commenter feedback that evaluating these loans under 
the Retail Lending Test will help to emphasize bank activities that 
address these needs. Evaluating home improvement loans and other 
purpose home mortgage loans as part of a combined closed-end home 
mortgage loan product line will ensure that these tools for meeting 
community credit needs are accounted for under the Retail Lending Test 
distribution metrics and benchmarks.
    The agencies also considered an alternative approach of creating 
separate product line categories for home improvement and other purpose 
home mortgage loans, or a product line category combining home 
improvement loans and other purpose home mortgage loans. However, the 
agencies believe that the number of home improvement loans and other 
purpose home mortgage loans for many banks and Retail Lending Test 
Areas could often be insufficient for robust evaluation as a separate 
product line. For example, a separate evaluation would include 
constructing market benchmarks based solely on home improvement loans 
and other purpose home mortgage loans, which the agencies note are 
significantly less prevalent than home purchase and home refinance 
loans. Furthermore, the agencies considered that these alternative 
approaches would

[[Page 6821]]

increase the complexity of the distribution analysis due to the 
additional product lines and associated metrics, benchmarks, 
performance ranges, weighting, and other quantitative components of the 
evaluation. In light of these considerations, the agencies determined 
that the increased complexity resulting from creating a separate 
product line category for home improvement loans and other purpose home 
mortgage loans is not warranted.
    The agencies also considered commenter sentiment that home 
improvement loans and other purpose home mortgage loans be evaluated 
under the Retail Lending Test only if a bank can demonstrate that these 
loans were made to increase home value, improve livability and 
accessibility, generate income through business space, allow for 
services in the home, or make the home more energy efficient. The 
agencies believe that the Retail Lending Test is appropriately focused 
upon evaluating a bank's distribution of loans to low- and moderate-
income borrowers and low- and moderate-income census tracts, and that 
the credit products component of the Retail Services and Products Test 
will effectively evaluate whether a bank's credit products and programs 
are, consistent with safe and sound operations, responsive to the 
credit needs of the bank's entire community, including the needs of 
low- and moderate-income individuals, residents of low- and moderate-
income census tracts, small businesses, and small farms.
    Non-owner-occupied home mortgage loans. The agencies considered, 
but are not adopting, commenter sentiment that non-owner-occupied home 
mortgage loans should either be excluded from evaluation under the 
Retail Lending Test or afforded less weight than owner-occupied home 
mortgage loans. In making this determination, the agencies considered a 
number of factors.
    The agencies considered that including loans secured by non-owner-
occupied properties in a bank's borrower and geographic distribution 
analyses provides a more complete picture of the bank's closed-end home 
mortgage lending activity and capacity in light of opportunities in the 
area. For example, where a bank has made a large number of non-owner-
occupied closed-end home mortgage loans, including these loans in the 
distribution analyses would better demonstrate the extent to which a 
lender is meeting the needs of low- and moderate-income individuals and 
low- and moderate-income census tracts relative to its capacity to 
lend. In contrast, excluding the bank's non-owner-occupied loans from 
the Retail Lending Test evaluation would result in metrics that would 
not as accurately reflect the bank's capacity to lend to low- or 
moderate-income individuals and in low- or moderate-income census 
tracts.
    The agencies also considered that loans secured by non-owner-
occupied properties can support access to credit and fulfill a credit 
need in low- and moderate-income census tracts. The agencies considered 
that lower credit availability in these geographic areas might 
negatively affect local housing markets due to the difficulty of 
obtaining home-secured financing in these areas to buy, sell, 
refinance, or improve a home. Furthermore, home mortgage loans secured 
by non-owner-occupied properties may support expanded affordable 
housing options.
    In addition, the agencies are concerned that separately evaluating 
or differentially weighting one-to-four family closed-end home mortgage 
loans secured by non-owner-occupied properties to reflect the impact of 
these loans would introduce undue compliance and examination 
complexity. Differential weighting would be challenging to calibrate 
and implement, because a range of factors could affect the level of 
impact that loans for non-owner-occupied and owner-occupied properties 
have on a community. The agencies considered that an alternative 
approach of assigning lower weighting to loans for non-owner-occupied 
properties could inadvertently discourage a bank from meeting credit 
needs for such loans in a community. Furthermore, the agencies 
considered that there may be insufficient data to support a separate 
distribution analysis of these loans in many Retail Lending Test Areas.
    The agencies considered commenter concerns regarding the 
responsiveness and affordability of home mortgage loans secured by non-
owner-occupied properties. The agencies note that the final rule also 
evaluates home mortgage loans secured by non-owner-occupied properties 
under final Sec.  __.23(c)(2) of the Retail Services and Products Test 
for responsiveness to community credit needs, including the needs of 
low- and moderate-income borrowers and low- and moderate-income census 
tracts. Also, as discussed further in the section-by-section analysis 
of final Sec.  __.13(b)(3), the final rule provides that certain one-
to-four family rental housing with affordable rents in nonmetropolitan 
census tracts qualifies as a community development activity for which a 
bank could receive CRA consideration.
    The agencies considered, but are not adopting, an alternative 
approach to only include non-owner-occupied home mortgage loans made to 
low- and moderate-income, minority, or mission-driven nonprofit 
organization borrowers, or loans originated by mission-driven nonprofit 
organizations. As discussed above, the agencies determined that non-
owner-occupied closed-end home mortgage loans reflect a bank's capacity 
to conduct retail lending and are a way that a bank can meet the credit 
needs of a community. In addition, the agencies believe that applying 
additional exclusions to certain categories of non-owner-occupied home 
mortgage loans would add complexity to the evaluation of this product 
line. For more information and discussion regarding the agencies' 
consideration of comments recommending adoption of additional race- and 
ethnicity-related provisions in this final rule, see section III.C of 
this SUPPLEMENTARY INFORMATION.
    Other closed-end home mortgage loan products. The final rule 
retains the proposal's approach to include product lines that would be 
reportable as closed-end home mortgage loans in HMDA data. In making 
this determination, the agencies considered comments regarding 
including other specific types of loan products in the closed-end home 
mortgage loan product line evaluation. As a general matter, the 
agencies believe that including closed-end home mortgage loans that are 
reportable in HMDA data in CRA evaluations promotes consistency across 
regulations, which in turn facilitates compliance and consistent 
information within a cohesive banking regulatory framework.
    The agencies considered, but are not adopting in the final rule, 
commenter sentiment to include rate-term refinances, and to exclude 
cash-out refinances, in the Retail Lending Test evaluation of closed-
end home mortgage lending. The agencies believe that all refinance 
types can be an important credit source for individuals and that there 
could be unintended consequences to limiting the refinance mortgages 
that are determined to meet community credit needs. For example, the 
agencies have considered that excluding specific categories of home 
mortgage refinance loans from the closed-end home mortgage product line 
could reduce the flexibility of banks to serve the community in a way 
that accords with the bank's business model and strategy. Accordingly, 
the final rule maintains the proposed approach of

[[Page 6822]]

including all closed-end home mortgage loans, including all closed-end 
home refinance loans, in the closed-end home mortgage product line.
    As proposed, the final rule includes closed-end manufactured 
housing loans in the closed-end home mortgage loan product line. As 
noted above and discussed in the section-by-section analysis of final 
Sec.  __.12, the final rule defines ``closed-end home mortgage loan'' 
as equivalent to the term ``closed-end mortgage loan'' in Regulation C. 
A closed-end mortgage loan under Regulation C is an extension of credit 
that is secured by a lien on a ``dwelling'' and that is not an open-end 
line of credit.\877\ Regulation C defines a ``dwelling'' as ``a 
residential structure, whether or not attached to real property'' that 
``includes but is not limited to . . . a manufactured home or other 
factory-built home.'' \878\ The agencies note that loans for 
manufactured housing may be titled as real estate (generally secured by 
a manufactured home and the land on which it is sited) or as personal 
property (generally secured by the manufactured home only). 
Manufactured home loans titled as real estate and those titled as 
personal property are both secured by a dwelling and thus both closed-
end mortgage loans included in the HMDA data; as such, both of these 
manufactured loan types will be used for evaluating the closed-end home 
mortgage product line under the Retail Lending Test.
---------------------------------------------------------------------------

    \877\ See 12 CFR 1003.2(d) (defining ``closed-end mortgage 
loan'') and (o) (defining ``open-end line of credit'').
    \878\ See 12 CFR 1003.2(f).
---------------------------------------------------------------------------

    The agencies believe that including manufactured housing loans in 
the closed-end home mortgage product line is appropriate for several 
reasons. The agencies believe that these loans may help meet community 
credit needs, especially in certain areas where affordable housing is 
limited and where manufactured housing may be relatively common. 
Further, the agencies considered that in markets where a significant 
share of low- and moderate-income households own manufactured housing, 
excluding loans made to these households could result in market 
benchmarks that do not appropriately reflect the credit needs and 
opportunities of the area. The agencies also considered that the 
responsive credit products component of the Retail Services and 
Products Test will enable the agencies to make informed determinations 
about the responsiveness of a bank's manufactured housing lending.
    Finally, the agencies considered that it may not be feasible for 
Retail Lending Test evaluations to exclude, or separately consider, 
manufactured housing that is titled as personal property because the 
HMDA data field identifying these loans may not be complete for banks 
that are partially exempt from HMDA reporting. In addition, the 
agencies considered that the number of these loans may be too low to 
conduct a robust separate analysis, including developing market 
benchmarks in Retail Lending Test Areas.\879\
---------------------------------------------------------------------------

    \879\ Certain data points reported in HMDA, including the 
manufactured housing secured property type, are exempt if the 
transaction is covered by a partial exemption. See generally 12 CFR 
1003.3(d) and associated Official Interpretations.
---------------------------------------------------------------------------

    Regarding construction loans, under the final rule, the agencies 
will evaluate only closed-end construction loans that are reported 
under HMDA, consistent with the agencies' proposal. The agencies 
considered, but decline to adopt, an alternative suggested by some 
commenters to evaluate all construction-only loans, including those not 
reported under HMDA, for one-to-four family residential properties in 
the closed-end home mortgage loan product line under the Retail Lending 
Test. A construction-only loan that is designed to be replaced by 
permanent financing is considered temporary financing and excluded from 
HMDA reporting.\880\ The agencies have determined that this temporary 
financing should not be included in the closed-end home mortgage 
product line of the Retail Lending Test, because the borrower of a 
construction-only loan may be a commercial entity, and it is not clear 
how the borrower distribution analysis would apply to these loans. 
Including these loans in the distribution analysis could impact the 
evaluation of closed-end home mortgage loans because the metrics and 
benchmarks would reflect lending in multiple substantially different 
loan product types. Thus, construction-only loans considered temporary 
financing under the HMDA reporting requirements will not be evaluated 
in the closed-end home mortgage product line. In contrast, a combined 
construction-to-permanent loan based on a single legal obligation is 
reportable pursuant to HMDA, and the agencies believe that they should 
be included with other HMDA-reportable closed-end home mortgage loans 
to avoid increasing the complexity of the Retail Lending Test 
evaluation. In addition, the agencies note that certain construction 
loans and other temporary financing could be considered as community 
development loans, if the loan meets a community development definition 
pursuant to Sec.  __.13.
---------------------------------------------------------------------------

    \880\ See 12 CFR 1003.3(c)(3) and associated Official 
Interpretations.
---------------------------------------------------------------------------

    Regarding reverse mortgage loans, the agencies have also considered 
commenter sentiment that these loans should not be evaluated under the 
Retail Lending Test because of commenter views that these loans may 
vary considerably in their responsiveness to low- and moderate- income 
borrowers and low- and moderate-income communities in ways are not 
contemplated by the proposed distribution analysis. In considering how 
best to evaluate reverse mortgage loans, the agencies note that a large 
majority of these loans are open-end home mortgage loans.\881\ The 
agencies believe that the final rule approach, discussed below, of 
evaluating open-end home mortgages only under the Retail Services and 
Products Test's responsive credit products and programs component in 
final Sec.  __.23(c)(2), and not also under the Retail Lending Test, 
appropriately focuses the evaluation of the significant majority of 
reverse mortgage loans on their responsiveness to low- and moderate-
income individuals and low- and moderate-income census tracts.
---------------------------------------------------------------------------

    \881\ Board analysis of HMDA Loan/Application Register (LAR) 
data from 2018-2020 showed that approximately 80 percent of all 
reverse mortgages were open-end; among depository institutions only, 
84 percent of reverse mortgages were open-end.
---------------------------------------------------------------------------

    The agencies believe that including the relatively small share of 
reverse mortgage loans that are closed-end home mortgages within the 
closed-end home mortgage loan product line on the Retail Lending Test 
is appropriate for a number of reasons. The agencies note that closed-
end reverse mortgage loans typically provide borrowers with a specified 
amount of money upfront that cannot be subsequently increased over time 
and generally feature a fixed interest rate.\882\ The agencies believe 
that these features make closed-end reverse mortgage loans more like 
the forward closed-end home mortgage loans with which they are 
aggregated under the final rule's closed-end home mortgage loan product 
line, compared to open-end reverse mortgage loans, which the final rule 
would not evaluate as a major product line. The agencies also note that 
they have issued detailed guidance to the banks they supervise 
regarding the consumer financial protection laws and regulations that

[[Page 6823]]

apply to reverse mortgage lending, and setting forth supervisory 
expectations related to ensuring the protection of reverse mortgage 
loan consumers.\883\
---------------------------------------------------------------------------

    \882\ See CFPB, ``Reverse Mortgages: Report to Congress'' 98 
(June 28, 2012), https://files.consumerfinance.gov/a/assets/documents/201206_cfpb_Reverse_Mortgage_Report.pdf.
    \883\ See OCC, Board, FDIC, NCUA, U.S. Dept. of Treasury Office 
of Thrift Supervision, ``Reverse Mortgage Products: Guidance for 
Managing Compliance and Reputation Risks,'' 75 FR 50801 (Aug. 17, 
2010).
---------------------------------------------------------------------------

    Additionally, the agencies note that, due to HMDA partial 
exemptions available to certain banks,\884\ reverse mortgages are not 
consistently identifiable under HMDA, which would make it challenging 
to identify and remove reverse mortgages from a bank's reported closed-
end home mortgages. Finally, the agencies believe that the inclusion of 
closed-end reverse mortgages allows for an appropriate degree of 
flexibility for a bank to meet the closed-end home mortgage credit 
needs of its community, accounting for diverse bank business models and 
strategies. Permitting banks to receive consideration for these loans 
preserves an additional means for banks to meet community credit needs.
---------------------------------------------------------------------------

    \884\ A transaction may be partially exempt if a bank is 
eligible for partial exemptions. A bank eligible for partial 
exemptions does not need to collect and report certain data on HMDA 
reportable transactions. See generally 12 CFR 1003.3(d) and 
associated Official Interpretations.
---------------------------------------------------------------------------

    The agencies considered commenter sentiment that certain income-
restricted home mortgage assistance loans and programs, such as 
downpayment assistance, should be counted as closed-end home mortgage 
loans under the Retail Lending Test. Under the final rule, the agencies 
note that income-restricted home mortgage assistance programs could 
receive consideration under the Retail Services and Products Test as a 
responsive credit product and program. Under the final rule, the 
agencies also note that if such programs involve originating or 
purchasing closed-end home mortgage loans, those loans would be 
evaluated under the Retail Lending Test. For example, a program focused 
on originating home mortgages involving community land trusts could 
receive qualitative consideration under the Retail Services and 
Products Test and any closed-end home mortgages originated under this 
program would also be evaluated under the Retail Lending Test's 
distribution analysis, provided that closed-end home mortgage loans are 
a major product line for the bank. The agencies believe this approach 
appropriately evaluates a range of bank activities that serve community 
credit needs while maintaining a metrics-based approach for evaluating 
retail lending.
Section __.22(d)(1)(ii) and (iii) Small Business Loans and Small Farm 
Loans
    In final Sec.  __.22(d)(1)(ii) and (iii) and (d)(2) and in 
paragraphs II.b.1 and II.b.2 of final appendix A, the agencies are 
adopting their proposal to evaluate the distribution of a bank's 
originated and purchased small business loans and small farm loans as 
separate major product lines under the Retail Lending Test.
The Agencies' Proposal
    In proposed Sec.  __.22(a)(4)(i), the agencies provided that they 
would evaluate the distribution of small business loans and small farm 
loans as separate major product lines under the Retail Lending 
Test,\885\ and sought feedback on the corresponding evaluation 
framework. As discussed further in the section-by-section analysis of 
final Sec.  __.12, the agencies sought feedback on definitions and size 
standards for ``small business,'' ``small business loan,'' ``small 
farm,'' and ``small farm loan.'' The agencies also sought comments on 
sunsetting the current small business loan and small farm loan 
definitions when transitioning to using section 1071 data for CRA 
evaluations (discussed in the section-by-section analyses of final 
Sec. Sec.  __.12 and __.22(e)).
---------------------------------------------------------------------------

    \885\ See proposed Sec.  __.22(a)(4)(i)(D) and (E).
---------------------------------------------------------------------------

Comments Received
    The agencies received many comments on different aspects of 
evaluating small business lending and small farm lending as major 
product lines under the proposed Retail Lending Test, including the 
aspects of the proposal related to the section 1071 rulemaking.\886\ 
The section-by-section analysis of final Sec.  __.12 discusses feedback 
on the proposed definitions of small business, small business loan, 
small farm, and small farm loan.
---------------------------------------------------------------------------

    \886\ The agencies also received comments on evaluating small 
business lending as a community development activity, which, along 
with the agencies' proposed and final rules on the economic 
development category of community development, are discussed in the 
section-by-section analysis of final Sec.  __.13(c). In addition, 
the section-by-section analysis in of final Sec.  __.12 discusses 
comments on the proposed definitions of small business, small 
business loan, small farm, and small farm loan.
---------------------------------------------------------------------------

    In general. A few commenters specifically addressed the designation 
of small business loans and small farm loans as major product lines, 
evaluated under the Retail Lending Test's distribution analysis, with 
most generally favoring continuing to evaluate these loans. Some 
commenters noted that such an evaluation of a bank's small business 
loans and small farm loans, along with home mortgage loans, is 
consistent with longstanding interpretation of the core focus of the 
CRA and regulatory practice. Some commenters suggested that the 
agencies consolidate the six proposed major product lines into a 
smaller number--between two and four product line types--including some 
sentiment that small business loans and small farm loans could be 
considered as a combined product line category. As discussed above in 
the section-by-section analysis of final Sec.  __.22(d)(2), commenters 
advocating for evaluation of fewer product lines under the Retail 
Lending Test generally indicated that this would simplify the Retail 
Lending Test evaluation and lessen regulatory burden. Some commenters 
stated that small farm loans are functionally considered a type of 
business loan, such that a combined evaluation would be appropriate.
    Evaluation of small business credit card loans. A few commenters 
offered views on evaluating small business credit card loans as part of 
a bank's small business lending under the distribution analysis of the 
Retail Lending Test. A commenter stated generally that the agencies 
should carefully consider whether business credit cards are a good form 
of small business lending or are near-predatory. This commenter also 
expressed concerns that, although some banks market credit cards to 
small businesses, these credit card loans might not be easily 
distinguished from consumer credit card loans if data collection 
requirements are not revised.
    A few commenters suggested that small business credit card loans 
should not be evaluated as small business loans. A commenter suggested 
that credit cards in general, including small business credit cards, 
should not be in CRA evaluations. This commenter more specifically 
objected to small business credit card renewals counting as new 
originations, indicating in support of this objection that small 
business credit card loans are typically renewed on an annual basis. 
Another commenter recommended that small business credit card loans 
should generally not be evaluated as small business loans, but also 
suggested that larger banks engaging in direct small business credit 
card lending should retain an option to have these credit card loans 
evaluated as small business loans. This commenter raised concerns about 
treating small business credit card loans the same for larger banks as 
for smaller community banks, due to the different business models these 
banks may have with respect to this product line. In

[[Page 6824]]

particular, the commenter thought that evaluating small business credit 
card loans as small business loans in a uniform manner across banks 
would disadvantage smaller banks that engage in indirect credit card 
lending with affiliates or partner lenders, compared with larger banks 
that have small business credit card direct lending programs.
    Some commenters supported qualitative evaluation of small business 
credit card lending. A commenter stated that the agencies should 
analyze the pricing and terms of all loans, including small business 
credit card loans, to ensure that these products are meeting local 
needs and not extracting wealth. A few commenters indicated similar 
interest in ensuring that small business credit card loans be subject 
to a qualitative evaluation, expressing support for evaluating small 
business credit card loans under both the proposed Retail Lending Test 
and the proposed Retail Services and Products Test. One of these 
commenters specifically stated that the agencies should consider 
factors such as repayment rates and the affordability of credit card 
terms in evaluating small business credit card loans.
Final Rule
    In general.\887\ In final Sec.  __.22(d)(1)(ii) and (iii), the 
agencies have provided that they will evaluate the distribution of a 
bank's originated and purchased small business loans and small farm 
loans as separate major product lines under the Retail Lending Test. 
Specifically, the agencies will evaluate the distribution of a bank's 
small business loans and small farm loans in facility-based assessment 
areas and in an outside retail lending area in which small business 
loans and small farm loans constitute major product lines. 
Additionally, as discussed in the section-by-section analysis of final 
Sec.  __.17, the agencies will evaluate the distribution of a bank's 
small business lending as a major product line in retail lending 
assessment areas if small business loans meet or exceed the delineation 
threshold provided in final Sec.  __.17(c)(2).
---------------------------------------------------------------------------

    \887\ The transition amendments included in this final rule 
will, once effective, amend the definitions of ``small business'' 
and ``small farm'' to instead cross-reference to the definition of 
``small business'' in the CFPB Section 1071 Final Rule. This will 
allow the CRA regulatory definitions to adjust if the CFPB increases 
the threshold in the CFPB Section 1071 Final Rule definition of 
``small business.'' This is consistent with the agencies' intent 
articulated in the preamble to the proposal and elsewhere in this 
final rule to conform these definitions with the definition in the 
CFPB Section 1071 Final Rule. The agencies will provide the 
effective date of these transition amendments in the Federal 
Register after section 1071 data is available.
---------------------------------------------------------------------------

    Separate evaluation of small business loans and small farm loans. 
In determining to evaluate small business loans and small farm loans as 
separate major product lines under the Retail Lending Test, the 
agencies considered that this approach is consistent with the current 
large bank lending test \888\ and ensures continuity in the evaluation 
of these two product lines. Additionally, the agencies believe that 
small business loans and small farm loans should be evaluated 
separately because these products can serve distinct borrower groups 
with different challenges and credit needs.\889\ The agencies believe 
that the additional visibility provided by separate evaluations of a 
bank's small business loans and small farm loans better facilitates 
determining whether a bank is helping to serve the credit needs of 
small businesses and small farm as part of the bank's entire community. 
The agencies expect that the final rule's distribution analysis for 
small business loans to small businesses and small farm loans to small 
farms with gross annual revenues of $250,000 or less and for small 
business loans to small businesses and to small farm loans to small 
farms with gross annual revenues of greater than $250,000 but less than 
or equal to $1 million, as discussed in the section-by-section analysis 
of final Sec.  __.22(e)(2)(ii)(C) and (D), will provide additional 
clarity regarding how banks are serving the needs of these different 
types of borrowers.
---------------------------------------------------------------------------

    \888\ See current 12 CFR __.22(a).
    \889\ Data analysis conducted by the agencies of market 
benchmarks in facility-based assessment areas where small business 
and/or small farm were a major product line indicated that the 
median benchmarks for small business lending and small farm lending 
differed significantly, reinforcing the agencies' view that the 
credit needs and opportunities associated with the two lending 
product lines are distinct and should be evaluated separately.
---------------------------------------------------------------------------

    The agencies considered, but are not adopting, an alternative 
approach of combining small business loans and small farm loans into a 
single major product line category, and evaluating the distribution of 
these loans on a combined basis. The agencies considered that this 
alternative approach would reduce complexity for banks that would 
otherwise have both a small business and small farm product line, by 
reducing the total number of product lines and associated metrics, 
benchmarks, and performance ranges. However, as discussed above, the 
agencies determined that defining small business loans and small farm 
loans as separate categories would bring the important benefits 
discussed above of consistency with the current approach, and provide 
greater visibility into how a bank has served the credit needs of its 
community. In light of these considerations, the final rule maintains 
the current and proposed approach of evaluating small business loans 
and small farm loans as separate major product lines.
    Evaluation of small business credit card loans. The final rule 
retains the current and proposed approaches of including small business 
credit card loans as small business loans when evaluating a bank's 
retail lending. The agencies believe that evaluating small business 
credit card loans is important due to the role these loans can play in 
providing short-term financing for small businesses and small farms. 
Based on supervisory experience, the agencies believe that small 
business credit card loans can provide liquidity to small businesses 
and small farms that addresses key short-term credit needs, such as 
providing working capital, facilitating cash flow, and meeting 
unexpected expenses. As a result, the agencies believe that considering 
small business and small farm financing comprehensively is important 
for a broader understanding of how banks are meeting the credit needs 
of their communities. In addition, the agencies considered that 
including small business credit card loans in the distribution analysis 
of a bank's small business lending allows appropriate flexibility for a 
bank to meet community credit needs in a way that accords with the 
bank's business model and strategy. For these reasons, as well as for 
simplicity, clarity, and consistency with the current framework, the 
agencies will continue to consider small business credit card loans as 
part of the small business product line.
    Regarding treatment of small business credit card renewals in 
particular, the agencies note that the final rule is consistent with 
current guidance, which provides that a bank should collect and report 
its refinanced or renewed small business loans and small farm loans as 
loan originations, but that a bank may only report one origination per 
loan per year, unless an increase in the loan amount is granted.\890\ 
When the agencies transition to using section 1071 data for CRA 
evaluations (as discussed

[[Page 6825]]

in the section-by-section analyses of final Sec. Sec.  __.12 and 
__.22(e)), renewals will be considered to the extent that they are 
reported under section 1071.\891\
---------------------------------------------------------------------------

    \890\ Renewals of lines of credit for small businesses and small 
farms are treated in the same manner as renewals of small business 
loans and small farm loans. See Q&A Sec.  __.42(a)--5. The treatment 
of renewals and refinancings pursuant to the Community Development 
Financing Test (and the Community Development Financing Test for 
Limited Purpose Banks and Intermediate Bank Community Development 
Evaluations) is discussed in the section-by-section analysis of 
final Sec.  __.24.
    \891\ See 12 CFR 1002.104.
---------------------------------------------------------------------------

    The agencies considered, but are not adopting, a commenter 
suggestion to separately evaluate direct and indirect small business 
credit card loans. The agencies believe that evaluating small business 
loans and small farm loans conducted through both direct and indirect 
channels contributes to a more comprehensive and consistent review of 
the ways in which a bank is meeting its community's credit needs. As 
similarly discussed in the section-by-section analysis of Sec.  
__.22(d)(1)(iv), regarding automobile lending, not distinguishing 
between direct and indirect small business loans is intended to ensure 
consistency across product lines, facilitating certainty, 
predictability, and transparency regarding distribution analysis. At 
the same time, the agencies recognize that performance context, 
including a bank's business strategy and product offerings, is a key 
factor to consider in assessing a bank's CRA performance. For this 
reason, the agencies may consider performance context factors that are 
not accounted for in the Retail Lending Test's metrics and benchmarks, 
including consideration of whether a bank's lending in a major product 
line was primarily through direct or indirect channels, when assigning 
Retail Lending Test conclusions.\892\
---------------------------------------------------------------------------

    \892\ See, e.g., the section-by-section analysis of final 
Sec. Sec.  __.21(d) and __.22(e) and (g).
---------------------------------------------------------------------------

    In determining to evaluate small business credit card loans within 
the small business product line as part of the Retail Lending Test 
distribution analysis, the agencies also considered that the Retail 
Services and Products Test will evaluate other aspects of a bank's 
small business credit card lending. Specifically, as explained in the 
section-by-section analysis of final Sec.  __.23, the agencies will 
qualitatively evaluate whether a bank's credit products and programs, 
which may include small business credit card lending, are responsive to 
the needs of the bank's community, consistent with safe and sound 
operations.\893\
    In addition, the agencies considered commenter sentiment that small 
business credit card lending may not in all cases appropriately serve 
the credit needs of a bank's community. The agencies note that these 
considerations are part of the agencies' consumer compliance 
examinations and, where applicable, pursuant to final Sec.  __.28(d), 
the agencies' evaluation of a bank's CRA performance would take into 
consideration evidence of discriminatory or other illegal credit 
practices.
    In determining to include small business credit card loans within 
the small business product line, the agencies have also considered how 
the mixture of different product types included in the small business 
product line could impact the Retail Lending Test distribution analysis 
for different banks. For example, the agencies considered that when 
evaluating the small business lending of a bank that primarily offers 
one small business loan product and does not offer small business 
credit cards, the market benchmarks used in the bank's distribution 
analysis may not reflect the bank's product offerings. In such 
circumstances, the agencies may consider the bank's business strategy 
and product offerings, pursuant to Sec.  __.21(d)(5), when assigning 
Retail Lending Test conclusions for this bank, which the agencies 
believe will address cases in which additional considerations are 
necessary to inform the distribution analysis.
Section __.22(d)(1)(iv) Automobile Loans
    The agencies proposed to evaluate the distribution of a bank's 
automobile loans using a metrics-based approach under the Retail 
Lending Test. Under the proposed approach, automobile loans would be 
evaluated in a facility-based assessment area, retail lending 
assessment area, or outside retail lending area if the bank's 
originated and purchased automobile loans are a major product line in 
such facility-based assessment area, retail lending assessment area, or 
outside retail lending area.
    The agencies received feedback on the proposal to evaluate the 
distribution of a bank's automobile loans under the Retail Lending Test 
from a variety of commenters expressing a range of views regarding 
whether the agencies should evaluate automobile loans under the 
distribution analysis component of the Retail Lending Test when 
automobile loans constitute a major product line, with some commenters 
supporting the proposed approach, and other commenters recommending an 
alternative approach for evaluating automobile loans, such as a 
qualitative evaluation approach. Some commenters also disagreed about 
the types of automobile loans that the agencies should be considered in 
the distribution analysis, especially indirect automobile loans.
    The agencies are adopting the proposal to evaluate the distribution 
of a bank's automobile loans under the Retail Lending Test, with 
certain changes. Specifically, under the final rule, the agencies only 
evaluate automobile loans under the distribution analysis component of 
the Retail Lending Test if (1) automobile lending constitutes a 
majority of the bank's retail lending, or (2) the bank opts to have its 
automobile loans evaluated. In these cases, the agencies evaluate the 
distribution of a bank's originated and purchased automobile loans, 
including indirect automobile loans, in facility-based assessment areas 
or outside retail lending area in which automobile loans constitute a 
major product line.
---------------------------------------------------------------------------

    \894\ Under the proposal, automobile loans and other types of 
consumer loans could also be considered under the responsive retail 
lending products and programs prong of the Retail Services and 
Products Test. The proposed treatment of automobile loans and other 
consumer loans would thus depart from the practice of the current 
CRA regulations, under which the geographic and borrower 
distributions of a bank's motor vehicle, credit card, other secured, 
and unsecured loans are evaluated as separate consumer loan 
categories under the lending test if consumer lending constitutes a 
substantial majority of a bank's business. See current 12 CFR 
__.22(a)(1). Current interagency guidance on when to consider large 
banks' consumer lending 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.
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed in Sec.  __.22(a)(4)(i)(F) to include a 
bank's automobile lending in the distribution analysis under the Retail 
Lending Test if automobile loans constitute a major product line in a 
facility-based assessment area, retail lending assessment area, or 
outside retail lending area. Under the proposal, automobile loans would 
be the sole consumer loan type evaluated under the distribution 
analysis component of the Retail Lending Test.\894\ The agencies 
explained in the preamble to the proposed rule that automobile loans 
should be evaluated under the Retail Lending Test because automobile 
loans can be important in areas where jobs are located a significant 
distance away from an individual's residence, particularly where public 
transportation is not readily available. The agencies also explained 
that automobile loans can serve as a means for consumers to build a 
credit history.
    The agencies requested feedback on whether the benefits of 
evaluating automobile lending under the distribution analysis component 
of the

[[Page 6826]]

Retail Lending Test would outweigh other considerations such as the 
impact of data collection and reporting requirements on banks. The 
agencies also asked whether they should instead adopt a qualitative 
approach to evaluating automobile lending for all banks.
Comments Received
    Evaluation of automobile loans under the Retail Lending Test 
distribution analysis. A few commenters expressed support for 
evaluating the distribution of a bank's automobile loans under the 
Retail Lending Test as proposed. In general, these commenters stated 
that including automobile lending in the distribution analysis would 
make the evaluation of a bank's retail lending more comprehensive and 
would encourage this type of lending to low- or moderate-income 
borrowers.
    Other commenters recommended that the agencies pair the metrics-
based evaluation of automobile lending with a qualitative assessment 
that considers whether a bank's automobile lending program is, for 
example, conducted in a safe and sound manner, compliant with consumer 
lending laws, meeting consumer needs, and promoting climate resiliency.
    However, most commenters that addressed the evaluation approach for 
automobile loans opposed or expressed significant concerns with 
evaluating automobile loans under the distribution analysis of the 
Retail Lending Test as proposed. Many of these commenters explicitly 
stated that the agencies should evaluate automobile lending purely 
qualitatively, with several commenters specifying that the evaluation 
should take place only under the Retail Services and Products Test. 
Another commenter observed that banks lack a historical foundation to 
estimate expected performance for new retail product lines that the 
agencies proposed to evaluate under the distribution analysis component 
of the Retail Lending Test, such as automobile lending and multifamily 
lending.
    Commenters that opposed or expressed concerns with evaluating the 
distribution of a bank's automobile loans under the Retail Lending Test 
discussed a number of issues, including the nature and composition of 
the automobile finance market; potential data issues associated with a 
metrics-based approach; the objectives of the CRA; and possible 
unintended consequences with the proposed quantitative approach.
    First, a number of these commenters asserted that the banking 
industry represents a relatively small percentage of the overall 
automobile lending market and described the market as being heavily 
composed of nonbanks, credit unions, and captive finance companies, 
none of which are subject to CRA. Further, these commenters stated that 
most banks conduct automobile lending primarily through indirect 
channels via partnerships with third parties that remain primarily 
responsible for marketing, originating sales, and financing for 
customers. For these reasons, these commenters asserted that banks have 
limited control over the geographic and borrower distributions of 
automobile loans. Thus, these commenters stated that automobile loans 
are unsuitable for a metrics-based evaluation under the proposed Retail 
Lending Test.
    Second, some commenters stated that the agencies' proposal to limit 
data collection and reporting requirements for automobile lending to 
banks with assets of over $10 billion would create a universe of 
reporters that would capture only a small segment of total bank 
automobile lending. These commenters stated that this incomplete 
dataset would lead to inaccurate market benchmarks under the proposed 
Retail Lending Test for this product line. To address this issue at 
least one commenter recommended expanding the automobile lending data 
requirements to all large banks, and to wholesale and limited purpose 
banks with assets over $10 billion.
    Third, some commenters asserted that the proposed approach for 
evaluating a bank's automobile lending performance would be 
inconsistent with their view of the CRA's historic focus and mission, 
and with the evaluation of consumer loans under the current rule. 
Specifically, these commenters expressed that the CRA focuses on home 
mortgage and small business loans for low- or moderate-income 
individuals, communities, and small businesses, and not on depreciable 
assets such as automobiles. These commenters further maintained that 
adding automobile lending as a major product line would deemphasize 
other wealth-building products. For this reason, a few commenters 
recommended that, if the metrics-based approach to evaluating 
automobile loans is retained, the agencies should cap the weight and 
impact of automobile loans in each assessment area so as not to dilute 
the impact of more important loan products, especially home mortgage 
and small business loans. Relatedly, a few commenters stated that the 
agencies did not provide supporting data or analysis demonstrating that 
automobile loans facilitate job access and credit building, or 
otherwise justifying the special treatment of automobile loans compared 
to other types of consumer loan products.
    Finally, a few commenters shared viewpoints on potential unintended 
consequences that could result from the evaluation of the distribution 
of a bank's automobile loans under the proposed Retail Lending Test. 
For example, some of these commenters warned that banks may elect to 
scale back their automobile lending, may exit the automobile lending 
market entirely, or may become less attractive to automobile dealers 
than nonbank providers if banks require dealers to take certain actions 
to comply with CRA. As a result, these commenters stated that the 
proposal would lead to a reduction in the availability of safe, 
responsible automobile loans, and ultimately leave the automobile 
lending market to nonbank lenders not subject to the CRA.
    Types of automobile loans considered. A number of commenters 
addressed the types of automobile loans that the agencies should 
include or exclude from consideration if automobile loans are evaluated 
under the distribution analysis component of the Retail Lending Test. 
For example, a commenter encouraged the agencies to define automobile 
lending as all automobile lending, including automobile purchase loans, 
loans to consumers for household purposes that are secured by 
automobiles, and automobile refinance lending, stating that all of 
these loan products are important means of establishing and building 
credit for low- or moderate-income individuals.
    Several commenters recommended excluding, or otherwise expressed 
concerns with, indirect automobile loans due to the limited role that 
banks play in indirect automobile lending. At least one such commenter 
recommended that if the agencies do not exclude indirect automobile 
loans from evaluation, then the agencies should evaluate direct and 
indirect automobile loans as separate product lines under the 
distribution analysis. At least one other commenter recommended that 
the agencies consider performance context and qualitative factors to a 
greater extent when evaluating indirect automobile loans. A different 
commenter similarly stated that it would be unfair to compare a direct 
to an indirect automobile lender, and recommended that the agencies 
consider a bank's automobile lending volume and business model in 
determining whether and how to evaluate the bank's automobile lending, 
including what

[[Page 6827]]

automobile lending data requirements apply to the bank.
    By contrast, a few commenters stated that the agencies should 
consider and scrutinize a bank's indirect automobile lending, 
emphasizing that indirect automobile loans may be predatory.
Final Rule
    For the reasons discussed below, the agencies are adopting the 
proposal, with substantive modifications, to evaluate the distribution 
of a bank's automobile loans under the Retail Lending Test pursuant to 
final Sec.  __.22(d)(1)(iv). As discussed above in the introduction to 
the section-by-section analysis of Sec.  __.22, under the final rule, 
automobile loans are only evaluated under the Retail Lending Test, 
including the distribution analysis, if the bank is a majority 
automobile lender, as defined in Sec.  __.12, or if the bank opts to 
have its automobile loans evaluated. In these cases, under the final 
rule the agencies will evaluate the distribution of a bank's originated 
and purchased automobile loans, including indirect automobile loans, in 
the bank's facility-based assessment areas and, as applicable, outside 
retail lending area.\895\
---------------------------------------------------------------------------

    \895\ The agencies proposed to also evaluate the distribution of 
a large bank's automobile loans in retail lending assessment areas 
if such loans constitute a major product line. However, as discussed 
in greater detail in the section-by-section analysis related to 
Sec.  __.17(d), under the final rule, only closed-end home mortgage 
loans and small business loans are evaluated in retail lending 
assessment areas.
---------------------------------------------------------------------------

    Evaluation of automobile loans under the Retail Lending Test 
distribution analysis. The agencies believe it is appropriate to 
evaluate the distribution of a bank's automobile loans for certain 
banks using an approach that leverages metrics under the Retail Lending 
Test. While some commenters expressed that automobile loans are not a 
wealth-building credit product, the agencies believe that access to 
automobile loans may increase the incomes and economic mobility of low- 
and moderate-income individuals through improved access to education, 
vocational training, and employment opportunities in geographic areas 
where public transportation is not readily available. Furthermore, 
automobile loans represent the second largest category of household 
debt in terms of total debt outstanding, after home mortgages, and 
slightly greater than student loans.\896\ Inclusion of automobile loans 
in the retail lending distribution analysis thus reflects the 
importance of this product line to low- and moderate-income borrowers 
and communities.
---------------------------------------------------------------------------

    \896\ See Federal Reserve Bank of New York, Center for 
Microeconomic Data, ``Total Household Debt Reaches $17.06 Trillion 
in Q2 2023; Credit Card Debt Exceeds $1 Trillion'' (Aug. 8, 2023), 
https://www.newyorkfed.org/newsevents/news/research/2023/20230808; 
see also Household Debt and Credit Report (Q2 2023), https://www.newyorkfed.org/microeconomics/hhdc.
---------------------------------------------------------------------------

    The agencies considered adopting a purely qualitative approach, 
without a distribution analysis, to evaluating automobile loans, as 
some commenters suggested. However, the agencies believe that a 
qualitative approach would be less transparent and less predictable 
than a distribution analysis, and thus, would not be consistent with 
the agencies' objectives. In addition, and as discussed in the section-
by-section analysis of final Sec.  __.23(c), automobile loans may also 
be qualitatively evaluated under the Retail Services and Products Test, 
which considers whether a bank's credit products and programs are, 
consistent with safe and sound operations, responsive to the credit 
needs of the bank's entire community, including the needs of low- and 
moderate-income individuals and residents of low- and moderate-income 
census tracts. The Retail Services and Products Test would therefore 
allow the agencies to assess qualitative aspects of a bank's automobile 
lending (such as affordability), as many commenters recommended.
    The agencies have considered other commenter concerns regarding the 
significant role that nonbank lenders represent in the automobile 
lending market, and regarding the banking industry's relatively small 
percentage of the automobile lending market. However, based on 
supervisory experience and agency analysis, the agencies are aware 
that, for a particular bank, automobile lending may be a significant 
share of its retail lending. Therefore, the agencies believe it is 
appropriate to evaluate the distribution of certain banks' automobile 
loans to ensure these banks are meeting the automobile financing credit 
needs of their entire communities.
    The agencies have also considered some commenters' concerns that 
the market benchmarks that the agencies proposed to use in evaluating 
the distribution of a bank's automobile loans could be incomplete or 
skewed due to the limited applicability of the proposed automobile 
lending data requirements or the differences between the business 
models of banks that make automobile loans. As discussed further in the 
section-by-section analysis of Sec.  __.22(e), the agencies have 
determined that there would be insufficient bank automobile lending 
data necessary to construct suitable market benchmarks and 
corresponding performance ranges. In light of this determination, under 
the final rule, a bank's geographic and borrower distributions with 
respect to automobile lending are compared only to community 
benchmarks, and not to market benchmarks. Thus, the agencies will 
develop supporting conclusions regarding the distribution of a bank's 
automobile lending without the use of performance ranges, similar to 
how the agencies evaluate consumer loans in CRA examinations under the 
current regulation. The agencies believe the changes in the final rule, 
relative to the proposal, resolve the potential issues noted by 
commenters regarding the reliability of the market benchmarks for 
automobile lending, because market benchmarks will not be used under 
the final rule approach for automobile lending.
    The agencies also considered the range of views expressed by 
commenters about the potential impact of evaluating the distribution of 
a bank's automobile loans under the Retail Lending Test, with some 
commenters predicting that such an evaluation approach would encourage 
more automobile lending, and other commenters warning that banks would 
withdraw from the automobile loan market. As discussed above, however, 
under the final rule, evaluation of automobile loans under the 
distribution analysis component of the Retail Lending Test is optional 
for the vast majority of banks. For this reason and based on the other 
changes to the evaluation approach to automobile lending discussed 
above, the agencies believe that the final rule approach to evaluating 
automobile lending is reasonable and appropriately tailored.
    Treatment of indirect automobile loans. Under the final rule 
approach, the agencies evaluate the distribution of a bank's automobile 
loans without regard to whether the loans are originated or purchased 
through direct or indirect channels. In making this determination, the 
agencies have considered commenter concerns regarding indirect 
automobile loans, including commenters recommending that indirect 
automobile loans be excluded from the distribution analysis. However, 
based on supervisory experience, the agencies are aware that indirect 
automobile loans may represent a significant majority of automobile 
loans for certain banks, and that excluding indirect automobile loans 
from evaluation may therefore provide an incomplete picture of a bank's

[[Page 6828]]

automobile lending.\897\ In addition, excluding indirect loans from the 
automobile loan product line would be inconsistent with other major 
product lines evaluated under the distribution analysis of the Retail 
Lending Test, which do not exclude indirect loans.
---------------------------------------------------------------------------

    \897\ See Andreas Grunwald, Jonathan Lanning, David Low, and 
Tobias Salz, ``Auto Dealer Loan Intermediation: Consumer Behavior 
and Competitive Effects,'' National Bureau of Economic Research 
Working Paper 28136 (Nov. 2020), https://www.nber.org/system/files/working_papers/w28136/w28136.pdf.
---------------------------------------------------------------------------

    The agencies have also determined that an alternative approach of 
separately evaluating the distribution of a bank's direct and indirect 
automobile loans would increase complexity in the Retail Lending Test 
evaluation and could require setting separate major product line 
thresholds for these two types of automobile lending. Furthermore, the 
agencies note that aggregating direct and indirect automobile loans is 
consistent with how a bank reports its automobile loans on its Call 
Report, which does not distinguish direct and indirect lending.
Product Lines Excluded From Retail Lending Distribution Analysis
Open-End Home Mortgage Loans
The Agencies' Proposal
    The agencies proposed to evaluate all open-end home mortgage loans 
secured by a one- to four-unit dwelling as a separate product line 
under the Retail Lending Test.\898\ The agencies proposed that this 
product line would include home equity lines of credit and other open-
end lines of credit secured by a dwelling, excluding multifamily 
loans.\899\ The agencies explained that they recognized that closed-end 
home mortgage loans and open-end home mortgage loans serve distinct 
purposes for low- and moderate-income borrowers and communities and are 
sufficiently different to warrant separate evaluation.
---------------------------------------------------------------------------

    \898\ See proposed Sec.  __.22(a)(4)(i)(B). The agencies 
proposed in proposed Sec.  __.12 to define ``open-end home mortgage 
loan'' to have ``the same meaning as given to the term `open-end 
line of credit' in 12 CFR 1003.2(o), excluding multifamily loans as 
defined in [Sec.  __.12].''
    \899\ See proposed Sec.  __.22(a)(4)(i)(B).
---------------------------------------------------------------------------

    The agencies proposed to use a distribution analysis to evaluate 
all open-end home mortgage loans under the approach described in the 
Retail Lending Test.\900\ However, the agencies also sought feedback on 
whether to instead solely evaluate open-end home mortgage loans 
qualitatively under the proposed Retail Services and Products Test. The 
agencies noted that a qualitative review under the Retail Services and 
Products Test would focus on the responsiveness of open-end home 
mortgage loans, which might be appropriate given the range of potential 
uses for an open-end home mortgage loan. Similarly, the agencies noted 
that lower lending volumes for open-end home mortgage loans might limit 
the usefulness of market benchmarks under the Retail Lending Test for 
an open-end home mortgage product line, particularly in assessment 
areas with limited open-end home mortgage lending.
---------------------------------------------------------------------------

    \900\ See proposed Sec.  __.22(b) through (d).
---------------------------------------------------------------------------

Comments Received
    A few commenters supported the proposal to evaluate open-end home 
mortgage loans quantitatively under the proposed Retail Lending Test. A 
commenter stated that evaluating open-end mortgage loans only under the 
Retail Services and Products Test would be too subjective. Another 
commenter emphasized the importance of open-end home mortgage loans for 
providing ready access to capital for home improvement or emergency 
repairs.
    A few commenters expressed support for the proposed approach of 
evaluating open-end home mortgage loans under both the Retail Lending 
Test and the Retail Services and Products Test. A commenter favored 
evaluating the distribution of a bank's open-end home mortgage lending 
under the proposed Retail Lending Test and whether these products have 
features responsive to low- and moderate-income community needs under 
the proposed Retail Services and Products Test. Another commenter 
suggested that the agencies evaluate open-end home mortgage loans 
qualitatively under the Retail Services and Products Test due to lower 
volumes, but also include open-end home mortgage loans in the retail 
lending volume screen and ensure a quantitative evaluation of the 
distribution of these loans if demand for these loans increases. 
Another commenter supported evaluating the distribution of a bank's 
open-end home mortgage loans and also recommended evaluating pricing 
and terms of home equity loans, suggesting that home equity lines of 
credit can be wealth-extracting.
    In contrast, several commenters suggested that open-end home 
mortgage loans should not be evaluated quantitatively under the 
proposed Retail Lending Test and should be evaluated solely under the 
proposed Retail Services and Products Test. Some of these commenters 
reasoned that evaluating the distribution of open-end home mortgage 
loans is not appropriate because many banks are not required to report 
these loans under HMDA, which would limit the usefulness of Retail 
Lending Test market benchmarks. A commenter asserted that open-end home 
mortgage loans would be unlikely to qualify as a Retail Lending Test 
major product line. Another commenter reasoned that market conditions 
can vary significantly among local geographic areas and that market 
uncertainty can be accounted for under a qualitative approach but not 
under a quantitative approach. This commenter also warned that some 
lenders use risk-based pricing and high loan-to-value ratios to 
underwrite home equity loans, raising safety and soundness concerns.
    Other commenters suggested that the agencies should conduct more 
research to analyze the extent to which open-end home mortgage lending 
is critical for low- and moderate-income households in meeting needs 
and whether such lending is affordable and sustainable before 
determining whether open-end home mortgage loans should be evaluated 
under the proposed Retail Lending Test or the proposed Retail Services 
and Products Test.
Final Rule
    Under the final rule, the agencies will not evaluate a bank's open-
end home mortgage lending using the Retail Lending Test's distribution 
analysis.\901\ The agencies will evaluate all of a large bank's retail 
lending, including its open-end and closed-end home mortgage lending, 
for responsiveness to the credit needs of its community under the 
Retail Services and Products Test in final Sec.  __.23 (discussed in 
detail in the section-by-section analysis of final Sec.  __.23). 
Closed-end home mortgage lending would also be evaluated under the 
Retail Lending Test distribution analysis, as discussed above, while 
open-end home mortgage lending would not be included in this analysis. 
Additionally, intermediate banks and small banks may request additional 
consideration for responsive retail products and programs, including 
open- and closed-end home mortgage products and programs.\902\ 
Consistent with the proposal, the final rule also provides that 
originations and purchases of open-end home mortgage loans will 
continue to be quantitatively considered as part of the Bank Volume 
Metric of the Retail

[[Page 6829]]

Volume Lending Screen applied in facility-based assessment areas for 
all banks subject to the Retail Lending Test.\903\
---------------------------------------------------------------------------

    \901\ As discussed in the section-by-section analysis of final 
Sec.  __.12, the final rule defines ``open-end home mortgage loan'' 
as follows: ``Open-end home mortgage loan has the same meaning given 
to the term ``open-end line of credit'' in 12 CFR 1003.2, excluding 
loan transactions set forth in 12 CFR 1003.3(c)(1) through (10) and 
(13) and multifamily loans as defined in [Sec.  __.12].''
    \902\ See the section-by-section analysis of final Sec.  __.21.
    \903\ See the section-by-section analysis of final Sec.  
__.22(c); final appendix A, paragraph I.a.1.
---------------------------------------------------------------------------

    In determining to evaluate open-end home mortgage lending under the 
Retail Services and Products Test and not also as a major product line 
under the distribution analysis of the Retail Lending Test, the 
agencies considered a number of factors. First, the agencies considered 
that, although open-end home mortgage loans can help to meet important 
community credit needs, these products may involve unique risks, in 
part because they are designed to allow borrowers to reduce equity in 
their homes at irregular intervals and often involve variable interest 
rates. These risks are not considered under the Retail Lending Test 
distribution analyses. In addition, the agencies also considered that 
open-end home mortgage loans include a heterogeneous mixture of unique 
product types that are designed to serve a wide variety of consumer 
credit needs. As a result, evaluating all open-end home mortgage loans 
as a single product line would include a mixture of product types 
within a single product line, such as open-end home equity lines of 
credit and open-end reverse mortgage loans. Evaluating these products 
on a combined basis may result in market benchmarks that are not an 
appropriate point of comparison for a bank that specializes in only one 
specific open-end home mortgage loan product type. Alternatively, 
further separating open-end home mortgage loans into additional product 
lines would increase the complexity of the Retail Lending Test approach 
and may result in instances where a bank has too few loans in any 
specific open-end home mortgage loan product line to evaluate as a 
major product line.
    The agencies also believe that excluding open-end home mortgage 
loans from the distribution analysis in the final rule appropriately 
reduces complexity associated with the Retail Lending Test, and is 
responsive to commenter concerns in that regard.\904\ However, the 
agencies acknowledge commenter feedback that evaluating open-end home 
mortgages solely under a qualitative approach in the Retail Services 
and Products Test would result in additional subjectivity relative to a 
quantitative approach. While a distribution analysis of open-end home 
mortgage lending may support a more consistent and standardized 
evaluation compared to a fully qualitative approach, for the reasons 
discussed above, the agencies believe it is preferable not to designate 
open-end home mortgage loans as a product line subject to a 
distribution analysis. At the same time, the agencies believe that 
retaining some measure of a quantitative evaluation of open-end home 
mortgage loans is appropriate. The final rule achieves this balance by 
evaluating these loans qualitatively under the Retail Services and 
Products Test and quantitatively under the Retail Lending Test, by 
incorporating them into the Retail Lending Volume Screen for all banks 
subject to the Retail Lending Test in their facility-based assessment 
areas. The agencies believe that considering a bank's open-end mortgage 
lending under the credit products and programs component of the Retail 
Services and Products Test will best focus evaluations on whether these 
products are responsive to the credit needs of communities, including 
low- and moderate-income individuals and census tracts.
---------------------------------------------------------------------------

    \904\ Analysis of historical lending data showed that excluding 
open-end home mortgage loans reduced the number of major product 
lines for approximately 1,500 facility-based assessment areas 
(approximately 20 percent of facility-based assessment areas for 
large banks and intermediate banks included in the analysis), in 
which open-end home mortgage lending would have been a major product 
line under the proposal. This analysis used 2018-2020 data for 
facility-based assessment areas from the CRA Analytics Data Tables. 
The number of facility-based assessment areas with fewer product 
lines is calculated as the number of facility-based assessment areas 
that would have fewer product lines when removing open-end mortgages 
from the major product line calculation, compared to an approach 
with four product lines (closed-end home mortgage loans, open-end 
home mortgage loans, small business loans, and small farm loans). 
Major product lines were determined in this analysis using the final 
rule major product line threshold of at least 15 percent of a bank's 
retail lending based on the average of loan count and loan amount.
---------------------------------------------------------------------------

Exclusion of Multifamily Loans
    In the final rule, the agencies have decided that they will not 
evaluate multifamily lending under the distribution analysis of the 
Retail Lending Test. Rather, as discussed in the section-by-section 
analyses of Sec. Sec.  __.13, __.23, and __.24, multifamily lending may 
be evaluated under the Retail Services and Products Test, the Community 
Development Financing Test, the Community Development Financing Test 
for Wholesale and Limited Purpose Banks, the Intermediate Bank 
Community Development Test, and the Small Bank Lending Test, as 
applicable.
The Agencies' Proposal
    The agencies proposed in Sec.  __.22(a)(4)(i)(C) to evaluate 
multifamily loans as a major product line using the distribution 
metrics under the proposed Retail Lending Test.\905\ The agencies noted 
that this approach would recognize the role of multifamily loans in 
helping to meet community credit needs, such as financing housing in 
different geographies and for tenants of different income levels. In 
addition, the agencies sought feedback on standards for determining 
when to evaluate multifamily loans under the Retail Lending Test, if 
included as a major product line in the final rule approach. As 
discussed further in the section-by-section analyses of final 
Sec. Sec.  __.13 and __.22, and consistent with the approach under the 
current CRA regulations,\906\ the agencies also proposed: (1) 
consideration of multifamily loans that provide affordable housing to 
low- or moderate-income individuals under the proposed Community 
Development Financing Test, the Community Development Financing Test 
for Wholesale or Limited Purpose Banks, or the intermediate bank 
community development evaluation; and (2) that an intermediate bank 
that is not required to report a home mortgage loan, a small business 
loan, or a small farm loan may opt to have the loan considered under 
the Retail Lending Test, or, if the loan is a qualifying activity 
pursuant to proposed Sec.  __.13, under the Community Development 
Financing Test or the intermediate bank community development 
performance standards.\907\
---------------------------------------------------------------------------

    \905\ The agencies proposed in proposed Sec.  __.12 to define 
``multifamily loan'' to mean ``a loan for a `multifamily dwelling' 
as defined in 12 CFR 1003.2(n).''
    \906\ See current 12 CFR __.12(g)(1) and (h) and __.22(b)(4).
    \907\ See proposed Sec.  __.12 (definition of ``community 
development loan''); see also proposed Sec.  __.22(a)(5).
---------------------------------------------------------------------------

    The agencies proposed that a bank's multifamily lending performance 
under the Retail Lending Test would be evaluated using loan count, as 
was the case under the proposal for other major product lines evaluated 
using the Retail Lending Test's distribution analysis.\908\ The 
agencies proposed to evaluate multifamily loans using only geographic 
distribution analysis and not borrower distribution analysis. As a 
result, under the proposal, borrower income, tenant income, and housing 
affordability would not factor into the evaluation of multifamily loans 
under the Retail

[[Page 6830]]

Lending Test.\909\ Given the general lack of available borrower income 
data with respect to multifamily loans, and that many are made to 
entities that do not report personal income, the agencies explained 
that distribution analysis based on borrower income would not 
meaningfully measure whether multifamily loans met community credit 
needs. The agencies sought feedback on whether an alternative measure 
of geographic loan distribution for multifamily lending would be 
preferable, such as the number of units a bank's multifamily lending 
financed in low- and moderate-income census tracts. The agencies 
suggested that this measure may better accord with the benefit the 
bank's lending brought to its community.
---------------------------------------------------------------------------

    \908\ See proposed appendix A, paragraph III.1.
    \909\ See proposed Sec.  __.22(d)(2)(ii) and (iii) (including 
multifamily lending in the geographic distribution analysis and 
excluding multifamily lending from the borrower distribution 
analysis).
---------------------------------------------------------------------------

    Alternatively, the agencies sought feedback on whether to evaluate 
multifamily loans only under the Community Development Financing Test. 
In raising this alternative, the agencies identified potential concerns 
with evaluating multifamily loans under the Retail Lending Test. 
Specifically, the agencies noted that the Retail Lending Test 
distribution analysis of multifamily loans, which would include a 
geographic distribution and not a borrower distribution, may not 
effectively measure a bank's record of serving the credit needs of its 
community. For example, the geographic distribution of a bank's 
multifamily loans would not indicate whether low- and moderate-income 
individuals benefit from those loans. Relatedly, the proposal noted 
that the number of multifamily loans made in low- and moderate-income 
census tracts may not adequately reflect their value to the community. 
Unlike home mortgage loans, one multifamily loan could represent 
housing for anywhere from five households to hundreds of households, 
which could make loan count an inadequate measure for how multifamily 
loans benefit local communities. The agencies noted that, under the 
Community Development Financing Test, examiners could evaluate 
affordability and the degree to which multifamily loans serve low-or 
moderate-income tenants. The agencies stated that this approach would 
also avoid double-counting of multifamily lending under the Retail 
Lending Test and applicable community development financing performance 
tests. The agencies sought feedback on whether an alternative Retail 
Lending Test measure of geographic loan distribution for multifamily 
lending under the Retail Lending Test would be preferable. For example, 
the agencies could evaluate the number of units a bank's multifamily 
lending financed in low- and moderate-income census tracts. The 
agencies suggested that this measure may better accord with the benefit 
the bank's lending brought to its community.
    The agencies requested additional feedback on whether banks that 
are primarily multifamily lenders should be designated as limited 
purpose banks and have their multifamily lending evaluated only under 
the Community Development Financing Test.
Comments Received
    The agencies received a number of comments regarding evaluating 
multifamily lending under the proposed Retail Lending Test and/or under 
other performance tests.
    Community Development Financing. Most commenters addressing how 
multifamily loans should be evaluated supported evaluating multifamily 
loans under the Community Development Financing Test and not under the 
distribution analysis of the Retail Lending Test, with some of these 
commenters stating that multifamily loans are largely commercial loans 
and not retail loans. A number of commenters indicated that the 
Community Development Financing Test would more appropriately place 
focus on the affordability of multifamily units to low- and moderate-
income residents, rather than on their geographic distribution as would 
be required under the Retail Lending Test. A few commenters asserted 
that banks typically have little control over where multifamily loans 
are located, and that uneven market demand in low- and moderate-income 
and other areas alike is driven by market trends and governmental 
incentives. A commenter also emphasized that the geographic 
distribution analysis would not exclude upscale housing targeted to 
middle- and upper-income residents.
    Some commenters also raised other concerns with evaluating 
multifamily loans under the Retail Lending Test distribution analysis. 
For example, a commenter stated that evaluating multifamily loans under 
the Retail Lending Test would produce a distorted picture of a bank's 
retail lending performance because multifamily loans have much larger 
dollar amounts. Another commenter stated that because most banks 
consider multifamily loans to be commercial loans, there could be 
logistical challenges in how banks manage the impact of CRA Retail 
Lending Test distribution requirements on multifamily product lines, 
such as subjecting a commercial lending business to CRA evaluations for 
the first time. This same commenter stated that the evaluation of 
multifamily loans under the Retail Lending Test would be a departure 
from the agencies' previous focus on home mortgage loans and small 
business loans, and asserted that, unlike multifamily loans, home 
mortgage loans and small business loans have been proven to help 
borrowers and their communities create and sustain wealth. Another 
commenter raised a concern that evaluating multifamily loans under the 
Retail Lending Test would cause banks to favor financing multifamily 
rental properties before making retail loans to low- and moderate-
income borrowers or to borrowers in historically low-income geographic 
areas. In addition, a few commenters stated that HMDA data are too 
limited to support a reliable Retail Lending Test distribution analysis 
for evaluating multifamily loans. Some commenters asserted that using 
loan counts for evaluating multifamily loans under the Retail Lending 
Test would not allow for sound analysis of loans for different 
properties. Another commenter stated that a Retail Lending Test 
geographic distribution analysis of multifamily loans would 
inappropriately focus on the location of the corporate borrower and not 
the location of the actual property benefitting and moderate-income 
individuals.
    Some commenters expressed concerns regarding the proposed major 
product line thresholds and the inclusion of multifamily loans as a 
major product line. Several commenters stated that multifamily lending 
for most banks would not exceed the proposed Retail Lending Test's 15 
percent major product line threshold, underscoring the importance of 
evaluating multifamily loans under the Community Development Financing 
Test. In contrast, a different commenter stated that the large dollar 
size of multifamily loans may account for a significant percentage of a 
bank's loan volume, potentially making it less likely for other product 
lines of the bank to surpass the major product line standard.
    Dual Consideration. Some commenters supported multifamily loans 
being evaluated under both the Retail Lending Test and the Community 
Development Financing Test. These commenters generally suggested that 
evaluating multifamily loans under both proposed performance tests 
would appropriately reflect the importance of this product line to low- 
and moderate-

[[Page 6831]]

income communities and would not be duplicative because each 
performance test would evaluate different aspects of a bank's 
multifamily lending. A commenter urged the agencies to evaluate both 
the geographic and borrower distributions of a bank's multifamily 
lending, noting that there is evidence that minority developers are 
less likely to receive financing from traditional banks. Another 
commenter suggested that the agencies consider additional Retail 
Lending Test evaluation criteria for multifamily lending that would 
generally focus on the affordability, stability, and quality of the 
housing (by considering, for example, whether the housing is 
subsidized, unsubsidized, rent-regulated, or market rate, as well as 
housing conditions and eviction rates). A commenter recommended that 
the agencies evaluate multifamily loans financing unsubsidized 
properties under the Retail Lending Test and multifamily loans 
financing subsidized properties under the Community Development 
Financing Test. This commenter noted that unsubsidized properties are 
not part of a concerted government preservation or revitalization 
strategy and do not have long-term affordability restrictions.
    In contrast, several commenters suggested that evaluating 
multifamily loans under both the Retail Lending Test and the Community 
Development Financing Test would create undesirable incentives for 
banks. For example, a commenter warned that consideration under both 
performance tests could incentivize banks to finance multifamily 
housing in low- and moderate-income census tracts regardless of 
affordability and whether it would help or hurt low- and moderate-
income individuals and communities. A few other commenters expressed 
the view that considering multifamily loans under both performance 
tests would incentivize banks to make affordable housing loans over 
equity investments. These commenters noted that equity investments in 
affordable housing are generally more responsive to low- and moderate-
income community needs compared to affordable housing loans and involve 
more complex bank involvement.
    Evaluation of multifamily loans under either the Retail Lending 
Test or the Community Development Financing Test. A few commenters 
stated that it would be appropriate to evaluate multifamily loans under 
either the Retail Lending Test or the Community Development Financing 
Test, but not both. For example, a commenter recommended that 
multifamily loans that qualify for consideration under the Community 
Development Financing Test should be evaluated only under that 
performance test so as not to reduce banks' incentives to finance 
specific types of housing, such as naturally occurring affordable 
rental housing. Another commenter recommended evaluating multifamily 
loans solely under the Community Development Financing Test for most 
banks, but suggested that banks that specialize in multifamily lending 
should be given the option to classify multifamily loans as either 
retail loans or community development loans due to the proposed heavy 
weighting of the Retail Lending Test.
    Multifamily lenders evaluated as limited purpose banks. Some 
commenters addressed whether banks that are primarily multifamily 
lenders should be evaluated as limited purpose banks and should have 
their multifamily lending evaluated only under the Community 
Development Financing Test for Wholesale or Limited Purpose Banks. A 
few commenters supporting this approach suggested that banks that are 
engaged in 60 percent or more of a certain activity, such as 
multifamily lending, should be measured against other limited purpose 
banks so as not to dilute peer group data, which would allow for a more 
appropriate comparison to peer data. A commenter stated that banks that 
are primarily multifamily lenders should be designated as limited 
purpose banks, except that such banks should also be evaluated under 
the Retail Services and Products Test to the extent that they operate 
branches and take deposits from, or otherwise serve, the general 
public. Commenters opposed to evaluating banks that are primarily 
multifamily lenders as limited purpose banks stated that such banks 
should be evaluated under the Retail Lending Test to ensure that the 
geographic distribution of their multifamily lending does not exclude 
low- and moderate-income communities.
    Qualitative factors. Several commenters provided general feedback 
about multifamily housing, and noted certain considerations that should 
factor into the CRA evaluation of multifamily lending. In general, 
these commenters advocated for a more holistic review of a bank's 
multifamily lending to ensure that it serves low- and moderate-income 
communities and minority communities. A few of these commenters 
highlighted that high-cost multifamily housing located in low- and 
moderate-income areas should not result in displacement of low- and 
moderate-income individuals. Several of these commenters stated that 
banks should not finance multifamily housing that displaces or 
otherwise harms low- and moderate-income and minority tenants (e.g., 
multifamily housing that does not comply with local housing and civil 
rights codes, and other applicable laws).
Final Rule
    Based on consideration of commenter input and further deliberation, 
the agencies have decided that they will not evaluate multifamily 
lending under the distribution analysis of the Retail Lending 
Test.\910\ The agencies have determined that the proposed geographic 
distribution analysis would not sufficiently evaluate the 
responsiveness of multifamily lending to community credit needs, 
including low- and moderate-income credit needs. In particular, the 
evaluation of a bank's geographic distribution of multifamily loans 
would not account for housing affordability or whether low- and 
moderate-income families benefit from these loans, which the agencies 
believe are essential factors for determining whether a bank's 
multifamily lending is responsive to local credit needs. In order to 
consider affordability and benefits to low- and moderate-income 
communities of multifamily lending within the framework of the Retail 
Lending Test, the agencies believe it would be necessary to construct 
market and community benchmarks for these evaluation factors, which the 
agencies believe would add complexity to the evaluation. In addition, 
such an approach may be constrained by data limitations, as the 
agencies are not aware of comprehensive market data on multifamily loan 
originations and purchases that includes information on the rents 
charged and income levels of the tenants of the properties financed.
---------------------------------------------------------------------------

    \910\ Accordingly, the agencies are not including the referenced 
exclusions included in proposed Sec.  __.22(a)(5) that would have 
allowed multifamily loans to qualify for both retail lending and 
community development consideration in certain circumstances.
---------------------------------------------------------------------------

    In the absence of benchmarks for housing affordability and benefits 
to low- and moderate-income families, the agencies believe that a 
Retail Lending Test evaluation based on a geographic distribution 
analysis alone would not accurately reflect the responsiveness of a 
bank's multifamily lending. For example, originating multifamily loans 
for affordable housing in middle- and upper-income census tracts might 
be highly responsive to community needs, but a geographic distribution 
analysis alone would not identify these loans as

[[Page 6832]]

serving low- and moderate-income individuals and communities.
    In addition, the agencies recognize that there are other challenges 
associated with evaluating multifamily lending under the Retail Lending 
Test using a distribution analysis. These challenges include that: a 
limited number of multifamily loan originations in smaller facility-
based assessment areas may not support a robust geographic distribution 
benchmark; the use of loan counts may not reflect the number of housing 
units supported by multifamily loans; and that multifamily lending may 
not meet the major product line standard for evaluation for many banks.
    The agencies also considered comments that the proposed rule's 
inclusion of six product lines on the Retail Lending Test could create 
significant challenges for banks due to the potential complexity of 
monitoring numerous metrics and benchmarks for each potential major 
product line. To consider how excluding multifamily lending as a 
product line on the Retail Lending Test might address these concerns, 
the agencies analyzed historical lending data. The analysis showed 
that, applying the final rule's major product line standard to 
intermediate bank and large bank retail lending during the 2018-2020 
period, for banks included in the analysis, approximately 400 facility-
based assessment areas would have fewer product lines when multifamily 
lending is excluded.\911\ Consequently, excluding multifamily lending 
from evaluation under the Retail Lending Test would reduce the number 
of major product lines evaluated in these bank facility-based 
assessment areas.
---------------------------------------------------------------------------

    \911\ The agencies calculated the number of facility-based 
assessment areas in the 2018-2020 retail lending test sample that 
would have fewer major product lines when moving from a product line 
calculation with four major products (i.e., including multifamily 
lending) to a product line calculation with only three major 
products (only closed-end home mortgage, small business, and small 
farm).
---------------------------------------------------------------------------

    For the reasons described above, the agencies believe that the 
Retail Lending Test framework is not sufficiently suited to evaluating 
multifamily lending, neither in combination with the community 
development performance tests, nor as the sole performance test that 
evaluates these loans. Instead, the agencies determined that 
multifamily lending is more appropriately and effectively evaluated 
solely as community development lending. Accordingly, the final rule 
provides that if a multifamily loan is a community development loan, 
the agencies will: (1) for large banks, evaluate the multifamily loan 
under the Community Development Financing Test; (2) for intermediate 
banks, evaluate the loan under the Intermediate Bank Community 
Development Test, or alternatively, under the Community Development 
Financing Test; (3) for small banks, evaluate the loan under the 
renamed Small Bank Lending Test; and (4) for limited purpose banks, 
evaluate the loan under the renamed Community Development Financing 
Test for Limited Purpose Banks.
    The agencies considered, but are not adopting, an approach 
whereunder banks specializing in multifamily lending would be given the 
option to classify multifamily loans as either retail loans or 
community development loans. As discussed above, based on analysis and 
supervisory experience, the agencies have determined that multifamily 
lending is not conducive to a distribution analysis under the Retail 
Lending Test. In addition, as discussed in the section-by-section 
analysis of final Sec.  __.28 the Community Development Financing Test 
and Retail Lending Test will be equally weighted at 40 percent each 
under the final rule, which the agencies believe helps to ensure that a 
bank's multifamily lending meeting the standards in Sec.  __.13(b) is 
appropriately factored into its overall ratings.
    The agencies have also determined to not evaluate banks that are 
primarily multifamily lenders as limited purpose banks. As discussed in 
the section-by-section analyses of final Sec. Sec.  __.12 and __.26, a 
bank, such as a primary multifamily lender, may request designation as 
a limited purpose bank and, if the relevant agency approves the 
designation, will be evaluated under the Community Development 
Financing Test for Limited Purpose Banks. The agencies believe that 
multifamily lenders designated as limited purpose banks will be 
appropriately evaluated because a community development financing 
framework provides a more robust assessment of a bank's overall 
multifamily lending performance and its responsiveness to serving its 
communities, including low-and moderate-income communities, than would 
the Retail Lending Test.
    Finally, with respect to qualitative evaluation of multifamily 
loans, the agencies will evaluate a large bank's multifamily lending 
for responsiveness to the credit needs of its community under the 
Retail Services and Products Test in final Sec.  __.23(c)(2). 
Additionally, intermediate banks and small banks may request additional 
consideration for their responsive retail products and programs.\912\
---------------------------------------------------------------------------

    \912\ See the section-by-section analysis of final Sec.  __.21.
---------------------------------------------------------------------------

Section __.22(d)(2) Major Product Line Standards

    The agencies proposed in Sec.  __.22(d) to evaluate the geographic 
and borrower distributions of a bank's major product lines in its 
facility-based assessment areas, retail lending assessment areas, and 
outside retail lending area as applicable, under the Retail Lending 
Test. To focus the distribution analysis of a bank's retail lending on 
those products with a greater importance to the bank and its community, 
the proposal provided that closed-end home mortgage loans, open-end 
home mortgage loans, multifamily loans, small business loans, or small 
farm loans are a major product line in a facility-based assessment 
area, retail lending assessment area, or outside retail lending area if 
the product line comprised 15 percent or more of a bank's retail 
lending in the particular area, by dollar amount, over the relevant 
evaluation period. For automobile loans, the agencies proposed to 
calculate the 15 percent standard using a combination of the dollar 
amount and number of loans, recognizing that automobile loans are 
generally lower in dollar amount compared to other products. The 
agencies sought feedback on the proposed major product line standards, 
including whether an alternative standard should apply to multifamily 
loans in particular.
    Commenters submitted a range of feedback on the proposed major 
product line standards, with a few commenters supporting the proposed 
major product line approach, but most commenters expressing concerns 
with or offering alternatives to the proposed approach. In general, 
these commenters warned that the proposed major product line standards 
would not necessarily ensure that a bank's major product lines reflect 
the bank's business model and core product offerings. Some of these 
commenters recommended alternative major product line standards, such 
as a standard based on loan counts, a standard based on both loan 
dollars and loan counts, a market share approach, or an institution-
level approach. Commenters also expressed a range of views on the 
proposed major product line standard for multifamily loans, including 
for monoline multifamily lenders.
    For the reasons discussed below, the final rule adopts a modified 
version of the proposed major product line

[[Page 6833]]

approach. Under the final rule, closed-end home mortgage loans, small 
business loans, small farm loans, or automobile loans (if automobile 
loans are a product line for the bank) are major product lines in a 
facility-based assessment area or outside retail lending area if the 
bank's loans in the product line comprise 15 percent or more of the 
bank's loans across all of the bank's product lines in the area.\913\ 
This 15 percent standard is calculated based on a combination of loan 
dollars and loan count, as described further in the section-by-section 
analysis related to Sec.  __.12 (definition of ``combination of loan 
dollars and loan count''). In addition, under the final rule, closed-
end home mortgage loans or small business loans are a major product 
line in a retail lending assessment area in any year of the evaluation 
period in which the bank delineates a retail lending assessment area 
based on its closed-end home mortgage loans or small business loans as 
determined by the standard in final Sec.  __.17(c) (i.e., at least 150 
reported closed-end home mortgage loans, or at least 400 reported small 
business loans in each of the two preceding calendar years).
---------------------------------------------------------------------------

    \913\ Under the final rule, automobile loans are a product line 
for the bank if the bank is a majority automobile lender as defined 
in final Sec.  __.12, or if the bank opts to have its automobile 
loans evaluated pursuant to final Sec.  __.22.
---------------------------------------------------------------------------

The Agencies' Proposal
    In proposed Sec.  __.22(d), the agencies proposed to evaluate the 
geographic and borrower distributions of a bank's major product lines 
in its facility-based assessment areas, retail lending assessment 
areas, and outside retail lending area as applicable, under the Retail 
Lending Test. Proposed Sec.  __.22(a)(4)(i) defined major product line 
as retail lending in each of the following six categories: closed-end 
home mortgage loans, open-end home mortgage loans, multifamily loans, 
small business loans, small farm loans, and automobile loans. Proposed 
Sec.  __.22(a)(4)(ii) specified that closed-end home mortgage loans, 
open-end home mortgage loans, multifamily loans, small business loans, 
and small farm loans are considered a major product line if such loans 
comprise 15 percent or more of a bank's retail lending in a particular 
facility-based assessment area, retail lending assessment area, or 
outside retail lending area, by dollar amount, over the relevant 
evaluation period. By contrast, proposed Sec.  __.22(a)(4)(iii) 
specified that automobile loans are considered a major product line if 
such loans comprise 15 percent or more of a bank's retail lending in a 
particular facility-based assessment area, retail lending assessment 
area, or outside retail lending area, based on a combination of the 
dollar amount and number of loans, over the relevant evaluation 
period.\914\
---------------------------------------------------------------------------

    \914\ Specifically, the agencies proposed that automobile loans 
would be considered a major product line if the average of the 
percentage of automobile lending dollars out of total retail lending 
dollars and the percentage of automobile loans by loan count out of 
all total retail lending by loan count is 15 percent or greater in a 
particular facility-based assessment area, retail lending assessment 
area, or outside retail lending area. See proposed Sec.  
__.22(a)(4)(iii)(B).
---------------------------------------------------------------------------

    The agencies proposed these major product line standards to focus 
the evaluation of a bank's retail lending products on those products 
with a greater importance to the bank in a specific community. The 
agencies further reasoned that the proposed major product line 
standards would offer increased predictability.
    Under the proposal, the major product line standards would apply at 
the level of a facility-based assessment area, retail lending 
assessment area, or outside retail lending area, as applicable. For 
example, a large bank that primarily extends home mortgage loans and 
small business loans but also specializes in small farm loans in a 
handful of rural facility-based assessment areas would, under the 
proposal, have the geographic and borrower distributions of its small 
farm loans evaluated in those rural facility-based assessment areas 
(assuming the small farm lending exceeds 15 percent of the bank's 
retail lending in those facility-based assessment areas by dollar 
volume), but not in facility-based assessment areas or retail lending 
assessment areas where the large bank makes few or no small farm loans. 
The agencies stated in the proposal that applying the major product 
line standard at the level of a facility-based assessment area, retail 
lending assessment area, or outside retail lending area would capture 
lending that affects local communities, even if such lending might not 
meet a 15 percent standard at the institution level.
    Because the proposed Retail Lending Test divided retail lending 
into six distinct categories, every facility-based assessment area, 
retail lending assessment area, or outside retail lending area in which 
a bank conducts retail lending would have at least one product that 
represents at least 16.6 percent (or one-sixth) of the dollar volume of 
its total retail lending in that geographic area. For this reason, the 
agencies proposed setting the major product line standards at 15 
percent--below the 16.6 percent mark--to preclude the possibility of a 
bank having no major product lines.
    In the preamble to the proposed rule, the agencies sought feedback 
about whether they should use a different standard for determining when 
to evaluate a bank's closed-end home mortgage loans, open-end home 
mortgage loans, multifamily loans, small business loans, and small farm 
loans under the distribution analysis of the Retail Lending Test, and 
if so, what should that standard be and why. Additionally, the agencies 
asked whether they should use a different standard for determining when 
to evaluate multifamily loans under the distribution analysis of the 
Retail Lending Test. For example, the agencies suggested that 
multifamily lending could be considered a major product line only where 
the bank is a monoline multifamily lender or where the bank is 
predominantly a multifamily lender within the applicable facility-based 
assessment area, retail lending assessment area, or outside of 
facility-based assessment area, as applicable, or at the institution 
level. The agencies further suggested that ``predominantly'' could mean 
that multifamily lending ranks first in the dollar amount of a bank's 
retail lending in a geographic area or that it accounts for a 
significant percentage of the dollar volume of a bank's retail lending, 
for example 50 percent. The agencies noted that using a different 
standard for determining whether multifamily lending is a major product 
line would help ensure that the agencies assess a bank's relevant 
multifamily lending performance under the Retail Lending Test.
    With respect to automobile loans, the agencies proposed to apply 
the 15 percent standard using a combination of dollar amount and number 
of loans, rather than using dollar amount alone. For example, if a 
bank's automobile lending accounted for 10 percent of its total retail 
lending dollars and 22 percent of its total retail loans by loan count 
in a facility-based assessment area, retail lending assessment area, or 
outside retail lending area, as applicable, its combined percentage 
would be 16 percent, and automobile lending would be evaluated as a 
major product line under the distribution analysis component of the 
Retail Lending Test. The agencies proposed this modified major product 
line standard for automobile loans in recognition of the fact that 
automobile loans are generally lower in dollar amount compared to other 
products. As such, the agencies were concerned that a threshold of 15 
percent of a bank's retail lending calculated based on dollar

[[Page 6834]]

amount alone may rarely result in automobile loans being identified as 
a major product line. By considering both the average of dollar amount 
and loan count, the agencies' proposal would treat automobile loans as 
a major product line for banks that would not otherwise meet a standard 
that considers only dollar volume. The agencies stated in the proposal 
that this approach recognized that automobile loans can fulfill unique 
and important credit needs for low- and moderate-income borrowers and 
communities. The agencies sought feedback in the proposal on whether 
they should use a different standard for determining when to evaluate 
automobile loans.
Comments Received
    Support for proposed major product line standards. A few commenters 
supported the proposed major product line standards without 
modification. For example, at least one commenter stated that the 
proposed major product line standards would ensure more consistent 
Retail Lending Test evaluations, provide clarity to banks, reduce 
reliance on examiner judgment, and ensure that the agencies evaluate 
the geographic and borrower distributions of all significant areas of a 
bank's retail lending portfolio.
    Concerns with proposed major product line standards. Most 
commenters that addressed the proposed major product line standards 
expressed concerns with the proposed approach. While some of these 
commenters opposed having a major product line standard at all, others 
supported a major product line standard in concept, but expressed 
concerns with different aspects of the proposed approach. Many of these 
commenters suggested alternative approaches to determining whether a 
product line is a major product line, as discussed below.
    In general, commenters that expressed concerns with the proposed 
major product line standards stated that the proposed standards would 
not necessarily ensure that a bank's major product lines reflect the 
bank's business model and core product offerings. For example, a number 
of commenters stated that the proposed threshold of 15 percent could 
inadvertently capture products that a bank offers to customers as an 
accommodation, but that do not represent a core offering of the bank.
    Several commenters warned that the proposed major product line 
standards would result in the agencies evaluating a relatively low 
percentage of small business lending under the distribution analysis of 
the Retail Lending Test. For example, a commenter cited an analysis 
showing that the small business lending of some of the most significant 
small business lenders in a particular assessment area would not 
constitute a major product line under the proposed approach. Another 
commenter estimated that, under the proposed approach, the number of 
its assessment areas in which the agencies would evaluate the 
geographic and borrower distributions of its small business lending 
would decrease from nearly all assessment areas to less than 20 percent 
of assessment areas. The same commenter noted that the loan amounts 
associated with a bank's home mortgage lending may be much larger than 
a bank's small business lending, and, as such, the bank's small 
business lending might not trigger a major product line, even if the 
bank has relatively large small business lending market share in its 
assessment area.
    A few commenters emphasized a different concern with the proposed 
major product line standards, stating that the proposed approach would 
create uncertainty because banks would not know which products 
constituted major product lines until examination time, and, as a 
result, banks' ability to implement credit programs responsive to 
community needs would be impeded. At least one of these commenters 
stated that increasing the proposed major product line threshold from 
15 percent to a higher threshold would reduce volatility in the 
application of the distribution analysis component of the proposed 
Retail Lending Test.
    Alternative major product line approaches suggested by commenters. 
Commenters that opposed or expressed concerns with the proposed major 
product line standards generally suggested one of four alternative 
approaches (with some commenters suggesting combinations of these 
approaches) for determining whether a particular loan product 
constitutes a major product line in a facility-based assessment area, 
retail lending assessment area, or outside retail lending area: (1) 
using loan counts; (2) using both loan dollars and loan counts; (3) 
using a market share approach; or (4) using an institution-level 
approach.
    First, some commenters recommended that the agencies use loan 
counts, rather than a loan dollar standard as proposed for certain 
product lines, to determine whether a bank has a major product line in 
a facility-based assessment area, retail lending assessment area, or 
outside retail lending area. Many of these commenters suggested that a 
major product line should be triggered where a bank makes more than a 
threshold number of loans of a particular type in a geographic area, 
with suggestions ranging from a de minimis number of loans (to capture 
any bank that routinely makes loans in the product line) to 150 loans 
per evaluation period. Other commenters that supported using loan 
counts suggested other alternate approaches. For example, a commenter 
suggested a major product line standard based on whether: (1) the bank 
makes more than 30 loans (for small banks) or 50 loans (for large 
banks) in the product line in the geographic area; or (2) loans in the 
product line represent at least 15 percent of the bank's retail loans 
by loan count in the relevant geographic area.
    Second, some commenters supported using both loan dollars and loan 
counts to determine all of a bank's major product lines, instead of 
only using this approach for automobile lending as proposed. At least 
one commenter recommended that the agencies apply the proposed major 
product line standard for automobile loans to all other product types. 
Several other commenters suggested a major product line standard based 
on whether: (1) the bank made more than 50 loans in the product line in 
the geographic area (without specifying whether this threshold would 
apply annually or over the evaluation period); or (2) loans in the 
product line represent at least 15 percent of the bank's retail loans 
by loan dollars in the geographic area. A commenter recommended using a 
15 percent threshold by loan dollars in geographic areas where home 
mortgage loans are similar in size to small business and small farm 
loans, but using a 15 percent threshold by loan count in other 
geographic areas.
    Third, at least one commenter suggested that the major product line 
standard should be based on the bank's market share in the facility-
based assessment area, retail lending assessment area, or outside 
retail lending area. Specifically, the commenter stated that a major 
product line should be triggered if a bank's loans in a geographic area 
account for more than 20 percent of the loans in the product line in 
the geographic area across all banks. The commenter asserted that, 
absent such an approach, an important segment of a local credit market 
would not be evaluated, particularly in geographic areas with low 
retail lending volumes overall.
    Finally, a number of commenters suggested that a bank's major 
product lines should be determined at the institution level. These 
commenters generally believed that this approach would ensure 
consistent evaluations across a bank's facility-based assessment areas, 
retail lending assessment areas,

[[Page 6835]]

and outside retail lending areas and enable a bank to know at the 
beginning of an exam cycle which product lines the agencies will 
evaluate under the distribution analysis component of the Retail 
Lending Test. Commenters suggested various approaches for the 
institution-level determination, with some commenters favoring an 
institution-level determination based on loan count, and other 
commenters favoring an institution-level determination based on loan 
dollars. In addition, at least one commenter suggested that banks 
should designate the product lines that will be evaluated as a major 
product line, so long as there is sufficient volume.
    Major product line standard for multifamily loans. Several 
commenters addressed the agencies' request for feedback regarding the 
proposed standard for determining when to evaluate multifamily loans as 
a major product line, particularly in relation to monoline multifamily 
lenders and lenders predominantly engaged in multifamily lending. A few 
commenters stated that the agencies should finalize the proposal to use 
the same major product line standard for multifamily loans as for other 
product lines. A commenter stated that the agencies should adopt the 
proposed standard for most multifamily lenders but develop a different 
standard for monoline multifamily lenders to ensure that the 
predominant multifamily lender in a geographic area, and particularly 
in rural markets, is not overlooked.
    Several other commenters expressed concerns with the proposed major 
product line standard for multifamily loans and suggested a different 
major product line standard for multifamily loans than for other 
product lines. In general, these commenters warned that very few 
multifamily loans would be evaluated under the distribution analysis 
component of the Retail Lending Test using the proposed standard, 
despite the ongoing affordable housing shortage. To address this issue, 
a commenter suggested a qualitative approach to determining when to 
evaluate multifamily lending as a major product line, stating that most 
banks cannot compete with the very large lenders that dominate the 
multifamily loan market. Another commenter stated that the agencies 
should evaluate the geographic and borrower distributions of a bank's 
multifamily loans under the proposed Retail Lending Test regardless of 
the predominance of this product type.
    Many other commenters did not support evaluating the geographic and 
borrower distributions of a bank's multifamily lending under the Retail 
Lending Test, which would eliminate the need to designate a major 
product line standard for this product line. This feedback is discussed 
further in the section-by-section analysis of final Sec.  __.22(d) 
above.
Final Rule
    For the reasons discussed below, the agencies are adopting a 
modified version of the proposed major product line approach. Under 
final Sec.  __.22(d)(2)(i), closed-end home mortgage loans, small 
business loans, small farm loans, or automobile loans (if automobile 
loans are a product line for the bank) are a major product line in a 
facility-based assessment area or outside retail lending area if the 
bank's loans in the product line comprise 15 percent or more of the 
bank's loans across all of the bank's product lines in the facility-
based assessment area or outside retail lending area over the years of 
the evaluation period.\915\ As specified in paragraph II.b.1 of final 
appendix A, this 15 percent standard is calculated based on a 
combination of loan dollars and loan count, as described further in the 
section-by-section analysis related to Sec.  __.12 (definition of 
``combination of loan dollars and loan count''). In addition, under 
final Sec.  __.22(d)(2)(ii), closed-end home mortgage loans or small 
business loans are a major product line in a retail lending assessment 
area in any year in the evaluation period in which the bank delineates 
a retail lending assessment area based on its closed-end home mortgage 
or small business loans, respectively, as determined by the standard in 
final Sec.  __.17(c) (i.e., closed-end home mortgage loans are a major 
product line in a retail lending assessment area with at least 150 
reported closed-end home mortgage loans in each of the two preceding 
calendar years, and small business loans are a major product line in a 
retail lending assessment area with at least 400 reported small 
business loans in each of the two preceding calendar years).
---------------------------------------------------------------------------

    \915\ Under the final rule, automobile loans are a product line 
for the bank if the bank is a majority automobile lender as defined 
in final Sec.  __.12, or if the bank opts to have its automobile 
loans evaluated pursuant to final Sec.  __.22.
---------------------------------------------------------------------------

    Exclusion of open-end home mortgage loans and multifamily loans. As 
discussed in the section-by-section analysis related to final Sec.  
__.22(d) above, under the final rule, the geographic and borrower 
distributions of a bank's open-end home mortgage loans and multifamily 
loans are not evaluated under the Retail Lending Test. For this reason, 
the agencies are not adopting a major product line standard for 
multifamily loans, or an alternative standard for monoline multifamily 
lenders, as raised in the proposal and recommended by some commenters.
    Major product line standard in facility-based assessment areas and 
outside retail lending areas--single standard. Under the final rule, in 
a facility-based assessment area or outside retail lending area, a 
bank's closed-end home mortgage, small business, small farm, or 
automobile loans (if automobile loans are a product line for the bank) 
are a major product line if the bank's loans in the product line 
comprise 15 percent or more of the bank's loans across all of the 
bank's product lines in the geographic area over the years in the 
evaluation period. In developing this aspect of the final rule, the 
agencies determined that it was appropriate to establish a major 
product line threshold, and that the same threshold should apply to all 
product lines evaluated under the distribution analysis component of 
the Retail Lending Test in facility-based assessment areas and outside 
retail lending areas.
    First, the agencies believe that a major product line threshold is 
appropriate. Although under the current rule a large bank is generally 
evaluated on all home mortgage, small business, and small farm loans, 
the agencies believe that it is appropriate to focus the evaluation on 
product lines in a geographic area that meet a materiality standard. In 
addition, product lines that represent a relatively low percentage of a 
bank's retail lending in an area and would receive less weight than the 
bank's more significant product lines when determining the bank's 
Retail Lending Test conclusion. Specifically, as discussed in the 
section-by-section analysis related to final Sec.  __.22(f) and section 
VII of final appendix A, in developing a Retail Lending Test 
recommended conclusion for a facility-based assessment area or outside 
retail lending area, the agencies combine the product line scores for 
the major product lines evaluated in the area. For this purpose, each 
product line score is weighted by the ratio of the bank's loans in the 
major product line to its loans in all major product lines in the area, 
based on a combination of loan dollars and loan count. Because each 
major product line is weighted based on this share, a major product 
line that represents only a small percentage of the bank's retail 
lending relative to other major product lines in a facility-based 
assessment area or outside retail lending area would have relatively 
little impact on the bank's Retail Lending Test recommended conclusion 
in the area. For this reason, the agencies believe

[[Page 6836]]

that, rather than evaluating every product line in every facility-based 
assessment area or outside retail lending area, only those product 
lines that cross a threshold of materiality (i.e., the major product 
line threshold) in a particular area should be evaluated under the 
distribution analysis of the Retail Lending Test in that area. The 
agencies also considered that a major product line threshold will help 
to limit complexity because product lines that do not meet the major 
product line standard would not be subject to a distribution analysis 
and associated metrics, benchmarks, and performance ranges. In 
addition, based on the agencies' supervisory experience, the agencies 
believe that some major product line standard is appropriate because 
not all product lines have a sufficient amount of lending to conduct a 
meaningful distribution analysis.
    Second, the agencies believe that a single major product line 
threshold should apply to all product lines evaluated in facility-based 
assessment areas and outside retail lending areas. The agencies believe 
that this approach limits additional complexity associated with 
monitoring which of a bank's product lines may exceed the major product 
line standard, because a uniform standard is applied to all product 
lines. The agencies considered, but are not adopting, an alternative 
approach of adopting different major product line standards for 
different product lines. As shown in Table 7, the agencies note that 
adopting different major product line standards for different product 
lines could increase the percentage of loans evaluated under the 
distribution analysis component of the Retail Lending Test in certain 
product lines, such as small farm loans. However, the agencies believe 
that, on balance, the benefits of a single approach to the major 
product line standard in facility-based assessment areas and outside 
retail lending areas outweigh the increased Retail Lending Test 
coverage that could result from adopting different major product line 
standards for different product lines. Regarding small farm lending in 
particular, the agencies also considered that while the percentage of 
small farm loans evaluated under the distribution analysis component of 
the Retail Lending Test is estimated to be lower than other product 
lines, small farm lending is a relatively small percentage of all 
retail lending.
    Major product line standard in facility-based assessment areas and 
outside retail lending areas--15 percent threshold. In considering 
which major product line threshold should apply, the agencies note that 
the major product line threshold should not exceed 30 percent (i.e., 
just under one-third or 33 percent) to eliminate the possibility that 
no product line would be evaluated in a facility-based assessment area 
or outside retail lending area. For example, a bank (other than a 
majority automobile lender or a bank that opts to have its automobile 
lending evaluated) with an equal share of closed-end home mortgage, 
small business, and small farm lending in a facility-based assessment 
area, based on a combination of loan dollars and loan count, would have 
no major product line if the agencies selected a major product line 
threshold greater than 33 percent.
BILLING CODE 4810-33-P

[[Page 6837]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.006

BILLING CODE 4810-33-C
    As shown in Table 7, the agencies considered a range of potential 
major product line thresholds, and the effect that each such threshold 
would have on (1) the coverage of the Retail Lending Test distribution 
analysis, measured as the share of the closed-end home mortgage 
lending, small business lending, and small farm lending across banks 
that would have been evaluated as a major product line in a facility-
based assessment area or outside retail lending area, and (2) the 
number of facility-based assessment areas and outside retail lending 
areas in which each product line would have been evaluated as a major 
product line. Based on the agencies' review of this data, for banks 
included in the analysis, the agencies determined that adopting a 
higher major product line threshold (e.g., 25 percent or 30 percent, 
based on a combination of loan dollars and loan count), would have 
resulted in a lower share of small farm lending being evaluated as a 
major product line in facility-based assessment areas and outside 
retail lending areas. On the other hand, the agencies took into

[[Page 6838]]

consideration that adopting a lower major product line threshold (e.g., 
10 percent, based on a combination of loan dollars and loan count) 
would result in a larger number of facility-based assessment areas and 
outside retail lending areas in which each product line would have been 
evaluated as a major product line.
    The agencies believe that, on balance, the final rule major product 
line threshold of 15 percent captures an adequate share of closed-end 
home mortgage, small business, and small farm lending, while also 
limiting the number of product lines evaluated in facility-based 
assessment areas and outside retail lending areas relative to options 
with a lower threshold. Specifically, based on historical data, for 
banks included in the analysis, the 15 percent threshold captured 
almost all closed-end home mortgage and small business lending, and 
nearly half of small farm lending in facility-based assessment areas 
and outside retail lending areas.
    Major product line standard in facility-based assessment areas and 
outside retail lending areas--combination of loan dollars and loan 
count. Under the final rule, whether a product line meets the 15 
percent major product line standard in a facility-based assessment area 
or outside retail lending area is determined based on a combination of 
loan dollars and loan count. Specifically, a bank's closed-end home 
mortgage, small business, small farm, or automobile loans (if 
automobile loans are a product line for the bank) are a major product 
line in a facility-based assessment area or outside retail lending area 
if the average of the following two figures is 15 percent or more for 
the product line:
     Loan dollars: The share of lending that the product line 
represents across all these product lines in the facility-based 
assessment area or outside retail lending area, by loan dollars; and
     Loan count: The share of lending that the product line 
represents across all these product lines in the facility-based 
assessment area or outside retail lending area, by loan count.
    The agencies determined that using a combination of loan dollars 
and loan count to determine whether a product line is designated as a 
major product in a facility-based assessment area or outside retail 
lending area is appropriate for all product lines, rather than only 
automobile loans as proposed, for two reasons. First, using a 
combination of loan dollars and loan count reflects two different 
measures of impact--the dollar amount of credit provided in a 
particular facility-based assessment area or outside retail lending 
area, and the number of borrowers benefitted in the facility-based 
assessment area or outside retail lending area--both of which the 
agencies view as important, and both of which the agencies believe 
should be accounted for in determining whether a product line is a 
major product line. Second, the agencies believe that using a 
combination of loan dollars and loan count better facilitates 
comparison between product lines with significant differences in the 
average loan amount, and thus does not overly diminish the importance 
of small-dollar loans. In particular, several commenters noted that 
using loan dollars alone would diminish the importance of small 
business loans due to the generally smaller size of small business 
loans relative to other product lines, especially closed-end home 
mortgage. As shown in Table 8, analysis based on historical data shows 
that, for banks included in the analysis, using a combination of loan 
dollars and loan count would have resulted in substantially greater 
coverage of small business loans evaluated as a major product line 
within facility-based assessment areas and outside retail lending areas 
in 2018-2020 relative to using loan dollars alone. In this way, the 
agencies believe that using a combination of loan dollars and loan 
count accommodates banks with different bank business models (e.g., 
different mixes of small business and closed-end home mortgage 
lending), consistent with one of the agencies' goals for CRA 
modernization.

[[Page 6839]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.007

    Major product line standard in facility-based assessment areas and 
outside retail lending areas--absence of collected, maintained, or 
reported loan data. Pursuant to paragraph II.b.1.iii of final appendix 
A, if a bank has not collected, maintained, or reported loan data on a 
product line in a facility-based assessment area or outside retail 
lending area for one or more years of an evaluation period, the product 
line is a major product line if the agencies determine that the product 
line is material to the bank's business in the facility-based 
assessment area or outside retail lending area. The agencies believe 
this provision is necessary to appropriately evaluate a bank that has 
conducted lending in a product line but for which, due to a lack of 
collected, maintained, or reported loan data, the agencies cannot 
calculate whether the product line meets or exceeds the 15 percent 
threshold discussed above. In such cases, the agencies would consider 
any information indicating that the bank's lending in the particular 
product line is significant enough to be considered a major product 
line. For example, the agencies may consider estimates provided by the 
bank of the number and dollar amount of loans in the product line 
originated and purchased in the area, and could determine based on 
these estimates whether the product line represents approximately 15 
percent of the bank's retail loans in the area. The agencies believe 
that this approach helps address situations where a bank is not 
required to collect, maintain or report this data without adding new 
data collection or reporting requirements.
    Uncertainty regarding major product line delineations. The agencies 
considered comments that the proposed major product line standard would 
create uncertainty for banks regarding which product lines would be 
evaluated under the distribution analysis of the Retail Lending Test. 
The agencies believe that the final rule approach reduces this 
uncertainty by reducing the maximum number of potential major product 
lines from six to four, and by establishing a narrower standard for 
when automobile lending is evaluated on the Retail Lending Test. The 
final rule approach also narrows the potential major product lines in 
retail lending assessment areas to closed-end home mortgage loans and 
small business loans. In addition, the agencies considered that a bank 
may use its own lending data to estimate which product lines are likely 
to meet a 15 percent standard in the bank's facility-based assessment 
areas and outside retail lending area, or to meet the thresholds

[[Page 6840]]

for delineating a retail lending assessment area. In light of these 
considerations, the agencies believe that the final major product line 
standard is appropriate, and reduces potential uncertainty relative to 
the proposed approach.
    Major product line standard in facility-based assessment areas and 
outside retail lending areas--other alternatives considered. The 
agencies considered, but are not adopting, several alternatives to the 
proposed major product line standards in facility-based assessment 
areas and outside retail lending areas suggested by commenters. These 
alternatives, and the agencies reasons for not adopting them, are 
described below.
    First, the agencies considered using numerical loan count 
thresholds to determine whether a product line constitutes a major 
product line. Under this approach, a product line would be considered a 
major product line if the number of loans in the product line in the 
facility-based assessment area or outside retail lending area exceeded 
a specified number of loans. However, the agencies believe that using a 
15 percent standard, based on a combination of loan dollars and loan 
count, is preferable to using numerical loan counts for the purposes of 
designating those product lines that are material to the bank's 
business in a particular geographic area. For example, if the agencies 
were to adopt a numerical loan count threshold of 50 loans over the 
evaluation period, then a bank with 51 small business loans in the 
geographic area during that time period would have its small business 
loans evaluated as a major product line regardless of how much lending 
it undertook in other product lines. Under this example, the 51 small 
business loans could constitute all of a bank's lending in a geographic 
area, or a small fraction of its overall lending if the bank also 
originated, for example, over 600 closed-end home mortgage loans over 
the same time period in the same geographic area. Further, as discussed 
above, the agencies believe that a major product line standard that 
uses a combination of loan dollars and loan count is more appropriate 
than a standard that uses loan count alone because using a combination 
of loan dollars and loan count reflects two different measures of 
impact. By contrast, using loan count alone would reflect only the 
number of borrowers benefitted, without regard for the dollar amount of 
credit provided. Finally, the agencies believe that using numerical 
loan count thresholds alone could result in a greater number of major 
product lines evaluated in specific geographic areas, many of which 
could have minimal influence on a bank's Retail Lending Test conclusion 
given the final rule's weighting approach. This is particularly the 
case if the agencies were to adopt a de minimis loan count threshold, 
as some commenters suggested. On the other hand, the agencies 
acknowledge that using loan counts alone could increase the share of 
small farm lending across banks that would be evaluated as a majority 
product line.\916\ On balance, however, the agencies believe that using 
a 15 percent standard, based on combination of loan dollars and loan 
count, is a more appropriate method of determining whether a product 
line constitutes a major product line than using loan count alone for 
the reasons stated above.
---------------------------------------------------------------------------

    \916\ The agencies analyzed the percentage of closed-end home 
mortgage loans, small business loans, and small farm loans that 
would have been evaluated as a major product line in a facility-
based assessment area or outside retail lending area under various 
numerical loan count thresholds, using historical data from CRA and 
HMDA reporter banks for 2018-2020. For example, using a 50-loan 
count threshold would have resulted in higher coverage of small farm 
loans for these banks, almost 90 percent, compared to only around 45 
percent under the final rule approach.
---------------------------------------------------------------------------

    Relatedly, the agencies have considered that the major product line 
standard for facility-based assessment areas and outside retail lending 
areas in the final rule could result in major product lines consisting 
of a small number of loans. The agencies have addressed this issue in a 
different part of the final rule. As discussed in the section-by-
section analysis related to Sec.  __.22(g)(5), the final rule provides 
that the agencies would consider as an additional factor whether the 
Retail Lending Test recommended conclusion does not accurately reflect 
the bank's performance in a Retail Lending Test Area in which one or 
more of the bank's major product lines consists of fewer than 30 loans.
    Second, the agencies considered, but did not adopt, a market share 
approach to determining whether a product line constitutes a major 
product line, as at least one commenter suggested. Under this approach, 
a product line would be considered a major product line if the bank's 
loans in the product line in the facility-based assessment area or 
outside retail lending area represented a certain share of the lending 
market for the product line in the geographic area. As discussed in the 
section-by-section analysis related to Sec.  __.17(c), the agencies 
also considered a market share approach for triggering the retail 
lending assessment area requirement, at the suggestion of some 
commenters. However, as in the case of retail lending assessment areas, 
the agencies believe that using a market share approach to determine 
whether a product line is a major product line would be complex to 
administer and would make it more challenging for a bank to determine 
which of the bank's product lines the agencies will consider a major 
product line in a particular facility-based assessment area or outside 
retail lending area. In addition, this alternative approach could 
result in designating a major product line that constitutes a very 
small share of the bank's retail lending in an area; in such a case, 
the agencies considered that the evaluation would not focus on a bank's 
most significant product lines, and would include a major product line 
that receives very little weight when determining the bank's Retail 
Lending Test conclusion in an area. The agencies therefore considered 
that this alternative would add complexity without a corresponding 
improvement in the robustness of the bank's evaluation. For these 
reasons, the agencies declined to adopt a market share approach.
    Third, the agencies considered, but did not adopt, an institution-
level approach, as suggested by some commenters. Under this approach, a 
bank's major product lines would be determined at the institution level 
(e.g., the bank's top two product lines, based on a combination of loan 
dollars and loan count), and those major product lines would be 
evaluated in every facility-based assessment and outside retail lending 
area with a non-zero number of such loans. However, the agencies 
believe that an institution-level approach to determining a bank's 
major product lines in a facility-based assessment area could overlook 
products that do not meet a threshold nationwide but are nonetheless 
significant in particular markets. For example, a bank for which small 
farm lending is determined not to be a major product line at the 
institution level would never have its small farm lending evaluated in 
specific geographic areas, even in facility-based assessment areas 
where the bank has made a significant number of small business loans. 
The agencies believe that the final rule's major product line standard 
for facility-based assessment areas and outside retail lending areas 
will capture those product lines that are material to the bank's 
business in the geographic areas in which the bank is evaluated. For 
these reasons, the agencies declined to adopt a market share approach.
    Major product line standard in retail lending assessment areas. 
Under the final rule, the 15 percent major product

[[Page 6841]]

line standard applicable in facility-based assessment areas and outside 
retail lending areas does not apply in retail lending assessment areas. 
Rather, under the final rule, a large bank's closed-end home mortgage 
and small business lending in a retail lending assessment area is 
evaluated under the distribution analysis component of the Retail 
Lending Test only if such lending surpasses the applicable loan count 
threshold for triggering the retail lending assessment area requirement 
in final Sec.  __.17(c). As discussed in the section-by-section related 
to final Sec.  __.17(d), the agencies determined that applying a 
separate major product line standard in addition to the loan count 
thresholds for triggering the retail lending assessment area would be 
overly complex and may impose additional compliance burden by making it 
more difficult for large banks to monitor their retail lending 
performance in retail lending assessment areas. For example, a large 
bank could have a sufficient number of small business loans in a 
geographic area to trigger a retail lending assessment area in a 
particular calendar year, but the large bank's small business lending 
could represent less than 15 percent of the large bank's retail lending 
in the retail lending assessment area, in which case, the small 
business loans that triggered the retail lending assessment area would 
not be evaluated as a major product line. Conversely, a large bank's 
small business loans in an MSA or the nonmetropolitan area of a State 
could represent more than 15 percent of the large bank's retail lending 
in that geographic area, but the number of small business loans could 
be insufficient to trigger a retail lending assessment area. The 
agencies believe that the final rule's retail lending assessment area 
approach accomplishes the agencies' policy objectives (discussed in the 
section-by-section analysis related to final Sec.  __.17) without 
adding this unnecessary complexity.
    In addition, the agencies believe that the loan count thresholds 
for triggering the retail lending assessment area requirement in the 
final rule are sufficiently high such that, if a large bank makes 
enough closed-end home mortgage loans or small business loans in an MSA 
or the nonmetropolitan area of a State to exceed the applicable loan 
count threshold triggering the retail lending assessment area 
requirement, the product line is more likely to be material to the bank 
and to the retail lending assessment area. As such, the agencies 
believe that it is appropriate to always evaluate the product line as a 
major product line.

Section __.22(e) Retail Lending Distribution Analysis

Section __.22(e)(1) Distribution analysis in general

Overall Retail Lending Distribution Analysis Approach
The Agencies' Proposal
    In proposed Sec.  [thinsp]__.22(d), the agencies proposed to use a 
set of retail lending distribution metrics to measure a bank's 
performance with respect to each of its major product lines in each of 
its facility-based assessment areas and retail lending assessment 
areas, and in its outside retail lending area, as applicable. The 
proposed geographic distribution metrics would measure the level of 
bank lending in low-income and moderate-income census tracts in an 
area. The proposed borrower distribution metrics would measure the 
level of bank lending to borrowers of different income levels and to 
small businesses or small farms of varying sizes, measured in gross 
annual revenues. As a result, each major product line would be 
evaluated in four categories of lending. For example, for a bank's 
closed-end home mortgage lending major product line in a facility-based 
assessment area, retail lending assessment area, or outside retail 
lending area, the agencies would evaluate the following categories, 
similar to the current evaluation approach: for the geographic 
distribution analysis, (1) loans in low-income census tracts and (2) 
loans in moderate-income census tracts; and for the borrower 
distribution analysis, (3) loans to low-income borrowers and (4) loans 
to moderate-income borrowers.
    After calculating the relevant metrics for each of a bank's major 
product lines in a facility-based assessment area, retail lending 
assessment area, or outside retail lending area, the agencies proposed 
to compare these metrics to a set of benchmarks intended to reflect the 
extent of local lending opportunities. The proposed benchmarks included 
both community benchmarks and market benchmarks. The proposed community 
benchmarks reflect the demographics of an area, such as the percentage 
of owner-occupied housing units that are in census tracts of different 
income levels, the percentage of families that are low-income, and the 
percentage of small businesses or small farms of different revenue 
levels in an area, which are similar to benchmarks used in current 
practice. The proposed market benchmarks reflect the aggregate lending 
to targeted areas or targeted borrowers in an area by all reporting 
lenders, also similar to benchmarks used in current practice. Under the 
proposal, a bank's performance (as measured by relevant metrics) 
relative to relevant benchmarks forms the basis of its Retail Lending 
Test conclusion in the area.\917\
---------------------------------------------------------------------------

    \917\ The development of Retail Lending Test conclusions is 
discussed further in the section-by-section analysis of final Sec.  
__.22(f).
---------------------------------------------------------------------------

Comments Received
    The agencies received a number of comments regarding the overall 
retail lending distribution analysis approach proposed by the agencies, 
with many commenters supporting the proposed approach, and other 
commenters raising concerns with the proposed approach. Some commenters 
recommended incorporating consideration of race and ethnicity into the 
retail lending distribution analysis. Other commenters offered 
alternatives to the proposed retail lending distribution benchmarks.
    Support for overall retail lending distribution analysis approach. 
Many commenters supported the agencies' proposed metrics-based approach 
to evaluating the geographic and borrower distributions of a bank's 
major product lines. Many of these commenters indicated that the retail 
lending distribution metrics would provide rigor on the proposed Retail 
Lending Test, address what some commenters referred to as ``grade 
inflation'' in CRA performance conclusions, and incentivize banks to 
increase lending to underserved communities. A few commenters also 
specifically supported the agencies' proposal to evaluate a bank's 
lending to small businesses and farms under the proposed Retail Lending 
Test using metrics and benchmarks.
    Concerns regarding overall retail lending distribution analysis 
approach. Conversely, many commenters raised concerns about the 
proposed metrics-based approach to evaluating the geographic and 
borrower distributions of a bank's major product lines.
    Several commenters raised concerns regarding the complexity of the 
overall retail lending distribution analysis approach. For example, at 
least one commenter stated that the agencies' proposed combination of 
metrics, benchmarks, and the proposed use of performance ranges to 
develop Retail Lending Test conclusions, was too complex, and perhaps 
too finely calibrated and sensitive. Some commenters expressed concern

[[Page 6842]]

regarding the large number of calculations that banks would have to 
make to monitor performance on the Retail Lending Test across many 
areas, and the complexity of meeting performance expectations under the 
proposed approach. For example, a commenter noted that the proposed 
rule's distribution metrics would require banks to collect, maintain, 
analyze, and report voluminous amounts of data on deposits, loans, peer 
data, and market demographic data, much of which is not collected 
today, greatly adding to the regulatory burden and requiring a 
substantial increase in staffing. Another commenter indicated that, 
given the complexity of the proposed distribution analysis, banks will 
need to conduct pre-examination analysis to support incremental 
adjustments to ensure they are meeting the credit needs of their 
communities and within the regulatory thresholds in advance of the 
finality of an examination. Another commenter stated that the real-life 
experience of attempting the proposed calculations with real data and 
real examiners will likely prove daunting, and that the complexity of 
the proposed distribution metrics and benchmarks would produce no 
benefit to local communities. The commenter suggested that the agencies 
conduct a beta test of the proposed Retail Lending Test approach using 
data from banks across the country, and publish a detailed comparison 
of the time, costs, new software or tools, and final results of the 
beta test and existing examination method.
    Other commenters raised concerns that the proposed retail lending 
distribution analysis approach is inflexible and would not give 
sufficient consideration to performance context. For example, at least 
one commenter recommended that the agencies allow examiners to modify 
applicable thresholds based on performance context. A commenter also 
expressed concern that while the conditions, opportunities, and 
circumstances vary in assessment areas, the performance thresholds 
under the proposal would remain largely constant.
    Another commenter stated that the proposed retail lending 
distribution benchmarks rely on a number of assumptions--for example, 
that the demand for credit between low- and moderate-income and other 
income areas is substantially similar, or that the potential for wealth 
building between low- and moderate-income and other income areas is 
substantially similar--that the agencies should monitor and verify in 
the long term.
    Consideration of race and ethnicity. Many commenters that supported 
explicit consideration of race and ethnicity in CRA evaluations 
asserted that the agencies should develop race-based lending metrics 
and then compare a bank's metrics with demographic benchmarks and peer 
banks' aggregate performance in the bank's assessment areas. For 
example, several commenters suggested that the agencies could measure 
the share of a bank's total loans in an area that are located in census 
tracts with a relatively high minority share of the population, such as 
majority-minority census tracts. Under this alternative, if the bank 
extended a lower share of its retail loans to such census tracts, the 
bank's evaluation would be adversely impacted. Likewise, a bank's 
performance evaluation would be positively impacted if the bank 
extended a higher share of its retail loans to such census tracts. In 
addition, a commenter suggested that CRA evaluations should take race 
and ethnicity into consideration by measuring the percentage of a 
bank's home mortgage loans made to minority families, the percentage of 
a bank's small business loans made to minority businesses, as well as 
the percentage of a bank's retail loans made in majority-minority 
census tracts, and that the agencies should assign performance scores 
on this basis. This commenter added that the bank's retail lending 
performance conclusion should be based on a combination of these 
performance scores and the low- and moderate-income performance scores 
or, alternatively, that a high performance score on the racial 
distribution analysis could be evaluated as a factor that improves the 
performance conclusion for the institution's rating overall. A 
different commenter similarly suggested that race- and ethnicity-based 
retail lending metrics could be used only to potentially enhance a 
bank's retail lending performance conclusion, alongside evaluation of 
low- and moderate-income retail lending metrics. Another commenter 
stated generally that there should be a focus on publicly available 
section 1071 data, which will include information concerning the race 
and ethnicity of small business loan applicants and borrowers, to 
ensure equal access to credit for businesses with less than $1 million 
in revenue and women and minority-owned businesses.
    Alternative approaches to retail lending distribution benchmarks. 
Some commenters recommended alternative approaches to the proposed 
retail lending distribution benchmarks. For example, a commenter 
recommended that the agencies develop a complementary benchmark to the 
proposed benchmarks that would be based on a bank's contributions to 
the financial health of a community. Other commenters opposed use of 
community benchmarks to evaluate a bank's retail lending distributions, 
indicating that only market benchmarks appropriately reflect local 
demand because they measure the actual loan distribution that results 
from the aggregate lending in an assessment area.
Final Rule
    For the reasons discussed below, the agencies are adopting the 
general approach of using retail lending distribution metrics and 
benchmarks to evaluate a bank's performance with respect to its major 
product lines. As such, final Sec.  __.22(e) provides that the agencies 
evaluate a bank's Retail Lending Test performance in each of its Retail 
Lending Test Areas (i.e., facility-based assessment areas, retail 
lending assessment areas, and outside retail lending area) by 
considering the geographic and borrower distributions of the bank's 
loans in its major product lines. Final Sec.  __.22(e)(1)(i) more 
specifically provides that for closed-end home mortgage loans, small 
business loans, and small farm loans, respectively, the agencies 
compare a bank's geographic and borrower distributions to performance 
ranges based on the applicable market and community benchmarks, as 
provided in final Sec.  __.22(f) and section VI of final appendix A. 
Final Sec.  __.22(e)(1)(ii) (regarding the distribution analysis for 
automobile loans) is discussed further below.
    Use of distribution metrics and benchmarks in general. The agencies 
believe that the final rule approach to geographic and borrower 
distribution analysis of a bank's retail lending will further the 
agencies' objectives of evaluating whether a bank has met the retail 
credit needs of a community in a consistent and transparent manner. 
Specifically, the distribution analyses examine a bank's percentage of 
loans to different categories of borrowers and census tracts relative 
to benchmarks that are based on local data. For example, a bank would 
be evaluated for its closed-end home mortgage lending to (1) low-income 
census tracts; (2) moderate-income census tracts; (3) low-income 
borrowers; and (4) moderate-income borrowers, respectively. The 
categories of lending that would be evaluated for each major product 
line are shown in Table 9 below.
BILLING CODE 4810-33-P; 6210-01-P

[[Page 6843]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.008

BILLING CODE 4810-33-C; 6210-01-C
    The agencies determined that a distribution analysis is necessary 
to evaluate a bank's efforts to meet the retail credit needs of a 
community. Specifically, the metrics in the distribution analysis 
reflect the extent to which a bank is lending to different categories 
of borrowers and census tracts, taking into account the bank's overall 
level of lending in each major product line. The benchmarks for each 
category of borrowers and census tracts reflect the credit needs and 
opportunities of those borrowers and census tracts by incorporating 
demographic data, such as the percentage of low- or moderate-income 
households in an area, as well as data on the level of lending in the 
area among all reporting lenders. As discussed further in this section, 
the distribution benchmarks therefore reflect differences in the credit 
needs and opportunities across different areas, as well as differences 
over time in response to changing economic conditions or changes in the 
local population. As a result, the agencies believe that the use of 
quantitative benchmarks will account for local performance context and 
increase the consistency in evaluating performance.
    The agencies also considered that analyzing distributions of bank 
retail lending is consistent with current practice under the lending 
test.\918\ As discussed in the section-by-section analysis of Sec.  
__.22(f), the final rule builds upon current practice by establishing 
performance ranges to increase the clarity and transparency of the 
distribution analysis. The agencies considered that alternative 
approaches to a distribution analysis, such as evaluating retail 
lending qualitatively without the use of metrics, or without

[[Page 6844]]

benchmarks, would result in a less robust analysis and inconsistent 
application of the performance standards.
---------------------------------------------------------------------------

    \918\ See current 12 CFR __.22(b)(2) and (3).
---------------------------------------------------------------------------

    Section __.22(e) of the final rule retains the proposed approach of 
evaluating both the geographic and borrower distribution of a bank's 
lending. As discussed in the agencies' proposal, the approach of 
evaluating both lending to different categories of census tracts, and 
lending to different categories of borrowers, is consistent with 
current practice. The agencies believe that a bank's record of 
providing credit both to borrowers of different income and revenue 
levels as well as neighborhoods of different income levels are 
important aspects of its overall record of helping to meet the credit 
needs of its entire community. For the geographic distribution 
analysis, this approach recognizes the importance of lending that 
benefits low-income and moderate-income communities, regardless of the 
income or revenue size of the particular borrower. For the borrower 
distribution analysis, the final rule approach similarly recognizes the 
importance of lending that benefits low-income and moderate-income 
individuals and smaller farms and businesses, regardless of where they 
are located.
    Section __.22(e)(3)(ii) and (iii) and (e)(4)(ii) and (iii) of the 
final rule also retain the proposed approach of establishing both a 
community benchmark and a market benchmark for each metric for closed-
end home mortgage loans, small business loans, and small farm loans, 
which is also consistent with current practice. The community 
benchmarks approximately reflect the potential lending opportunities in 
the area for each corresponding metric. For example, the community 
benchmark for evaluating a bank's closed-end home mortgage lending to 
moderate-income borrowers is the percentage of families in the area 
that are moderate-income. The agencies believe that the community 
benchmark can provide important information for evaluating a bank's 
metric. For example, as discussed in the section-by-section analysis of 
Sec.  __.22(f), if a bank's metric equals the community benchmark, that 
indicates that the bank's lending to the relevant category of borrowers 
or census tracts is proportionate to that group's share of the 
population of the area. Under current practice, as well as under the 
proposed and final rule, the agencies would consider this a strong 
indicator that the bank has met the credit needs of the entire 
community.
    The market benchmarks, which are also used in current evaluations, 
are the aggregate share of originations made to the category of 
borrowers or census tracts for each metric. For example, the market 
benchmark for evaluating a bank's closed-end home mortgage lending in 
an area to moderate-income borrowers is the percentage of all 
originations of closed-end home mortgage loans in the area made to 
moderate-income borrowers. The agencies believe that the market 
benchmark provides important information about the level of credit 
needs and opportunities in an area that complements the information 
provided by the community benchmark. For example, in an area that has a 
very low homeownership rate among moderate-income families due to a 
shortage of affordable properties available for purchase, the market 
benchmark may indicate a relatively small percentage of loans made to 
moderate-income families, even though the community benchmark indicates 
that these families make up a substantial percentage of the families in 
the area. In addition, the agencies believe that the market benchmarks 
are particularly important for taking into account changes in economic 
conditions. For example, the market benchmark could reflect an 
increased share of loans made to moderate-income borrowers due to a 
change in interest rates.
    Consistent with the proposed approach, the market benchmarks would 
include only loan originations, and not loan purchases, as detailed in 
paragraphs III.b and IV.b of appendix A of the final rule. The agencies 
believe that excluding loan purchases results in benchmarks that more 
accurately represent the credit needs and opportunities of an area. 
Specifically, the agencies considered that including purchased loans 
would allow a single loan to be counted multiple times in the market 
benchmark, even though the loan reflects a single borrower.
    Objectives in establishing distribution metrics and benchmarks. In 
response to comments stating that the proposed Retail Lending Test was 
too complex, the agencies believe that the final rule balances ensuring 
that CRA evaluations of retail lending are appropriately robust and 
comprehensive, providing greater consistency and transparency, and 
reducing overall complexity relative to the proposed approach. The 
agencies have considered that a metrics-based evaluation approach that 
captures the multitude of ways that a bank may serve the credit needs 
of an area necessarily entails a degree of complexity. Specifically, 
complexity arises from the number of quantitative components of the 
approach and the detail needed to define and explain each component; 
data collection, maintenance, and reporting requirements that are 
necessary to produce the metrics and benchmarks; and the potential need 
to monitor performance on these metrics over time. However, the 
agencies believe that each of these aspects offers significant 
benefits, including accurate measurement of bank metrics; directly 
incorporating the performance context of an area into the performance 
standards through the use of thresholds based on local benchmark data; 
eliminating the use of limited scope assessment areas and 
comprehensively evaluating a bank's major product lines; appropriately 
tailoring for different bank business models, geographic footprints, 
and market conditions; increased standardization and consistency in 
performance standards and examination procedures; greater transparency 
regarding how conclusions and ratings are determined; and the ability 
to monitor performance over time relative to specific performance 
standards.
    Furthermore, as discussed throughout the section-by-section 
analysis of Sec.  __.22, the agencies have sought to limit the overall 
complexity of the Retail Lending Test. Relative to the proposed 
approach, the agencies have reduced the number of product lines 
evaluated under the Retail Lending Test from six to four, have created 
a more tailored, higher standard for when an evaluation of automobile 
lending is required (discussed in more detail in the introduction to 
the section-by-section analysis of final Sec.  __.22, above), and more 
narrowly targeted retail lending assessment area delineations, as 
discussed in the section-by-section analysis of Sec.  __.17, which 
reduces the overall number of Retail Lending Test Areas relative to the 
proposed approach. In addition, the agencies have tailored the approach 
for small and intermediate banks, including by making the Retail 
Lending Test optional for small banks, as was proposed; making the 
outside retail lending area component of the evaluation under the 
Retail Lending Test optional for small and intermediate banks that have 
less than 50 percent of their retail lending outside of their facility-
based assessment areas; and not applying retail lending assessment 
areas to intermediate banks, or to small banks that opt into the Retail 
Lending Test. Also, the agencies believe that the metrics and 
benchmarks finalized in the Retail Lending Test limit complexity by 
mirroring those used under the current approach, with the addition of 
specific

[[Page 6845]]

thresholds corresponding to each conclusion category, such as ``High 
Satisfactory.'' As a result, the agencies believe that banks and other 
stakeholders are already familiar with many of the components of the 
final rule approach. In addition, the agencies will develop data tools 
that provide banks and the public with recent historical data 
concerning the retail lending distribution benchmarks. The agencies 
believe that all of these aspects of the final approach help to limit 
the overall complexity and burden.
    Consideration of race and ethnicity. The agencies are not 
incorporating race-based lending metrics and benchmarks in the 
geographic and borrower distribution analysis and are not adopting 
other commenter suggestions regarding incorporating race and ethnicity 
into the final rule Retail Lending Test. For more information and 
discussion regarding the agencies' consideration of comments 
recommending adoption of additional race- and ethnicity-related 
provisions in this final rule, see section III.C of this SUPPLEMENTARY 
INFORMATION.
    Alternatives considered. The agencies considered, but are not 
adopting, an alternative approach to eliminate the community benchmark, 
and rely only on the market benchmark. The agencies have considered the 
commenter sentiment that the community benchmark may not reflect the 
credit needs and opportunities of an area, because a category of 
borrowers may have relatively low or relatively high credit demand 
regardless of their share of the population. However, the agencies 
determined that the combination of a community benchmark and market 
benchmark is preferable to relying solely on a market benchmark. In 
particular, the agencies considered that in an area where the market 
benchmark is higher than the community benchmark, a bank whose metric 
is above the community benchmark has achieved strong performance even 
if its metric is below the market benchmark, because the bank's lending 
to the category of borrowers or census tracts is proportionate with the 
population. Using only a market benchmark in this scenario could 
effectively require a bank to lend disproportionately to the category 
of borrowers or census tracts relative to other borrowers and census 
tracts in order to earn a strong conclusion, which the agencies do not 
believe is consistent with the purpose of CRA.
    The agencies also considered, but are not adopting, an alternative 
approach to create separate market benchmarks for banks of different 
asset sizes, such as large banks with assets greater than $10 billion. 
In reaching this determination, the agencies considered that this 
approach could allow for additional tailoring to different size banks, 
but that it would result in benchmarks that may not fully reflect the 
overall credit needs and opportunities in the area, because only a 
subset of lenders would be included. Relatedly, the agencies also 
considered that this alternative could lead to more instances in which 
there is insufficient data to compute a robust market benchmark due to 
a small number of banks in each asset category.
    The agencies are also not adopting a commenter suggestion to 
develop a benchmark based on a bank's contributions to the financial 
health of a community. The agencies do not believe that comprehensive 
data is available to create such a benchmark. The agencies believe that 
the final performance tests will effectively consider the various ways 
that a bank may contribute to the financial health of a community, 
including through retail lending, retail services and products, 
community development financing, and community development services. In 
addition, the agencies considered that developing a benchmark based on 
a bank's contributions to the financial health of a community would 
increase the complexity of the Retail Lending Test approach.
Construction of Retail Lending Distribution Metrics and Benchmarks
The Agencies' Proposal
    In proposed Sec.  __.22(d) and sections III and IV of proposed 
appendix A, the agencies proposed to calculate bank distribution 
metrics based on the number of the bank's originated and purchased 
loans in a major product line in a facility-based assessment area, 
retail lending assessment area, or outside retail lending area. For 
example, the Borrower Bank Metric to closed-end home mortgage loans 
would be calculated by dividing the total number of the bank's 
originated and purchased closed-end home mortgage loans to low-income 
borrowers or moderate-income borrowers, respectively, in the geographic 
area by the total number of the bank's originated and purchased closed-
end home mortgage loans in that geographic area overall. The agencies 
stated in the proposal that using the number of loans, rather than the 
dollar amount of loans, to construct the retail lending distribution 
metrics would emphasize that smaller-value loans can help meet the 
credit needs of low- and moderate-income communities.
    To evaluate the geographic and borrower distributions of a bank's 
major product lines, the bank's retail lending distribution metrics 
would be compared against two types of distribution benchmarks: market 
benchmarks that reflect the aggregate lending of reporting lenders in 
the area, and community benchmarks that reflect demographic data. The 
agencies proposed to calculate the retail lending distribution 
benchmarks in the same manner for all banks, regardless of the bank's 
business model or asset size.
    In calculating the geographic market benchmarks and borrower market 
benchmarks, the agencies proposed to include all loan originations in a 
particular geographic area, including loans made by banks with or 
without a branch presence, as well as loans made by nonbank lenders. 
However, the agencies did not propose to include purchased loans in the 
market benchmarks, stating that the agencies do not consider the 
aggregate level of loan purchases to reflect the extent of local 
lending opportunities.
Comments Received
    The agencies received a number of comments related to the 
construction of the retail lending distribution metrics and benchmarks.
    Treatment of purchased loans. Commenters provided a range of 
feedback regarding the proposed inclusion of purchased loans in a 
bank's retail lending distribution metrics. These comments are 
discussed further in the introduction to the section-by-section 
analysis of Sec.  __.22.
    At least one commenter supported the agencies' proposal to exclude 
purchased loans from the retail lending distribution benchmarks, 
reasoning that the purchases of peer lenders are not reflective on the 
loan market in which banks are competing and seeking opportunities to 
serve low- and moderate-income borrowers.
    Same market benchmarks for all banks. Some commenters addressed the 
agencies' proposal to calculate the retail lending market benchmarks in 
the same manner for all banks. For example, at least one commenter 
recommended using different market benchmarks for banks of different 
asset sizes so that banks are assessed relative to similarly sized 
peers. Alternatively, the commenter suggested that banks should be 
compared to a benchmark based on the performance of ``near-peer'' 
banks, for example those within 15 percent of the bank's asset size.
    Other commenters stated that banks that are primarily branch-based 
and those that primarily lend through non-

[[Page 6846]]

branch channels should not be evaluated using the same market 
benchmarks. These commenters asserted that it would be inappropriate to 
evaluate a non-branch-based bank in a retail lending assessment area by 
comparing its performance to that of banks with a branch presence in 
the same market. A number of commenters similarly expressed that such 
comparison would be inappropriate in the case of the market benchmarks 
used to evaluate the distribution of a bank's lending in its outside 
retail lending area. In both cases, commenters emphasized that the 
proposed approach would not appropriately account for a bank's lack of 
branches in an area where competitors may maintain branches, and that 
it would be challenging for banks to alter their balance of retail 
lending in areas where they have no physical presence.
    Inclusion of nonbank lenders. Another commenter specifically 
recommended removing loans made by nonbank lenders from the home 
mortgage lending distribution benchmarks to ensure that banks are 
measured against achievable thresholds, noting that nonbank home 
mortgage lenders outperformed banks in lending to low- and moderate-
income borrowers in some geographic areas.
Final Rule
    For the reasons discussed below, the agencies are adopting 
generally the same approach to constructing the retail lending 
distribution metrics and benchmarks as was proposed. In addition, 
substantive changes to the approach for evaluating the distribution of 
a bank's automobile loans are discussed in a subsequent part of this 
section.
    Use of number of loans. The agencies are finalizing their proposal 
regarding calculating distribution metrics and benchmarks using the 
number of loans. For example, the numerator of the metric for closed-
end home mortgage lending to low-income borrowers in a facility-based 
assessment area would include the bank's number of purchased and 
originated closed-end home mortgage loans to low-income borrowers in 
the area. The denominator would include the bank's total number of 
purchased and originated closed-end home mortgage loans to all 
borrowers in the area. For this metric, a closed-end home mortgage loan 
with a balance of $150,000 made to a low-income borrower and a closed-
end home mortgage loan with a balance of $75,000 made to a low-income 
borrower would each count as one loan, with no differential weighting 
based on the different loan amounts.
    This approach ensures appropriate emphasis in the distribution 
analysis on relatively small dollar loans, which the agencies believe 
can play an important role in fulfilling community credit needs in low- 
and moderate-income census tracts and for low- and moderate-income 
borrowers. For example, access to relatively small dollar mortgage 
loans can be particularly important for first-time homebuyers, low-
income borrowers, and borrowers in areas where home prices are 
relatively low. In addition, the agencies considered that this approach 
is consistent with how retail lending distribution metrics and 
benchmarks are calculated under the current evaluation approach. In 
addition, under an alternative approach in which the distribution 
analysis were based on loan amount, rather than loan count, the 
agencies believe that a bank may be able to achieve strong performance 
in the distribution analyses through serving a relatively small number 
of borrowers with large loan amounts. This may be especially likely on 
the geographic distribution analysis, which includes loans to borrowers 
of all income levels, or to all small businesses, in a low- or 
moderate-income census tract. For example, under the alternative of 
using loan amount for the distribution metrics, a $500,000 closed-end 
home mortgage loan made to an upper-income borrower in a moderate-
income census tract would count equally as five $100,000 closed-end 
home mortgage loans made in a moderate-income census tract for the 
geographic distribution analysis. For these reasons, the agencies 
believe that the final rule approach appropriately accounts for a 
bank's retail lending to all borrowers, including those with a need for 
relatively small loans, rather than giving greater emphasis to 
borrowers receiving relatively larger loans.
    Lending included in market benchmarks. Pursuant to final Sec.  
__.22(e)(3)(ii) and (e)(4)(ii) and the corresponding calculations set 
forth in paragraphs III.b and IV.b of final appendix A, to calculate 
market benchmarks for the borrower and geographic distribution analysis 
in a Retail Lending Test Area, the agencies are adopting the proposed 
approach of using loan originations, but not loan purchases. Further, 
the agencies use loan originations from all reporting lenders, 
including nonbank lenders, regardless of whether the reporting lender 
has a deposit-taking facility in the area. This approach would not be 
applicable to automobile lending given that there are no data reporting 
requirements or market benchmarks associated with automobile loans.
    The final rule approach applies to the market benchmarks used in 
all Retail Lending Test Areas, and includes loan originations in the 
relevant product line from banks with and without deposit-taking 
facilities in the area and from nonbank lenders. The agencies believe 
that using loan originations from all reporting lenders in a Retail 
Lending Test Area when constructing market benchmarks provides a more 
comprehensive view of local credit needs and opportunities. In 
addition, regarding the exclusion of purchased loans from these 
benchmarks, the agencies determined that this approach avoids the 
possibility of double-counting the same loan in the market benchmark.
    In determining that the market benchmarks for the distribution 
metrics should include all reported loan originations in an area, the 
agencies considered a number of factors. Specifically, the agencies 
believe that the total number of reported loan originations in an area 
reflect the extent of local credit needs, regardless of whether those 
needs are being met by banks with branches in the area, banks with 
other business models, or by nonbank lenders, as discussed below. 
Furthermore, the local credit needs do not depend on the delivery 
channels that lenders employ in helping to meet those needs. As a 
result, using an alternative approach in which the market benchmarks 
for Retail Lending Test Areas are calculated based only on originations 
by banks that have no branches in the local market would provide a less 
comprehensive and possibly inaccurate picture of the extent of local 
credit needs because it would exclude information about credit needs 
that were satisfied by other lenders. In addition, the agencies believe 
that excluding certain reporting lenders from the market benchmarks 
would result in more instances in which the number of lenders included 
in the market benchmarks in an area is insufficient for a robust 
distribution analysis, in which case the agencies would rely more 
heavily on qualitative adjustments to the distribution analysis, 
pursuant to final Sec.  __.22(g)(3). While the agencies recognize that 
a bank's business model may influence its opportunities to lend, the 
agencies have determined that it is preferable, on balance, for the 
market benchmarks to remain neutral in terms of bank business model and 
to use all available loan origination data. As part of this 
determination, the agencies considered that the presence or absence of 
a branch in a community is just one

[[Page 6847]]

way that business models may differ between banks, and that 
establishing separate benchmarks for different bank business models 
would be complex and would result in inconsistent performance 
standards. For example, the agencies also considered that this 
alternative would result in multiple different market benchmarks 
applying to different banks in the same geographic area for the same 
category of lending.
    As noted above, the final rule also retains the proposed inclusion 
of both bank and nonbank reported loan originations in the market 
benchmarks in all Retail Lending Test Areas. As a result, whether 
nonbank loan originations are included in the market benchmarks is 
dependent on whether those loan originations are reported. For closed-
end home mortgage loans, nonbank loan originations are currently 
reported and included in HMDA data. By contrast, small business and 
small farm lending data is currently reported only by banks, which 
would continue under the final rule, pursuant to Sec.  __.42, until the 
transition to using section 1071 data. Because the section 1071 data 
will include small business loans and small farm loans originated by 
both banks and nonbanks, once the agencies transition to using section 
1071 data, the market benchmarks will include nonbank loan 
originations.
Data Used for Distribution Analysis of Small Business and Small Farm 
Loans
The Agencies' Proposal
    To evaluate the geographic and borrower distributions of a bank's 
small business loans or small farm loans, the agencies proposed to 
compare a bank's small business or small farm lending distribution 
metrics against market benchmarks that reflect the aggregate lending of 
reporting lenders in the area, and community benchmarks that reflect 
demographic data. To calculate the small business loan and small farm 
loan distribution metrics, the agencies proposed to use the small 
business loan and small farm loan data that is used under the current 
approach (i.e., small business loan and small farm loan data collected, 
maintained, and reported by a large bank pursuant to Sec.  __.42, or 
the bank's own data). To calculate the small business and small farm 
lending market benchmarks, the agencies proposed to initially use small 
business loan and small farm loan data that would be collected, 
maintained, and reported pursuant to Sec.  __.42. During this initial 
period, ``small business loan'' and ``small farm loan'' would be 
defined by reference to Call Report instructions. Specifically, ``small 
business loan'' would include a loan to a business in an amount of $1 
million or less that is secured by nonfarm nonresidential properties or 
categorized as a commercial or industrial loan. ``Small farm loan'' 
would include a loan to a farm in amount of $500,000 or less that is 
secured by farmland or categorized as a loan to finance agricultural 
production or other loan to farmers.
    However, as discussed further in the section-by-section analysis of 
final Sec. Sec.  __.12, __.42(a)(1) and (b)(1), and __.51, the agencies 
also proposed to transition to using section 1071 data to calculate the 
small business and small farm lending distribution metrics for banks 
that are section 1071 reporters, and to calculate the small business 
and small farm lending market benchmarks. Following this transition, 
``small business loan'' would be defined as a loan to a small business 
(defined by reference to section 1071 definitions), and ``small farm 
loan'' would be defined as a loan to a small farm (defined by reference 
to section 1071 definitions).
    To calculate the small business and small farm lending community 
benchmarks--which are based on the number of businesses or farms in a 
geographic area--the agencies proposed to use data sources comparable 
to those used in evaluations today.
Comments Received
    Use of CRA data and section 1071 data. A number of comments 
addressed the agencies' proposal to initially use the small business 
loan and small farm loan data that is used under the current approach 
to calculate the small business and small farm lending distribution 
metrics and market benchmarks until as the agencies transition to using 
section 1071 data. These comments, including input regarding the impact 
on Retail Lending Test evaluations of transitioning to using section 
1071 data, are summarized in the section-by-section analysis of final 
Sec.  __.42(a)(1) and (b)(1).
    Data source for community benchmarks. At least one commenter noted 
that the proposal did not identify a third-party data provider that 
would provide the demographic data on small businesses and small farms 
that the agencies would use to calculate the small business and small 
farm lending community benchmarks.\919\ This commenter stated that 
disclosing the data provider used is important. Additionally, the 
commenter noted that in the data collected by one third-party provider, 
approximately 30 percent of businesses report gross annual revenues as 
``not applicable'' or ``not known.''
---------------------------------------------------------------------------

    \919\ See 87 FR 33884, 33941, Table 6 (June 3, 2022).
---------------------------------------------------------------------------

Final Rule
    The agencies are adopting the proposed approach to evaluating the 
distribution of a bank's small business and small farm lending, 
including the proposed data sources used to calculate the small 
business and small farm lending distribution metrics, market 
benchmarks, and community benchmarks, and corresponding changes to the 
definitions of ``small business loan'' and ``small farm loan.'' As 
such, and as described further in the section-by-section analysis of 
final Sec. Sec.  __.12 and __.42(a)(1) and (b)(1), the agencies will 
initially use the small business and small farm lending data used under 
the current approach (i.e., small business loan and small farm loan 
data collected, maintained, and reported by a large bank pursuant to 
Sec.  __.42, or the bank's own data) to calculate the small business 
and small farm lending distribution metrics, and will use the small 
business loan and small farm loan data collected, maintained, and 
reported pursuant to Sec.  __.42 to calculate the small business and 
small farm lending market benchmarks. During this period, the Call 
Report definitions of ``small business loan'' and ``small farm loan'' 
will apply. As discussed further in the section-by-section analysis of 
Sec.  __.42(a)(1), the agencies are also adding indicators for: loans 
to businesses or farms with gross annual revenues of $250,000 or less; 
loans to businesses or farms with gross annual revenues of greater than 
$250,000 but less than or equal to $1 million; loans to businesses or 
farms with gross annual revenues of greater than $1 million; and loans 
to businesses or farms for which gross annual revenues are not known by 
the bank.
    However, after section 1071 data becomes available, the agencies 
will publish a notice in the Federal Register announcing the effective 
date of the section 1071-related transition amendments. These 
transition amendments are included in the final rule but are 
indefinitely delayed. Once effective, these transition amendments will 
modify various provisions of the final rule to implement the agencies' 
transition to using section 1071 data in CRA evaluations.
    Following this transition, the agencies will use section 1071 data 
to calculate the small business and small farm lending distribution 
metrics for section 1071 reporters, and will use section 1071 data to 
calculate the market benchmarks. As a result of the section

[[Page 6848]]

1071-related transition amendments, ``small business loan'' will be 
defined as a loan to a small business (defined by reference to section 
1071 definitions), and ``small farm loan'' will be defined as a loan to 
a small farm (defined by reference to section 1071 definitions).
    The agencies emphasize that the transition from using the small 
business and small farm lending data that is currently used in CRA 
evaluations (and associated definitions based on the Call Report) to 
using section 1071 data and associated definitions will impact the 
calculations of metrics and benchmarks in numerous ways due to 
differences in the parameters used to define which small business loans 
and small farm loans are subject to CRA data requirements and required 
to be reported under section 1071. In particular, small business loans 
and small farm loans subject to CRA data requirements differ from the 
small business loans and small farm loans reported under section 1071 
in two respects: (1) small business loans and small farm loans subject 
to CRA data requirements are limited to loans in an amount of $1 
million or less and $500,000 or less, respectively, but small business 
loans and small farm loans reported under section 1071 are not subject 
to any limitation on loan amount; and (2) small business loans and 
small farm loans subject to CRA data requirements are not subject to 
any limitation on the size of the business or farm, but small business 
loans and small farm loans reported under section 1071 are limited to 
loans to businesses or farms with gross annual revenues of $5 million 
or less in the preceding fiscal year.\920\ In addition, whereas only 
banks subject to CRA report small business loans and small farm loans 
pursuant to Sec.  __.42(b), any entity engaged in any financial 
activity (including nonbank lenders) must report section 1071 data if 
the entity exceeds the reporting threshold.\921\ The differences will 
impact the loans included in the small business lending and small farm 
lending distribution metrics and market benchmarks.
---------------------------------------------------------------------------

    \920\ As described further in the section-by-section analysis of 
Sec.  __.12, following the transition to using section 1071 data, 
``small business loan'' will be defined as a loan to a small 
business, and ``small farm loan'' will be defined as a loan to a 
small farm, with ``small business'' and ``small farm'' being defined 
by reference to the ``small business'' definition in the CFPB 
Section 1071 Final Rule. The CFPB Section 1071 Final Rule currently 
defines ``small business'' as a small business concern (as defined 
by the Small Business Act as implemented by the SBA) with gross 
annual revenues of $5 million or less in its preceding fiscal year. 
The $5 million gross annual revenue threshold will be adjusted for 
inflation every five years after January 1, 2025. See 12 CFR 
1002.106(b).
    \921\ See 12 CFR 1002.105 (defining ``covered financial 
institution'').
---------------------------------------------------------------------------

    The agencies believe that transitioning to using section 1071 data 
will offer a number of benefits. First, in contrast to using small 
business and small farm lending data collected, maintained, and 
reported pursuant to Sec.  __.42, section 1071 data will allow for 
consideration of large loans to small businesses or small farms (i.e., 
those in an amount greater than $1 million or $500,000, respectively), 
which the agencies believe can help meet the credit needs of a 
community. Second, the agencies note that because small business loans 
and small farm loans subject to CRA data requirements are not limited 
to firms under a certain gross annual revenue threshold, small business 
loans and small farm loans to large businesses or large farms in low- 
or moderate-income census tracts initially (and under the current 
approach) receive positive consideration under the geographic 
distribution analysis; however, following the transition to using 
section 1071 data, only loans to small businesses and small farms will 
be included in the geographic distribution metrics and benchmarks, and 
loans to businesses with gross annual revenue of greater than $5 
million will not be included. Third, as discussed in the section-by-
section analysis of final Sec.  __.42(a)(1) and (b)(1), the agencies 
believe that transitioning to section 1071 data will reduce data 
collection, maintenance, and reporting requirements, because the 
agencies will be able to phase out the existing data requirements once 
the agencies transition to using section 1071 data. Finally, section 
1071 data will include data reported by banks as well as nonbank 
institutions, which will allow for market benchmarks that more 
comprehensively reflect the small business and small farm credit needs 
and opportunities of an area.
    Data source for community benchmarks. For purposes of calculating 
the community benchmarks for small business and small farm lending, the 
agencies intend to continue using the data sources that are used in 
current evaluations for these calculations. Although the agencies 
believe that the data used in current evaluations are sufficiently 
comprehensive and reliable, the agencies are mindful that the 
availability of this data could change over time, and that more robust 
data sources could emerge in the future. For this reason, the agencies 
decline to establish a requirement to continue using a particular data 
source for the small business and small farm lending community 
benchmarks.
    The agencies have considered that not all businesses or farms make 
their gross annual revenues known. As such, the community benchmarks 
for small business and small farm lending--which are based on the 
number of businesses or farms in a geographic area--could be impacted 
by incomplete data. However, pursuant to final Sec.  __.22(g)(4), the 
agencies may consider missing or faulty data as an additional factor 
when assigning a bank's Retail Lending Test conclusion in a Retail 
Lending Test Area. For example, if a bank made a significant number of 
loans to businesses for which gross annual revenue information was 
unavailable, the agencies might determine, based on information 
presented by the bank, that some number of those loans were likely made 
to small businesses. The agencies could then consider whether the 
number of small business loans with missing gross annual revenue 
information was sufficient to warrant adjusting the bank's conclusion 
relative to the recommended conclusion.

Section __.22(e)(1)(ii) Distribution Analysis for Automobile Loans

The Agencies' Proposal
    The agencies proposed to use generally the same approach for 
evaluating the geographic and borrower distributions of all of a bank's 
major product lines, including automobile loans. Specifically, the 
agencies proposed to compare a bank's automobile lending distribution 
metrics against two types of distribution benchmarks: market benchmarks 
that reflect the aggregate lending of reporting lenders in the area, 
and community benchmarks that reflect demographic data. The agencies 
proposed to develop automobile lending market benchmarks using data 
collected pursuant to the proposed new automobile lending data 
requirements applicable to large banks with assets over $10 billion.
Comments Received
    Commenters expressed different views about the appropriateness of 
using market benchmarks to evaluate automobile loans, given that these 
market benchmarks would be based on data collected only from banks with 
assets of over $10 billion. A commenter supported the agencies' 
proposal to evaluate automobile lending for all banks using the 
proposed market benchmarks and asserted that it was important to 
establish automobile lending market benchmarks, even if based only on 
partial market data. However, other commenters opposed

[[Page 6849]]

the agencies' proposal to evaluate all banks' automobile lending using 
market benchmarks developed using data collected only from banks with 
assets over $10 billion on the grounds that these benchmarks would not 
be reliable given the amount of automobile market lending data that 
would not be captured, including due to the prevalence of nonbank 
automobile lending.
Final Rule
    The agencies are adopting a modified approach to evaluating the 
distribution of a bank's automobile loans when automobile loans are a 
major product line for a bank. Under the final rule, the agencies 
compare a bank's automobile lending distribution metrics to community 
benchmarks, as under the proposal. Unlike under the proposal, however, 
the final rule does not include comparison of a bank's automobile 
lending distribution metrics to market benchmarks. Further, and as 
described further in the section-by-section analysis of Sec.  __.22(f), 
performance ranges are not used to develop supporting conclusions 
regarding a bank's automobile lending under the final rule. As such, 
final Sec.  __.22(e)(1)(ii) provides that for automobile loans, the 
agencies compare a bank's geographic and borrower distributions to the 
applicable community benchmarks, as provided in Sec.  __.22(f) and 
section VI of final appendix A.
    Upon consideration of commenter feedback, the agencies believe that 
using market benchmarks to evaluate a bank's automobile lending 
geographic and borrower distributions is not feasible given the final 
rule's automobile lending data requirements, discussed further in the 
section-by-section analysis of Sec.  __.42, which apply only to large 
banks that are majority automobile lenders or that opt to have their 
automobile loans evaluated under the Retail Lending Test, and do not 
require the reporting of automobile loan data. Further, even if 
automobile lending data were reported to the agencies under the final 
rule, the agencies have considered that such data would reflect only 
the portion of the automobile lending market represented by banks, and 
would exclude nonbank lenders. For these reasons, the agencies 
determined that market benchmarks for automobile lending would not be 
fully reflective of the potential credit needs and opportunities for 
automobile lending in a facility-based assessment area or retail 
lending assessment area. In addition to these potential challenges with 
establishing market benchmarks for automobile loans, the agencies also 
considered that the final rule approach reduces complexity and data 
requirements relative to the proposed approach because it does not 
require reporting of automobile data for any banks. As such, under the 
final rule, community benchmarks are used to qualitatively evaluate a 
bank's automobile lending distributions.

Section __.22(e)(2) Categories of Lending Evaluated

The Agencies' Proposal
    As specified in proposed Sec.  __.22(d)(2)(ii), the agencies 
proposed to evaluate the geographic distribution of a bank's major 
product lines by separately evaluating the distribution of the bank's 
loans in (1) low-income census tracts and (2) moderate-income census 
tracts within the facility-based assessment area, retail lending 
assessment area, or outside retail lending area.
    As specified in Sec.  __.22(d)(2)(iii), the agencies proposed to 
evaluate the borrower distribution of a bank's major product lines by 
separately evaluating the distribution of the bank's loans to different 
categories of borrowers in the facility-based assessment area, retail 
lending assessment area, or outside retail lending area. Specifically, 
to evaluate the borrower distribution of a bank's closed-end home 
mortgage loans, open-end home mortgage loans, or automobile loans, the 
agencies would separately evaluate the distribution of the bank's loans 
to (1) low-income borrowers and (2) moderate-income borrowers in the 
area. To evaluate the borrower distribution of a bank's small business 
loans, the agencies would separately evaluate the distribution of the 
bank's loans to (1) small businesses with gross annual revenues of 
$250,000 or less and (2) small businesses with gross annual revenues of 
more than $250,000 but less than or equal to $1 million. To evaluate 
the borrower distribution of a bank's small farm loans, the agencies 
would separately evaluate the distribution of the bank's loans to (1) 
small farms with gross annual revenues of $250,000 or less and (2) 
small farms with gross annual revenues of more than $250,000 but less 
than or equal to $1 million.
Comments Received
    The agencies received numerous comments related to the proposal to 
separately evaluate the distribution of a bank's major product lines to 
low- and moderate-income census tracts and to various categories of 
borrowers.
    Separate evaluation of different income and revenue categories. A 
number of commenters shared views on the proposal to evaluate low-
income and moderate-income retail lending separately when calculating 
the bank geographic distribution metrics and bank borrower distribution 
metrics, with some supporting the proposed approach. For example, a 
commenter conducted empirical analysis showing that separating these 
income categories would better enable banks, regulators, and 
communities to understand how banks fulfill their CRA obligations. This 
commenter asserted that separating these income categories would 
acknowledge the fundamental differences between low-income and 
moderate-income consumers and low-income and moderate-income 
communities in relation to how much they are underserved and their 
racial composition.
    However, other commenters supported combining one or both of the 
following approaches to reduce the complexity of the proposed Retail 
Lending Test: (1) combine the distribution metrics for the low- and 
moderate-income census tracts; or (2) combine the distribution metrics 
for low- and moderate-income borrowers, and for small businesses and 
small farms in different gross annual revenue categories, respectively. 
One commenter stated that combining the low- and moderate-income 
categories would allow banks to tailor their approach to retail lending 
in particular assessment areas so as to ensure the overall safety and 
soundness of their portfolios and to better address needs in each 
community. Another commenter explained that combining the low- and 
moderate-income categories could make the retail lending benchmarks 
more meaningful, particularly in places where the low-income benchmarks 
lack robustness. Another commenter stated that combining the income and 
revenue categories would reduce the number of measures that banks must 
track and seek to achieve, which would reduce overall complexity. 
Furthermore, the commenter noted that the income and revenue categories 
are ultimately combined when calculating product line averages and 
recommended conclusions, making separate categories unnecessary.
    Other commenters noted that retail lending to low-income borrowers 
or in low-income census tracts should be considered as beneficial 
performance context or the basis for a performance conclusion 
qualitative upgrade.
    Geographic distribution analysis--underserved census tracts. Some

[[Page 6850]]

commenters recommended that CRA retail lending evaluations should 
include analysis of a bank's retail lending distributions in 
underserved neighborhoods, as an alternative or addition to analysis of 
a bank's retail lending distributions in low- and moderate-income 
census tracts, respectively. These commenters asserted that underserved 
neighborhoods could be defined as census tracts with low levels of 
retail lending based on loans per capita. The commenters stated that 
such an approach would incentivize retail lending and other banking 
activities in majority-minority communities.
    Borrower distribution analysis--small business and small farm 
revenue thresholds. Some commenters supported the proposal to 
separately evaluate a bank's record of lending to small businesses or 
small farms with gross annual revenues of $250,000 or less and those 
with gross annual revenues of between $250,000 and $1 million under the 
Retail Lending Test. For example, a commenter stated that the 
thresholds would help examiners understand the extent of small business 
credit needs being served by banks. Another commenter indicated that 
the gross annual revenue threshold of $250,000 is appropriate.
    However, many commenters recommended that the agencies separately 
calculate a bank's record of lending to small businesses or small farms 
based on varying revenue categories other than those included in the 
agencies' proposal. A number of commenters recommended three gross 
annual revenue categories, specifically: $100,000 or less, between 
$100,000 and $250,000, and above $250,000. In general, these commenters 
asserted that small businesses and small farms with gross annual 
revenues under $100,000 are particularly likely to have unmet credit 
needs, and that adding a third revenue category would not introduce 
substantial incremental burden. For example, a commenter recommended 
evaluation criteria for small businesses with revenues of $100,000 or 
less and suggested that the agencies share borrower demographic data. 
This commenter also stated that small business owners and entrepreneurs 
with disabilities continue to face challenges accessing credit. Another 
commenter suggested that the threshold should be revised down to 
$100,000 and that the same figure should be used for the impact review 
factor relating to community development activities that support 
smaller businesses and farms. At least one commenter supported an 
analysis of loans to businesses with gross annual revenues under 
$250,000 and a category for businesses with gross annual revenues under 
$100,000 to encourage lending to the smallest businesses and minority-
owned businesses.
    Several commenters recommended increasing the gross annual revenue 
thresholds for categorizing different sizes of small businesses 
relative to the proposed levels. A few commenters recommended raising 
the proposed $250,000 gross annual revenues threshold to $500,000, with 
one such commenter suggesting that this revenue threshold would be more 
representative of main street businesses. A commenter stated that, if 
the agencies adopt two categories, those categories should be loans to 
businesses with less than $1 million in gross annual revenue and loans 
to businesses with between $1 million and $2.5 million in gross annual 
revenue. This commenter reasoned that although banks understand the 
importance of helping the smallest category of small businesses, for 
most banks, that is not often done through traditional small business 
loans. At least one commenter asked that the threshold for identifying 
smaller businesses and farms be increased to gross annual revenue of $2 
million or less to reflect current market conditions and to adjust for 
inflation since 1995. Another commenter suggested the agencies combine 
the two proposed revenue categories--loans to businesses with gross 
annual revenues less than $250,000 and loans to businesses with gross 
annual revenues between $250,000 and $1 million--into a single revenue 
category and consider loans to business with gross annual revenues of 
less than $250,000 as a positive qualitative factor.
    Some commenters recommended that the agencies conduct additional 
analyses to inform the small business and small farm revenue 
thresholds. For example, one commenter encouraged the agencies to 
gather data for businesses at different revenue thresholds before 
setting a specific threshold. Another commenter stated it was not clear 
on what criteria the agencies based the proposed $250,000 gross annual 
revenues threshold. This commenter urged the agencies to determine how 
to use the same criteria or algorithms used by banks to identify unmet 
credit needs for purposes of marketing loans, such as credit scores, 
financial analysis, and other factors that support identifying which 
consumers would be candidates for a bank's loan products. Another 
commenter stated that, because section 1071 data has not yet become 
available, neither the public nor researchers know whether larger small 
businesses with gross annual revenues closer to $5 million are 
significantly more successful in accessing loans than their smaller 
counterparts; therefore, at least in the first few years of having the 
finalized section 1071 data, the commenter recommended more rather than 
fewer performance measures to more accurately measure credit 
availability to different-sized businesses in low- or moderate-income 
census tracts and to encourage banks to serve businesses with different 
revenue sizes.
    A few commenters suggested alternative ways of evaluating a bank's 
small business and small farm lending borrower distributions beyond 
fixed gross annual revenue thresholds. One commenter encouraged 
examiner discretion and an assessment of qualitative factors to 
determine appropriate gross annual revenue thresholds given that credit 
needs vary from market to market, rather than fixed thresholds that 
apply to all Retail Lending Test Areas. Another commenter suggested 
that businesses owned by women or historically disadvantaged minorities 
should be exempt from the gross annual revenue thresholds so that banks 
could receive positive consideration for loans to these businesses 
regardless of the size of these businesses.
Final Rule
    For the reasons discussed below, the agencies are finalizing the 
proposal to separately evaluate the distribution of a bank's major 
product lines to low- and moderate-income census tracts and to various 
categories of borrowers. As such, final Sec.  __.22(e)(2)(i) provides 
that for each major product line in each Retail Lending Test Area, the 
agencies evaluate the geographic distributions separately for low-
income census tracts and moderate-income census tracts. Final Sec.  
__.22(e)(2)(ii) provides that for each major product line in each 
Retail Lending Test Area, the agencies evaluate the borrower 
distributions separately for, as applicable; low-income borrowers, 
moderate-income borrowers, businesses with gross annual revenues of 
$250,000 or less, businesses with gross annual revenues greater than 
$250,000 but less than or equal to $1 million, farms with gross annual 
revenues of $250,000 or less, and farms with gross annual revenues 
greater than $250,000 but less than or equal to $1 million.
    Separate evaluation of retail lending to different income 
categories. The final rule maintains the proposed approach of 
separately evaluating retail lending in

[[Page 6851]]

low-income and moderate-income categories. The agencies considered that 
establishing separate metrics for these categories would appropriately 
evaluate and emphasize bank performance in meeting the credit needs of 
the entire community, including low-income borrowers and low-income 
census tracts. For example, the use of separate income categories of 
metrics would help to identify whether a bank engaged in lending to 
moderate-income borrowers and census tracts but did not lend to low-
income borrowers and census tracts. The agencies believe that even 
though performance on these separate metrics will ultimately be 
combined to reach an overall product line score and conclusion for each 
Retail Lending Test Area, the separate metrics will provide important 
visibility into and emphasis on meeting the credit needs of the bank's 
entire community. In addition, in making this determination, the 
agencies considered comments that low-income borrowers and low-income 
communities in particular may have significant unmet credit needs and 
opportunities.
    The agencies also considered, but are not adopting, an alternative 
approach of using a single set of distribution metrics that combine 
performance for low-income and moderate-income borrowers, respectively. 
The agencies considered, as some commenters noted, that such an 
alternative could simplify the Retail Lending Test by reducing the 
number of metrics, benchmarks, and performance ranges associated with 
each product line. However, on balance, the agencies believe that the 
separate distribution analyses for different income categories, while 
adding additional metrics and steps to the small business and small 
farm evaluation, leads to a more robust evaluation that provides 
transparency about lending performance to a bank's entire community.
    Separate evaluation of retail lending to different small business 
and small farm revenue categories. As noted above, under the final 
rule, the agencies will analyze a bank's borrower distribution of 
lending to small businesses and to small farms in two separate gross 
annual revenue categories: businesses and farms with gross annual 
revenue of $250,000 or less, and businesses and farms with gross annual 
revenue greater than $250,000 but less than or equal to $1 million. 
This is in contrast to the current approach, which analyzes a bank's 
distribution of lending to a single gross annual revenue category of $1 
million or less. As discussed in the agencies' proposal, the agencies 
believe that firms with gross annual revenue of $250,000 or less have 
significant unmet credit needs and challenges securing financing.\922\ 
Consistent with suggestions by some commenters, the agencies have 
determined that this additional category will better enable the 
agencies to understand the extent of small business and small farm 
credit needs served by banks. Conversely, the agencies believe that an 
approach with a single revenue category would allow a bank to achieve 
strong performance through serving only businesses and farms with gross 
annual revenues of between $250,000 and $1 million, and not meeting the 
needs of relatively smaller small businesses. Similar to the 
determination to separate low- and moderate-income categories discussed 
above, the agencies believe that the additional complexity of separate 
distribution analyses for different gross annual revenue categories is 
worth the benefits of a more robust evaluation that provides needed 
transparency about lending performance to a bank's entire community. 
Further, the agencies note that the final rule approach of separately 
evaluating a bank's small business and small farm lending to small 
businesses and small farms of different revenue categories is no more 
complex than separately evaluating a bank's closed-end home mortgage 
and automobile lending to borrowers of different incomes. The section-
by-section analysis of final Sec.  __.42(a)(1) discusses the data 
collection, maintenance, and reporting provisions that will enable the 
agencies to analyze small business and small farm lending borrower 
distributions for both of the gross annual revenue categories described 
above.
---------------------------------------------------------------------------

    \922\ See 87 FR 33938 (discussing the Federal Reserve's 2022 
Small Business Credit Survey).
---------------------------------------------------------------------------

    Regarding comments that separately evaluating loans to businesses 
with gross annual revenue of $250,000 or less could raise safety and 
soundness concerns, the agencies note that CRA does not require a bank 
to originate or purchase loans that are inconsistent with its safe and 
sound operation, and consideration of the constraints of safe and sound 
banking practices will be considered as part of a bank's performance 
context, pursuant to Sec.  __.21(d)(1), as warranted. As a result, in 
the event that a bank for which small business lending is a major 
product line is unable to serve businesses with gross annual revenue of 
under $250,000 due to safety and soundness considerations, the agencies 
would take these circumstances into account when evaluating the bank's 
Retail Lending Test performance. In addition, the agencies believe that 
the design of the Borrower Market Benchmark helps to ensure that the 
Retail Lending Test does not encourage lending that is inconsistent 
with safe and sound banking practices. Specifically, the Borrower 
Market Benchmark is based on the share of loans made to businesses or 
farms by other lenders. As a result, a bank's performance expectations 
in a particular Retail Lending Test Area reflect the credit needs and 
opportunities associated with firms in that area that received a loan. 
In addition, the agencies also note that, as discussed in the section-
by-section analysis of Sec.  __.22(f), the multiplier for ``Low 
Satisfactory'' performance based on the market benchmarks would be 80 
percent. As a result, banks that are below the Borrower Market 
Benchmark by as much as 20 percentage points would receive at least a 
``Low Satisfactory'' supporting conclusion for their lending to firms 
with revenue of under $250,000.
    Small business and small farm revenue thresholds--alternative 
thresholds considered. In finalizing the proposed approach of creating 
separate revenue categories based on gross annual revenue thresholds of 
$250,000 and $1 million, the agencies also considered, but declined to 
adopt, alternative gross annual revenue threshold levels suggested by 
commenters, such as a threshold of $100,000 or $500,000 instead of 
$250,000, and a threshold of $2 million instead of $1 million.
    Regarding the final rule gross annual revenue threshold of 
$250,000, the agencies considered the potential benefits and tradeoffs 
of selecting an alternative threshold either higher or lower than the 
proposed level and believe that the proposed level appropriately 
balances the agencies' policy objectives. The agencies determined that 
a lower threshold could emphasize lending to the businesses and farms 
with the greatest unmet credit needs. According to the 2023 Report on 
Employer Firms: Findings from the 2022 Small Business Credit Survey, 
employer firms with total annual revenues less than $100,000 were 
substantially more likely to experience difficulties obtaining 
financing than larger employer firms. However, based on the set of 
businesses included in the survey data, these businesses are less 
likely to be employers, which may indicate that a lower threshold could 
detract focus from small businesses that are employers and that have 
unmet credit needs. Furthermore, employer firms with total annual 
revenues less than

[[Page 6852]]

$250,000 also reported a greater likelihood of experiencing 
difficulties obtaining financing than larger employer firms, suggesting 
unmet credit needs among this group as well.\923\
---------------------------------------------------------------------------

    \923\ See Federal Reserve Banks, ``2023 Report on Employer 
Firms: Findings from the 2022 Small Business Credit Survey'' (Mar. 
2023), https://www.fedsmallbusiness.org/survey/2023/report-on-employer-firms. The cited data points were drawn from the data 
appendix of the report, available here: https://www.fedsmallbusiness.org/survey.
---------------------------------------------------------------------------

    Additionally, the agencies have considered that lending to 
businesses and farms with revenue of less than $100,000 may not align 
with some bank business models. For example, as noted by at least one 
commenter, some banks may serve firms with revenues of less than 
$100,000 primarily through products that do not qualify as small 
business loans, such as home equity lines of credit and consumer credit 
cards. Furthermore, the agencies considered that a gross annual revenue 
threshold of $100,000 may not be suitable for analysis in higher cost 
markets where small business revenues are generally higher.
    On the other hand, regarding a higher alternative gross annual 
revenue threshold level, such as $500,000, the agencies considered that 
this category would reduce the emphasis of the Retail Lending Test on 
smaller firms, which may be more likely to have unmet credit needs that 
CRA is intended to help address, as discussed above. On balance, the 
agencies believe that the $250,000 threshold will emphasize small 
business credit needs and opportunities while broadly comporting with 
bank business models and Retail Lending Test Areas.
    Regarding commenter suggestions to consider a gross annual revenue 
threshold of $2 million or $2.5 million rather than $1 million, the 
agencies believe that the proposed threshold level is appropriate, and 
that increasing this threshold would reduce the emphasis of evaluations 
on smaller firms, which the agencies believe may have greater unmet 
credit needs than relatively larger small businesses and farms, as 
discussed above. In addition, the agencies considered that the proposed 
gross annual revenue threshold of $1 million is consistent with current 
examination procedures, which evaluate a bank's share of loans to 
businesses and farms with gross annual revenue of less than $1 million.
    Alternative approaches to evaluating small business and small farm 
lending borrower distributions. The agencies considered several 
alternative approaches, suggested by commenters, to evaluating the 
borrower distributions of a bank's small business and small farm 
lending. First, the agencies considered, but decline to adopt, 
suggestions to make the gross annual revenue threshold levels subject 
to agency discretion, or to incorporate other factors into the 
distribution analysis beyond the gross annual revenue of the firms 
served by a bank. For example, regarding commenter feedback on an 
option that would allow gross annual revenue threshold levels to vary 
across Retail Lending Test Areas, subject to agency discretion, the 
agencies believe this would introduce considerable uncertainty and 
inconsistency into the evaluation process, and that it is preferable to 
use consistent categories of small businesses and small farms for all 
CRA examinations. Consistent gross annual revenue categories also have 
the benefit of providing a bank with clarity and transparency into how 
its small business and small farm lending will be evaluated.
    Second, the agencies also considered comments suggesting that the 
agencies establish thresholds based on the same criteria or algorithms 
used by banks to identify unmet credit needs, such as credit scores, 
financial analysis, and other factors. However, the agencies believe 
that gross annual revenue is an appropriate way of categorizing small 
businesses and small farms, and is consistently available. Furthermore, 
the agencies note that gross annual revenue is used in CRA evaluations 
currently, and that use of other criteria such as credit scores or 
other financial characteristics could require additional data reporting 
and could result in additional burden of adjusting to a new evaluation 
approach. In addition, the agencies considered that gross annual 
revenue information will be included in section 1071 data, and that 
loans will be reported under section 1071 based on a gross annual 
revenue threshold.
    Third, the agencies considered giving positive consideration in the 
borrower distribution analysis to business loans or farm loans made to 
women-owned or minority-owned businesses or farms, regardless of the 
size of the business or farm (as measured in gross annual revenues). 
However, the agencies believe that such an approach would be complex to 
administer, and would be a departure from the current approach. In 
addition, the agencies note that the statute requires the agencies to 
assess a bank's record of meeting the credit needs of its entire 
community, expressly including low- and moderate-income 
communities.\924\
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    \924\ See 12 U.S.C. 2903(a)(1); see also 12 U.S.C. 2906(a)(1).
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    Finally, the agencies considered, but decline to adopt, a third 
revenue category of businesses and farms with gross annual revenues 
less than $100,000. In reaching this determination, the agencies 
considered the additional complexity that this approach would entail, 
including metrics, benchmarks, performance ranges, and weights that 
would apply to the third category. In addition, the agencies believe 
that a two-category approach affords appropriate flexibility to banks 
to meet small business and small farm credit needs, while a three-
category approach would create more granular and specific performance 
expectations, including having performance evaluated in a third 
``middle'' revenue category. The agencies believe that a two-category 
approach appropriately balances limiting complexity while ensuring a 
robust evaluation of a bank's small business and small farm lending.
    Geographic distribution analysis--underserved census tracts. Under 
the final rule, the agencies evaluate the geographic distribution of a 
bank's major product lines to low- and moderate-income census tracts, 
respectively. The agencies considered the alternative or additional 
approach, suggested by some commenters, of evaluating the geographic 
distribution of a bank's retail lending in underserved census tracts. 
However, the agencies determined that evaluating a bank's geographic 
distributions with respect to low- and moderate-income census tracts 
leverages the metrics and benchmarks utilized under the current 
approach. In addition, the agencies note that evaluating a bank's 
retail lending performance in low- and moderate-income census tracts 
comports with the statutory requirement that the agencies assess a 
bank's record of meeting the credit needs of its entire community, 
including low- and moderate-income neighborhoods.\925\ In contrast, the 
agencies believe that for purposes of evaluating lending distributions 
under Sec.  __.22(e), identifying underserved neighborhoods based on 
criteria other than income would be a departure from the current 
approach and would add complexity.
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    \925\ See 12 U.S.C. 2903(a)(1); see also 12 U.S.C. 2906(a)(1).

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[[Page 6853]]

Section __.22(e)(3) Geographic Distribution Measures

The Agencies' Proposal
    As discussed above, the agencies proposed to evaluate the 
geographic distributions of a bank's major product lines by using 
certain metrics and benchmarks. Specifically, the proposed Geographic 
Bank Metrics compare the number of a bank's loans in a particular major 
product line that are located in low-income and moderate-income census 
tracts, respectively, to the total number of the bank's originated and 
purchased loans in the major product line in the facility-based 
assessment area, retail lending assessment area, or outside retail 
lending area. As discussed in greater detail in the section-by-section 
analysis of final Sec.  __.22(f), the agencies proposed to compare the 
Geographic Bank Metric for each distribution for each major product 
line to performance ranges calculated based on two benchmarks: a 
Geographic Market Benchmark that reflects the aggregate loan 
originations in low- and moderate-income census tracts across reporting 
lenders within a facility-based assessment area, retail lending 
assessment area, or outside retail lending area; and a Geographic 
Community Benchmark that reflects the potential lending opportunities 
in low- or moderate-income census tracts within a facility-based 
assessment area, retail lending assessment area, or outside retail 
lending area.
Comments Received
    The agencies received numerous comments, discussed above, on the 
use of distribution metrics and benchmarks generally. In addition, the 
agencies received several comments that specifically addressed the 
proposed geographic distribution metrics and benchmarks.
    Treatment of loans to middle- and upper-income borrowers. The 
agencies received comments related to the types of loans included in 
the Geographic Bank Metrics. Some commenters expressed concerns that 
the geographic distribution analysis as proposed would give positive 
consideration to home mortgage loans to middle- and upper-income 
borrowers located in low- and moderate-income census tracts. Commenter 
recommendations included excluding such loans from consideration to 
avoid contributing to displacement and gentrification. At least one 
commenter suggested excluding from consideration retail loans made to 
non-minority, middle-, and upper-income borrowers to better address 
displacement and gentrification in low- and moderate-income census 
tracts.
    Use of census tracts. Another commenter stated that, for the home 
mortgage loan geographic distribution metrics and benchmarks, the 
agencies should use census block groups instead of census tracts, to 
avoid overlooking rural census tracts that may include areas of 
concentrated poverty apparent only at the census block group level.
Final Rule
    For the reasons discussed below, the agencies are adopting the 
geographic distribution metrics and benchmarks generally as proposed.
     Final Sec.  __.22(e)(3)(i) provides that for each major 
product line, a Geographic Bank Metric is calculated pursuant to 
paragraph III.a of final appendix A.
     Final Sec.  __.22(e)(3)(ii) provides that for each major 
product line except automobile loans, a Geographic Market Benchmark is 
calculated pursuant to, as applicable, paragraph III.b of final 
appendix A for facility-based assessment areas and retail lending 
assessment areas, and paragraph III.d of final appendix A for outside 
retail lending areas.
     Final Sec.  __.22(e)(3)(iii) provides that for each major 
product line, a Geographic Community Benchmark is calculated pursuant 
to, as applicable, paragraph III.c of final appendix A for facility-
based assessment areas and retail lending assessment areas, and 
paragraph III.e of final appendix A for outside retail lending areas.
    A summary of these calculations for facility-based assessment area 
and retail lending assessment areas can be found in the following table 
for each product line. Following a discussion of some preliminary 
issues, each of these metrics and benchmarks is discussed in more 
detail below.
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    Treatment of loans to middle- and upper-income borrowers. The final 
rule adopts the proposed approach under which the geographic 
distribution metrics and benchmarks include all originated loans (and, 
for the geographic distribution metrics, purchased loans) in the major 
product line, including loans to middle- and upper-income borrowers 
located in low- and moderate-income census tracts. For example, the 
numerator of the Geographic Bank Metric for closed-end home mortgage 
loans in low-income census tracts would include all of a bank's closed-
end home mortgages to borrowers of any income level in low-income 
census tracts in the Retail Lending Test Area, including loans to 
middle- and upper-income borrowers. Similarly, the denominator would 
include all of the bank's closed-end home mortgage loans in all census 
tracts in the Retail Lending Test Area, including loans to middle- and 
upper-income borrowers.
    The agencies considered commenter feedback that by including all 
loans located in low- and moderate-income census tract regardless of 
borrower income, the proposed approach would give undue consideration 
to loans made to middle- and upper-income borrowers and may encourage 
displacement and gentrification. However, the agencies believe that 
there are potential benefits to including these loans in the geographic 
distribution metrics and benchmarks, and that the combination of the 
geographic distribution and borrower distribution analyses 
appropriately balances consideration for loans made to low- and 
moderate-income borrowers with consideration for loans made in low- and 
moderate-income census tracts. Specifically, the agencies considered 
that while a loan made to a middle- or upper-income borrower located in 
a low-income census tract would count in both the numerator and 
denominator of the Geographic Bank Metric, such a loan would count in 
only the denominator of the Borrower Bank Metric. In this way, the 
agencies believe the combination of the geographic distribution 
analysis with the borrower distribution analysis helps to address 
commenter concerns that the approach would encourage gentrification and 
displacement.
    In addition, the agencies considered that loans made to borrowers 
of any income level located in low- and moderate-income census tracts 
help to meet a credit need in a low- or moderate-income community. The 
agencies believe that positively considering such loans is consistent 
with the CRA statute's requirement that the agencies assess the 
institution's record of meeting the credit needs of its entire 
community, including low- and moderate-income neighborhoods. Relatedly, 
the agencies have considered that a low- or moderate-income census 
tract where borrowers of all income levels had difficulty obtaining a 
closed-end home mortgage to purchase or refinance an existing home 
would indicate that community credit needs are not being met. For 
example, the agencies have considered that the ability of prospective 
homebuyers of any income level to obtain a closed-end home mortgage to 
purchase a home, renovate an existing property, or refinance an 
existing home mortgage in a low-income census tract can promote home 
values, help revitalize the existing housing stock, and forestall 
disinvestment in low-income communities. The agencies have considered 
commenter feedback that loans to middle- or upper-income

[[Page 6856]]

households in some low- and moderate-income census tracts could result 
in gentrification that leads to displacement and significantly 
decreases affordability over time. While the agencies are sensitive to 
the potential for gentrification and the accompanying challenges it 
presents for low- and moderate-income communities, the agencies believe 
that in conducting evaluations of lending in low- and moderate-income 
census tracts, the potential risks of gentrification need to be 
balanced against the potential harms that may come from unmet credit 
needs in low- and moderate-income communities.
    Use of census tracts. The agencies are finalizing the use of census 
tracts, rather than census blocks or block groups, to construct 
geographic distribution metrics and benchmarks. Although the agencies 
considered that using census blocks or block groups could provide 
greater precision, the agencies believe that the operational challenges 
and privacy concerns created by this alternative approach outweigh the 
potential benefits. Specifically, the agencies believe it would not be 
possible to construct market and community benchmarks for census blocks 
or block groups, given that certain public data sources necessary to 
compute these benchmarks are not available at the census block group 
level. For example, section 1071 data will include census tract 
information, but will not include address, census block, or census 
block groups. In addition, the agencies believe that it would be more 
difficult for banks to target lending to specific census blocks or 
block groups, which are geographically smaller areas than census 
tracts, and may consist of a portion of a neighborhood. Furthermore, 
the agencies considered that this alternative may introduce privacy 
concerns regarding specific loan recipients as the loan-level data 
collected for closed-end home mortgages, small business, and small farm 
loans would have to be reported and collected at the census block or 
block group level, which would increase the re-identification risk for 
these data.
    Geographic Bank Metrics. As set forth in paragraph III.a of final 
appendix A, the Geographic Bank Metrics are calculated as the 
percentage of a bank's loans in a particular major product line that 
are located in low- and moderate-income census tracts, respectively. 
This calculation is based on originated and purchased loans in a 
specific Retail Lending Test Area over the years in the evaluation 
period. For example, if a bank originated or purchased 25 total closed-
end home mortgage loans in a facility-based assessment area over the 
years in the evaluation period and 5 of those loans were in low-income 
census tracts, its Geographic Bank Metric for closed-end home mortgage 
loans in low-income census tracts would be 0.2, or 20 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.011

    Under the final rule, for each major product line, the agencies 
separately calculate a Geographic Bank Metric for low-income census 
tracts and for moderate-income census tracts, as discussed above. The 
agencies note that calculating the Geographic Bank Metrics in this way 
is consistent with current practice for evaluating a bank's lending in 
low- and moderate-income census tracts.
    Geographic Market Benchmarks--closed-end home mortgage loans, small 
business loans, and small farm loans. As set forth in paragraph III.b 
of final appendix A, the Geographic Market Benchmarks for facility-
based assessment areas and retail lending assessment areas is 
calculated as the percentage of closed-end home mortgage loans, small 
business loans, or small farm loans that are located in low-income 
census tracts or moderate-income census tracts, respectively. This 
calculation is based on originated loans in the facility-based 
assessment area or retail lending assessment area over the years in the 
evaluation period reported by all lenders.
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    For the outside retail lending area, the Geographic Market 
Benchmarks for closed-end home mortgage loans, small business loans, 
and small farm loans are determined by first calculating the benchmark 
for each individual MSA and for the nonmetropolitan area of a State 
that is part of the outside retail lending area (known as the 
``component geographic areas,'' pursuant to final Sec.  __.18(b)(2)), 
and then calculating a weighted average of the benchmarks for those 
areas. Specifically, as set forth in paragraph III.d of final appendix 
A, the Geographic Market Benchmarks for outside retail lending areas 
are established by calculating, for each major product line--other than 
automobile loans--in each component geographic area of the outside 
retail lending area, a benchmark in low- or moderate-income census 
tracts, respectively. Calculation of these benchmarks for each 
component geographic area follows the method described above for 
calculating Geographic Market Benchmarks for facility-based assessment 
areas and retail lending assessment areas, as applicable. The 
benchmarks calculated for each component geographic area are then 
averaged, weighting each component geographic area by the number of the 
bank's loans in the major product line originated and purchased in the 
component geographic area, relative to the number of the bank's loans 
in the major product line originated and purchased in the outside 
retail lending area. More discussion of the process for creating 
benchmarks used in the outside retail lending area analysis follows 
later in this section.
    Consistent with the proposed approach, the Geographic Market 
Benchmarks are intended to show the overall level of lending for each 
product line taking place in the Retail Lending Test Area in low- and 
moderate-income census tracts by all reporting lenders. The agencies 
note that calculating Geographic Market Benchmarks in this way is 
consistent with current practice for evaluating a bank's lending in 
low- and moderate-income census tracts.
    Geographic Community Benchmarks--closed-end home mortgage loans. As 
set forth in paragraphs III.c.1 and III.c.2 of final appendix A, the 
Geographic Community Benchmarks for closed-end home mortgage loans in 
facility-based assessment areas and retail lending assessment areas are 
calculated as the percentage of owned-occupied housing units in low- 
and moderate-income census tracts, respectively. This calculation is 
based on owner-occupied housing units in the facility-based assessment 
area or retail lending assessment area over the years in the evaluation 
period. Additional details regarding the calculations of community 
benchmarks, and an example, are provided below in this section.

[[Page 6859]]

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    For the outside retail lending area, the Geographic Community 
Benchmarks for closed-end home mortgage loans are determined by first 
calculating the benchmark for each component geographic area and then 
calculating a weighted average of the benchmarks for those areas. 
Specifically, as set forth in paragraph III.e of final appendix A, the 
Geographic Community Benchmarks for closed-end home mortgage loans in 
outside retail lending areas are established by calculating, in each 
component geographic area of the outside retail lending area, a 
benchmark for closed-end home mortgage loans in low- or moderate-income 
census tracts, respectively. Calculation of these benchmarks for each 
component geographic area follows the method described above for 
calculating Geographic Community Benchmarks for closed-end home 
mortgage loans in facility-based assessment areas and retail lending 
assessment areas. The benchmarks calculated for each component 
geographic area are then averaged, weighting each component geographic 
area by the number of the bank's closed-end home mortgage loans 
originated and purchased in the component geographic area, relative to 
the number of the bank's closed-end home mortgage loans originated and 
purchased in the outside retail lending area. More discussion of the 
process for creating benchmarks used in the outside retail lending area 
analysis follows later in this section.
    Consistent with the proposal, the Geographic Community Benchmarks 
for closed-end home mortgage loans are based on the share of owner-
occupied housing units in the Retail Lending Test Area that are in low- 
or moderate-income census tracts. Similar to the other Geographic 
Community Benchmarks, the agencies believe that the share of owner-
occupied housing units in low- or moderate-income census tracts is an 
indicator of the potential lending opportunities for closed-end home 
mortgage loans in low- or moderate-income census tracts. Further, the 
agencies note that using the share of owner-occupied housing units in 
low- or moderate-income census tracts is consistent with current 
practice for evaluating a bank's closed-end home mortgage lending in 
low- or moderate-income census tracts.
    Geographic Community Benchmarks--small business loans and small 
farm loans. As set forth in paragraphs III.c.3 through III.c.6 of final 
appendix A, the Geographic Community Benchmarks for small business 
loans or small farm loans in facility-based assessment areas and retail 
lending assessment areas, as applicable, are calculated as the 
percentage of businesses or farms in low- or moderate-income census 
tracts, respectively.\926\ This calculation is based on businesses or 
farms in the facility-based assessment area or retail lending 
assessment area over the years in the evaluation period. Additional 
details regarding the calculations of community benchmarks, and an 
example, are provided below in this section.
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    \926\ For purposes of the Geographic Community Benchmarks for 
small business loans, the agencies exclude farms from the 
calculation of the percentage of businesses in low- or moderate-
income census tracts, respectively.
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    For the outside retail lending area, the Geographic Community 
Benchmarks for small business loans and small farm loans are determined 
by first calculating the benchmark for each component geographic area, 
and then calculating a weighted average of the benchmarks for those 
areas. Specifically, as set forth in paragraph III.e of final appendix 
A, the Geographic Community Benchmarks for small business loans or 
small farm loans in outside retail lending areas are established by 
calculating, in each component geographic area of the outside retail 
lending area, a benchmark for small business loans or small farm loans 
in low- or moderate-income census tracts, respectively. Calculation of 
these benchmarks for each component geographic area follows the method 
described above for calculating Geographic Community Benchmarks for 
small business loans or small farm loans in facility-based assessment 
areas and retail lending assessment areas, as applicable. The 
benchmarks calculated for each component geographic area are then 
averaged, weighting each component geographic area by the number of the 
bank's small business loans or small farm loans originated and 
purchased in the component geographic area, relative to the number of 
the bank's small business loans or small farm loans originated and 
purchased in the outside retail lending area. More discussion of the 
process for creating benchmarks used in the outside retail lending area 
analysis follows later in this section.
    Consistent with the proposal, the Geographic Community Benchmarks 
for small business loans or small farm loans are based on the share of 
small businesses or small farms in the Retail Lending Test Area that 
are in low- or moderate-income census tracts. For example, the 
Geographic Community Benchmark for small business loans in low-income 
census tracts in a facility-based assessment area would be the 
percentage of all businesses in the area that are located in a low-
income census tract, based on available data that the agencies intend 
to disclose in aggregated form on a regular basis. Similar to the other 
Geographic Community Benchmarks, the agencies believe that the share of 
small businesses or small farms in low- or moderate-income census 
tracts is an indicator of the potential lending opportunities for small 
business loans or small farm loans in low- or moderate-income census 
tracts. Further, the agencies note that using the share of small 
businesses or small farms in low- or moderate-income census tracts is 
consistent with current practice for evaluating a bank's small

[[Page 6862]]

business or small farm lending in low- or moderate-income census 
tracts.
    Following the transition to using section 1071 data,\927\ the 
agencies would then adjust the methodology used to calculate the 
Geographic Community Benchmark to reflect changes in what businesses 
and farms are included in the section 1071 data relative to the 
existing CRA small business and small farm data. Specifically, prior to 
the use of section 1071 data, this benchmark would be based on the 
share of all businesses and farms that are located in each category of 
designated census tracts. Once section 1071 data is used in CRA 
evaluations, this benchmark would be the share of small businesses and 
small farms with gross annual revenue of $5 million or less that are 
located in each category of designated census tracts. This change 
reflects that section 1071 data include only loans made to businesses 
and farms with gross annual revenue of $5 million or less, and ensures 
that the bank metrics and benchmarks are calculated in a consistent 
fashion.\928\
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    \927\ The transition amendments included in this final rule 
will, once effective, amend the definitions of ``small business'' 
and ``small farm'' to instead cross-reference to the definition of 
``small business'' in the CFPB Section 1071 Final Rule. This will 
allow the CRA regulatory definitions to adjust if the CFPB increases 
the threshold in the CFPB Section 1071 Final Rule definition of 
``small business.'' This is consistent with the agencies' intent 
articulated in the preamble to the proposal and elsewhere in this 
final rule to conform these definitions with the definition in the 
CFPB Section 1071 Final Rule. The agencies will provide the 
effective date of these transition amendments in the Federal 
Register after section 1071 data is available.
    \928\ The agencies acknowledge that proposed appendix A, 
paragraph III.2.b specified that the Geographic Community Benchmarks 
for small business loans and small farm loans, prior to the 
transition to using section 1071 data, would be based on the share 
of small businesses or small farms in an area that are located in 
low- or moderate-income census tracts. However, the final rule 
specifies that these Geographic Community Benchmarks, prior to the 
transition to using section 1071 data, are based on the share of 
businesses or farms in an area that are located in low- or moderate-
income census tracts, regardless of the size of these businesses and 
farms. The final rule approach is intended to ensure that the bank 
metrics and benchmarks are calculated in a consistent fashion.
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    Geographic Community Benchmarks--automobile loans. As set forth in 
paragraphs III.c.7 and III.c.8 of final appendix A, the Geographic 
Community Benchmarks for automobile loans in facility-based assessment 
areas are calculated as the percentage of households in low- and 
moderate-income census tracts, respectively. This calculation is based 
on households in the facility-based assessment area over the years in 
the evaluation period. Additional details regarding the calculations of 
community benchmarks, and an example, are provided below in this 
section.
[GRAPHIC] [TIFF OMITTED] TR01FE24.018

    For the outside retail lending area, the Geographic Community 
Benchmarks for automobile loans (and all other retail lending 
benchmarks) are determined by first calculating the benchmark for each 
component geographic area, and then calculating a weighted average of 
the benchmarks for those areas. Specifically, as set forth in paragraph 
III.e of appendix A, the Geographic Community Benchmarks for automobile 
loans in an outside retail lending areas are established by 
calculating, in each component geographic area of the outside retail 
lending area, a benchmark for automobile loans in low- or moderate-
income census tracts, respectively. Calculation of these benchmarks for 
each component geographic area follows the method described above for 
calculating Geographic Community Benchmarks for automobile loans in 
facility-based assessment areas. The benchmarks calculated for each 
component geographic area are then averaged, weighting each component 
geographic area by the number of the bank's automobile loans originated 
and purchased in the component geographic area, relative to the number 
of the bank's automobile loans originated and purchased in the outside 
retail lending area. More discussion of the process for creating 
benchmarks used in the outside retail lending area analysis follows 
later in this section.
    Consistent with the proposal, the Geographic Community Benchmarks 
for automobile loans are based upon the share of households the Retail 
Lending Test Area that are in in low- or moderate-income census tracts. 
Similar to the other Geographic Community Benchmarks, the agencies 
believe that

[[Page 6863]]

the share of households in low- or moderate-income census tracts is an 
indicator of the potential lending opportunities for automobile loans 
in low- or moderate-income census tracts. The agencies considered using 
the share of families in low- or moderate-income census tracts as the 
Borrower Community Benchmark, but determined that of the two options, 
the share of households has the benefit of carrying forward the current 
approach.

Section __.22(e)(4) Borrower Distribution Measures

The Agencies' Proposal
    As discussed above, the agencies proposed to evaluate the borrower 
distributions of a bank's major product lines by using certain metrics 
and benchmarks. Specifically, the proposed Borrower Bank Metrics are 
calculated as the percentage of a bank's loans to borrowers at varying 
income levels or gross annual revenue thresholds, relative to the total 
number of the bank's loans in the facility-based assessment area, 
retail lending assessment area, or outside retail lending area. As 
discussed in greater detail in the section-by-section analysis of final 
Sec.  __.22(f), the agencies proposed to compare the Borrower Bank 
Metric for each distribution for each major product line to performance 
ranges calculated based on two benchmarks: a Borrower Market Benchmark 
that reflects the aggregate lending to borrowers at varying income 
levels or gross annual revenue thresholds across lenders within a 
facility-based assessment area, retail lending assessment area, or 
outside retail lending area; and a Borrower Community Benchmark that 
reflects the potential lending opportunities at varying income levels 
or gross annual revenue thresholds within a facility-based assessment 
area, retail lending assessment area, or outside retail lending area.
Comments Received
    The agencies received numerous comments, discussed above, on the 
use of distribution metrics and benchmarks generally. In addition, the 
agencies received several comments that specifically addressed the 
proposed borrower distribution metrics and benchmarks.
    Treatment of purchased loans. A few commenters sought clarity on 
the treatment of purchased loans with respect to the borrower 
distribution metrics and benchmarks when income and revenue information 
is not reported or not available, such as for certain seasoned 
government mortgage loans. For example, some commenters recommended 
including purchased loans in the numerator of the Borrower Bank Metric 
when the bank has information demonstrating that the borrower is low- 
or moderate-income or has gross annual revenues of less than $1 
million, and excluding purchased loans from the numerator and 
denominator of the Borrower Bank Metric if the bank does not have 
borrower income or revenue information.
    Borrower Community Benchmark for home mortgage loans. A number of 
commenters raised concerns about the agencies' proposal to use low- and 
moderate-income family counts to establish community benchmarks for 
analyzing the borrower distribution of home mortgage lending. For 
example, a few commenters suggested that the Borrower Community 
Benchmark for home mortgage loans should be based on the share of 
owner-occupied housing units in an area that are occupied by low- and 
moderate-income households, instead of the share of low- and moderate-
income families. These commenters explained that using low- and 
moderate-income households that are owner-occupants, rather than low- 
and moderate-income families, would better account for differences in 
home prices and homeownership opportunities across the country. In 
addition, at least one commenter stated that the agencies may want to 
consider a Borrower Community Benchmark for home mortgage loans that is 
based on the low- and moderate-income share of households, including 
households that are not owner-occupants, as this would capture 
unrelated people sharing rental housing units who could become 
homeowners.
    Another commenter generally regarded the proposed borrower 
distribution analysis favorably, but expressed concern that the 
Borrower Community Benchmark for closed-end home mortgage lending to 
low-income borrowers would greatly overestimate credit demand among 
these borrowers because incomes are too low relative to home prices in 
many parts of the country. The commenter conducted an analysis 
indicating that the proposed Borrower Community Benchmark for closed-
end home mortgage loans to low-income borrowers was consistently higher 
than the corresponding Borrower Market Benchmark across 354 MSAs, such 
that the performance ranges calculated for closed-end home mortgage 
loans to low-income borrowers would always be based on the market 
benchmarks in these markets. Accordingly, the commenter suggested that 
the agencies consider alternative community benchmarks and alternative 
calibrations of the benchmarks to potentially create a better incentive 
for banks to improve performance. The commenter also suggested that 
because the proposed Borrower Community Benchmark for closed-end home 
mortgage loans overestimates credit demand among low-income borrowers, 
it also underestimates credit demand among moderate-income borrowers.
Final Rule
    For the reasons discussed below, the agencies are adopting the 
proposed borrower distribution metrics and benchmarks generally as 
proposed.
     Final Sec.  __.22(e)(4)(i) provides that for each major 
product line, a Borrower Bank Metric is calculated pursuant to 
paragraph IV.a of final appendix A.
     Final Sec.  __.22(e)(4)(ii) provides that for each major 
product line except automobile loans, a Borrower Market Benchmark is 
calculated pursuant to, as applicable, paragraph IV.b of final appendix 
A for facility-based assessment areas and retail lending assessment 
areas, and paragraph IV.d of final appendix A for outside retail 
lending areas.
     Final Sec.  __.22(e)(4)(iii) provides that for each major 
product line, a Borrower Community Benchmark is calculated pursuant to, 
as applicable, paragraph IV.c of appendix A for facility-based 
assessment areas and retail lending assessment areas, and paragraph 
IV.e of appendix A for outside retail lending areas.
    A summary of these calculations for facility-based assessment area 
and retail lending assessment areas, as applicable, can be found in the 
following table for each product line. Following a discussion of some 
preliminary issues, each of these metrics and benchmarks is discussed 
in more detail below.

[[Page 6864]]

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[[Page 6865]]


[GRAPHIC] [TIFF OMITTED] TR01FE24.020

    Treatment of purchased loans. Consistent with the agencies' 
proposal, under the final rule approach, purchased loans for which 
borrower income or revenue data are unavailable are counted in the 
denominator of the borrower distribution metrics and benchmarks, and 
not in the numerator of the borrower distribution metrics and 
benchmarks. If a bank provides the agencies with information indicating 
that purchased loans for which borrower income or revenue data are 
unavailable were in fact made to low- or moderate-income borrowers or 
borrowers with gross annual revenues below $1 million, the agencies may 
adjust the bank's recommended conclusion, as discussed in the section-
by-section analysis of Sec.  __.22(g)(4). The agencies considered 
comments suggesting that if borrower income data are unavailable for 
purchased loans, then the loans should be excluded from the numerator 
and denominator of the borrower distribution metrics. However, the 
final rule does not adopt this

[[Page 6866]]

approach because the agencies believe that such an approach could allow 
a bank to purchase middle- and upper-income loans for which income 
information is not available without factoring into the bank's 
distribution metrics. In addition, the agencies believe that it is 
preferable to include all of a bank's loans in its distribution 
metrics, and to consider potential adjustments to the bank's Retail 
Lending Test conclusions pursuant to Sec. Sec.  __.22(g)(4) and 
__.21(d) as needed, to ensure that the distribution metrics 
comprehensively account for a bank's retail lending.
    The final rule continues the current practice of using borrower 
income or revenue information at the time of the credit decision for 
purchased loans. As a result, a loan originated to a low- or moderate-
income borrower, if sold to a third-party bank, would receive 
consideration as a low- or moderate-income loan for the purchasing bank 
regardless of the borrower's income at the time of purchase. The 
agencies believe that this approach will help to support liquidity for 
lenders that lend to low- or moderate-income borrowers and census 
tracts, in accord with the CRA's objective of encouraging banks to meet 
the credit needs of their entire communities. Furthermore, the agencies 
understand that it may not be feasible to obtain updated borrower 
income information for purchased loans.
    Borrower Bank Metrics. As set forth in paragraph IV.a of appendix 
A, the Borrower Bank Metrics are calculated as the percentage of a 
bank's loans in a particular major product line to borrowers in each 
applicable income or revenue category, respectively. This calculation 
is based on originated and purchased loans in a specific Retail Lending 
Test Area over the years in the evaluation period. For example, if a 
bank originated or purchased 100 total closed-end home mortgage loans 
in a facility-based assessment area over the years in an evaluation 
period, and 20 of those loans were to low-income borrowers, then its 
Borrower Bank Metric for closed-end home mortgage loans to low-income 
borrowers would be 0.2, or 20 percent.
BILLING CODE 4810-33-P
BILLING CODE 6210-01-P
BILLING CODE 6714-01-P
[GRAPHIC] [TIFF OMITTED] TR01FE24.021

    For closed-end home mortgage loans and automobile loans, the 
agencies separately calculate the Borrower Bank Metric for low-income 
borrowers and moderate-income borrowers. For small business loans and 
small farm loans, the agencies separately calculate the Borrower Bank 
Metric for businesses or farms with gross annual revenues of: (1) 
$250,000 or less; and (2) greater than $250,000 but less than or equal 
to $1 million. The agencies note that calculating the Borrower Bank 
Metrics in this way is generally consistent with the current practice 
for measuring a bank's lending to borrowers of various income and 
revenue categories.
    Borrower Market Benchmarks--closed-end home mortgage loans, small 
business loans, and small farm loans. As set forth in paragraph IV.b of 
final appendix A, the Borrower Market Benchmarks for facility-based 
assessment areas and retail lending assessment areas are calculated as 
the percentage of closed-end home mortgage loans, small business loans, 
or small farm loans to borrowers in each income or revenue category, as 
applicable. This calculation is based on originated loans in the 
facility-based assessment area or retail lending assessment area over 
the years in the evaluation period reported by all lenders.
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[[Page 6867]]


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[[Page 6868]]


[GRAPHIC] [TIFF OMITTED] TR01FE24.024

BILLING CODE 4810-33-C
BILLING CODE 6210-01-C
BILLING CODE 6714-01-C
    For the outside retail lending area, the Borrower Market Benchmarks 
for closed-end home mortgage loans, small business loans, and small 
farm loans are determined by first calculating the benchmark for each 
component geographic area, and then calculating a weighted average of 
the benchmarks for those areas. Specifically, as set forth in paragraph 
IV.d of final appendix A, the Borrower Market Benchmarks for outside 
retail lending areas are established by calculating, for each major 
product line--other than automobile loans--in each component geographic 
area of the outside retail lending area, a benchmark for each 
applicable income and revenue category, respectively. Calculation of 
these benchmarks for each component geographic area follows the method 
described above for calculating Borrower Market Benchmarks for 
facility-based assessment areas and retail lending assessment areas, as 
applicable. The benchmarks for each component geographic area are then 
averaged, weighting each component geographic area by the number of the 
bank's loans in the major product line originated and purchased in the 
component geographic area, relative to the number of the bank's loans 
in the major product line originated and purchased in the outside 
retail lending area. More discussion of the process for creating 
benchmarks used in the outside retail lending area analysis follows 
later in this section.
    Consistent with the proposed approach, the Borrower Market 
Benchmarks are intended to show the overall level of lending for each 
product line taking place in the Retail Lending Test Area to borrowers 
of each applicable income and revenue category by all reporting 
lenders. The agencies note that calculating Borrower Market Benchmarks 
in this way is consistent with current practice for evaluating a bank's 
lending to borrowers of various income and revenue categories.
    Borrower Community Benchmarks--closed-end home mortgage loans. As 
set forth in paragraphs IV.c.1 and IV.c.2 of final appendix A, the 
Borrower Community Benchmarks for closed-end home mortgage loans to 
low- and moderate-income borrowers, respectively, in facility-based 
assessment areas and retail lending assessment areas are calculated as 
the percentage of all families that are low- and moderate-income 
families, respectively. This calculation is based on families in the 
facility-based assessment area or retail lending assessment area over 
the years in the evaluation period. Additional details regarding the 
calculations of community benchmarks, and an example, are provided 
below in this section.

[[Page 6869]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.025

    For the outside retail lending area, the Borrower Community 
Benchmarks for closed-end home mortgage loans (and all other retail 
lending benchmarks) are determined by first calculating the benchmark 
for each component geographic area, and then calculating a weighted 
average of the benchmarks for those areas. Specifically, as set forth 
in paragraph IV.e of final appendix A, the Borrower Community 
Benchmarks for closed-end home mortgage loans in outside retail lending 
areas are established by calculating, in each component geographic area 
of the outside retail lending area, a benchmark for closed-end home 
mortgage loans to low- or moderate-income borrowers, respectively. 
Calculation of these benchmarks for each component geographic area 
follows the method described above for calculating Borrower Community 
Benchmarks for closed-end home mortgage loans to low- or moderate-
income borrowers in facility-based assessment areas and retail lending 
assessment areas. The benchmarks calculated for each component 
geographic area are then averaged together, weighting each component 
geographic area by the share of the bank's closed-end home mortgage 
loans originated and purchased in the component geographic area, 
relative to the bank's closed-end home mortgage loans originated and 
purchased in the outside retail lending area, calculated using loan 
count. More discussion of the process for creating benchmarks used in 
the outside retail lending area analysis follows later in this section.
    Consistent with the proposal, the Borrower Community Benchmarks for 
closed-end home mortgage loans are based on the share of families in 
the Retail Lending Test Area that are low- or moderate-income. Similar 
to the other Borrower Community Benchmarks, the agencies believe that 
the share of low- or moderate-income families is an indicator of the 
potential lending opportunities for closed-end home mortgage loans to 
low- or moderate-income borrowers. In deciding to define the benchmark 
as comprising low- or moderate-income families, as opposed to 
households, the agencies have placed significant weight on the fact 
that this is consistent with current practice for evaluating a bank's 
closed-end home mortgage lending to low- or moderate-income borrowers. 
The agencies believe this will aid in implementation and familiarity 
with the final rule approach. However, the agencies recognize that this 
benchmark would, therefore, not include individuals that the American 
Community Survey defines as comprising households but are not included 
in its definition of families, such as adults living alone, unmarried 
couples, and unrelated adults living as roommates.\929\ As a result, 
this benchmark would not capture some households that are mortgage 
borrowers or will become mortgage borrowers in the future. The agencies 
considered using the share of low- or moderate-income households as the 
Borrower Community Benchmark, but determined that of the two options, 
the share of low- or moderate-income families has the benefit of 
carrying forward the current approach. The agencies note that there is 
no distinction or consideration in the distribution analysis of whether 
a bank's home mortgage loans were made to borrowers that are family 
households or to borrowers that are non-family households; rather, the 
bank metrics reflect the bank's percentages of all loans to low- and 
moderate-income borrowers. Moreover, the agencies note that the 
decision to use family households to construct these community 
benchmarks is not intended to convey a preference for lending to family 
households rather than to non-family households. During and following 
implementation of the final rule, the agencies will continue to monitor 
this and other benchmarks to determine whether other indicators would 
better estimate the potential lending opportunities for each product 
line.
---------------------------------------------------------------------------

    \929\ According to the Census Glossary, a household includes 
``the related family members and all the unrelated people, if any, 
such as lodgers, foster children, wards, or employees who share the 
housing unit. A person living alone in a housing unit, or a group of 
unrelated people sharing a housing unit such as partners or roomers, 
is also counted as a household.'' Further information related to how 
households and families are defined in the American Community Survey 
can be found in the Census Glossary at https://www.census.gov/glossary/?term=Household.
---------------------------------------------------------------------------

    The agencies considered comments that the Borrower Community 
Benchmark for closed-end home mortgage loans to low-income borrowers--
proposed as being low-income families as noted above--may overestimate 
potential demand for closed-end home mortgage loans among low-income 
families. However, the agencies believe that the benchmark adopted in 
the final rule accords with

[[Page 6870]]

the CRA's emphasis on meeting the credit needs of the bank's entire 
community, which includes low-income families. For this reason, the 
agencies determined not to modify the Borrower Community Benchmark for 
closed-end home mortgage loans to low-income borrowers in a way that 
universally assumes significantly lower credit needs for these 
borrowers. In addition, as discussed in the section-by-section analysis 
for __.22(f), the agencies determined that the combination of the 
market and community benchmarks, and final rule multiplier values, 
result in appropriately calibrated performance ranges, and that Retail 
Lending Test conclusions of ``Low Satisfactory'' or higher are 
generally attainable.
    Borrower Community Benchmarks--small business loans and small farm 
loans. As set forth in paragraphs IV.c.3 through IV.c.6 of final 
appendix A, the Borrower Community Benchmarks for small business loans 
or small farm loans in facility-based assessment areas and retail 
lending assessment areas, as applicable, are calculated as the 
percentage of businesses or farms with gross annual revenues of more 
than $250,000 but less than or equal to $1 million, and with gross 
annual revenues of $250,000 or less, respectively.\930\ This 
calculation is based on businesses or farms in the facility-based 
assessment area or retail lending assessment area over the years in the 
evaluation period. Additional details regarding the calculations of 
community benchmarks, and an example, are provided below in this 
section.
---------------------------------------------------------------------------

    \930\ For purposes of the Borrower Community Benchmarks for 
small business loans, the agencies exclude farms from the 
calculation of the percentage of businesses in each gross annual 
revenues category.
---------------------------------------------------------------------------

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[[Page 6871]]


[GRAPHIC] [TIFF OMITTED] TR01FE24.027

BILLING CODE 4810-33-C
BILLING CODE 6210-01-C
BILLING CODE 6714-01-C

[[Page 6872]]

    For the outside retail lending area, the Borrower Community 
Benchmarks for small business loans and small farm loans (and all other 
retail lending benchmarks) are determined by first calculating the 
benchmark for each component geographic area, and then calculating a 
weighted average of the benchmarks for those areas. Specifically, as 
set forth in paragraph IV.e of final appendix A, the Borrower Community 
Benchmarks for small business loans or small farm loans in outside 
retail lending areas are established by calculating, in each component 
geographic area of the outside retail lending area, a benchmark for 
small business loans or small farm loans to small businesses or small 
farms of each applicable revenue category, respectively. Calculation of 
these benchmarks for each component geographic area follows the method 
described above for calculating Borrower Community Benchmarks in 
facility-based assessment areas and retail lending assessment areas, as 
applicable. The benchmarks calculated for each component geographic 
area are then averaged, weighting each component geographic area by the 
number of the bank's small business loans or small farm loans 
originated and purchased in the component geographic area, relative to 
the number of the bank's small business loans or small farms originated 
and purchased in the outside retail lending area. More discussion of 
the process for creating benchmarks used in the outside retail lending 
area analysis follows later in this section.
    Consistent with the proposal, the Borrower Community Benchmarks for 
small business loans or small farm loans are based on the share of 
businesses and farms in the Retail Lending Test area in different 
revenue categories. For example, the Borrower Community Benchmark for 
small business loans with gross annual revenue of less than $250,000 in 
a facility-based assessment area is the share of all businesses in the 
area with gross annual revenue of less than $250,000. Similar to the 
other Borrower Community Benchmarks, the agencies believe that the 
share of businesses or farms of different sizes is an indicator of the 
potential lending opportunities for small business loans or small farm 
loans in the Retail Lending Test Area. Further, the agencies note that 
using the share of businesses or farms of different sizes is generally 
consistent with current practice for evaluating a bank's small business 
and small farm lending.
    As described above with respect to the Geographic Community 
Benchmarks, following the transition to using section 1071 data,\931\ 
the agencies will adjust the methodology used to calculate the Borrower 
Community Benchmark to reflect changes in what businesses and farms are 
included in the section 1071 data relative to the existing CRA small 
business and small farm data. Specifically, prior to the use of section 
1071 data, this benchmark would be based on the share of all businesses 
and farms that are designated borrowers. Once section 1071 data is used 
in CRA evaluations, this benchmark would be the share of small 
businesses and small farms (i.e., those with gross annual revenue of $5 
million or less) that are designated borrowers. This change reflects 
that section 1071 data include only loans made to small businesses and 
small farms, and ensures that the bank metrics and benchmarks are 
calculated in a consistent manner.\932\
---------------------------------------------------------------------------

    \931\ The transition amendments included in this final rule 
will, once effective, amend the definitions of ``small business'' 
and ``small farm'' to instead cross-reference to the definition of 
``small business'' in the CFPB Section 1071 Final Rule. This will 
allow the CRA regulatory definitions to adjust if the CFPB increases 
the threshold in the CFPB Section 1071 Final Rule definition of 
``small business.'' This is consistent with the agencies' intent 
articulated in the preamble to the proposal and elsewhere in this 
final rule to conform these definitions with the definition in the 
CFPB Section 1071 Final Rule. The agencies will provide the 
effective date of these transition amendments in the Federal 
Register after section 1071 data is available.
    \932\ The agencies acknowledge that proposed appendix A, 
paragraph IV.2.b, specified that the Borrower Community Benchmarks 
for small business loans and small farm loans, prior to the 
transition to using section 1071 data, would be based on the share 
of businesses or farms of different sizes out of all small 
businesses or small farms in an area. However, the final rule 
specifies that these Borrower Community Benchmarks, prior to the 
transition to using section 1071 data, are based on the share of 
businesses or farms of different sizes out of all businesses or 
farms in an area, regardless of the size of these businesses and 
farms.
---------------------------------------------------------------------------

    Borrower Community Benchmarks--automobile loans. As set forth in 
paragraphs IV.c.7 and IV.c.8 of final appendix A, the Borrower 
Community Benchmarks for automobile loans to low- and moderate-income 
borrowers, respectively, in facility-based assessment areas are 
calculated as the percentage of low- or moderate-income households, 
respectively. This calculation is based on households in the facility-
based assessment area over the years in the evaluation period. 
Additional details regarding the calculations of community benchmarks, 
and an example, are provided below in this section.
[GRAPHIC] [TIFF OMITTED] TR01FE24.028


[[Page 6873]]


    For the outside retail lending area, the Borrower Community 
Benchmarks for automobile loans (and all other retail lending 
benchmarks) are determined by first calculating the benchmark for each 
component geographic area, and then calculating a weighted average of 
the benchmarks for those areas. Specifically, as set forth in paragraph 
IV.e of final appendix A, the Borrower Community Benchmarks for 
automobile loans in outside retail lending areas are established by 
calculating, in each component geographic area of the outside retail 
lending area, a benchmark for automobile loans to low- or moderate-
income borrowers, respectively. Calculation of these benchmarks for 
each component geographic area follows the method described above for 
calculating Borrower Community Benchmarks for automobile loans to low- 
or moderate-income borrowers in facility-based assessment areas. The 
benchmarks calculated for each component geographic area are then 
averaged together, weighting each component geographic area by the 
share of the bank's automobile loans originated and purchased in the 
component geographic area, relative to the bank's automobile loans 
originated and purchased in the outside retail lending area, calculated 
using loan count. More discussion of the process for creating 
benchmarks used in the outside retail lending area analysis follows 
later in this section.
    The agencies believe that the share of low- or moderate-income 
households is an indicator of the potential lending opportunities for 
automobile loans in low- or moderate-income census tracts. The agencies 
considered using the share of families, rather than households, but 
determined that of the two options, the share of households has the 
benefit of carrying forward the current approach.

Section __.22(e)(3)(ii) and (iii) and (e)(4)(ii) and (iii) Benchmark 
Timing

The Agencies' Proposal
    In the proposal, the agencies addressed the issues of when the 
market and community benchmarks should be set for the evaluation period 
and which years of data to use to calculate the benchmarks. The 
agencies indicated that they were considering whether to calculate the 
community benchmarks using the most recent data available as of the 
first day of a bank's CRA examination. However, the agencies noted that 
these data may not become available until during or after the 
evaluation period, and as a result, under this approach, the values of 
the community benchmarks may not be known at the outset of the 
evaluation period. The agencies requested feedback on alternative 
approaches to the timing of when the community benchmarks would be set 
for a bank's evaluation.
    Furthermore, the agencies indicated that they were considering 
whether to calculate the market benchmarks using all available reported 
data from the years of a bank's evaluation period, recognizing that 
some evaluation periods could include a year for which reported data is 
not yet available at the time of the bank's examination. The agencies 
also indicated that they were considering an alternative approach, 
under which the bank distribution metrics would be based on data only 
from the same years over which the market distribution benchmarks are 
able to be measured. The agencies noted that this approach would have 
the advantage of setting performance standards for banks that 
correspond to the period, and the economic conditions during that 
period, over which an agency is evaluating a bank's performance. 
However, this approach would have the disadvantage of, in some 
circumstances, not fully covering a bank's recent lending.
Comments Received
    A number of commenters provided specific feedback on timing issues 
related to the data used to calculate the proposed retail lending 
metrics and benchmarks. Some commenters raised concerns about the 
delayed availability, incompleteness, lack of transparency, or sources 
of the proposed benchmark data against which bank borrower distribution 
and geographic distribution metrics would be measured under the 
agencies' proposal.
    Bank metrics and market benchmarks. Several commenters supported 
the agencies' proposal to base the bank distribution metrics on all of 
the data from the bank's evaluation period, while the market 
distribution benchmarks would be based on reported data that is 
available at the time of the examination. For example, a commenter 
asserted that all of a bank's reported data for the evaluation period 
should be used, even if all corresponding market data was not available 
at the time of the examination. Likewise, another commenter stated 
that, generally, bank volume and bank distribution metrics should be 
based on an average of a bank's annual performance over the evaluation 
period. Another commenter that supported the agencies' proposal 
stressed the importance of leveraging examiner discretion and 
performance context to evaluate lending where any bank volume or bank 
distribution data is unavailable. A commenter suggested that all data 
should be representative of the community at the time that the loan, 
investment, or service was originated or provided.
    Community benchmarks. Some commenters did not support the option 
the agencies stated was under consideration to set community benchmarks 
using the most recent data available as of the first day of a bank's 
CRA examination. A commenter noted that setting community benchmarks 
with the most recent data at the time of the bank's examination may 
contribute to banks clustering CRA qualifying activities around 
examination time rather than throughout the evaluation period. This 
commenter and several others instead recommended that benchmarks be set 
with data from throughout the evaluation period. A commenter suggested 
that using a five-year average of available data could avoid the 
effects of sudden, sometimes unpredictable swings in demographic data 
on community benchmarks. Another commenter stated that the agencies 
should calculate the community benchmarks based on data that pertains 
to the years of the evaluation period, and did not support setting the 
community benchmarks based on data available prior to the evaluation 
period, or at the time of the bank's examination. Other commenters 
suggested that the benchmarks could instead be set annually. These 
commenters suggested that this approach would provide banks with 
appropriate notice about retail lending performance expectations.
    Some commenters recommended making community benchmark data 
available in advance of evaluation periods. For example, a commenter 
recommended that a bank's community benchmarks be established at the 
beginning of each examination cycle and remain consistent throughout 
the evaluation period. Another commenter stated that as a matter of 
fairness and due process, banks should know the benchmarks prior to 
being evaluated, so that they can plan and structure their CRA programs 
accordingly. A commenter similarly recommended that benchmarks be 
established based on the year prior to the start of an examination to 
allow for more consistency and alignment with the bank's metrics. 
Additionally, this commenter noted that in the event that circumstances 
have dramatically changed, such as in a global pandemic, an examiner 
could request more recent data.
    Several commenters also suggested that, after being established at 
the beginning of an evaluation period,

[[Page 6874]]

community benchmarks should decrease (``float down'') if demographic 
data collected during the evaluation period would lead to lower 
benchmarks. These commenters variously noted that economic recessions, 
natural disasters, pandemics, significant variances in real estate 
prices, and other events could warrant a downward adjustment to the 
community benchmarks.
    Several commenters expressed concern that certain community 
benchmark data, including FFIEC data, would not be available at the 
start of an examination. One of the commenters noted that this lag 
would result in banks being measured against inaccurate community 
benchmarks, and that the agencies should clearly explain how they would 
account for this. Another commenter suggested a transition period 
during which banks could opt in to being evaluated using the community 
benchmarks in order to allow the agencies to assess whether the 
benchmarks adequately reflected economic conditions. Another commenter 
recommended that the agencies retain the current CRA practices for 
flexibly establishing and considering community benchmarks (based on 
data from the time of a bank's evaluation period, but which are not 
published in advance of the evaluation period) in evaluations given 
their familiarity to bankers and examiners.\933\
---------------------------------------------------------------------------

    \933\ See, e.g., Interagency Large Institution CRA Examination 
Procedures (April 2014) at 6-8.
---------------------------------------------------------------------------

    Timing issues affecting both the market and community benchmarks. 
Several commenters expressed concerns regarding the availability of 
benchmark information, or lack thereof, prior to a bank's evaluation 
period. A commenter argued that not having benchmark data upon 
implementation of the final rule would be contrary to the agencies' 
stated objectives of clarity and certainty. This commenter and another 
commenter raised concerns about the ability of banks to collect, track, 
and analyze CRA performance using the proposed metrics, given the 
delayed availability of benchmark information, both currently and after 
the final rule is implemented. Likewise, other commenters stated that 
not knowing the benchmarks against which a bank's performance would be 
assessed before the bank's CRA evaluation periods would prevent the 
bank from engaging in appropriate, necessary planning. A commenter 
described the benchmarks as moving targets based on dated peer 
performance that could obscure the full story of a bank's performance. 
Another commenter expressed concern regarding the number of 
calculations used to arrive at the metrics and benchmarks, noting the 
many different data sources used to construct the metrics and 
benchmarks, and the varying timing of when these data are available. As 
a result, the commenter stated, the benchmarks will be subjective, as 
the bank will not know what data sources the examiners will use to 
establish them.
    Some commenters addressed the proposal to establish benchmarks that 
would cover an entire evaluation period. For example, a commenter 
warned against aggregating data from a bank's entire evaluation period 
because a bank's major product lines or MSA delineations could change 
from one year to the next. This commenter stated that conducting 
examinations using annual data for metrics and benchmarks, without 
combining and averaging that annual data, would better ensure that a 
bank's retail lending performance is measured against appropriate 
demographic and market data. Another commenter stated that banks can 
have evaluation periods that are shorter or longer than three years, 
and that it would be problematic to always set benchmarks only for 
three-year periods. This commenter also indicated that the agencies' 
proposed approach was further complicated by the fact that, during an 
evaluation period, low- and moderate-income census tracts can become 
middle- and upper-income census tracts, and vice versa.
Final Rule
    The agencies have considered commenter feedback on this issue and 
have included provisions in sections V and VI of final appendix A that 
address the approach to setting, and the data used to calculate, 
community and market benchmarks. Specifically, the agencies intend to 
disclose the data used to calculate community benchmarks on an annual 
basis, in advance of each calendar year of an evaluation period. The 
agencies will calculate the market benchmarks at the time of the bank's 
examination using data that corresponds to the years of a bank's 
evaluation period. For purposes of a bank's evaluation over a full 
evaluation period, each benchmark would be calculated for the entire 
evaluation period, rather than calculating separate benchmarks for each 
individual calendar year of the evaluation period. For both sets of 
benchmarks, the agencies intend to annually disclose the annual 
component of the benchmark that corresponds to each calendar year, and 
that would be used to calculate the benchmark for the entire evaluation 
period. For the community benchmarks, this disclosure would occur in 
advance of each calendar year, and for the market benchmarks, the 
disclosure would occur after a calendar year once reported data for 
that year is available.
    Community benchmarks. Under the final rule approach, the agencies 
intend to disclose the annual components of the data used to calculate 
the community benchmarks in advance of each calendar year. At the time 
of a bank's examination, the agencies will calculate the community 
benchmarks for the evaluation period, pursuant to the methodology in 
sections III and IV of final appendix A. For example, for a three-year 
evaluation period, for each community benchmark, the agencies intend to 
disclose available annual data in advance of each of the three calendar 
years of the evaluation period, and at the time of the bank's 
examination, the agencies would calculate the community benchmarks 
based on three years of data.

[[Page 6875]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.029

    In determining that community benchmark data would be set in 
advance of each calendar year of the evaluation period, the agencies 
have considered how to balance the objective of providing certainty to 
banks regarding performance standards with incorporating the most up-
to-date performance context information into the metrics-based 
approach. The agencies believe this approach will provide appropriate 
advance notice of benchmarks and performance expectations to banks; 
each year a bank would have advance notice of the annual component of 
the community benchmark for that specific year, which a bank can use to 
monitor performance. As described above, the agencies would use an 
average of these annual data points to determine each community 
benchmark for the entire evaluation period. Under this approach, the 
agencies note that a bank would have access to all of the annual 
components of the community benchmark by the beginning of the final 
calendar year of each evaluation period, when the annual component of 
the benchmark for the final calendar year would be disclosed. 
Furthermore, as discussed in the section-by-section analysis of final 
Sec.  __.22(f), applicable performance ranges are based on the lower of 
the calibrated market benchmark and the calibrated community benchmark. 
As a result of disclosing the annual components of the community 
benchmarks, banks would have insight into the maximum level of retail 
lending to designated borrowers and in designated census tracts 
necessary to meet the performance ranges for each conclusion category. 
While the performance ranges used in an examination could be lower than 
those calculated by the community benchmark, they cannot exceed those 
based on the community benchmarks.
    In addition, as a result of this approach, the agencies have 
considered that the data used for the community benchmarks 
approximately reflect the characteristics of the community during the 
bank's evaluation period. Prior to the beginning of each calendar year, 
the agencies intend to disclose annual components of the community 
benchmarks for the coming year of an evaluation period based on data 
sources that the agencies determine best reflect local conditions at 
the time, consistent with current practice of calculating community 
benchmarks based on data provided annually by the FFIEC.
    The agencies also considered that the final rule approach will 
account for potential changes in the delineation of a Retail Lending 
Test Area during an evaluation period, because the community benchmark 
data for each calendar year would reflect the geographic composition of 
the Retail Lending Test Area in that year. For example, the agencies 
considered an example of a bank whose facility-based assessment area 
expands from a single county in the first calendar year of the 
evaluation period to a total of two counties in the second and third 
calendar years. The community benchmark data for the first calendar 
year would reflect the single county delineation, and the community 
benchmark data for the second and third calendar years would reflect 
the two-county designation. The agencies determined that calculating a 
multiyear ratio reflecting all years in a bank's performance evaluation 
will result in a community benchmark that accounts for the changes in 
the bank's facility-based assessment area delineation without requiring 
any additional adjustments or weighting. The agencies considered this 
to be an important benefit of the proposed approach, since the 
delineations of facility-based assessment areas, retail lending 
assessment areas, and outside retail lending areas may change on an 
annual basis due to a variety of factors, such as changes in MSA 
definitions, or expansion of a bank's service area in a particular MSA.
    The agencies also considered, but decline to adopt, an alternative 
approach of designating the final community benchmark levels in advance 
of the first year of the evaluation period. Under this alternative, a 
final community benchmark would be published prior to the bank's 
evaluation period based on data available at that time. As a result, 
this alternative approach would not involve calculating a multiyear 
ratio of

[[Page 6876]]

annual community benchmark data released over the course of the 
evaluation period. The agencies considered that this alternative 
approach could provide additional certainty regarding the level of this 
benchmark. However, the agencies also considered that such an approach 
would necessitate using older data to construct the community 
benchmarks for each year in the bank's evaluation period, as noted by 
some commenters, which could result in certain performance context 
information not being incorporated into the community benchmarks. For 
example, the community benchmark data available at the beginning of the 
first year of a bank's evaluation period may reflect the composition of 
the population from two or more calendar years prior. By the beginning 
of the third calendar year of the bank's evaluation period, the 
community benchmark data could reflect the composition of the 
population from four or more calendar years prior. As a result, changes 
to, for example, the population or to the number of businesses or farms 
in those intervening years would not be accounted for in the older 
community benchmark data. In addition, the agencies considered that 
designating the final community benchmark in advance of a bank's 
evaluation period would not be possible in instances where MSA 
definitions change during an evaluation period, a Retail Lending Test 
Area expands or contracts during the evaluation period, or in which new 
census tract delineations are published and go into effect during the 
evaluation period. Consequently, the agencies determined that there 
would be significant operational challenges with an alternative 
approach of setting and fixing community benchmarks entirely in advance 
of the evaluation period.
    The agencies also considered, but decline to adopt, an alternative 
approach of calculating benchmarks at the time of a bank's examination 
using data available at that time, and not setting the benchmark or 
providing data used to calculate the benchmark at any point in advance 
of the bank's examination. The agencies considered that, while this 
alternative approach would allow the community benchmarks to more 
closely reflect the composition of the population during the evaluation 
period, it would also significantly limit the information available to 
banks and the public regarding Retail Lending Test performance 
expectations in advance. In contrast, the agencies determined that the 
final rule approach of providing the annual components of the community 
benchmarks in advance of each calendar year of the evaluation period 
will more effectively provide advance notice of benchmark levels.
    The agencies considered comments expressing timing concerns about 
the availability of the data used to compute community benchmarks and 
the timing of the bank's evaluation period. In adopting their final 
rule approach, the agencies intend to explore ways of streamlining data 
availability (such as updating data on a more frequent basis than is 
currently done) to ensure that timely data is used to construct 
community benchmarks.
    Market benchmarks. Pursuant to the final rule, the agencies will 
calculate the market benchmarks using the retail lending data from the 
years of the bank's evaluation period, and not from years prior to the 
evaluation period. This approach has the advantage of setting 
performance standards for banks based on contemporaneous data that 
reflect economic conditions during the period over which an agency is 
evaluating a bank's performance. The agencies have considered that this 
approach is consistent with existing practices, under which benchmarks 
are generally calculated based on data from the time of a bank's 
evaluation period and are not published in advance of the evaluation 
period. The agencies further believe that this approach is especially 
important to maintain in the final rule for the market benchmarks, 
which are intended to capture aspects of the performance context of an 
area that may emerge during the evaluation period, such as changes in 
economic conditions that may affect the demand for credit among low- 
and moderate-income households. The agencies determined that basing the 
market benchmarks on data from the evaluation period will appropriately 
contribute to standardization and transparency regarding evaluations of 
retail lending performance, because examiners generally would not need 
to qualitatively consider economic conditions that are already 
accounted for in the market benchmarks.
    The agencies considered, but are not adopting, approaches 
recommended by some commenters to set the market benchmarks in advance 
of the evaluation period, or in advance of each calendar year of the 
evaluation period. The agencies considered that such alternative 
approaches would provide greater certainty to banks and the public 
regarding quantitative performance standards. However, the agencies 
have also considered that these alternative approaches would result in 
benchmarks that may not account for the performance context of an area 
in a specific year, because the data used to compute the market 
benchmarks would precede the bank's evaluation period and would not 
correspond to the overall lending in a community during a specific time 
period. As a result, under these alternative approaches, the agencies 
have considered that the market benchmarks would not provide the same 
function of incorporating performance context data into the metrics 
approach and could necessitate more often using qualitative 
considerations and agency discretion to account for changes in economic 
conditions or other changes in the market that occur during an 
evaluation period. The agencies have also considered that greater use 
of qualitative factors would counteract any potential increase in 
certainty derived from providing the benchmarks in advance. In 
addition, consistent with current practice, the agencies note that 
banks could consider recent market benchmarks for their Retail Lending 
Test Areas, in concert with census data and their own lending data, as 
part of their planning prior to and during a CRA evaluation period.
    While the agencies' proposal also discussed alternative approaches 
for specifying in the regulation which years of data would be used to 
calculate a bank's metrics and market benchmarks in a given 
examination, the final rule does not specify such alternatives. 
However, in implementing the final rule, the agencies intend to take 
the approach described in the proposal of basing the metrics and market 
benchmarks on the same years of data, rather than allowing the market 
benchmarks to be based on data from a subset of the years of the 
evaluation period if data for the last year of an evaluation period is 
not yet available. In practice, for each major product line, the scope 
of the Retail Lending Test evaluation would be limited to those years 
in which the necessary data is available to calculate the relevant 
metrics and benchmarks. The agencies considered that this approach 
ensures that the benchmarks reflect the performance context of the 
evaluation period. The agencies determined that this timing issue is 
more appropriately resolved in implementation, because a degree of 
flexibility is warranted to account for future changes in underlying 
data sources used to construct metrics and benchmarks, such as changes 
to the timing of when certain data is published.
    Alternative to set benchmarks in advance and adjust at time of

[[Page 6877]]

examination. For both the community benchmarks and the market 
benchmarks, the agencies considered, but are not adopting, an 
alternative ``float-down'' approach of setting each benchmark. This 
alternative would entail establishing each benchmark in advance of the 
evaluation period, recalculating that benchmark at the time of the 
bank's examination using more current data, and selecting the lower of 
the two benchmarks for use in the evaluation. The agencies determined 
that this approach could result in a misalignment between the data used 
to calculate the metrics and corresponding benchmarks (e.g., if a bank 
made a loan in a moderate-income census tract that was then 
reclassified to middle-income during an evaluation period) and would 
increase uncertainty regarding the ultimate level of the benchmarks. In 
addition, the agencies considered that this approach would introduce 
significant operational complexity for banks and the agencies due to 
the large number of data points that are necessary to construct 
multiple sets of benchmarks at different points in time for a single 
examination, and the varied timing of when the data sources are 
updated. The agencies also considered that under any approach of 
adjusting the benchmarks at the time of a bank's examination, two banks 
with the same evaluation period whose examinations occur at different 
times could potentially have different benchmarks calculated for the 
same Retail Lending Test Area and evaluation period due to differences 
in the data available at the time of the two examinations. The agencies 
believe that these considerations outweigh any potential benefits of 
advance notice of benchmark levels achieved through this alternative.
    The agencies considered, but are not adopting, the alternative 
approach suggested by some commenters to construct metrics and 
benchmarks that would apply to each calendar year of an evaluation 
period, rather than one set of metrics and benchmarks that apply to the 
entire evaluation period. The agencies determined that this 
alternative, on balance, would increase complexity. For example, for a 
three-year evaluation period, this alternative would require 
approximately three times as many metrics and benchmarks and associated 
calculations as the final rule approach. Furthermore, the agencies 
determined that the alternative approach would require an additional 
weighted average calculation for combining the performance of each 
individual calendar year into a conclusion for the overall evaluation 
period. The agencies determined that this alternative approach would 
therefore be inconsistent with commenter feedback suggesting reducing 
the complexity of the proposed Retail Lending Test.
    The agencies have considered comments that under the proposed 
approach, the exact data sources used to designate the benchmarks would 
be unknown prior to a bank's evaluation period. In implementing the 
final rule, the agencies intend to provide regular updates to banks and 
the public regarding the data applicable to CRA evaluations, as well as 
historical data regarding benchmarks in different areas. The agencies 
decided not to include specific data sources for community benchmarks 
in the final rule, or specific requirements for which years of data 
will be used to calculate community benchmarks, because exact data 
sources and timing may change over time. The agencies believe it is 
preferable to assess data sources and availability on an ongoing basis, 
and to regularly update CRA stakeholders, signaling any potential 
changes with as much advance notice as possible. The agencies believe 
this approach is consistent with current practice, in that the exact 
data sources and timing of the various inputs for metrics and 
benchmarks under the current approach are subject to change.
Distribution Benchmarks in Outside Retail Lending Areas
The Agencies' Proposal
    The agencies proposed to evaluate the distribution of a bank's 
major product lines in its facility-based assessment areas, retail 
lending assessment areas, and outside retail lending area, as 
applicable. The agencies further proposed to use generally the same 
approach to calculating the proposed distribution metrics and 
benchmarks in all three types of Retail Lending Test Areas.
    However, in evaluating the distribution of a bank's major product 
lines in its outside retail lending area, the agencies proposed to 
tailor performance expectations for outside retail lending areas to 
match the opportunities in the geographic regions in which the bank 
lends, which may vary considerably across the country. In particular, 
the agencies proposed to tailor performance expectations by setting 
bank-specific tailored benchmarks, which would then be used to 
establish thresholds and performance ranges. These tailored benchmarks 
would be calculated as the average of local market and community 
benchmarks across the country, weighted by the respective percentage of 
the bank's total retail lending, by dollar amount, in each MSA and in 
the nonmetropolitan portion of each State outside of assessment areas 
in which the bank engages in each region.
    The agencies sought feedback on whether the proposed tailored 
benchmarks appropriately set performance standards for outside retail 
lending areas, and on potential alternatives. The agencies discussed an 
alternative proposal to create nationwide market and community 
benchmarks that would apply to all banks, regardless of where their 
lending is concentrated. These nationwide benchmarks could be 
calculated using all census tracts in the nation as the geographic 
base. Another alternative on which the agencies invited commenter views 
was to tailor benchmarks using weights that would be individualized by 
the dollar amount of lending specific to each major product line, 
rather than the sum of all of a bank's outside-assessment area retail 
lending. Under this alternative, if a bank did a majority of its 
outside-assessment area closed-end home mortgage lending in MSA A, and 
a majority of its outside-assessment area small business lending in MSA 
B, the closed-end home mortgage tailored benchmarks would be weighted 
towards the benchmarks from MSA A, while the small business tailored 
benchmarks would be weighted toward MSA B.
Comments Received
    Several commenters addressed the agencies' proposal to establish 
tailored benchmarks for outside retail lending areas that would be 
based on a bank's level of retail lending in different markets. Some 
commenters supported the proposed tailored benchmark approach. One of 
these commenters also indicated that the benchmarks could be more 
precisely tailored by calculating unique weights for each specific 
product line rather than calculating one set of weights for all product 
lines based on a bank's overall dollar volume of retail lending in each 
market as proposed.
    Other commenters expressed a preference for uniform, nationwide 
benchmarks instead of the proposed tailored benchmarks, noting that 
tailored benchmarks would be overly complex and could be burdensome for 
smaller banks evaluated in these areas. Another commenter recommended 
the agencies consider a separate approach of a nationwide analysis 
while also designating underserved communities that banks must 
demonstrate they are serving through their lending. A commenter 
suggested the agencies

[[Page 6878]]

provide a separate approach to evaluating outside retail lending areas 
for internet-based banks akin to the evaluation for limited purpose 
banks. Several other commenters suggested the agencies permit examiners 
more discretion to apply performance context when evaluating outside 
retail lending areas and particularly when developing Retail Lending 
Test conclusions at the state level.
Final Rule
    The agencies are adopting certain technical and substantive changes 
to the proposed benchmarks for outside retail lending areas.
    For clarifying purposes in describing the calculations of metrics 
and benchmarks, the agencies use the term ``component geographic area'' 
in final Sec.  __.18 and appendix A to refer to any MSA or the 
nonmetropolitan area of any State, or portion thereof included within 
the outside retail lending area. As discussed in the section-by-section 
analysis of Sec.  __.18, component geographic areas of a bank's outside 
retail lending area are the MSAs or the nonmetropolitan areas of any 
State, excluding: (1) the bank's facility-based assessment areas and 
retail lending assessment areas; and (2) in a nonmetropolitan area, any 
county in which the bank did not originate or purchase any closed-end 
home mortgage loans, small business loans, small farm loans, or 
automobile loans if automobile loans are a product line for the bank.
    Pursuant to paragraphs III.d and e and IV.d and e of appendix A, 
under the final rule, the agencies determine each benchmark for the 
outside retail lending area by calculating a weighted average of the 
benchmarks for each component geographic area. The weights for this 
calculation are based on the bank's number of loans in each component 
geographic area in the relevant major product line.
     Following this approach, the agencies calculate benchmarks 
for the outside retail lending area as follows: The agencies first 
calculate a benchmark in each component geographic area for the 
relevant major product line, distribution analysis, and income category 
following the same method to calculate benchmarks in facility-based 
assessment areas and retail lending assessment areas. For example, for 
a bank that has closed-end home mortgage loans as a major product line 
in its outside retail lending area, a community and a market benchmark 
would be calculated for closed-end home mortgage loans to low-income 
borrowers in each component geographic area of the outside retail 
lending area, and for closed-end home mortgage loans to moderate-income 
borrowers in each component geographic area of the outside retail 
lending area.
     The agencies then calculate the percentage of the bank's 
originated and purchased loans in the outside retail lending area for 
the relevant major product line, such as closed-end home mortgage 
loans, that are within each component geographic area by loan count. 
These percentages serve as the weights applied to the component 
geographic area.
     Finally, the agencies use these percentages to calculate a 
weighted average of the component geographic area benchmarks to produce 
a benchmark applicable to the outside retail lending area for the 
specific major product line, distribution analysis, and income 
category, such as the community and market benchmarks for evaluating a 
bank's closed-end home mortgage loans to moderate-income borrowers.
    For example, if a bank engaged in closed-end home mortgage lending 
in two different MSAs outside of its facility-based assessment areas 
and retail lending assessment areas, these MSAs are component 
geographic areas for purposes of constructing benchmarks for the 
outside retail lending area. In this example, the market benchmark for 
the closed-end home mortgage moderate-income borrower distribution is 
10 percent in the first area, and 8 percent in the second area. Of the 
bank's closed-end home mortgage loan originations and purchases in the 
outside retail lending area, 75 percent by loan count are in the first 
area, and 25 percent are in the second area. The bank's outside retail 
lending area benchmark is calculated using a weighted average of the 
component area benchmarks with the weighting based on the bank's 
percentage of closed-end home mortgage lending in each area by loan 
count. The bank's outside retail lending area benchmark for closed-end 
home mortgage lending to moderate-income borrowers is (0.10 x 0.75) + 
(0.08 x 0.25) = 0.095, or 9.5 percent. This example is also reflected 
in Table 21:

[[Page 6879]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.030

    The agencies determined that weighting by loan count, rather than 
by loan dollar volume, is appropriate for calculating outside retail 
lending area benchmarks because this approach would result in better 
alignment between the metrics and benchmarks than the proposed 
approach. Specifically, the agencies considered that distribution 
metrics for the outside retail lending area--as well as for facility-
based assessment area and retail lending assessment areas--are 
calculated based on loan count, as discussed above in this section. The 
distribution metrics for the outside retail lending area do not 
incorporate the concept of weighting by loan dollars, or by deposit 
dollars; because the metrics are based on loan count, the outside 
retail lending area metrics effectively give greater weight to those 
component geographic areas in which the bank made a larger number of 
loans. To ensure consistency between the distribution metrics and 
benchmarks, the agencies therefore determined that it is preferable to 
use loan count when weighting the benchmarks of the component 
geographic areas.
    The agencies also considered how to weight each component 
geographic area when calculating the benchmarks for the outside retail 
lending area and decided to adopt an alternative approach described in 
the proposal. Specifically, the agencies will calculate weights for the 
component geographic areas separately for each of a bank's major 
product lines in the outside retail lending area, rather than 
calculating one set of weights that would apply to the benchmarks for 
all major product lines. As noted by one commenter, the agencies 
determined that this alternative allows for the benchmarks to be more 
precise and more tailored for banks with multiple product lines in an 
outside retail lending area. The agencies believe that constructing the 
market and community benchmarks by weighting at the individual product 
line level will more accurately reflect the market conditions the bank 
actually faces in the geographic areas beyond its facility-based 
assessment areas and retail lending assessment areas than would 
benchmarks based on a combination of all of a bank's retail lending. 
For example, a bank might extend closed-end home mortgage loans 
nationwide by originating loans through brokers, while its small 
business and small farm originations might be more closely tied to 
branch-based delivery channels and thus only extend to geographic areas 
just beyond the periphery of its facility-based assessment areas and 
retail lending assessment areas. In this example, constructing 
benchmarks by weighting at the individual product level allows the 
benchmarks for small business and small farm lending to reflect market 
conditions in the geographic areas around the bank's assessment areas, 
while the benchmarks for closed-end home mortgage lending reflect 
conditions in a broader national footprint. This distinction more 
accurately tailors the benchmarks to reflect the opportunities 
available to the bank than would a benchmark based on a combination of 
all of its small business, small farm, and closed-end home mortgage 
lending would.
    While this alternative introduces some additional complexity due to 
the need to calculate a separate set of weights for each major product 
line, the agencies determined that the added accuracy and tailoring of 
this alternative outweighs the additional complexity. In addition, the 
agencies also considered that, for a bank with a single major product 
line in its outside retail lending area, the alternative approach is 
generally less complex than the proposed approach. Specifically, under 
the final rule approach, the agencies would calculate one set of 
weights for the component geographic areas per product line, based on 
only the loans in that product line. In contrast, under the proposed 
approach, the weights for the component geographic areas would be based 
on all of the bank's product lines. For banks with two major product 
lines in the outside retail lending area, the agencies considered that 
the alternative approach would be moderately more complex, because the 
bank would have

[[Page 6880]]

two sets of weights for the geographic component areas of its outside 
retail lending area. For banks with three or four major product lines 
in the outside retail lending area, the agencies considered that the 
alternative approach would add to this complexity. However, based on 
available data for closed-end home mortgage, small business, and small 
farm lending (automobile lending data is not available to include in 
this analysis), the agencies believe that a small percentage, 
approximately 7 percent, of banks would have all three of these product 
lines that meet the major product line standard in outside retail 
lending areas.
    The agencies considered, but are not adopting, the alternative 
approach of setting uniform benchmarks for the outside retail lending 
area for all banks, without tailoring to the specific geographies in 
which a bank originated or purchased loans within its outside retail 
lending area. For example, this could include an alternative in which 
the benchmarks for the outside retail lending area would be calculated 
at the nationwide level, without averaging together the benchmarks for 
a bank's specific component geographic areas. The agencies determined 
that, while this approach would reduce the complexity of the outside 
retail lending area evaluation, the benchmarks under this alternative 
would not reflect a bank's actual markets, which may vary substantially 
in retail credit needs and opportunities. For example, if a large 
bank's lending in its outside retail lending area is primarily in one 
component geographic area, the market and community benchmarks for that 
component geographic area may be substantially different from 
benchmarks calculated at the nationwide level. In contrast, the 
tailored benchmark approach adopted by the agencies is intended to set 
expectations for a bank's outside-assessment area retail lending to 
match the opportunities in the markets in which it lends. Under this 
approach, the agencies determined that component geographic areas with 
more of a bank's lending would appropriately carry greater weight in 
calculating the agencies' performance expectations for the outside 
retail lending area as a whole. In addition, markets in which the bank 
did zero lending would receive zero weight when calculating the outside 
retail lending area benchmarks, and hence have no influence on the 
bank's Retail Lending Test evaluation.
    The agencies also acknowledge comments that performance context 
information may be relevant to assessing lending in outside retail 
lending areas, to the extent it is not already considered as part of 
the Retail Lending Test. Pursuant to final Sec.  __.21(d), the agencies 
would consider performance context information when applying the 
performance tests, including the Retail Lending Test. In addition, 
pursuant to final Sec.  __.22(g), the agencies would consider the 
specified additional factors when determining Retail Lending Test 
conclusions.
    The agencies considered, but are not adopting, an alternative of 
creating a separate approach to the outside retail lending area 
evaluation for internet banks. The agencies also believe that 
constructing benchmarks by weighting lending in each individual product 
line provides sufficient flexibility in representing the market 
conditions in the geographic areas outside of a bank's assessment areas 
that a separate and unique approach to constructing benchmarks for 
internet banks is unnecessary. To the extent that the geographic areas 
covered by an internet bank's closed-end home mortgage, small business, 
or small farm lending differs from those of branch-based banks, the 
product-specific weighting approach used to construct benchmarks for 
outside retail lending areas will reflect those differences.

Section __.22(f) Retail Lending Test Recommended Conclusions

Section __.22(f)(1) In general

Section __.22(f)(2)(i) Geographic distribution supporting conclusions--
geographic distribution supporting conclusions for closed-end home 
mortgage loans, small business loans, and small farm loans

Section __.22(f)(3)(i) Borrower distribution supporting conclusions--
borrower distribution supporting conclusions for closed-end home 
mortgage loans, small business loans, and small farm loans

The Agencies' Proposal
    For each of a bank's distribution metrics for each major product 
line, the agencies proposed to compare a bank's level of lending to 
specific quantitative standards.\934\ These standards would be set by a 
methodology that uses data for the geographic area matching the 
relevant distribution metric and maintains some key parts of how 
examiners currently conduct examinations. In addition, the agencies 
proposed to standardize and make performance expectations more 
transparent relative to current CRA examinations. The agencies noted 
that current CRA guidance and examination procedures do not specify how 
much lending is necessary to achieve each conclusion.
---------------------------------------------------------------------------

    \934\ See proposed Sec.  __.22(d)(2)(ii) and (iii) and proposed 
appendix A, sections II through IV.
---------------------------------------------------------------------------

    The agencies proposed that each bank geographic and borrower 
distribution metric would be compared to a set of performance ranges 
that correspond to different conclusion categories: ``Outstanding,'' 
``High Satisfactory,'' ``Low Satisfactory,'' ``Needs to Improve,'' and 
``Substantial Noncompliance.'' \935\ As provided in the proposal, 
separate performance ranges would apply to geographic and borrower 
distribution metrics for each proposed major product line, with the 
exception of multifamily lending, and for each income level or revenue 
level, as applicable.\936\
---------------------------------------------------------------------------

    \935\ See proposed appendix A, section V.
    \936\ See proposed Sec.  __.22(d)(2)(ii)(D)(2) and proposed 
appendix A, paragraphs V.2.b and V.2.c (geographic distribution 
metrics) and proposed Sec.  __.22(d)(2)(iii)(D)(2) and proposed 
appendix A, paragraphs V.2.d and V.2.e (borrower distribution 
metrics).
---------------------------------------------------------------------------

    The agencies proposed that the thresholds for these performance 
range categories would be calculated using community benchmarks and 
market benchmarks. Specifically, the agencies proposed to use the 
benchmarks to establish thresholds separating the conclusion 
categories.\937\ The agencies proposed that the benchmarks would be 
calibrated using multipliers, which are defined percentages for 
aligning the benchmarks with the agencies' performance expectations for 
specific supporting conclusions.\938\ For each major product line and 
income category, the agencies proposed the process for determining 
thresholds illustrated in Table 22:\939\
---------------------------------------------------------------------------

    \937\ See proposed appendix A, paragraphs V.2.b (geographic 
distribution performance) and V.2.d (borrower distribution 
performance).
    \938\ See id.; see also Table 8 to proposed Sec.  __.22.
    \939\ See id. The agencies explained their justifications for 
the thresholds. After considering alternatives of 25 percent and 50 
percent for the ``Needs to Improve'' threshold, the agencies arrived 
at the conclusion that performance serving less than 33 percent of 
the market or community benchmark was an appropriate threshold to 
distinguish performance low enough to warrant the lowest conclusion 
category and performance that is not satisfactory but is more 
appropriately recognized as needing improvement. After considering 
alternative market benchmark thresholds of 75 percent and 70 percent 
and an alternative community threshold of 55 percent, the agencies 
arrived at a market benchmark threshold of 80 percent and the 
community benchmark threshold of 65 percent for the ``Low 
Satisfactory'' threshold in the proposal, reflecting performance 
that is adequate relative to opportunities. The agencies proposed 
the ``High Satisfactory'' threshold at 110 percent for the market 
benchmark in order to reserve the conclusion for banks that are not 
just average, but a meaningful increment above the average of local 
lenders. Similarly, a community benchmark threshold of 90 percent in 
the proposal established a ``High Satisfactory'' conclusion if a 
bank achieved close to per capita parity in its lending across 
different income groups. The agencies selected a market benchmark 
threshold of 125 percent for an ``Outstanding'' conclusion, setting 
a threshold well in excess of the average of local lenders, while 
simultaneously maintaining an attainable target for better bank 
performance. The agencies explained further that a market benchmark 
threshold of 125 percent ensures that an ``Outstanding'' conclusion 
is awarded only to banks that have demonstrated an exceptional level 
of performance. Finally, the agencies explained that setting the 
community benchmark threshold at 100 percent would be an appropriate 
aspirational goal for an ``Outstanding'' conclusion because bank 
metrics and market benchmarks are usually below the community 
benchmark and this benchmark threshold would represent equal per 
capita lending to communities of different income levels.

---------------------------------------------------------------------------

[[Page 6881]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.031

    The agencies analyzed historical bank lending data based on the 
proposed multipliers and estimated the recommended conclusions banks 
would have received. The agencies asked for feedback on alternatives to 
the proposed market and community multipliers for each conclusion 
category.
    The agencies also noted in the proposal that the Board developed a 
search tool, which includes illustrative examples of the thresholds and 
performance ranges in a given geographic area, using historical lending 
data.\940\ This tool provides illustrative examples of the thresholds 
for the relevant performance ranges in each MSA, metropolitan division, 
and county based on historical lending from 2017-2019.\941\
---------------------------------------------------------------------------

    \940\ See Board, Community Reinvestment Act (CRA), ``Proposed 
Retail Lending Test Thresholds Search Tool,'' https://www.federalreserve.gov/consumerscommunities/performance-thresholds-search-tool.htm.
    \941\ See id.
---------------------------------------------------------------------------

    The agencies proposed to use the lesser of the two calibrated 
benchmarks (i.e., the calibrated market benchmark and the calibrated 
community benchmark) to determine the applicable conclusion.\942\ In 
addition, for the ``Outstanding,'' ``High Satisfactory,'' and ``Low 
Satisfactory'' thresholds, the proposed multiplier for the market 
benchmark would be higher than the multiplier for the community 
benchmark. The agencies explained that using the lesser of the two 
calibrated benchmarks would prevent the thresholds from becoming too 
stringent in markets with fewer opportunities to lend to lower-income 
communities or smaller establishments. The agencies also believed that 
this approach would tend to assign more favorable recommended 
conclusions in geographic areas where more banks were meeting the 
credit needs of the community. The agencies requested feedback on 
whether the proposed approach would set performance expectations too 
low in places where all lenders, or a significant share of lenders, are 
underserving the market and failing to meet community credit needs.
---------------------------------------------------------------------------

    \942\ See proposed appendix A, paragraphs V.2.b (proposed 
geographic distribution performance) and V.2.d (proposed borrower 
distribution performance).
---------------------------------------------------------------------------

Comments Received
    Approach to using the market and community benchmarks. The agencies 
received a range of comments regarding the proposal to use the lower of 
the calibrated benchmarks (the calibrated benchmark calculated using 
the market benchmark and the calibrated benchmark calculated using the 
community benchmark) when determining performance ranges--with a number 
of commenters supporting the proposed approach.
    In contrast, a commenter indicated that using the lower of the 
calibrated

[[Page 6882]]

benchmarks may fail to incentivize banks to provide small-dollar home 
mortgage loans that would better meet the credit needs of homebuyers in 
relatively low-cost low- and moderate-income communities. Another 
commenter indicated that the approach of using the lower of the two 
calibrated benchmarks would result in performance ranges that do not 
reflect credit demand in an area, and that it would be preferable to 
base the performance ranges on only the market benchmark.
    A number of commenters offered alternative suggestions for 
developing the performance ranges, based upon using a weighted average 
of the calibrated market benchmark and the calibrated community 
benchmark, instead of using the lower of the two. For example, a 
commenter suggested that the agencies aggregate all calibrated 
benchmarks for a total CRA score or use a weighted average and consider 
all calibrated benchmarks to provide a range of comparators to evaluate 
how banks are meeting the needs of low- and moderate-income consumers. 
Another commenter suggested that selecting the lower calibrated 
benchmark, as proposed, could result in lower thresholds that inflate 
CRA ratings; for example, in an assessment area where the calibrated 
market benchmark is considerably lower than the calibrated community 
benchmark, all banks could be underperforming in making retail loans to 
low- and moderate-income borrowers and communities. To address this 
concern, this commenter also recommended that, in cases where the 
calibrated market benchmark is considerably lower than the calibrated 
community benchmark and where that gap is not explained by performance 
context, the agencies should calculate a weighted average of the two 
benchmarks and reduce the weight of the market benchmark, taking into 
account how much the benchmarks diverge and whether performance context 
factors explain part of the discrepancy. Another commenter similarly 
recommended that when the calibrated market benchmark is lower than the 
calibrated community benchmark, the threshold should be a weighted 
average of the two calibrated benchmarks, with 30 percent weight on the 
market benchmark and 70 percent weight on the community benchmark.
    Stringency of performance ranges. The agencies received a number of 
comments regarding the multipliers and performance ranges in evaluating 
a bank's retail lending performance. Several commenters generally 
supported the agencies' proposed multipliers to align the market and 
community benchmarks with the agencies' performance expectations. For 
example, one commenter indicated that the agencies' proposed approach 
would result in conclusions that would meaningfully reflect 
distinctions in performance and avoid contributing to ratings 
inflation.
    On the other hand, many other commenters stated that the proposed 
multipliers would set the thresholds for favorable conclusions overly 
stringently such that they would be unachievable. For example, a 
commenter opposed the performance ranges on the grounds that there has 
been no indication that banks' CRA activities and performance have 
declined in recent years and pointed out that Congress has not 
authorized the agencies to increase the stringency of CRA performance 
standards. This commenter suggested that the agencies should ensure 
that the final rule does not lead to a dramatic downward shift in the 
proportion of banks that receive ``Outstanding'' or ``Satisfactory'' 
conclusions and ratings, assuming that banks' underlying CRA retail 
lending performance remains on par with current levels. The commenter 
also stated it would be arbitrary and capricious to downgrade the 
ratings for a broad portion of the industry. Relatedly, another 
commenter indicated that the agencies should better recognize the 
amount of effort that banks with favorable CRA conclusions and ratings 
put in pursuant to the requirements of the current CRA regulations. 
Another commenter asserted that the performance ranges should be set so 
as to roughly match the current distribution of retail lending 
performance conclusions. A number of commenters asserted that the 
proposed approach would depress banks' overall Retail Lending Test 
conclusions, and that banks would routinely have to surpass their prior 
favorable retail lending performance levels, pursuant to the current 
regulations, to ensure that they would not receive ``Needs to Improve'' 
or ``Substantial Noncompliance'' conclusions pursuant to the proposed 
approach. A commenter questioned whether the agencies intentionally 
proposed multipliers to cause a sharp increase in ``Low Satisfactory'' 
and ``Needs to Improve'' conclusions, as the commenter asserted was 
reflected in the analysis presented in appendix A of the proposal.
    A number of commenters asserted that the proposed performance 
ranges would make it mathematically impossible for all banks in a given 
assessment area to achieve favorable conclusions. A commenter expressed 
concern that the proposed benchmarks, although based on a consistent 
formula and set of data points, could create an unachievable target for 
many banks. This commenter indicated that it would be mathematically 
impossible for all of the banks in an assessment area to meet the 
proposed thresholds for ``Outstanding'' and ``High Satisfactory'' 
conclusions, and the proposal would instead result in a ratings 
distribution where more than one-third of banks failed. Another 
commenter stated that the proposal would make it increasingly 
challenging for banks to meet high thresholds year-over-year as they 
focus on increasing their retail lending in the same markets. A 
commenter expressed concern that it would be difficult for a financial 
institution with a small geographic footprint and no low-income or 
moderate-income census tracts within its assessment areas to achieve 
better than ``Low Satisfactory'' conclusions.
    Some commenters stated that the performance ranges approach was 
inappropriate because a bank's metric could be compared to the 
performance of other banks based on the market benchmark, which these 
commenters described as equivalent to grading banks on a curve. A 
commenter noted that banks should be evaluated without regard to how 
other banks performed, and that all banks should be able to achieve an 
``Outstanding'' or a ``Satisfactory'' conclusion.
    A few commenters added that, in turn, the proposed performance 
ranges could incentivize unsafe and unsound risk-taking as banks 
competed more intensely against competitors in pursuit of favorable 
performance conclusions. For example, a commenter stated that the 
agencies should recalibrate the proposed performance ranges to be 
ratings-neutral for large banks, so that banks would not be 
incentivized to lower their standards of creditworthiness and 
potentially experience credit quality issues.
    Several commenters suggested alternative multiplier formulations 
for establishing performance ranges. For example, commenters proposed 
that the community benchmark multipliers be calibrated differently by 
product line to reflect how different loan types serve low- and 
moderate-income consumers and communities differently. A commenter 
supported the agencies' proposed multipliers but also recommended using 
the multipliers as a threshold compared to a ``parity ratio'' with the 
objective of reducing complexity. Under this suggestion, a bank's 
metric would be calculated as a ratio of the bank's percentage of loans 
to certain borrowers or census tracts

[[Page 6883]]

relative to the corresponding benchmark. For example, if 11 percent of 
the bank's closed-end home mortgage loans were to low-income borrowers, 
and the corresponding benchmark for this category is 10 percent, the 
bank's ratio under this approach would be 110 percent. This ratio could 
be compared directly to the multipliers to determine the bank's 
conclusion.
    Another commenter suggested replacing the market and community 
benchmarks altogether with an evaluation system based on statistical 
confidence levels. Rather than evaluate a bank's performance based on 
the difference between a bank's metric and the market or community 
benchmark, this commenter suggested that the evaluation be based on the 
likelihood that the difference between the bank's metric and the market 
benchmark was the result of random chance. In effect, this would 
replace the uniform thresholds that the proposed rule would apply to 
all banks in the same assessment area with ones that vary based upon 
the number of loans each bank originates or purchases in that 
assessment area and on the number of loans originated by the market as 
a whole.
    Comments on specific conclusion thresholds and performance ranges. 
Other commenters expressed that the proposed performance ranges 
essentially put achieving ``Outstanding'' retail lending performance 
out of reach and would reduce banks' incentives to increase retail 
lending to improve their retail lending performance. For example, a 
commenter noted that the high bar for an ``Outstanding'' conclusion 
would, contrary to the agencies' goals, discourage banks from striving 
for ``Outstanding'' performance because they would have little 
incentive to develop or initiate responsive credit programs beyond 
those that will produce a ``Satisfactory'' conclusion. Another 
commenter noted that the benchmark for an ``Outstanding'' conclusion 
disadvantages banks with substantial market share compared to banks 
with smaller market share, which could more easily improve their 
lending distributions. A commenter stated that fewer than two percent 
of current banking system assets would currently meet or exceed the 
market benchmark threshold for an ``Outstanding'' conclusion, so most 
banks would be motivated to seek only a ``Satisfactory.'' Another 
commenter noted that the proposed Retail Lending Test would account for 
75 percent of retail performance, yet the performance ranges for Retail 
Lending Test are prohibitively high such that lowering them may 
encourage banks to strive for ``Outstanding'' performance. Another 
commenter stated that banks would not have a reasonable chance of 
attaining an ``Outstanding'' conclusion and also asserted that, based 
on the agencies' own analysis, no bank with assets exceeding $50 
billion would achieve an ``Outstanding.''
    A number of commenters recommended specific alternative multiplier 
values for certain performance ranges or suggested adjustments to how 
the agencies would apply the performance ranges. A commenter suggested 
lowering multiplier values and, in turn, the thresholds for the 
performance ranges so that the ``Outstanding'' performance range would 
correspond to between 90 percent and 100 percent of the market 
benchmark and the ``High Satisfactory'' performance range would 
correspond to between 80 percent and 90 percent of the market 
benchmark. Another commenter recommended adjusting the performance 
ranges to more reasonably allow for a bank to achieve an 
``Outstanding'' rating (and also to ensure that banks that achieve 100 
percent of the market benchmark receive more than a ``Low 
Satisfactory'' conclusion). Another commenter suggested lowering some 
of the proposed multipliers for the market and community benchmarks. 
This commenter suggested that, for example, an ``Outstanding'' 
conclusion should correspond to the lesser of 110 percent or higher of 
the market benchmark or 100 percent or higher of the community 
benchmark. Conversely, another commenter suggested raising the ``Needs 
to Improve'' multiplier for the market benchmarks from 33 percent to 48 
percent, so the community benchmark, unchanged at 33 percent, would be 
binding more often. This commenter also proposed to set the community 
benchmark for ``Outstanding'' higher than 100 percent to maintain a 
meaningful distinction between the benchmarks. Another commenter 
proposed alternative multiplier values to measure, and terminology to 
describe, retail lending performance. This commenter proposed to use 
the term ``Adequate'' to correspond to performance between 70 percent 
to 89 percent of market and community benchmarks, the term ``Good'' to 
correspond to performance between 90 percent and 109 percent of the two 
benchmarks, and the term ``Excellent'' to correspond to performance at 
110 percent or more of the benchmarks.
    Some commenters expressed that the distribution analysis should 
involve qualitative considerations and not be based solely on the 
performance ranges. For example, a commenter stated that the agencies 
should consider calculations with simpler thresholds that can be 
modified by examiners as informed by performance context. Another 
commenter further recommended that the agencies issue guidance stating 
that market benchmarks are not absolute criteria for conclusions.
    One commenter stated that the agencies should develop guidance and 
a new appendix to replace proposed appendix A with more detailed 
descriptions of how ratings would correlate to how a bank's performance 
compares against the benchmarks.
Final Rule

Section __.22(f) Retail Lending Test Recommended Conclusions

Section __.22(f)(1) In General

    Final Sec.  __.22(f)(1) indicates that, with two exceptions, the 
agencies develop a Retail Lending Test recommended conclusion for each 
of a bank's Retail Lending Test Areas based on the distribution 
analysis described in final Sec.  __.22(e) and using performance 
ranges, supporting conclusions, and product line scores. Consistent 
with the proposed approach, the agencies will develop a separate 
supporting conclusion for each category of designated census tracts and 
designated borrowers described in paragraphs V.a and VI.a of final 
appendix A. However, as specified in final Sec.  __.22(b)(5)(i) and 
(c)(3)(iii)(A), the agencies do not develop a Retail Lending Test 
recommended conclusion if a bank has no major product lines in a Retail 
Lending Test Area or if a large bank lacks an acceptable basis for not 
meeting the Retail Lending Volume Threshold in a facility-based 
assessment area.
    The term ``supporting conclusion'' represents a technical revision 
from the proposal intended to provide additional clarity regarding the 
agencies' approach for developing Retail Lending Test recommended 
conclusions. The agencies believe this term helps to distinguish 
between: supporting conclusions that are assigned to each product line 
for each category of designated census tracts and designated borrowers; 
recommended conclusions that are assigned to each Retail Lending Test 
Area; and conclusions that are assigned to each Retail Lending Test 
Area, State, multistate MSA, and to the institution. Additionally, the 
agencies have employed the terms ``designated census tract'' (i.e., 
low-income census tracts or moderate-income census tracts, as 
applicable) and ``designated

[[Page 6884]]

borrower'' (i.e., low-income borrowers; moderate-income borrowers; 
businesses with gross annual revenues of $250,000 or less; businesses 
with gross annual revenues of more than $250,000 but less than or equal 
to $1 million; farms with gross annual revenues of $250,000 or less; 
and farms with gross annual revenues of more than $250,000 but less 
than or equal to $1 million, as applicable) to streamline the 
regulatory text and increase clarity.

Section __.22(f)(2)(i) Geographic distribution supporting conclusions 
for closed-end home mortgage loans, small business loans, and small 
farm loans

Section __.22(f)(3)(i) Borrower distribution supporting conclusions for 
closed-end home mortgage loans, small business loans, and small farm 
loans

Overview
    As provided in final Sec.  __.22(f)(2)(i) and (f)(3)(i) and section 
V of final appendix A, the agencies are finalizing the core methodology 
of their proposal to translate the proposed benchmarks into the four 
supporting conclusion performance thresholds for three product lines: 
closed-end home mortgage loans; small business loans; and small farm 
loans. Upon consideration of commenter input and additional analysis, 
the final rule includes modifications to several of the proposed 
multiplier values, and as a result, ``Outstanding,'' ``High 
Satisfactory,'' and ``Low Satisfactory'' Retail Lending Test 
conclusions are generally more attainable relative to the proposed 
approach.\943\
---------------------------------------------------------------------------

    \943\ In addition, as discussed in the section-by-section 
analysis of final Sec.  __.22(d), unlike in the proposal, the 
agencies will not evaluate open-end home mortgage lending and 
multifamily lending as major product lines; consequently, the 
agencies will not employ multipliers and performance ranges with 
respect to evaluating these loans. As discussed below, although the 
agencies will evaluate automobile lending as a product line, as 
applicable, the agencies will not evaluate automobile lending using 
same methodology as proposed or as applied to other product lines 
pursuant to final Sec.  __.22(f).
---------------------------------------------------------------------------

    Table 23 compares the proposed multipliers to those adopted in the 
final rule.
[GRAPHIC] [TIFF OMITTED] TR01FE24.032

    Approach to using the market and community benchmarks. Consistent 
with the agencies' proposal, under the final rule, the performance 
ranges are set by establishing thresholds for each conclusion category. 
Each threshold is determined by selecting the lesser of the following:
     The result of multiplying the market benchmark by the 
market multiplier (i.e., the calibrated market benchmark); and
     The result of multiplying the community benchmark by the 
community multiplier (i.e., the calibrated community benchmark).
    The agencies would compare each metric to the performance ranges, 
and assign the corresponding supporting conclusion based on the lesser 
of calibrated community benchmark and the calibrated market benchmark. 
This approach is reflected in Table 24.

[[Page 6885]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.033

    The agencies believe that as a result of the approach of using the 
lesser of the two calibrated benchmarks, coupled with the comparatively 
higher market multipliers relative to the community multipliers, ``Low 
Satisfactory'' and higher conclusions are generally attainable. 
Furthermore, the agencies believe this approach effectively 
distinguishes between ``Outstanding, ``High Satisfactory,'' and ``Low 
Satisfactory'' performance. For example, as discussed below, the 
agencies believe that a bank metric equal to 100 percent of the 
community benchmark represents ``Outstanding'' performance because it 
reflects a level of lending that is proportionate with the potential 
borrowers in the area. However, the agencies determined that a bank 
metric equal to 100 percent of the market benchmark does not represent 
``Outstanding'' performance if the community benchmark is higher than 
the market benchmark. In this scenario, the bank's performance is 
exactly average among lenders in the area, and the bank's lending is 
not proportionate with the potential borrowers in the area because the 
relevant metric is lower than the community benchmark. Setting the 
market multipliers for an ``Outstanding'' supporting conclusion 
comparatively higher than the corresponding community multipliers 
therefore recognizes banks that are significantly exceeding, rather 
than only equaling, the market average in areas where the market 
benchmark is lower than the community benchmark. Likewise, for other 
supporting conclusion categories, setting the market multipliers higher 
than corresponding community multipliers reflects that, depending on 
market conditions and the performance context of an area, meeting or 
surpassing market benchmarks may generally be more attainable for a 
bank than meeting or surpassing community benchmarks.
    In finalizing the proposed approach of selecting the lesser of the 
threshold based on the calibrated market benchmark and the threshold 
based on the calibrated community benchmark, the agencies also 
considered alternatives raised by commenters, including the suggestion 
to calculate an average of the two calibrated benchmarks rather than 
selecting the lesser of the two. The agencies have considered that 
calculating the average of the calibrated benchmarks could potentially 
address a scenario in which the calibrated market benchmark is 
significantly lower than the calibrated community benchmark due to 
lenders in the area not meeting the credit needs of the community, 
which could result in performance ranges that are unduly low. However, 
the agencies believe that averaging the two calibrated benchmarks could 
also result in performance ranges that are too stringent, especially in 
areas where the calibrated market benchmark is lower than the 
calibrated community benchmark. For example, in an area that lacks 
housing that is affordable for low-income families, the calibrated 
market benchmarks for closed-end home mortgage lending may be 
considerably lower than the corresponding calibrated community 
benchmarks, and the agencies believe that averaging the two calibrated 
benchmarks together could result in performance expectations that are 
set too high. The agencies also recognize that an approach suggested by 
commenters to average the two benchmarks only when the calibrated 
market benchmark is significantly lower than the calibrated community 
benchmark could partially address this concern, but would present other 
challenges. Specifically, the agencies believe that averaging the two 
benchmarks only under certain conditions would increase the complexity 
of the Retail Lending Test and would be counter to the agencies' 
objectives of increasing the transparency and predictability of 
evaluations. Moreover, the agencies believe that the scenario of a 
Retail Lending Test Area in which lenders in the aggregate are not 
meeting community credit needs can be addressed through the application 
of the additional factor in final Sec.  __.22(g)(7). As discussed in 
the section-by-section analysis of final Sec.  __.22(g)(7), this 
additional factor provides that when determining Retail Lending Test 
conclusions, the agencies may consider ``information indicating that 
the credit

[[Page 6886]]

needs of the facility-based assessment area or retail lending 
assessment area are not being met by lenders in the aggregate, such 
that the relevant benchmarks do not adequately reflect community credit 
needs.'' As suggested by commenters, the application of this additional 
factor may take into account the performance context of a Retail 
Lending Test Area.
    Regarding the commenter view that this additional factor could be 
applied based on the difference between the actual and predicted market 
benchmarks, the agencies are not adopting this approach in the final 
rule because further analysis is necessary to develop statistical 
models that calculate a predicted market benchmark, as discussed in the 
section-by-section analysis of final Sec.  __.22(g)(7).
    Multiplier Values. In the final rule, as provided in section V of 
final appendix A, the agencies are adjusting downward certain proposed 
market multipliers and community multipliers applicable to closed-end 
home mortgage loans, small business loans, and small farm loans. As a 
result of these changes, the agencies believe that the final rule 
performance ranges are appropriately aligned with the conclusion 
categories and that the ``Low Satisfactory'' and higher conclusion 
categories on the Retail Lending Test are generally attainable. In 
making these adjustments, the agencies considered the comments 
discussed above that offered different perspectives on the stringency 
of the proposed Retail Lending Test. The agencies believe that the 
adjustments to multiplier values are responsive to comments that 
``Outstanding'' and ``High Satisfactory'' conclusions would not be 
attainable under the proposed approach and that the proposed multiplier 
values would deter retail lending and raise safety and soundness risk.
    Specifically, as informed by additional agency analysis described 
in the historical analysis section, below, the agencies have determined 
that ``Outstanding,'' ``High Satisfactory,'' and ``Low Satisfactory'' 
Retail Lending Test conclusions are generally attainable under the 
final rule approach. When applying the final rule approach to the 2018-
2020 period, the agencies estimated that approximately 90 percent of 
banks included in the analysis would have achieved an ``Outstanding,'' 
``High Satisfactory,'' or ``Low Satisfactory'' Retail Lending Test 
conclusion for the institution, and that a ``High Satisfactory'' 
conclusion would have been the most frequently assigned conclusion. 
Similarly, when calculating Retail Lending Test recommended conclusions 
for facility-based assessment areas based on the performance ranges 
approach, approximately 87 percent of facility-based assessment areas 
for banks included in the analysis would have received an 
``Outstanding,'' ``High Satisfactory,'' or ``Low Satisfactory'' 
recommended conclusion, and a ``High Satisfactory'' would have been the 
most frequently assigned recommended conclusion.\944\ The Retail 
Lending Test recommended conclusions assigned in retail lending 
assessment areas and outside retail lending areas would have been 
somewhat lower than in facility-based assessment areas, based on the 
agencies' estimates; approximately 78 percent of retail lending 
assessment areas, and 71 percent of outside retail lending areas, for 
banks included in the analysis, would have received an ``Outstanding,'' 
``High Satisfactory,'' or ``Low Satisfactory'' recommended conclusion. 
The agencies considered a number of data limitations and other factors 
when interpreting the results of the analysis of Retail Lending Test 
performance based on historical data, as discussed in the historical 
analysis section.
---------------------------------------------------------------------------

    \944\ The agencies did not estimate recommended conclusions for 
facility-based assessment areas in which the Bank Volume Metric did 
not surpass the Retail Lending Volume Threshold, which was 
approximately 3 percent of facility-based assessment areas in this 
analysis.
---------------------------------------------------------------------------

    The agencies also considered comments that suggested that Retail 
Lending Test conclusions under the proposed approach would be 
significantly lower than those under the current approach, as well as 
those comments that the agencies should set multiplier values that 
result in a similar distribution of conclusions to the current 
approach. The agencies believe that the final rule multiplier values 
are appropriately aligned with the conclusion categories and that ``Low 
Satisfactory'' or higher Retail Lending Test conclusions are generally 
attainable. As also noted by some commenters, the agencies also believe 
that the performance ranges approach will more effectively distinguish 
between different levels of performance than the current approach, 
which lacks specific defined thresholds corresponding to each 
supporting conclusion category. Additionally, as noted above, the 
agencies intend to disclose data on the benchmarks and performance 
ranges that would assist banks in identifying Retail Lending Test Areas 
in which the bank may be underperforming, such that a bank may improve 
its performance accordingly.
    The agencies also considered comments stating that it would be 
mathematically impossible for banks to meet the proposed thresholds or 
to achieve ``Outstanding'' or ``High Satisfactory'' conclusions. The 
agencies believe that the historical analysis indicates that 
``Outstanding,'' ``High Satisfactory,'' and ``Low Satisfactory'' 
conclusions are generally attainable. Furthermore, the agencies 
considered that, as a result of the approach of using the lower of the 
two calibrated benchmarks to set the performance threshold for a given 
supporting conclusion, a bank surpassing the calibrated community 
benchmark for a given supporting conclusion will always receive at 
least that supporting conclusion. For example, a bank whose metric 
exceeds the calibrated community benchmark for ``High Satisfactory'' 
will receive a supporting conclusion of either ``Outstanding'' or 
``High Satisfactory'' for the associated distribution test, even if the 
bank metric does not exceed the calibrated market benchmark for a 
``High Satisfactory'' supporting conclusion. In addition, the agencies 
note that the final rule market multiplier for ``Low Satisfactory'' is 
80 percent, consistent with the proposal. As a result, banks are never 
required to exceed the average of all lenders in a Retail Lending Test 
Area to achieve a ``Low Satisfactory'' supporting conclusion, and it is 
possible for all banks in a Retail Lending Test Area to exceed the 
``Low Satisfactory'' threshold for any distribution. The agencies also 
determined that the level of the ``Low Satisfactory'' market multiplier 
reduces the possibility that the market benchmarks will increase over 
time in a manner that makes the performance ranges unattainable, 
because banks are not required to exceed the market average to attain a 
``Low Satisfactory'' supporting conclusion.
    Relatedly, the agencies believe that the final rule approach 
addresses concerns from some commenters that a bank with significant 
market share in an area would be unable to exceed the threshold for an 
``Outstanding'' or ``High Satisfactory'' supporting conclusion that is 
based on the calibrated market benchmark. First, the agencies have 
adjusted the market multiplier for an ``Outstanding'' supporting 
conclusion from 125 percent to 115 percent. As a result, in a Retail 
Lending Test Area in which the ``Outstanding'' supporting conclusion 
performance range is based upon the calibrated market benchmark, a bank 
must exceed the market benchmark by 15 percent, rather than the 
proposed margin of 25 percent, to achieve an ``Outstanding'' supporting 
conclusion. The agencies believe that

[[Page 6887]]

this change helps to make the ``Outstanding'' supporting conclusion 
more attainable relative to the proposal, particularly in areas where 
barriers to serving low- and moderate-income borrowers and low- and 
moderate census tracts make it challenging to surpass the calibrated 
community benchmark. Second, the agencies believe that the additional 
factor in final Sec.  __.22(g)(3)--the number of lenders whose reported 
home mortgage loans, multifamily loans, small business loans, and small 
farm loans and deposits data are used to establish the applicable 
Retail Lending Volume Threshold, geographic distribution market 
benchmarks, and borrower distribution market benchmarks--would allow 
the agencies to consider the scenario identified by commenters in 
which, due to a limited number of lenders included in the market 
benchmark for the area, the bank's own lending comprises a significant 
share of the loans included in the market benchmark.\945\ Finally, as 
noted above, the agencies determined that the market multipliers do not 
mathematically limit a bank with a large market share in an area to any 
particular conclusion level, because surpassing the calibrated 
community benchmark for a given supporting conclusion ensures that a 
bank receives a supporting conclusion of at least that level.
---------------------------------------------------------------------------

    \945\ See also the section-by-section analysis of final Sec.  
__.22(g).
---------------------------------------------------------------------------

    Use of thresholds over time. The agencies also considered comments 
suggesting that the final rule's performance ranges will increase and 
become unattainable over time as a result of banks attempting to exceed 
the market benchmarks. However, the agencies determined that the 
approach of using the lower of the calibrated market benchmark and the 
calibrated community benchmark addresses this concern. For example, in 
the event that the market benchmark increases over time, such that 115 
percent times the market benchmark (i.e., the calibrated market 
benchmark) exceeds 100 percent times the community benchmark (i.e., the 
calibrated community benchmark), then the ``Outstanding'' supporting 
conclusion threshold would be based on the calibrated community 
benchmark. Any further increase in the market benchmark would not 
affect the performance range for an ``Outstanding'' supporting 
conclusion, since the calibrated market benchmark exceeds the 
calibrated community benchmark. In addition, as noted above, the market 
multiplier for a ``Low Satisfactory'' supporting conclusion under the 
final rule approach is 80 percent. As a result, a bank is never 
required to exceed the market benchmark in order to earn at least a 
``Low Satisfactory'' supporting conclusion, and it is mathematically 
possible for all banks in a Retail Lending Test Area to earn a ``Low 
Satisfactory'' or higher supporting conclusion.
    Peer comparisons. The final rule retains the proposed approach of 
using both market benchmarks and community benchmarks to develop 
performance ranges, and does not adopt suggestions from commenters to 
remove peer comparisons from the Retail Lending Test evaluation 
approach to avoid what some commenters described as ``grading on a 
curve.'' The agencies note that the market and community benchmarks 
leverage current practice. The agencies' proposal incorporates specific 
threshold calculations for each supporting conclusion category in order 
to reduce the potential for inconsistency that can occur without clear 
performance expectations when comparing a bank's metrics and 
benchmarks, as well as to increase the transparency of evaluations. In 
addition, the agencies believe that the market benchmark is an 
essential component of the Retail Lending Test because it incorporates 
certain performance context information into the performance ranges in 
a manner that is consistent and transparent. Specifically, the agencies 
determined that the market benchmark reflects the credit needs and 
opportunities of an area, and can adjust to changes in those credit 
needs and opportunities over time in response to economic circumstances 
and other factors.
    Furthermore, the agencies find that the final rule's use of the 
lesser of the calibrated market benchmark and the calibrated community 
benchmark to set performance ranges does not constrain a bank's Retail 
Lending Test recommended conclusion and does not require a certain 
percentage of banks to receive any particular recommended conclusion in 
a Retail Lending Test Area. For example, because the performance 
threshold for each performance range is based on the lower of the 
calibrated market benchmark and the calibrated community benchmark, 
surpassing the calibrated community benchmark for an ``Outstanding'' 
supporting conclusion always results in an ``Outstanding'' supporting 
conclusion, regardless of the value of the calibrated market benchmark. 
In addition, the agencies find that even when all performance ranges 
are based on the calibrated market benchmarks it is possible for all 
banks in a Retail Lending Test Area to exceed the ``Low Satisfactory'' 
supporting conclusion threshold.
    Safe and sound lending. The agencies considered comments that the 
proposed multipliers and performance ranges would potentially encourage 
banks to lend in an unsafe and unsound manner. However, as discussed 
above, the agencies believe that ``Low Satisfactory'' and higher 
conclusions are generally attainable under the final rule approach, and 
that banks can meet the credit needs of the community without resorting 
to unsafe and unsound lending. Specifically, the agencies' analysis 
indicates that applying the final rule approach to historical lending 
data from 2018-2020 approximately 90 percent of banks included in the 
analysis would have received an overall Retail Lending Test conclusion 
of ``Low Satisfactory'' or higher at the institution level, with ``High 
Satisfactory'' the most frequent conclusion. In addition, final Sec.  
__.21(d)(1) provides that the agencies will consider performance 
context reflecting whether a bank's Retail Lending Test performance was 
constrained by safety and soundness limitations when assigning 
conclusions.
    Lack of low- and moderate-income census tracts. The agencies 
considered a comment that in a facility-based assessment area with no 
low- or moderate-income census tracts a bank would not be able to 
achieve higher than a ``Low Satisfactory'' conclusion. The agencies 
note that under the proposed and final rule alike there would be no 
geographic distribution analysis in a Retail Lending Test Area with no 
low- and moderate- income census tracts, and the recommended conclusion 
would be based solely on the borrower distribution analysis. As a 
result, a lack of low- and moderate- income census tracts does not 
limit a bank's recommended conclusion to a ``Low Satisfactory.'' In 
addition, as discussed in the section-by-section analysis of final 
Sec.  __.22(g), final Sec.  __.22(g)(6) provides that the agencies 
would consider whether there were very few or no low- and moderate-
income census tracts when determining a bank's conclusion in a 
nonmetropolitan facility-based assessment area or nonmetropolitan 
retail lending assessment area.
    Separate multipliers for each product line. As proposed, the final 
rule incorporates one community multiplier and one market multiplier in 
determining each performance range threshold, applicable to all product 
lines (although market benchmarks and multipliers would not apply in 
automobile lending evaluations). The agencies considered, but are not

[[Page 6888]]

adopting, a commenter suggestion that the agencies develop a separate 
set of multipliers for each product line. The agencies considered that 
separate multipliers for each product line might help to account for 
differences in low- and moderate-income credit needs and opportunities 
across different types of products. However, the agencies determined 
that the approach of using a single set of multipliers for all product 
lines appropriately calibrates performance expectations and that the 
potential advantages of separate multipliers for each product line 
would be outweighed by the additional complexity of this approach. 
Specifically, the agencies considered that the proposed and final rule 
approaches include a single set of eight multipliers (four community 
multipliers and four market multipliers) while the alternative approach 
could include as many as 24 multipliers (eight multipliers each for 
closed-end home mortgage loans, small business loans, and small farm 
loans), and that the larger number of multipliers would increase the 
complexity of the Retail Lending Test.
    ``Parity ratio'' and ``statistical confidence'' alternatives. The 
agencies are finalizing the proposed approach of comparing a bank's 
metric to the performance ranges, and are not adopting the ``parity 
ratio'' or ``statistical confidence'' alternatives suggested by 
commenters. The agencies believe that it is more transparent and less 
complex to use bank metrics that reflect the bank's percentage of loans 
to designated borrowers--rather than to use alternative bank metrics 
that are: (1) based on the bank's percentage of loans to designated 
borrowers divided by the market benchmark or the community benchmark; 
or (2) based on the likelihood that the difference between the bank's 
metric and the market benchmark was the result of random chance.
    The agencies determined that the ``parity ratio'' alternative 
approach would reduce the transparency of the performance standards of 
the Retail Lending Test. The agencies believe that it is more 
transparent to calculate the metrics, benchmarks, and performance 
ranges in terms of the percentage of loans to designated census tracts 
and to designated borrowers. The parity ratio alternative would employ 
ratios that would need to be recalculated in order to assess what 
percentage of loans to designated census tracts and to designated 
borrowers, respectively, is needed in order to meet or surpass each 
performance range threshold.
    The agencies also considered, but are not adopting, the 
``statistical confidence'' approach, in which the performance ranges 
would be based on the likelihood that the difference between a bank's 
metric and the market benchmark was the result of random chance. The 
agencies determined that, in addition to adding complexity, this 
approach would result in inconsistent performance standards for 
different banks. For example, in an MSA like the Baltimore-Columbia-
Towson MSA, where 8.5 percent of closed-end home mortgage loans were to 
low-income borrowers, a bank whose metric of 7.0 percent was based on 
100 loans would be estimated to receive a ``Low Satisfactory'' 
supporting conclusion because the probability that the difference 
between its metric and the market benchmark is the result of random 
chance exceeds 10 percent. But other banks with the same metrics that 
originate or purchase 1,000 or 10,000 closed-end home mortgage loans 
would receive supporting conclusions of ``Needs to Improve'' or 
``Substantial Noncompliance,'' respectively, because their metrics are 
less likely to have been caused by random chance on account of their 
larger loan counts.\946\ The agencies instead determined that it is 
preferable to apply the same benchmarks and performance ranges to all 
banks in the same Retail Lending Test Area.
---------------------------------------------------------------------------

    \946\ This example is based on data from the CRA Analytics 
Tables for the Baltimore-Columbia-Towson MSA. During the 2018-2020 
evaluation period, there were 263,261 closed-end mortgages 
originated of which 22,281 were to low-income borrowers. The 
probabilities were calculated for the banks using a hypergeometric 
distribution, as suggested by the commenter. Supporting conclusions 
were assigned using the suggested thresholds of 1 percent for a 
``Needs to Improve'' supporting conclusion and 10 percent for a 
``Low Satisfactory'' supporting conclusion.
---------------------------------------------------------------------------

    Multipliers for ``Outstanding'' Supporting Conclusion. The 
agencies' multipliers for the calibrated benchmarks used to determine 
the ``Outstanding'' supporting conclusion threshold are shown in Table 
25.
[GRAPHIC] [TIFF OMITTED] TR01FE24.034

    As indicated in section V of final appendix A, the agencies are 
setting the market multiplier at 115 percent for the calibrated market 
benchmark for an ``Outstanding'' supporting conclusion, which is 10 
percentage points lower than the proposed level of 125 percent. In 
deciding to decrease the market multiplier for ``Outstanding'' 
performance, the agencies considered comments that the proposed level 
of 125 percent represents performance that is so significantly above 
average in an area that some banks may determine that it is not 
attainable, inadvertently discouraging such banks from pursuing an 
``Outstanding'' conclusion. The agencies also considered comments that 
in a Retail Lending Test Area in which a bank holds significant market 
share, and in which the bank's own lending is

[[Page 6889]]

therefore a significant component of the market benchmark, it would be 
difficult to surpass the proposed level of 125 percent of the market 
benchmark.
    In determining the appropriate level of the final rule's 
``Outstanding'' market multiplier, the agencies considered options 
suggested by commenters that performance greater than or equal to the 
average of all lenders in the area should receive an ``Outstanding'' 
supporting conclusion, including in an area in which the market 
benchmark is less than the community benchmark. However, the agencies 
generally do not believe that the ``Outstanding'' supporting conclusion 
should correspond to performance that is merely average among all 
lenders, unless the bank's metric also surpasses the community 
benchmark (i.e., unless the market benchmark is close to or greater 
than the community benchmark, and therefore the threshold for an 
``Outstanding'' supporting conclusion is based on the community 
benchmark). Rather, in cases where the ``Outstanding'' threshold is 
based on the market benchmark, the agencies believe that an 
``Outstanding'' supporting conclusion should correspond to performance 
that is meaningfully above average. In reaching this determination, the 
agencies also considered comments that supported the proposed 
multiplier values as appropriately rigorous. Consequently, the agencies 
believe that the final rule multiplier value of 115 percent represents 
an appropriate reduction from the proposed levels that would address 
the concerns expressed by commenters, while also ensuring the 
``Outstanding'' performance range corresponds to performance that is 
meaningfully above average in an area.
    Consistent with the proposed approach, as indicated in section V of 
final appendix A the agencies are setting community multiplier for an 
``Outstanding'' supporting conclusion at 100 percent. The agencies 
believe that setting this multiplier at 100 percent is appropriate 
because it represents lending to borrowers and census tracts of 
different income levels in equal proportion to community benchmarks 
reflecting the potential lending opportunities for designated borrowers 
and designated tracts of the same income (or gross annual revenue) 
levels, which aligns with CRA's emphasis on serving the credit needs of 
the entire community. For example, if a bank's metric for the moderate-
income closed-end home mortgage borrower distribution in a Retail 
Lending Test Area is 20 percent and the community benchmark (i.e., the 
percentage of families in the Retail Lending Test Area that are 
moderate-income families) is also 20 percent, then the bank's share of 
lending to moderate-income families was proportionate to the share of 
moderate-income families in the area. A community multiplier greater 
than 100 percent would represent that a bank's share of lending to 
designated borrowers and designated census tracts in a Retail Lending 
Test Area must be disproportionately high relative to the presence of 
those borrowers and census tracts in the area in order to merit an 
``Outstanding'' supporting conclusion, which the agencies do not 
believe is an appropriate standard.
    Multipliers for ``High Satisfactory'' Supporting Conclusion. The 
agencies' multipliers for the calibrated benchmarks used to determine 
the ``High Satisfactory'' supporting conclusion threshold are shown in 
Table 26.
[GRAPHIC] [TIFF OMITTED] TR01FE24.035

    As indicated in section V of final appendix A, the agencies are 
setting the market multiplier for the calibrated market benchmark used 
to determine a ``High Satisfactory'' supporting conclusion at 105 
percent, five percentage points lower than the proposed level of 110 
percent. The agencies decided to decrease this multiplier from the 
proposed level is based on similar reasons as those discussed above 
with regard to the ``Outstanding'' market multiplier. In addition, the 
agencies believe that a ``High Satisfactory'' market multiplier at the 
proposed level of 110 percent would result in a ``High Satisfactory'' 
performance range that is overly narrow, ranging from 110 percent to 
115 percent. The agencies also considered setting this multiplier at 
100 percent so that the difference between the ``Outstanding'' and 
``High Satisfactory'' market multipliers would be similar to the 
difference between the ``High Satisfactory'' and ``Low Satisfactory'' 
market multipliers. However, the agencies determined that the ``High 
Satisfactory'' market multiplier should result in a calibrated market 
benchmark that is at least slightly above the market benchmark, rather 
than equal to the market benchmark. In making this determination, the 
agencies decided that in an area where the performance ranges are based 
on the market benchmark, bank performance that is exactly equal to the 
market average, or only marginally above the market average, should 
correspond to a ``Low Satisfactory.'' The agencies believe that 
defining the ``High Satisfactory'' supporting conclusion category in 
this way will appropriately distinguish

[[Page 6890]]

higher performance from performance that is average.
    Consistent with the proposal, as indicated in section V of final 
appendix A, the agencies are setting the ``High Satisfactory'' 
community multiplier at 80 percent. Based on supervisory experience, 
the agencies believe that this multiplier appropriately represents a 
level of lending that is somewhat less than proportionate to the share 
of designated borrowers or designated census tracts in the Retail 
Lending Test Area, and sufficiently distinguishes a ``High 
Satisfactory'' supporting conclusion from an ``Outstanding'' supporting 
conclusion. This determination takes into consideration that 
opportunities to lend to designated borrowers or designated census 
tracts may be constrained to a level below the community benchmark. For 
example, the agencies note that some share of low-income families may 
not be in the marketplace for closed-end home mortgage loans for 
reasons beyond any ability of banks or other home mortgage lenders to 
market or structure loans that might meet their financial situations; 
accordingly, if 10 percent of families in a Retail Lending Test Area 
are low-income, for example, then a calibrated community benchmark of 8 
percent is appropriate to set the threshold for a ``High Satisfactory'' 
supporting conclusion. Additionally, the agencies believe that lowering 
this multiplier below 80 percent would result in an overly broad 
performance range for a ``High Satisfactory'' supporting conclusion.
    Multipliers for ``Low Satisfactory'' Supporting Conclusion. The 
agencies' multipliers for the calibrated benchmarks used to determine 
the ``Low Satisfactory'' supporting conclusion threshold are shown in 
Table 27.
[GRAPHIC] [TIFF OMITTED] TR01FE24.036

    Consistent with the proposed approach, as indicated in section V of 
final appendix A the agencies are setting the market multiplier for the 
calibrated market benchmark used to determine a ``Low Satisfactory'' 
supporting conclusion at 80 percent. The agencies believe that this 
multiplier value appropriately represents lending to designated 
borrowers or designated census tracts that is adequate, but that is 
also below average. The agencies considered alternative market 
multipliers of 75 percent and 70 percent, but decided that these levels 
would be too far below average to demonstrate adequately meeting 
community credit needs. In addition, the agencies considered that 
decreasing the multiplier would result in a ``Low Satisfactory'' 
performance range that is overly broad compared to the ``High 
Satisfactory'' performance range. The agencies also considered 
thresholds higher than 80 percent, such that ``Low Satisfactory'' 
supporting conclusions would be reserved for performance that is at 
least close to average. However, as discussed above, the agencies 
considered that setting the ``Low Satisfactory'' threshold at or close 
to the market average might impede the ability of all banks to obtain a 
``Low Satisfactory'' or higher supporting conclusion in an area where 
the performance ranges are based on the market benchmark. Instead, at 
the final rule market multiplier value of 80 percent, the agencies 
believe that ``Low Satisfactory'' or higher performance is generally 
attainable for all banks.
    As indicated in section V of final appendix A, the agencies are 
setting the community multiplier for ``Low Satisfactory'' at 60 
percent, five percentage points lower than the proposed level of 65 
percent. The agencies believe that a downward adjustment from the 
proposed level of this multiplier is appropriate to address commenter 
concerns regarding the stringency of the Retail Lending Test. The 
agencies also considered a community multiplier of 55 percent for a 
``Low Satisfactory'' supporting conclusion, but determined that the 
multiplier should be meaningfully greater than 50 percent to reflect a 
bank adequately meeting community credit needs.
    As noted above, in determining the market and community multiplier 
values for ``Low Satisfactory'' performance, the agencies considered 
that the ``Low Satisfactory'' conclusion reflects that a bank is 
adequately meeting the credit needs of its community. This is distinct 
from the ``Needs to Improve'' and ``Substantial Noncompliance'' 
conclusion categories, both of which reflect that a bank is not 
adequately meeting the credit needs of its community. The agencies note 
that both ``High Satisfactory'' and ``Low Satisfactory'' performance 
correspond to the overall ``Satisfactory'' rating category.
    Multipliers for ``Needs to Improve'' Supporting Conclusion. The 
agencies' multipliers for the calibrated benchmarks used to determine 
the ``Needs to Improve'' supporting conclusion threshold are shown in 
Table 28.

[[Page 6891]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.037

    Consistent with the proposed approach, as indicated in section V of 
final appendix A, the agencies are setting the market multiplier for 
the calibrated market benchmark used to determine a ``Needs to 
Improve'' supporting conclusion at 33 percent. The agencies believe 
that a ``Substantial Noncompliance'' supporting conclusion should be 
reserved for performance that is extremely inadequate, and determined 
that approximately one-third of the market benchmark is an appropriate 
standard. The agencies considered, but are not adopting, a suggested 
multiplier of 48 percent because the agencies believe that would result 
in assigning a ``Substantial Noncompliance'' supporting conclusion in 
cases where a bank's performance is lacking, but is not extremely 
inadequate.
    As indicated in section V of final appendix A, the agencies are 
setting the community multiplier for a ``Needs to Improve'' supporting 
conclusion at 30 percent, three percentage points lower than the 
proposed level of 33 percent. The agencies believe that this adjustment 
is appropriate because for all of the other supporting conclusion 
categories the community multiplier is a lower value than the market 
multiplier, which reflects that the community benchmark is often 
greater than the market benchmark.
Examples of Performance Ranges Methodology
    The following outlines how the performance ranges would be 
calculated and applied to a geographic distribution for closed-end home 
mortgage loans in moderate-income census tracts:
    Geographic Bank Metric: A bank that originated or purchased 16 
closed-end home mortgage loans in moderate-income census tracts out of 
100 total closed-end home mortgage loans that the bank originated or 
purchased overall in the Retail Lending Test Area would have a 
Geographic Bank Metric of 16 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.038

    Benchmarks: In a Retail Lending Test Area where 30 percent of 
owner-occupied housing units and 25 percent of all originated closed-
end home mortgage loans were in moderate-income census tracts, the 
moderate-income Geographic Community Benchmark and Geographic Market 
Benchmarks for closed-end home mortgage loans would be 30 percent and 
25 percent, respectively.

[[Page 6892]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.039

    Performance ranges: The agencies calculate the thresholds for the 
relevant performance ranges using the corresponding benchmarks and 
multipliers below:
[GRAPHIC] [TIFF OMITTED] TR01FE24.040

[GRAPHIC] [TIFF OMITTED] TR01FE24.041


[[Page 6893]]


[GRAPHIC] [TIFF OMITTED] TR01FE24.042

    In this example, the bank would receive a ``Needs to Improve'' 
supporting conclusion for closed-end home mortgage lending in moderate-
income census tracts because the Geographic Bank Metric (16 percent) 
falls between the ``Needs to Improve'' supporting conclusion 
performance range threshold (8.25 percent) and the ``Low Satisfactory'' 
supporting conclusion performance range threshold (18 percent).

Section __.22(f)(2)(ii) Geographic Distribution Supporting Conclusions 
for Automobile Loans

Section __.22(f)(3)(ii) Borrower Distribution Supporting Conclusions 
for Automobile Loans

    Final Sec.  __.22(f)(2)(ii) and (f)(3)(ii) provide that the 
agencies will develop supporting conclusions for a bank's automobile 
lending based on a comparison of its bank metrics to geographic 
distribution and borrower distribution community benchmarks, as 
provided in final Sec.  __.22(e)(1)(ii) and section VI of final 
appendix A. The agencies are not establishing performance ranges for 
automobile lending in the final rule. The agencies believe that there 
would not be sufficient bank automobile lending data to construct 
robust market benchmarks and also that requiring data reporting to 
facilitate construction of market benchmarks would increase data 
reporting burden without a corresponding significant increase in the 
consistency and rigor of CRA evaluations, as is discussed further in 
the section-by-section analysis for final Sec. Sec.  __.22 and __.42. 
The agencies further believe that it would not be appropriate to 
develop automobile lending performance ranges based solely on community 
benchmarks, which do not account for changes in credit needs and 
opportunities in a Retail Lending Test Area over time in the same way 
as an approach that also uses market benchmarks. Consequently, under 
the final rule, the agencies will assign supporting conclusions for 
automobile lending performance by comparing bank metrics to community 
benchmarks.
    Supporting conclusions for automobile lending will be assigned 
separately for: (1) lending in low-income census tracts; (2) lending in 
moderate-income census tracts; (3) lending to low-income borrowers; and 
(4) lending to moderate-income borrowers. However, unlike for other 
major product lines, the agencies are not setting specific thresholds 
distinguishing each supporting conclusion category for automobile 
lending.
    Specifically, the agencies will identify appropriate supporting 
conclusions based on a comparison of the Geographic Bank Metric for 
automobile lending in each category of designated census tracts to the 
corresponding Geographic Community Benchmark. Similarly, the agencies 
will identify the appropriate supporting conclusion based on a 
comparison of the Borrower Bank Metric for automobile lending in each 
category of designated borrowers to the corresponding Borrower 
Community Benchmark.
    This agencies' approach to evaluating automobile lending 
necessarily involves a greater degree of agency discretion than an 
approach that uses performance ranges, as is the case for other major 
product lines. The agencies believe that such discretion is appropriate 
given the relatively limited data available regarding automobile 
lending and the importance of performance context to evaluating a 
bank's automobile lending, such as whether the bank's loans were 
originated through direct or indirect channels. In addition, this 
approach is generally consistent with the current evaluation methods 
when consumer lending is evaluated, in which the agencies analyze the 
borrower and geographic distributions of a bank's consumer lending 
using a community benchmark without specific thresholds or performance 
ranges.\947\
---------------------------------------------------------------------------

    \947\ See, e.g., Interagency Large Institution CRA Examination 
Procedures (April 2014) at 6-8.
---------------------------------------------------------------------------

Developing Product Line Scores in Each Retail Lending Test Area

Section __.22(f)(4) Development of Retail Lending Test Recommended 
Conclusions

Section __.22(f)(4)(i) Assignment of Performance Scores

The Agencies' Proposal
    The agencies proposed to use a product line average to combine 
lending performance in the geographic and borrower distribution metrics 
for each major product line in a facility-based assessment area, retail 
lending assessment area, or outside retail lending area, as 
applicable.\948\ For

[[Page 6894]]

example, a bank's closed-end home mortgage product line average in a 
facility-based assessment area would reflect its lending within four 
categories: (1) in low-income census tracts; (2) in moderate-income 
census tracts; (3) to low-income borrowers; and (4) to moderate-income 
borrowers.\949\ Similarly, if a bank had two major product lines in the 
facility-based assessment area--closed-end home mortgage loans and 
small business loans--the bank would receive a product line average for 
its closed-end home mortgage lending and a separate product line 
average for its small business lending.\950\ By calculating lending 
performance for each major product line in the same facility-based 
assessment area, retail lending assessment area, or outside retail 
lending area, as applicable, the agencies intended to provide greater 
transparency and enable stakeholders to better understand a bank's 
performance for each separate product line. The product line averages 
would also serve as the basis for determining a bank's recommended 
conclusion in each such area.
---------------------------------------------------------------------------

    \948\ See proposed appendix A, paragraphs V.2.c (geographic 
distribution performance) and V.2.e (borrower distribution 
performance).
    \949\ See id.
    \950\ See proposed appendix A, paragraph V.3.
---------------------------------------------------------------------------

    To calculate the product line average, the agencies proposed to 
first assign a performance score to each supporting conclusion, using a 
10-point scale that associates each conclusion level with a score: 
``Outstanding'' (10 points); ``High Satisfactory'' (7 points); ``Low 
Satisfactory'' (6 points); ``Needs to Improve'' (3 points); 
``Substantial Noncompliance'' (0 points). The agencies would then 
compute a borrower income average and a geographic income average.
    The proposal provided that the geographic income average would be a 
weighted average of the performance scores for the two geographic 
distribution supporting conclusions (i.e., for low-income census tracts 
and moderate-income census tracts). The weights for this calculation 
would be the applicable community benchmark for the product line and 
income or revenue category to make the weight of the scores 
proportional to the population of potential borrowers in the assessment 
area.
     For example, for closed-end home mortgage lending, the 
weight for the low-income geographic distribution performance score 
would be:
    [cir] The percentage of owner-occupied housing units in low-income 
census tracts in the area (i.e., the Geographic Community Benchmark for 
low-income census tracts) as a percentage of;
    [cir] The sum of the percentage of owner-occupied housing units in 
low-income census tracts (i.e., the Geographic Community Benchmark for 
low-income census tracts) and the percentage of owner-occupied housing 
units in moderate-income census tracts (i.e., the Geographic Community 
Benchmark for moderate-income census tracts).
     Likewise, for example, for closed-end home mortgage 
lending the weight for the moderate-income geographic distribution 
performance score (i.e., the Geographic Community Benchmark for 
moderate-income census tracts) would be:
     The percentage of owner-occupied housing units in 
moderate-income census tracts in the area as a percentage of;
     The sum of the percentage of owner-occupied housing units 
in low-income census tracts (i.e., the Geographic Community Benchmark 
for low-income census tracts) and the percentage of owner-occupied 
housing units in moderate-income census tracts (i.e., the Geographic 
Community Benchmark for moderate-income census tracts).
    The proposal provided that the borrower income average would be 
calculated in the same way, weighting the two income categories 
included in the borrower distribution analysis (e.g., for closed-end 
home mortgages, the agencies would weight low-income borrowers and 
moderate-income borrowers) by the corresponding community benchmarks 
for each category (e.g., for closed-end home mortgages, these are low-
income families and moderate-income families).
    The agencies would then calculate the average of the borrower 
income average and geographic income average to produce the product 
line average for each major product line in a facility-based assessment 
area, retail lending assessment area, or outside retail lending area, 
as applicable. In calculating each product line average, the agencies 
requested feedback on whether the borrower and geographic distributions 
for a specific product line should be weighted equally, or whether 
borrower distributions should be weighted more heavily than the 
geographic distributions, either in general or depending on the 
performance context of the area.
Comments Received
    Many commenters offered views on the agencies' Retail Lending Test 
proposal to develop product line averages based on borrower and 
geographic distribution conclusions for each of a bank's major product 
lines in its facility-based assessment areas, retail lending areas, and 
its outside retail lending area, as applicable. These commenters 
generally addressed whether the borrower income average and geographic 
income average for a specific product line should be weighted equally, 
or whether more weight should be assigned to the borrower income 
average compared to the geographic income average.
    Comments regarding the approach to assigning a score to each 
supporting conclusion based on the proposed 10-point scale are 
summarized in the section-by-section analysis of final Sec.  __.21(e).
    Comments on calculating borrower income average and geographic 
income average. A few commenters addressed the proposed approach for 
weighting the different income or revenue categories when calculating 
the borrower income average and the geographic income average. One 
commenter expressed support for the proposed approach of weighting the 
low- and moderate-income categories based on the community benchmarks, 
stating that these weights would reflect the demographics of the 
community. Another commenter instead stated that the agencies should 
prioritize low-income borrowers and census tracts over moderate-income 
borrowers and census tracts. Another commenter stated that it is not 
appropriate to strictly weight based on the percentage of low-income 
individuals. This commenter noted that many community banks will be 
more successful targeting activity to low- and moderate-income 
geographies rather than individuals, as individuals are not pre-
screened by income level. Another commenter suggested that the agencies 
allow excellent performance in one distribution to compensate for less 
impressive performance in another.
    Comments on calculating product line averages. A number of comments 
addressed the agencies' proposal to calculate each product line average 
by weighting borrower and geographic distribution scores equally, with 
some expressing support for the proposed approach.
    Other commenters supported the proposed equal weighting generally, 
but recommended greater emphasis on the borrower distributions in 
certain circumstances, such as in rural areas and nonmetropolitan areas 
with few low- and moderate-income census tracts, or based on other 
performance context information. For example, one commenter suggested 
that in rural areas, the agencies should weight borrower distributions 
more heavily than

[[Page 6895]]

geographic distributions. Another commenter suggested that, in 
determining the weighting approach, the agencies should consider that 
many low- and moderate-income individuals cannot afford to purchase 
homes or automobiles in poor states with very low median incomes, and 
that in high-cost and high-density urban areas many low- and moderate-
income individuals live in rental housing and use public transportation 
instead of their own automobiles.
    Other commenters stated that borrower distributions should 
generally be given more weight than geographic distributions in 
determining product line averages. One commenter stated that the 
borrower distributions should be weighted more heavily than the 
geographic distributions if the intended outcome is increased access to 
lending opportunities for low- and moderate-income borrowers regardless 
of geographic boundaries. Other commenters recommended that the 
agencies weight the borrower distributions at 60 percent and the 
geographic distributions at 40 percent. One of these commenters 
asserted that employing this approach would better reflect the 
importance of lending to low- and moderate-income consumers as well as 
to low- and moderate-income communities. Some commenters stated that 
greater weighting on the borrower distribution would help to limit 
potential unintended consequences of gentrification and displacement. 
These commenters expressed that weighting the geographic distributions 
too heavily would create incentives for lending to higher-income 
borrowers in low- and moderate-income census tracts, which over time 
could result in displacement of low- and moderate-income residents. 
Another commenter noted that applying a greater weight to the borrower 
distributions would promote integration by emphasizing lending to low- 
and moderate-income individuals regardless of their location.
    Although many commenters supported weighting borrower distributions 
more heavily, one commenter indicated that the agencies should weight 
geographic distributions more heavily in rural areas and areas with few 
low- and moderate-income census tracts, citing the lower demand for 
credit and other financial services in these areas.
Final Rule
    Final Sec.  __.22(f)(4)(i) and sections V, VI, and VII of final 
appendix A provide that the agencies will calculate a product line 
score for each major product line in a Retail Lending Test Area in 
order to combine lending performance based on geographic and borrower 
distribution supporting conclusions and corresponding performance 
scores. The use of term ``product line score'' represents a clarifying 
change from the term in the proposal--``product line average''--in 
order to provide a more accurate description of what is being 
calculated, without any change in meaning from the proposal. This 
approach will serve to differentiate lending performance for each major 
product line in the same Retail Lending Test Area, providing 
transparency regarding why a bank received a particular Retail Lending 
Test recommended conclusion.
    Scoring Approach. The agencies are finalizing the proposal that 
each supporting conclusion will be associated with a performance score 
with the following point values: ``Outstanding'' (10 points); ``High 
Satisfactory'' (7 points); ``Low Satisfactory'' (6 points); ``Needs to 
Improve'' (3 points); ``Substantial Noncompliance'' (0 points). This 
scoring approach is discussed in detail in the section-by-section 
analysis of final Sec.  __.21(e).
    Calculating the geographic distribution average and borrower 
distribution average. The final rule retains the proposed approach for 
calculating a geographic distribution average and a borrower 
distribution average. The use of the terms ``geographic distribution 
average'' and ``borrower distribution average'' represent clarifying 
changes from the respective terms in the proposal--``geographic income 
average'' and ``borrower income average''--in order to provide a more 
accurate description of what is being averaged without any change in 
meaning. Each distribution average reflects the result of the 
geographic distribution analysis and borrower distribution analysis, 
respectively, and the agencies also note that the borrower distribution 
analysis does not involve ``income'' for small business loans and small 
farm loans. Accordingly, the agencies believe it is preferable not to 
use ``income'' in these terms.
    For the geographic distribution average for all product lines, the 
agencies will calculate a weighted average of the performance scores 
corresponding to the supporting conclusion for lending in designated 
census tracts: (1) the supporting conclusion for lending in low-income 
census tracts; and (2) the supporting conclusion for lending in 
moderate-income census tracts. This is illustrated in Table 29.
[GRAPHIC] [TIFF OMITTED] TR01FE24.043

    For the borrower distribution average for closed-end home mortgage 
loan and automobile loan product lines, the agencies will calculate a 
weighted average of the performance scores corresponding to lending to 
relevant

[[Page 6896]]

categories of designated borrowers: (1) the supporting conclusion for 
lending to low-income borrowers; and (2) the supporting conclusion for 
lending to moderate-income borrowers.
    For the borrower distribution average for small business loans and 
small farm loans, the agencies will likewise calculate a weighted 
average of the performance scores corresponding to lending to relevant 
categories of designated borrowers: (1) the supporting conclusion for 
lending to businesses with gross annual revenues of $250,000 or less; 
(2) the supporting conclusion for lending to businesses with gross 
annual revenues of greater than $250,000 but less than or equal to $1 
million; (3) the supporting conclusion for lending to farms with gross 
annual revenues of $250,000 or less; and (4) the supporting conclusion 
for lending to farms with gross annual revenues of greater than 
$250,000 but less than or equal to $1 million. This is illustrated in 
Table 30.
[GRAPHIC] [TIFF OMITTED] TR01FE24.044

    When calculating a weighted average of these two components, the 
weights for each component would be based on Retail Lending Test Area 
demographics, a clarifying change in terminology from the proposal's 
use of ``community benchmarks'' in order to more precisely describe the 
relevant calculations, as illustrated in Examples A-11 and A-12 in 
section VII of final appendix A. The agencies believe that the weighted 
average approach appropriately tailors the weighting approach to the 
characteristics of the Retail Lending Test Area in determining the 
weight to assign to each income or revenue category, as one commenter 
noted. Regarding the suggestion to assign greater weight to the low-
income categories rather than the moderate-income categories, the 
agencies believe this could result in a weighting approach that does 
not reflect the relative level of credit needs and opportunities among 
low-income and moderate-income borrowers and census tracts. Regarding 
the suggestion not to strictly weight in the proposed method, the 
agencies believe that it is preferable to employ a consistent, 
quantitative approach to developing product line scores, to increase 
the predictability and transparency of evaluations and to limit agency 
discretion where possible. As described below, the agencies have made 
several non-substantive technical changes to section VII of final 
appendix A to clarify and add further detail to how the weights are 
calculated for purposes of computing the geographic distribution 
average and borrower distribution average.
    Combining the geographic distribution average and borrower 
distribution average to develop a product line score. The final rule 
retains the proposed approach of combining the geographic distribution 
average and the borrower distribution average to calculate an overall 
score for each major product line. The agencies considered comments 
suggesting that they assign greater weight to the borrower income 
average than the geographic income average, but continue to believe 
that both the geographic and borrower distributions are important 
measures of how a bank is meeting its community's credit needs and that 
equal weighting ensures that both distributions are important to 
overall conclusions.
    The agencies also considered comments that the weight assigned to 
the geographic income average and borrower income average should vary 
depending on the performance context of an area. The agencies 
determined that the final rule weights for geographic distributions and 
borrower distributions will provide greater consistency and 
standardization, and that allowing the weights to vary depending on 
performance context would necessitate greater agency discretion that 
could increase complexity and increase uncertainty in evaluations. In 
addition, the agencies believe the approach of using weighted averages 
of a bank's performance in different categories of lending to calculate 
each product line score will appropriately allow somewhat stronger 
performance in certain categories of lending to compensate for somewhat 
less strong performance in other categories. The agencies believe this 
affords appropriate

[[Page 6897]]

flexibility to banks in meeting the credit needs of their community.
    Regarding comments that some nonmetropolitan areas may not have 
low- or moderate-income census tracts, the agencies note that the 
additional factor in final Sec.  __.22(g)(6) may be considered when 
determining the bank's conclusion, as discussed in the section-by-
section analysis of final Sec.  __.22(g). In addition, consistent with 
the agencies' proposal, in Retail Lending Test Areas with no low- and 
moderate-income census tracts, and hence no geographic distribution 
scores, the agencies will set the product line score equal to the 
borrower distribution average.

Using Weighted Average of Product Line Scores for Retail Lending Test 
Recommended Conclusions

Section __.22(f)(4)(ii) Combination of Performance Scores
Section __.22(f)(4)(iii) Retail Lending Test Recommended Conclusions
The Agencies' Proposal
    The agencies proposed that the Retail Lending Test recommended 
conclusion for a facility-based assessment area, retail lending 
assessment area, or outside retail lending area, as applicable, would 
be derived by taking a weighted average of all of the product line 
averages. The weight for each product line average would be the 
percentage of the dollar volume of originations and purchases of that 
product line for the bank in a facility-based assessment area, retail 
lending assessment area, or outside retail lending area. This 
percentage would be calculated out of the total dollar volume of 
originations and purchases from all product lines for the bank in that 
facility-based assessment area, retail lending assessment area, or 
outside retail lending area.\951\ The agencies believed that this 
approach would give proportionate weight to a bank's product offerings, 
with more prominent product lines, as measured in dollars, having more 
weight on the bank's overall conclusion in an assessment area.\952\
---------------------------------------------------------------------------

    \951\ See proposed appendix A, paragraphs V.c and V.d.
    \952\ 87 FR 33884, 33947 (June 3, 2022).
---------------------------------------------------------------------------

    The agencies believed that pursuant to this approach, the Retail 
Lending Test would be tailored to individual bank business models, as 
evaluations would be based on the lending a bank specializes in 
locally. Moreover, the agencies believed that weighting product lines 
by the dollar volume of lending recognizes the continued importance of 
home mortgage lending and small business lending to low- and moderate-
income communities, which has been a focus of the CRA, while also 
accounting for the importance of consumer loans to low- and moderate-
income individuals. The agencies requested feedback on whether loan 
count should be used in conjunction with, or in place of, dollar volume 
in weighting product line conclusions to determine the Retail Lending 
Test recommended conclusion, and corresponding performance score, in a 
facility-based assessment area, retail lending assessment area, or 
outside retail lending area.
Comments Received
    A number of commenters addressed the agencies' proposal for 
combining a bank's product line averages for each major product line to 
determine its Retail Lending Test recommended conclusion for each 
facility-based assessment area, retail lending assessment area, or 
outside retail lending area. Commenters on this topic responded to the 
agencies' request for feedback on whether the weight assigned to each 
product line average should be based on the dollar volume of loans in 
each product line, the number of loans in each product line, or a 
combination of the two. Nearly all commenters on this topic favored 
some form of consideration for retail loan counts in weighting product 
line averages to determine the Retail Lending Test recommended 
conclusion in a facility-based assessment area, retail lending 
assessment area, or outside retail lending area.
    Concerns with proposed approach. A number of commenters expressed 
concerns regarding the proposed approach of weighting product line 
averages solely based on the dollar volume of loans within each product 
line, with some expressing support for weighting based on the number of 
loans. One commenter indicated that using dollar volume alone would 
give less impact to lending activity in rural areas where home values 
are lower. Other commenters stated that the agencies' proposal would 
disadvantage banks that are meeting low- and moderate-income credit 
needs by originating more small-dollar loans. For example, one 
commenter asserted that the agencies' proposed weighting approach 
contradicted the CRA's purpose of focusing on low- and moderate-income 
lending by overemphasizing large- dollar closed-end home mortgage 
loans. Other commenters expressed a related concern that the proposed 
approach would underweight small business lending and consumer lending, 
given that small business loans and consumer loans are generally 
smaller in dollar value than home mortgage loans.
    Alternative of weighting by combination of loan dollars and loan 
count. A number of commenters recommended basing the weight assigned to 
each product line average on a combination of the dollar amount and 
number of loans in each product line. A few commenters suggested that, 
under such an approach, smaller transactions could receive more weight 
in the distribution analysis, including small- dollar home mortgage 
loans. Another commenter stated that this approach would better account 
for the differences in the impact of a bank's lending across 
communities. For example, this commenter noted that even a relatively 
small number of loans could have substantial impact in communities with 
unmet credit needs. Other commenters emphasized that this approach 
would recognize bank lending that serves more consumers and businesses, 
as well as variations across different lending products. Another 
commenter tentatively supported (citing lack of visibility into the 
issue) using a combination of dollar volume and loan count because the 
approach would otherwise assign too much weight to home mortgage 
lending.
    Alternative of weighting solely by loan count. A number of 
commenters cautioned against an alternative approach of weighting 
product lines scores solely based on the number of loans in each 
product line, without considering dollar volume. One commenter stated 
that this alternative could result in overemphasizing small business 
loans and credit card loans in the Retail Lending Test evaluation. 
Another commenter asserted that weighting product line averages by loan 
counts only would incorrectly discount the potential contribution of 
larger dollar loans made in areas with few opportunities.
    Other alternative weighting approaches. A few commenters offered 
other alternative weighting methodologies. For example, one commenter 
indicated that if the agencies retained the proposed dollar volume 
weighting approach, they should also apply a multiplier to lower dollar 
value categories, such as automobile lending and other consumer 
lending, to increase parity among different types of retail lending 
products. Additionally, a commenter suggested the weighting should 
provide approximately a 40 percent-40 percent-20 percent weighting to 
home mortgage lending, small business lending, and consumer lending

[[Page 6898]]

respectively, and suggested that the agencies use data to determine if 
this type of result is best achieved by dollar volume alone or dollar 
volume in combination with loan count. Further, this commenter 
expressed that weighting by loan count would equalize loans made to 
low- and moderate-income borrowers and more affluent borrowers that 
often have larger dollar home mortgage loans. However, in cases in 
which a bank has a very high volume of small-dollar consumer loans in 
combination with sizable numbers of home mortgage loans and small 
business loans, the commenter suggested that a combination of dollar 
amount and loan counts may better prioritize home mortgage lending and 
small business lending.
Final Rule
    As provided in final Sec.  __.22(f)(4)(ii) and (iii) and in section 
VII of final appendix A, with the exception of a facility-based 
assessment area of a large bank in which it lacked an acceptable basis 
for not meeting the Retail Lending Volume Threshold,\953\ the agencies 
will develop a Retail Lending Test recommended conclusion for each 
Retail Lending Test Area by calculating an average of the product line 
scores that the bank received on each of its major product lines in 
that Retail Lending Test Area. These product line scores are based on 
combining the performance scores for each supporting conclusion for 
each major product line. As noted above, the use of the term ``product 
line score'' rather than the term used in the proposal--``product line 
average''--is a clarifying change intended to provide a more accurate 
description of what is being calculated without any change in meaning.
---------------------------------------------------------------------------

    \953\ See final Sec.  __.22(c)(3)(iii)(A).
---------------------------------------------------------------------------

    Based on agency consideration of related comments, the final rule 
weights each product line score based on a combination of loan dollars 
and loan count associated with the product line, in contrast to the 
proposed approach of weighting each product line score solely by dollar 
amount. For example, if a major product line contained 50 percent of a 
bank's loans in a Retail Lending Test Area in dollar amount and 30 
percent of a bank's loans in that area in loan count then the weight 
assigned to the product line score would be 40 percent. In reaching 
this determination, the agencies believe that the final rule approach 
would appropriately consider both the dollar amount of credit extended 
as well as the number of borrowers served. The agencies recognize that 
both dollar amount and loan count are important aspects of how a bank 
meets the credit needs of a community. The agencies considered comments 
that such an approach would assign relatively greater weight to product 
lines with large loan counts and small loan amounts, compared to the 
proposed approach. Some commenters suggested that this may be 
especially important for small business lending because small business 
loans could have smaller loan amounts than closed-end home mortgage 
loans, on average, depending on a bank's strategy and product 
offerings. Although use of the combination of loan dollars and loan 
count involves somewhat more complex calculations than the proposed 
approach, the agencies believe that the benefits of the final rule, in 
terms of additional equity among major product lines, merit 
incorporating that additional complexity.
    The weighted average of all product line scores is converted into a 
Retail Lending Test Area Score. The use of the term ``Retail Lending 
Test Area Score'' rather than the term in the proposal--``geographic 
product average''--is both intended to more accurately describe what is 
being calculated and also to reduce potential confusion with the term 
``product line score.''
    Consistent with the proposed approach, the agencies will then 
develop a Retail Lending Test recommended conclusion corresponding with 
the conclusion category that is nearest to the Retail Lending Test Area 
Score, as follows: ``Outstanding'' (8.5 or more); ``High Satisfactory'' 
(6.5 or more but less than 8.5); ``Low Satisfactory'' (4.5 or more but 
less than 6.5); ``Needs to Improve'' (1.5 or more but less than 4.5); 
``Substantial Noncompliance'' (less than 1.5).\954\
---------------------------------------------------------------------------

    \954\ See also the section-by-section analysis of final Sec.  
__.28.
---------------------------------------------------------------------------

Section __.22(g) Additional Factors Considered When Evaluating Retail 
Lending Performance

    As provided in final Sec.  __.22(g), the agencies are finalizing 
their proposal, with certain clarifying, substantive, and technical 
changes, regarding consideration of additional factors when assigning a 
bank's Retail Lending Test conclusions.\955\ The seven additional 
factors in the final rule account for circumstances in which the 
prescribed metrics may not accurately or fully reflect a bank's lending 
distributions or in which the benchmarks may not appropriately 
represent the credit needs and opportunities in an area. The agencies 
will consider these additional factors in determining a bank's Retail 
Lending Test conclusions, in addition to the bank's recommended 
conclusion and performance context information in final Sec.  __.21(d), 
as described in final Sec.  __.22(h)(1)(ii) and in paragraph VII.d of 
final appendix A.
---------------------------------------------------------------------------

    \955\ See supra note 145.
---------------------------------------------------------------------------

    As described further below, final Sec.  __.22(g) adopts the four 
proposed additional factors, with certain clarifying and technical 
changes, as well as three other additional factors.
    Furthermore, pursuant to final Sec.  __.22(g), certain additional 
factors will be considered when evaluating a bank's performance in, as 
applicable, its retail lending assessment areas and its outside retail 
lending area --and not solely, as proposed, when evaluating the bank's 
performance in its facility-based assessment areas.
The Agencies' Proposal
    The agencies proposed to consider certain additional factors that 
are indicative of a bank's lending performance or lending 
opportunities, but which are not captured in the metrics and 
benchmarks, when reaching Retail Lending Test conclusions for facility-
based assessment areas.\956\ Specifically, in proposed Sec.  __.22(e), 
the agencies provided that in addition to considering how a bank 
performs relative to the Retail Lending Volume Threshold described in 
proposed Sec.  __.22(c) and the performance ranges described in 
proposed Sec.  __.22(d), the agencies would evaluate the retail lending 
performance of a bank in each facility-based assessment area by 
considering four additional factors. These factors could inform the 
agencies adjusting upward or downward a Retail Lending Test recommended 
conclusion in a facility-based assessment area:
---------------------------------------------------------------------------

    \956\ See proposed Sec.  __.22(e).
---------------------------------------------------------------------------

     Information indicating that a bank has purchased retail 
loans for the sole or primary purpose of inappropriately influencing 
its retail lending performance evaluation, including but not limited to 
subsequent resale of some or all of those retail loans or any 
indication that some or all of the loans have been considered in 
multiple banks' CRA evaluations; \957\
---------------------------------------------------------------------------

    \957\ See proposed Sec.  __.22(e)(1).
---------------------------------------------------------------------------

     The dispersion of retail lending within the facility-based 
assessment area to determine whether there are gaps in lending not 
explained by performance context; \958\
---------------------------------------------------------------------------

    \958\ See proposed Sec.  __.22(e)(2).
---------------------------------------------------------------------------

     The number of banks whose reported retail lending and 
deposits data is used to establish the applicable Retail Lending Volume 
Threshold, geographic

[[Page 6899]]

distribution thresholds, and borrower distribution thresholds; \959\ 
and
---------------------------------------------------------------------------

    \959\ See proposed Sec.  __.22(e)(3).
---------------------------------------------------------------------------

     Missing or faulty data that would be necessary to 
calculate the relevant metrics and benchmarks or any other factors that 
prevent the agencies from calculating a recommended conclusion.\960\
---------------------------------------------------------------------------

    \960\ See proposed Sec.  __.22(e)(4).
---------------------------------------------------------------------------

    The agencies sought feedback on whether to consider a different or 
broader set of additional factors than those reflected in proposed 
Sec.  __.22(e), including oral or written comments about a bank's 
retail lending performance, as well as the bank's responses to those 
comments, in developing Retail Lending Test conclusions.
    The agencies also sought feedback on whether to engage in ongoing 
analysis of HMDA data to identify banks that appear to engage in 
significant churning of home mortgage loans. Additionally, the agencies 
sought feedback regarding whether evidence of loan churning should be 
considered as an additional factor in evaluating a bank's retail 
lending performance.
    Additionally, the agencies sought feedback on whether the 
distribution of retail lending in distressed and underserved census 
tracts should be considered qualitatively.
    The agencies also requested feedback on whether to identify 
assessment areas where lenders may be underperforming in the aggregate 
and the credit needs of substantial parts of the community are not 
being met. The agencies would consider additional information to 
account for the possibility that the market benchmarks for the area may 
underestimate the credit needs and opportunities of the area. The 
agencies suggested that one manner in which they could identify such 
assessment areas would be by developing statistical models that 
estimate the level of the market benchmark that would be expected in 
each assessment area based on its demographics, such as income 
distributions or household compositions, as well as housing market 
conditions and economic activity. In seeking feedback on this approach, 
the agencies also suggested that a model could be constructed using 
data at the census tract or county level that are collected nationwide, 
and that an assessment area in which market benchmarks fell 
significantly below their expected levels could be considered 
underperforming for the relevant product line, distribution test, and 
income level.
    Finally, the agencies sought feedback on whether to consider other 
factors, such as oral or written comments about a bank's retail lending 
performance, as well as the bank's responses to those comments, in 
developing Retail Lending Test conclusions. Additionally, the agencies 
suggested that they could identify underperforming markets using a 
relative standard or an absolute standard. Finally, the agencies 
suggested that, rather than designating a specific set of 
underperforming markets, they could use the difference between the 
actual and expected market benchmarks as an additional factor to 
consider in every assessment area.
Comments Received
    Comments on proposed Sec.  __.22(e) generally addressed: whether to 
consider information indicating that a bank has purchased retail loans 
for the sole or primary purpose of inappropriately influencing its 
retail lending performance; whether and how markets in which lenders 
overall are underperforming in meeting community credit needs should be 
factored into the evaluation of bank performance; and whether the 
agencies should consider other factors regarding a bank's retail 
lending performance that were not proposed, such as oral or written 
comments about the bank's performance and the bank's responses to those 
comments.
    Purchased retail loans for the sole or primary purpose of 
inappropriately enhancing retail lending performance. The agencies 
received numerous comments regarding the proposed additional factor 
allowing for adjustment of a Retail Lending Test recommended conclusion 
based on ``information indicating that a bank has purchased retail 
loans for the sole or primary purpose of inappropriately influencing 
its retail lending performance evaluation, including but not limited to 
subsequent resale of some or all of those retail loans or any 
indication that some or all of the loans have been considered in 
multiple banks' CRA evaluations.''
    As described in the introduction to the section-by-section analysis 
of final Sec.  __.22, numerous commenters opposed consideration of 
purchased loans in the retail lending distribution analysis under the 
Retail Lending Test or recommended limiting consideration of purchased 
loans to specific types or purchased loans or specific circumstances.
    In addition, several commenters expressed that the proposed 
additional factor was vague and would leave examiners with too much 
discretion to determine when retail loans were purchased solely or 
primarily for the purpose of inappropriately influencing the bank's 
retail lending performance evaluation. A few commenters recommended 
that the agencies establish a series of presumptions that would enable 
a bank to establish that its retail loan purchases do not meet the 
proposed additional factor. For example, a commenter suggested that a 
bank that sells loans extended to low- and moderate-income borrowers at 
the same rate that it sells loans extended to middle- and upper-income 
borrowers, should be presumed to not be engaged in activity that meets 
the proposed additional factor. Another commenter suggested that the 
agencies should impose a more stringent standard on large banks to 
prevent them from repeatedly purchasing and selling retail loans 
amongst one another to meet their CRA obligations; however, this 
commenter further stated that the agencies should balance the need for 
liquidity with the potential for repeated loan purchases by banks.
    Several commenters suggested the agencies impose seasoning 
requirements where a bank must hold a particular loan for a certain 
time period to receive CRA consideration. Commenters varied on the 
suggested length of a seasoning period, ranging from 30 days to one 
year. In contrast, another commenter opposed any seasoning requirements 
because of the added liquidity and interest rate risk.
    Alternatively, some commenters recommended that certain purchased 
retail loans should not be deemed to be inappropriately influencing a 
bank's Retail Lending Test performance evaluation. For example, a few 
commenters stated that the purchase of retail loans from a community 
organization should never reflect poorly on a bank because these loan 
purchases effectively double such organizations' lending capacity. 
Another commenter stated that loans originated then sold to a housing 
finance agency or similar organization in connection with affordable 
housing programs should not be considered as inappropriately 
influencing a bank's Retail Lending Test performance evaluation, as 
these programs rely on correspondent lenders.
    A few commenters opposed inclusion of this proposed additional 
factor in Sec.  __.22(e)(1), asserting that it would be difficult to 
discern a bank's motive for purchasing loans, and that, regardless of a 
bank's purpose, purchased loans can create liquidity and have a 
positive impact on low- and moderate-income borrowers and communities. 
A few other commenters recommended that, if

[[Page 6900]]

this proposed additional factor is retained in the final rule, the 
agencies include in the regulatory text an explicit statement that 
purchased loans would not result in any penalty for banks under the 
Retail Lending Test absent clear evidence that the purchases met the 
additional factor.
    Lenders overall underperforming in meeting community credit needs 
of facility-based assessment areas. A few commenters supported the 
identification of facility-based assessment areas in which lenders in 
the aggregate are underperforming such that the market benchmarks are 
too low. These commenters supported the agencies creating a statistical 
model to identify those underperforming facility-based assessment areas 
or to calculate the predicted market benchmark.
    These commenters also raised points related to how to adopt or 
implement an additional factor that identifies facility-based 
assessment areas in which lenders in the aggregate are underperforming 
in meeting community credit needs. Another commenter suggested that 
after identifying such facility-based assessment areas with market 
benchmarks that are significantly lower than predicted by statistical 
models, the agencies could adjust impact factors to incentivize bank 
lending in these assessment areas. Another commenter stated that the 
agencies should consider this information as a factor in favor of 
adjusting banks' Retail Lending Test conclusions downwards in such 
facility-based assessment areas. This commenter suggested this approach 
would incentivize banks to improve their retail lending performance 
there. A commenter encouraged the agencies to implement a methodology 
to identify areas in which lenders in the aggregate are underperforming 
in meeting community credit needs, and recommended adjusting the 
borrower and geographic performance thresholds upwards in those areas. 
A different commenter raised concerns about how the agencies would 
determine that lenders in the aggregate are underperforming in an area. 
A commenter asserted that it would be difficult to identify these areas 
by comparing peer lenders alone; instead, the commenter recommended 
identifying facility-based assessment areas where market benchmarks are 
significantly lower than the predicted market benchmarks based on 
statistical models. Relatedly, a commenter encouraged the agencies to 
conduct further empirical research to identify underperforming markets 
based on the divergence between actual and predicted market benchmarks. 
This commenter recommended that, to motivate banks to better meet 
communities' retail lending needs, the agencies should use the 
predicted market benchmarks for evaluating banks' retail lending 
performance in the worst quartile of underperforming markets, and in 
the second worst quartile they should use a weighted average of the 
actual market benchmarks and the predicted market benchmarks.
    Some commenters recommended specific information that the agencies 
should consider when identifying underperforming markets. For example, 
a commenter recommended that the agencies consider similarly sized 
markets based on population, gross domestic product, and total number 
of businesses, and other variables that would allow facility-based 
assessment area comparisons in order to identify underperforming 
markets. This commenter supported defining an underperforming market as 
those markets measured at 65 percent or less of the expected value of 
the market benchmark--the same threshold as the proposed Retail Lending 
Test community benchmark for ``Low Satisfactory'' performance. Another 
commenter asserted that when identifying facility-based assessment 
areas in which lenders may be underperforming in the aggregate the 
agencies should employ factors not captured in the Retail Lending Test 
metrics and benchmarks; this commenter indicated that such factors 
could include consideration of the prevalence of alternative financing 
in a market, such as land contracts and rent-to-own arrangements, and 
low levels of small-dollar home mortgage lending in a market. In 
addition, a commenter asserted that the agencies should work with 
relevant stakeholders to develop data points to identify and model 
underperforming markets. This commenter also noted that some 
underperformance may be driven by a lack of demand for home mortgage 
lending and small business lending, noting that, for example, low- and 
moderate-income consumers might elect to rent housing in markets with 
high home prices.
    A few commenters that agreed there is a potential for the market 
benchmarks to be artificially low as a result of collective 
underperformance also acknowledged the challenges associated with 
identifying these markets and developing a solution. For example, a 
commenter sought clarification on how appropriately identifying 
underperforming markets could counter the possibility that the market 
benchmarks might be set too low in some facility-based assessment 
areas, and others suggested the agencies should propose a solution for 
public comment.
    Oral and written comments about a bank's retail lending 
performance. Most commenters addressing this issue expressed support 
for the agencies considering other factors, such as oral and written 
comments submitted about a bank's retail lending performance and the 
bank's responses to those comments, in developing Retail Lending Test 
conclusions. A commenter noted that the agencies currently consider 
written comments in a bank's public file regarding its retail lending 
and other CRA performance. In addition to submitted oral and written 
comments, other commenters suggested that the agencies consider any 
comments or complaints housed in other Federal repositories, and bank 
responses to stakeholder questions and comments, into their Retail 
Lending Test conclusions.
    Some commenters addressed the effect that should be given to oral 
and written comments regarding a bank's retail lending performance. A 
commenter suggested the agencies should issue draft CRA performance 
evaluations that identify the weight and consideration given to certain 
comments versus others. This commenter also said banks should be given 
the opportunity to review and rebut comments considered by the 
agencies. Similarly, other commenters emphasized that disclosing 
whether a Retail Lending Test conclusion was adjusted up or down based 
on feedback would incentivize stakeholder input and encourage banks' 
accountability to the public. A commenter suggested that the agencies' 
community affairs teams should combine any submitted oral and written 
comments with data, news articles, and other research for examiners to 
develop Retail Lending Test conclusions. This commenter added that it 
was imperative that the agencies clearly explain how Retail Lending 
Test adjustments might be made based upon community affairs teams' 
input.
    On the other hand, a commenter stated that the agencies should only 
consider written comments required to be included in a bank's CRA 
public file in developing Retail Lending Test conclusions to limit the 
potential effect of social media posts and other potentially spurious 
claims. Although acknowledging the value of community input, the 
commenter suggested this value must be balanced with the subjectivity 
of comments and the risk of creating an inaccurate representation of

[[Page 6901]]

a bank's performance. This commenter highlighted the need for examiner 
training and suggested that examiners should only consider written 
comments where a bank has been given a reasonable opportunity to 
respond.
    Evaluation of performance in distressed and underserved middle-
income census tracts for banks with few or no low- and moderate-income 
census tracts. Commenters on this topic generally supported including a 
quantitative evaluation of the geographic distribution of retail 
lending in distressed and underserved middle-income census tracts for 
banks with few or no low- and moderate-income census tracts in their 
assessment areas. For example, commenters noted the importance of this 
approach to rural areas and nonmetropolitan areas, where poverty may 
exist outside of low- and moderate-income census tracts. A commenter 
noted that, primarily in rural areas, treating distressed and 
underserved census tracts like low- or moderate-income tracts would be 
preferable to conducting a qualitative review of these tracts. Another 
commenter suggested that evaluating bank activities in distressed and 
underserved middle-income census tracts would better help address 
gentrification relative to the current CRA regulations. A commenter 
indicated that the agencies should assess whether in rural areas with 
few low- and moderate-income census tracts including distressed and 
underserved middle-income census tracts, would truly increase the 
number of census tracts in which a bank could receive credit for 
lending within the geographic distribution analysis. This commenter 
added that the agencies' proposal regarding delineation of retail 
lending assessment areas in the nonmetropolitan areas of States might 
result in an overall sufficient number of low- and moderate-income 
census tracts in those assessment areas for a geographic distribution 
analysis. Relatedly, another commenter suggested that in assessment 
areas containing few or no low- and moderate-income census tracts, 
examiners could compare the median income in a given census tract to 
the state median income to determine whether a census tract was 
distressed or underserved during the evaluation period.
Final Rule
    Additional factors, in general. The agencies continue to believe 
that the Retail Lending Test evaluation should include additional 
factors for consideration when determining Retail Lending Test 
conclusions for Retail Lending Test Areas. These additional factors and 
their application to the Retail Lending Test are provided in final 
Sec.  __.22(g) and (h)(1)(ii), and in paragraph VII.d of final appendix 
A.
    The agencies have made substantive and technical changes in final 
Sec.  __.22(g). First, to clarify the role of the additional factors in 
the Retail Lending Test, the introductory text to final Sec.  __.22(g) 
states that the additional factors, as appropriate, inform the 
agencies' determination of a bank's Retail Lending Test conclusion for 
each Retail Lending Test Area. The agencies intend the included 
language ``inform the [Agency]'s determination of a bank's Retail 
Lending Test conclusion'' to be a clarifying change from the proposal 
that more explicitly links the additional factors to the determination 
of Retail Lending Test conclusions. In contrast, proposed Sec.  
__.22(e) did not specifically refer to the determination of conclusions 
in the introductory text. Additionally, although the proposed 
introductory text stated that the additional factors may apply in 
evaluating a bank's performance in facility-based assessment areas, the 
final rule does not maintain this limitation. Instead, certain 
additional factors may apply in, as applicable, a bank's facility-based 
assessment areas, retail lending assessment areas, and outside retail 
lending area, as discussed below.
    The additional factors included in final Sec.  __.22(g) allow the 
agencies to account for circumstances in which the prescribed metrics 
in final Sec.  __.22(e) may not accurately or fully reflect a bank's 
lending distributions or in which the benchmarks may not appropriately 
represent the credit needs and opportunities in the area. The agencies 
believe that it is preferable to state as specifically as possible the 
circumstances in which the agencies may assign a Retail Lending Test 
conclusion that is different from the Retail Lending Test recommended 
conclusion. Specifying these circumstances is intended to increase the 
consistency and certainty of Retail Lending Test evaluations, compared 
to an alternative in which such circumstances are unspecified and are 
left entirely to examiner discretion.
    As discussed in the section-by-section analysis of final Sec. Sec.  
__.21(d) and __.22(h), the agencies will also consider performance 
context factors when assigning Retail Lending Test conclusions. As in 
the proposal, pursuant to final Sec.  __.21(d), performance context 
related to a bank's retail lending performance that is not reflected in 
the distribution analysis can inform Retail Lending Test conclusions. 
For example, the agencies could consider a bank's past performance and 
safety and soundness limitations.
    The final rule maintains, with certain clarifying and substantive 
changes discussed below, the four proposed additional factors. In 
consideration of comments received and additional agency analysis, the 
agencies have also added three new additional factors to final Sec.  
__.22(g), relating to consideration of: (1) major product lines in 
retail lending assessment areas and outside retail lending areas with 
fewer than 30 loans; (2) lending in distressed or underserved 
nonmetropolitan middle-income census tracts where a bank's facility-
based assessment area or retail lending assessment area includes very 
few or no low- and moderate-income census tracts; and (3) retail 
lending assessment areas and facility-based assessment areas where 
lenders in the aggregate are underperforming.
Section __.22(g)(1)
    Pursuant to final Sec.  __.22(g)(1), the agencies may consider 
information indicating that a bank purchased closed-end home mortgage 
loans, small business loans, small farm loans, or automobile loans for 
the sole or primary purpose of inappropriately enhancing its retail 
lending performance, including, but not limited to, information 
indicating subsequent resale of such loans or any indication that such 
loans have been considered in multiple banks' CRA evaluations, in which 
case the agencies do not consider such loans in the bank's performance 
evaluation.
    The agencies have incorporated clarifying changes into this 
additional factor. For clarity, the final rule specifies that this 
factor applies to the distribution analyses of closed-end home mortgage 
loans, small business loans, small farm loans, and automobile loans--
rather than simply ``retail loans,'' as stated in the proposal. For 
additional clarity and specificity regarding the concept of a bank 
seeking to purchase loans in order to inappropriately improve its 
conclusions and ratings, the agencies have also changed the standard 
from a bank ``inappropriately influencing,'' as provided in the 
proposal, to a bank ``inappropriately enhancing'' its retail lending 
performance.
    The final rule provides that if the agencies have determined that 
certain lending meets this additional factor, then the agencies will 
not consider those loans in a bank's performance evaluation. The 
agencies believe this provision gives appropriate additional

[[Page 6902]]

detail regarding how this additional factor will be applied, and is 
consistent with the discussion in the agencies' proposal that the 
additional factor would be used to adjust conclusions when there is 
evidence of inappropriate loan purchasing activity. The agencies 
believe that exclusion of such loans from the distribution analysis is 
appropriate because loans that a bank purchases and quickly resells for 
the sole or primary purpose of inappropriately enhancing the bank's 
evaluation may distort the distribution analysis and are not responsive 
to community credit needs.
    In determining whether inappropriate purchasing activity has 
occurred, the agencies may consider a number of factors, including: (1) 
the bank's business strategy; (2) the timing of the purchases; (3) the 
timing of the resale of these loans relative to the purchases; and (4) 
the materiality of the purchases to the bank's Retail Lending Test 
recommended conclusion.
    Additionally, the final rule does not limit application of this 
additional factor to a bank's facility-based assessment areas, as was 
proposed. Rather, the additional factor may also be considered in, as 
applicable, a bank's retail lending assessment areas and its outside 
retail lending area. The agencies believe that this flexibility is 
appropriate because inappropriate purchasing activity is not 
necessarily restricted to a bank's facility-based assessment areas.
    In determining to include an additional factor addressing certain 
purchased loans that may inappropriately enhance a bank's recommended 
conclusion, the agencies considered commenter feedback regarding the 
potential benefits and tradeoffs of such a factor, including concerns 
from some commenters about the potential for multiple banks to receive 
CRA consideration for the same loans. The agencies believe that the 
additional factor in final Sec.  __.22(g)(1) will help to account for 
certain loan purchase activity that is not responsive to community 
credit needs, and will support a robust distribution analysis without 
removing purchased loans from the distribution analysis.
    The agencies also considered comments that this additional factor 
may create uncertainty due to a lack of clear standards regarding when 
purchased loans would be deemed to be inappropriately enhancing a 
bank's evaluation. The agencies believe that it is appropriate to 
define this factor with sufficient flexibility to apply to different 
ways that a bank could potentially purchase loans to inappropriately 
enhance its evaluation. However, as discussed above, the agencies 
expect that this factor will be applied rarely. At the same time, the 
agencies believe that this factor is important for ensuring a robust 
distribution analysis in the rare instances in which it would be 
applied.
    The agencies also believe that inclusion of this factor will not 
deter banks from purchasing loans for other reasons. The agencies will 
not apply this additional factor in instances where a bank has a 
business strategy of purchasing loans, for example, as a way of 
providing liquidity to originating lenders that lack secondary market 
access or purchasing distressed closed-end home mortgage loans from 
Ginnie Mae servicers. However, the agencies may, for example, consider 
this factor in the case of a bank that purchases 100 small business 
loans that it sells immediately or shortly after the close of the 
evaluation period, if the bank otherwise routinely purchases one or two 
small business loans each month during an evaluation period.
    Regarding whether to analyze HMDA data to identify banks and Retail 
Lending Test Areas that have suspicious purchase activity, the agencies 
believe that such an analysis could facilitate targeted consideration 
in support of the additional factor in final Sec.  __.22(g)(1). If this 
analysis identified any bank Retail Lending Test Areas with suspicious 
purchase activity, the agencies would review those purchases more 
closely.
    Regarding the suggestion that the agencies establish a series of 
presumptions that would enable a bank to establish that its retail loan 
purchases do not reflect inappropriate loan purchasing activity, the 
agencies believe that the evaluation of retail loan purchases and 
whether they reflect inappropriate loan purchasing activity are best 
handled on a case-by-case basis, given the flexibility of final Sec.  
__.22(g)(1) as a qualitative additional factor.
    Relatedly, the agencies decline to adopt in the final rule a 
minimum holding period after which a purchased loan would no longer be 
considered an inappropriately purchased loan. The agencies are 
sensitive to the possibility that imposing a minimum holding period 
(e.g., from 30 days to one year, as suggested by commenters) may 
increase liquidity and interest rate risk. In addition, the agencies 
believe that not satisfying a minimum holding period does not 
necessarily indicate that a loan was purchased to inappropriately 
enhance a bank's performance evaluation. For example, a bank may 
purchase a loan from an originating lender that lacks secondary market 
access and then relatively shortly thereafter sell that loan to a 
government-sponsored enterprise, providing liquidity for the 
originating lender to make further loans, which would not constitute 
inappropriate loan purchasing activity. Finally, the agencies note that 
they face data limitations that would prevent consistent application of 
a minimum holding period, since this information is not consistently 
available to the agencies.
    For the reasons stated above, the agencies believe that final Sec.  
__.22(g)(1) appropriately addresses concerns about inappropriate loan 
purchasing activity in a manner that will serve to discourage 
intentional manipulation of a bank's CRA evaluation through loan 
purchases while more generally including loan purchases in the Retail 
Lending Test analysis.
Section __.22(g)(2)
    Final Sec.  __.22(g)(2) includes a provision that the agencies may 
consider the dispersion of a bank's closed-end home mortgage, small 
business, small farm, or automobile lending within a facility-based 
assessment area to determine whether there are gaps in lending that are 
not explained by performance context. For example, under this 
additional factor, a Retail Lending Test recommended conclusion may be 
lowered where geographic lending patterns exhibit gaps in low- or 
moderate-income census tracts that cannot be explained by performance 
context.
    The agencies believe that this factor is necessary because the 
geographic distribution analysis in facility-based assessment areas is 
conducted on an aggregate basis across an entire facility-based 
assessment area, and does not consider whether there are gaps in a 
bank's lending in certain census tracts. For example, this factor may 
be considered if a bank has a substantial number of loans in all census 
tracts within a facility-based assessment area except for several 
contiguous low- and moderate-income census tracts in the center of the 
facility-based assessment area in which the bank made zero loans, 
despite there being credit needs and opportunities in those census 
tracts as demonstrated by loans made by other lenders.
    This additional factor is consistent with the current CRA 
regulations,\961\ in which the agencies may evaluate the extent to 
which a bank is serving geographies in each income category

[[Page 6903]]

and whether there are conspicuous gaps unexplained by performance 
context. Consistent with current practice, the agencies note that banks 
are not required to lend in every census tract in a facility-based 
assessment area, and that performance context may explain why a bank 
was not able to serve one or more census tracts.
---------------------------------------------------------------------------

    \961\ See, e.g., current 12 CFR __.22(b).
---------------------------------------------------------------------------

    Consistent with the proposal, the agencies will apply this factor 
only in facility-based assessment areas. The agencies have determined 
that this additional factor is best applied to facility-based 
assessment areas because the dispersion analysis can take into account 
where the bank's deposit-taking facilities are located.
    The final rule includes a conforming change to precisely reference 
applicable loan categories, specifying that this additional factor 
applies to reviews of closed-end home mortgage, small business, small 
farm, and automobile lending--rather than simply to reviews of ``retail 
loans,'' as provided in the proposal. The agencies note that these 
products are the potential Retail Lending Test major product lines that 
may be included in a distribution analysis, and that open-end home 
mortgage loans and multifamily loans will not be evaluated using a 
distribution analysis pursuant to the Retail Lending Test, as discussed 
further in the section-by-section analysis of final Sec.  __.22(d).
Section __.22(g)(3)
    Consistent with the proposal, final Sec.  __.22(g)(3) provides, 
with some technical edits, that the agencies may consider the number of 
lenders whose reported home mortgage loans, multifamily loans, small 
business loans, and small farm loans and deposits data are used to 
establish the applicable Retail Lending Volume Threshold, geographic 
distribution market benchmarks, and borrower distribution market 
benchmarks. Specifically, the agencies believe that where there are 
very few banks reporting lending and deposits data, or where one bank 
has an outsized market share, the benchmarks may not provide an 
accurate measure of local opportunities. For example, in a facility-
based assessment area where a bank's closed-end home mortgage loans are 
a major product line and no other lenders have a meaningful number of 
closed-end home mortgage loans it may be nearly impossible for the bank 
to meaningfully exceed the market benchmark, because the market 
benchmark in this instance would be almost entirely based on the bank's 
own lending. In such a scenario, the agencies may consider, for 
example, the bank's performance relative to the community benchmark as 
well as performance context factors to determine the bank's conclusion.
    The agencies made a conforming change to replace ``retail lending'' 
with the more specific lending that would be included: home mortgage 
lending (i.e., closed-end home mortgage lending and open-end home 
mortgage lending), multifamily lending, small business lending, and 
small farm lending--rather than simply ``retail lending,'' as provided 
in the proposal.
    The agencies are also clarifying that this additional factor 
relates to geographic distribution benchmarks and borrower distribution 
benchmarks--rather than ``geographic distribution, and borrower 
distribution thresholds,'' as provided in the proposal. The agencies 
made this change because both the proposed and final rule Retail 
Lending Test approach includes geographic and borrower distribution 
``benchmarks,'' and does not use the term ``thresholds'' to refer to 
these evaluation criteria.
    Additionally, the final rule provides that this additional factor 
is based on the number of ``lenders'' rather than the number of 
``banks'' whose data is used in the Retail Lending Test calculations. 
The geographic distribution and borrower distribution market benchmarks 
include all lenders in an area, and may not be limited to banks, 
depending on the specific data sources used for these analyses. The 
agencies believe that considering all reporting lenders as part of this 
additional factor is appropriate because it is possible that an area 
may have a sufficient number of lenders to calculate reliable market 
benchmarks even if only one or two of those lenders are banks.
    Final Sec.  __.22(g)(3) expands the application of this additional 
factor from solely a bank's facility-based assessment areas, as 
proposed, to also include, as applicable, its retail lending assessment 
areas and its outside retail lending area. This change accounts for 
potential circumstances in which a bank has a retail lending assessment 
area or outside retail lending area in which there are few or no other 
lenders, which may make the geographic and borrower distribution 
benchmarks less robust. For example, the hypothetical provided above 
for a facility-based assessment area could also occur in a retail 
lending assessment area in which a bank is the only lender that 
originated loans in a certain product line during the evaluation 
period.
Section __.22(g)(4)
    Consistent with the proposal, final Sec.  __.22(g)(4) provides that 
the agencies may consider missing or faulty data that would be 
necessary to calculate the relevant metrics and benchmarks or any other 
factors that prevent the agencies from calculating a Retail Lending 
Test recommended conclusion. In such a case, the final rule provides 
that if unable to calculate a Retail Lending Test recommended 
conclusion, the agencies assign a Retail Lending Test conclusion based 
on consideration of the relevant available data. For example, a Retail 
Lending Test Area with a small number of owner-occupied housing units 
in low-income census tracts could be reported in the American Community 
Survey as having zero such units if none of those owner-occupied 
housing units were randomly selected to be part of the sample that 
received a survey. In such cases, it will not be possible to conduct a 
geographic distribution analysis using the otherwise prescribed 
approach for low-income census tracts even when the bank originated or 
purchased closed-end home mortgage loans in those low-income census 
tracts.
    The agencies believe that this additional factor addresses 
commenter concerns regarding the evaluation of closed-end home mortgage 
loans in which borrower income is missing or unavailable. The agencies 
have considered commenter feedback that a bank may have a large volume 
of such loans, depending on the bank's business model and strategy. For 
example, banks that specialize in non-owner-occupied closed-end home 
mortgage loans, or that originate a large number of streamlined closed-
end home mortgage refinancings, may have many loans for which borrower 
income is not available. As noted by some commenters, the borrower 
distribution metrics would count loans with missing or unavailable 
income information in the denominator, and not in the numerator, of the 
metric, which may result in the bank receiving a lower recommended 
conclusion than if these loans were excluded from the analysis or were, 
in fact, made to low- or moderate-income borrowers and had the 
requisite income information. For this additional factor, if the 
agencies have reason to believe that certain loans with missing or 
unavailable borrower income information were made to low- or moderate-
income borrowers, then the agencies may consider this fact pattern when 
determining the Retail Lending Test conclusion. For example, this may 
include the situation raised by some commenters where a bank has

[[Page 6904]]

purchased a portfolio of distressed Ginnie Mae closed-end home mortgage 
loans from a loan servicer. In this situation, based on available 
information, the agencies may determine that because a significant 
number of the loans for which borrower income was unavailable were 
likely made to low- or moderate-income borrowers, it is therefore 
appropriate to assign a higher conclusion than the bank's recommended 
conclusion. The use of this additional factor may also include a bank 
that purchased a large number of non-owner-occupied closed-end home 
mortgage loans with missing or unavailable income information, if the 
bank is able to provide information to the agencies that some of the 
loans in question were made to low- or moderate-income borrowers.
    Additionally, pursuant to the final rule, the agencies will apply 
this factor in a bank's facility-based assessment areas, as proposed--
and, as applicable, its retail lending assessment areas and its outside 
retail lending area. The agencies believe that it is appropriate and 
necessary to account for any missing and faulty data that could impact 
the calculation of the Retail Lending Test metrics and benchmarks in 
any Retail Lending Test Area to ensure a robust evaluation.
    For additional clarity, the agencies have changed two proposed 
references from ``recommended conclusion'' to ``Retail Lending Test 
recommended conclusion.''
Section __.22(g)(5)
    Newly added final Sec.  __.22(g)(5) provides that the agencies may 
consider whether the Retail Lending Test recommended conclusion does 
not accurately reflect the bank's performance in a Retail Lending Test 
Area in which one or more of the bank's major product lines consists of 
fewer than 30 loans.
    Inclusion of this additional factor provides flexibility for 
instances in which a small number of loans constitutes a major product 
line. Because the major product line threshold approach in facility-
based assessment areas and outside retail lending areas is based on the 
percentage of a bank's loans in a certain product line, a bank may have 
a small number of loans that constitute a major product line. For 
example, if a bank originated 20 small business loans in a facility-
based assessment area, and had no other retail loans there, then small 
business loans would constitute a major product line in that facility-
based assessment area and would be evaluated pursuant to the 
distribution analysis.
    Based on supervisory experience and statistical analysis, the 
agencies believe that it is appropriate to consider additional 
information when interpreting and drawing conclusions from a 
distribution analysis of a very small number of loans. The agencies 
note that it is conceivable that a single loan origination or purchase 
could change a bank's recommended conclusion by multiple levels if the 
bank's total number of loans is very small, depending on the applicable 
performance ranges. For instance, the agencies considered the example 
of a bank with 20 loans in its small business loan major product line, 
in which one loan represents 5 percent of the bank's lending by loan 
count. As part of this example, the agencies assumed that the borrower 
distribution performance ranges for lending to businesses with gross 
annual revenues of $250,000 or less include a ``Low Satisfactory'' 
threshold of 11 percent and a ``High Satisfactory'' threshold of 14 
percent. In this example, the bank would fall into the ``Needs to 
Improve'' recommended conclusion category if two of its small business 
loans were to businesses with gross annual revenues of $250,000 or less 
and into the ``High Satisfactory'' recommended conclusion category if 
three of its loans were to businesses with gross annual revenues of 
$250,000 or less. The agencies believe that the change in the example 
bank's recommended conclusion based on only a single loan warrants 
consideration of other available information and potentially assigning 
a different conclusion than the recommended conclusion.
    The agencies considered supervisory experience and simulated 
examples such as the hypothetical described above in determining that 
30 loans is an appropriate threshold for when this additional factor 
should apply. The agencies note that 30 units is a common minimum 
guideline for a sample to be considered ``large'' for statistical 
testing purposes.\962\ The agencies emphasize that application of this 
additional factor does not mean that distribution results for major 
product lines consisting of fewer than 30 loans would be disregarded; 
rather, for Retail Lending Test Areas with major product lines 
consisting of fewer than 30 loans, the additional factor in final Sec.  
__.22(g)(5) allows for additional discretion in determining the Retail 
Lending Test conclusion.
---------------------------------------------------------------------------

    \962\ Although the number of observations necessary for a 
statistical analysis can vary with the context and the statistical 
method being used, a common rule of thumb is that 30 observations is 
necessary for a large sample because the mean of 30 randomly drawn 
values will have a distribution that is approximately normal. See 
Sheldon M. Ross, Introductory Statistics, Fourth Edition 398 
(Academic Press, 2017) and Robert V. Hogg, Elliot A. Tanis, and Dale 
L. Zimmerman, Probability and Statistical Inference, Ninth Edition 
303 (Pearson Education, 2015).
---------------------------------------------------------------------------

Section __.22(g)(6)
    Newly added final Sec.  __.22(g)(6) specifies that the agencies may 
consider a bank's closed-end home mortgage, small business, small farm, 
or automobile lending in distressed and underserved nonmetropolitan 
middle-income census tracts where a bank's nonmetropolitan facility-
based assessment area or nonmetropolitan retail lending assessment area 
includes very few or no low- and moderate-income census tracts.
    In deciding to include this additional factor in the final rule, 
the agencies considered that certain facility-based assessment areas 
and retail lending assessment areas, particularly in nonmetropolitan 
areas, may have very few or no low- and moderate-income census tracts 
within their boundaries. In such circumstances, the agencies believe 
that considering lending in distressed and underserved nonmetropolitan 
census tracts may provide for a more fulsome evaluation of the bank's 
retail lending. The agencies narrowly tailored this additional factor 
to instances in which there are very few or no low- and moderate-income 
census tracts to ensure that the geographic distribution analysis 
emphasizes low- and moderate-income census tracts and so that banks do 
not lend in distressed and underserved nonmetropolitan middle-income 
census tracts at the expense of lending in low- and moderate-income 
census tracts. The agencies considered specifying an exact number of 
low- and moderate-income census tracts at which this additional factor 
may be considered, but determined that a standard of ``very few or no'' 
will more appropriately allow for consideration of the performance 
context of an area, such as the percentage of census tracts in the area 
that are low- and moderate-income census tracts, the presence of 
lending opportunities in those census tracts, and the proximity of 
those census tracts to the bank's facilities, if any. The agencies 
therefore believe that the ``very few or no'' standard provides 
appropriate flexibility while also narrowly tailoring application of 
this standard.
    Final Sec.  __.22(g)(6) considers closed-end home mortgage lending, 
small business lending, small farm lending, and automobile lending in 
distressed and underserved nonmetropolitan middle-income census tracts 
as an

[[Page 6905]]

additional factor rather than as a quantitative component of the 
geographic distribution analysis. The agencies believe that qualitative 
consideration is appropriate because the amount of emphasis given to a 
bank's lending in distressed and underserved nonmetropolitan middle-
income census tracts will depend on the performance context of the 
facility-based assessment area or retail lending assessment area, such 
as the lending needs and opportunities in any low- and moderate-income 
census tracts and the capacity of the bank to serve borrowers in any 
low- and moderate-income census tracts.
    Final Sec.  __.22(g)(6) applies in nonmetropolitan facility-based 
assessment areas and nonmetropolitan retail lending assessment areas in 
which there are very few or no low- and moderate-income census tracts. 
The agencies do not believe that this additional factor should be 
considered in an outside retail lending area because outside retail 
lending areas are defined as the entire nationwide area outside of a 
bank's facility-based assessment areas and retail lending assessment 
areas, and as a result will generally contain multiple low- and 
moderate-income census tracts.
Section __.22(g)(7)
    Overall. Final Sec.  __.22(g)(7) provides that the agencies will 
consider information indicating that the credit needs of the facility-
based assessment area or retail lending assessment area are not being 
met by lenders in the aggregate, such that the relevant benchmarks do 
not adequately reflect community credit needs. The agencies believe 
that information indicating that the credit needs of a particular 
facility-based assessment area or retail lending assessment area are 
not being met by lenders in the aggregate could be sourced from, for 
example, research publications, other data sources accessible to the 
agencies, community contacts, and other performance context information 
pertaining to a facility-based assessment area or retail lending 
assessment area. In such facility-based assessment areas and retail 
lending assessment areas, the agencies may determine that the market 
benchmark is not an accurate measure of the credit needs and 
opportunities of low- and moderate-income borrowers, small businesses, 
or small farms, because lenders as a whole are not meeting their 
obligations to meet the credit needs of the entire community. Under 
this additional factor, the agencies will apply additional qualitative 
review of retail lending in areas where credit needs are identified as 
not being met by lenders in the aggregate, and the results of this 
additional qualitative review could inform Retail Lending Test 
conclusions.
    In deciding to include this additional factor, the agencies 
considered the design of the retail lending distribution analysis and 
the results of such distribution analysis in a market where lenders may 
be underperforming in the aggregate and the credit needs of substantial 
parts of the community are not being met. As discussed in the section-
by-section analysis of final Sec.  __.22(f), the agencies note that the 
performance ranges used to develop recommended conclusions under the 
final rule are based on the lower of the calibrated market benchmark 
and calibrated community benchmark. Moreover, the market benchmark is 
calculated from originated or purchased closed-end home mortgage loans, 
small business loans, and small farm loans in a facility-based 
assessment area that are reported by all lenders. As a result, in an 
area that is broadly underserved and where the calibrated market 
benchmark is lower than the calibrated community benchmark, the market 
benchmark may significantly underestimate the credit needs and 
opportunities in the area but would nonetheless be the basis for the 
performance ranges. This additional factor reflects that, in such an 
instance, the distribution analysis may not appropriately assess 
whether a bank has met the credit needs of the community, and the 
recommended conclusion may warrant adjustment based on consideration of 
performance context and other available information that speaks to 
credit needs and opportunities in the facility-based assessment area or 
retail lending assessment area.
    The final rule provides that this additional factor may apply in 
facility-based assessment areas and in retail lending assessment areas, 
but not in an outside retail lending area. The agencies do not believe 
that it is necessary, or feasible, to consider this factor in an 
outside retail lending area because the lending in these areas is 
generally dispersed across multiple metropolitan and nonmetropolitan 
areas.
    Statistical model. The final rule does not include a statistical 
model to identify underperforming areas in the final rule. However, the 
agencies intend to develop statistical models that would be designed to 
predict the level of the market benchmarks that would be expected in 
each facility-based assessment area and retail lending assessment area 
if it had adequately been served by lenders in general. The agencies 
acknowledge commenter feedback about the potential benefits and 
challenges of developing such a model. A statistical model could be 
used to determine whether the market benchmarks for a facility-based 
assessment area or retail lending assessment area were significantly 
below levels that would otherwise be expected based on its demographics 
(e.g., income distributions, household compositions), housing market 
conditions (e.g., housing affordability, the share of housing units 
that are rentals), and economic activity (e.g., employment growth, cost 
of living). Market benchmarks that were found to be significantly lower 
than their expected levels would indicate that those market benchmarks 
could be underestimating the credit needs in that facility-based 
assessment area or retail lending assessment area. The agencies could 
use this information to help determine whether lenders as a whole were 
underperforming in a specific assessment area, which could inform the 
agencies' determination of a bank's Retail Lending Test conclusion. The 
agencies are considering how to develop an appropriate statistical 
model and would solicit additional feedback from the public in 
developing such a model.
    Oral and written comments. The agencies have considered, but 
decline to adopt, commenter suggestions supporting inclusion of oral or 
written comments about a bank's retail lending performance as an 
additional factor as part of final Sec.  __.22(g) to inform Retail 
Lending Test conclusions. The agencies determined that oral or written 
comments about a bank's performance are appropriately accounted for 
under final Sec.  __.21(d). Specifically, final Sec.  __.21(d)(6) 
maintains the proposed performance context factor for ``[t]he bank's 
public file, as provided in Sec.  __.43, including any written comments 
about the bank's CRA performance submitted to the bank or the [Agency] 
and the bank's responses to those comments.'' Including written public 
comments as a consideration in final Sec.  __.21(d)(6) allows the 
agencies the ability to consider public comments in light of a bank's 
overall performance context and to apply consideration of those 
comments to the appropriate performance test or tests--including the 
Retail Lending Test--and to the appropriate geographic level or levels. 
Additionally, final Sec.  __.21(d)(4) indicates that the agencies may 
consider oral and written comments about retail banking and community 
development needs and opportunities provided by the bank or other 
relevant sources, including, but not limited to, members of the 
community and community

[[Page 6906]]

organizations. The agencies believe that it is preferable to consider 
public comments as part of a bank's overall performance context rather 
than specifically within final Sec.  __.22(g), which applies only to 
Retail Lending Test recommended conclusions for, as applicable, 
facility-based assessment areas, retail lending assessment areas, and 
outside retail lending areas, because public comments could relate to 
one or more performance tests as well as to a state, multistate MSA, or 
institution-level conclusion.
    The agencies considered comments that the agencies should draft CRA 
performance evaluations that identify the weight and consideration 
given to certain comments versus others. Pursuant to final Sec.  
__.21(d), the agencies will consider public comments as part of a 
bank's overall performance context in applying the performance tests 
and determining conclusions. In addition, the agencies note that CRA 
performance evaluations must include the facts and data informing a 
bank's conclusions and ratings; therefore, if information gleaned from 
public comments is part of the basis of a bank's conclusions, the 
agencies would include that information in performance evaluations.
    Regarding the commenter suggestion that banks should be given the 
opportunity to review and rebut comments considered by the agencies, 
the final rule does not adopt this as part of the regulatory text for 
the applicable provision. However, the agencies believe that, at the 
time of a bank's examination, banks have the opportunity to provide the 
agencies with additional data and information related to any aspect of 
the bank's evaluation, including topics raised in public comments.
    The agencies also considered the commenter suggestion that the 
agencies' community affairs teams should combine any submitted oral and 
written comments with data, news articles, and other research for 
examiners to develop Retail Lending Test conclusions. The agencies 
believe that final Sec.  __.21(d)(6) will allow the agencies to 
consider oral and written comments in conjunction with other data, news 
articles, and research as part of a bank's performance context.
    The agencies also considered a commenter suggestion that the 
agencies should only consider written comments required to be included 
in a bank's CRA public file in developing Retail Lending Test 
conclusions, to limit the potential effect of social media posts and 
other potentially spurious claims. Pursuant to the public file 
requirements in final Sec.  __.43, submitted written comments, whether 
submitted directly to a bank or to an agency, will be available both 
for consideration and response by a bank and for public review. The 
agencies note that it may often not be feasible or appropriate to 
consider social media posts as information included as part of a bank's 
performance context; in additional to practical challenges, the 
agencies believe it could be challenging to determine whether remarks 
made by members of the public on social media were intended or 
appropriate for the agencies to consider in the bank's CRA evaluation. 
However, the agencies have discretion pursuant to final Sec.  
__.21(d)(4) and (7) to consider oral and written comments, including 
those made to the agencies as part of the community contacts process; 
data made available through social media posts, if relevant to a bank's 
evaluation, could also be considered as performance context information 
as determined to be appropriate. As discussed further in the section-
by-section analysis of final Sec.  __.46, the agencies note that they 
encourage the public to submit comments on bank performance either to 
the agency or to the bank so it can be included in the bank's public 
file as noted above.

Section __.22(h) Retail Lending Test Performance Conclusions and 
Ratings

    In final Sec.  __.22(h) and section VIII of final appendix A, the 
agencies are adopting, with certain substantive, clarifying, and 
technical edits: the proposed approach for assigning performance scores 
to a bank's facility-based assessment areas, retail lending assessment 
areas, and outside retail lending area, as applicable, based on the 
bank's retail lending performance in those Retail Lending Test Areas; 
and calculating a weighted average of those performance scores to 
determine Retail Lending Test conclusions at the State, multistate MSA, 
and institution levels.
The Agencies' Proposal

Section __.22(h)(1) Conclusions

    With reference to proposed Sec.  __.28 and proposed appendix C, 
proposed Sec.  __.22(f)(1) provided that the agencies would assign 
Retail Lending Test conclusions for a bank's performance in its 
facility-based assessment areas, retail lending assessment areas, and 
outside retail lending area, as applicable. As described in section VI 
of proposed appendix A and proposed appendix C, conclusions assigned 
for a bank's performance in facility-based assessment areas and retail 
lending assessment areas, as applicable, would form the basis for 
State, multistate MSA, and institution Retail Lending Test conclusions. 
Conclusions in a bank's outside retail lending area would also factor 
into the institution Retail Lending Test conclusion.\963\
---------------------------------------------------------------------------

    \963\ See proposed Sec.  __.22(a) and proposed appendix C.
---------------------------------------------------------------------------

    As also described in section VI of proposed appendix A, the 
agencies intended to combine the performance scores for a bank's 
facility-based assessment areas, retail lending assessment areas, and 
its outside retail lending area, as applicable, using a standardized 
weighted average approach, to develop State, multistate MSA, and 
institution conclusions. The proposed approach aimed to ensure that the 
bank's retail lending performance in every one of its markets would 
influence conclusions at the State, multistate MSA, and institution 
levels, as appropriate.
    In addition, the agencies proposed that the weights for State and 
multistate MSA conclusions would be calculated by averaging together 
the performance in each facility-based assessment area and retail 
lending assessment area, as applicable. In doing so, the bank's 
performance in each assessment area (facility-based assessment area or 
retail lending assessment area, as applicable) would be weighted by 
calculating the simple average of:
     The dollars of deposits that the bank sourced from a 
facility-based assessment area or retail lending assessment area, as a 
percentage of all of the bank's deposits sourced from facility-based 
assessment areas or retail lending assessment areas, as applicable, in 
the State or multistate MSA; and
     The dollars of the bank's retail lending in a facility-
based assessment area or retail lending assessment area, as a 
percentage of all of the bank's retail loans in facility-based 
assessment areas and retail lending assessment areas, as applicable, in 
the State or multistate MSA.\964\
---------------------------------------------------------------------------

    \964\ See proposed appendix A, section VI.
---------------------------------------------------------------------------

    When evaluating retail lending performance for the institution, the 
agencies proposed considering performance in a bank's outside retail 
lending area, as applicable, in addition to performance in a bank's 
facility-based assessment areas and retail lending assessment areas, as 
applicable. Specifically, the agencies proposed that the weights 
assigned to each geographic area for purposes of calculating 
institution conclusions would be the simple average of:

[[Page 6907]]

     The percentage reflecting the dollars of deposits that the 
bank sourced from each area (a facility-based assessment area, retail 
lending assessment area, or outside retail lending area) relative to 
all of the bank's deposits; and
     The percentage reflecting the dollars of the bank's retail 
lending in each area (a facility-based assessment area, retail lending 
assessment area, or its outside retail lending area) relative to all of 
a bank's retail lending.\965\
---------------------------------------------------------------------------

    \965\ See id.
---------------------------------------------------------------------------

    For Retail Lending Test conclusions in a State and multistate MSA, 
as applicable, and for the institution, the agencies proposed to tailor 
the approach for deposits data used for these weights, as discussed 
further in the section-by-section analyses of Sec. Sec.  __.12 and 
__.42(a)(7) and (b)(3). For deposits data, the agencies proposed to use 
the annual average amount of a bank's deposits collected from each area 
averaged over the years of the relevant evaluation period, if the bank 
collected and maintained this data.\966\ For any banks evaluated under 
the Retail Lending Test that did not collect deposits data, the 
agencies proposed to use the deposits assigned to the banks' branches 
in each area, as reported in the FDIC's Summary of Deposits data, 
averaged over the years of the relevant evaluation period.\967\
---------------------------------------------------------------------------

    \966\ See id.
    \967\ See id.
---------------------------------------------------------------------------

Section __.22(h)(2) Ratings
    With reference to proposed Sec.  __.28 and proposed appendix D, 
proposed Sec.  __.22(f)(2) provided that the agencies would incorporate 
a bank's Retail Lending Test conclusions into a bank's State, 
multistate MSA, and institution ratings.
Comments Received
    Commenters that addressed proposed Sec.  __.22(f) and section VI of 
proposed appendix A generally focused on the proposed weights assigned 
to facility-based assessment area, retail lending assessment area, and 
outside retail lending area conclusions, as applicable.
    Several commenters supported the proposal to calculate weights for 
a bank's facility-based assessment area, retail lending assessment 
area, and outside retail lending area conclusions, as applicable, based 
on the average of a bank's combined share of deposits and retail loans 
within each area. For example, a commenter representing rural areas 
indicated that the weighting approach is reasonable as it reflects a 
bank's service area as measured by deposits and loans, notwithstanding 
that rural areas might not often receive a large weight. Another 
commenter expressed support for the agencies' approach, including 
displaying a bank's Retail Lending Test performance score as it would 
add transparency and reveal further distinction into a bank's 
performance.
    However, other commenters expressed concerns with the agencies' 
proposed approach, including that it would result in outside retail 
lending areas receiving too much weight or that it was overly complex. 
Some commenters recommended that the agencies consider emphasizing 
facility-based assessment areas by assigning them greater weight than 
retail lending assessment areas. In addition, a commenter indicated 
that the agencies' proposed approach involving ``rounding'' of raw 
performance scores as part of developing State, multistate MSA, and 
institution conclusions could cause a bank's institution Retail Lending 
Test conclusion to deviate significantly from the bank's actual 
performance. This commenter noted a hypothetical scenario in which a 
bank's Retail Lending Test Area performance score of 4.49 would be 
rounded to 4.5 and, in turn, rounded up to a 6 (``Low Satisfactory'' 
conclusion) whereas a similar Retail Lending Test Area performance 
score of 4.44 would be rounded down to 4.4 and, in turn, rounded down 
to a 3 (``Needs to Improve'' conclusion)--and indicated that if the 
second rounding dynamic occurred across multiple Retail Lending Test 
Areas (or even in a single heavily-weighted Retail Lending Test Area) 
the effect on the bank's Retail Lending Test conclusions and overall 
rating could potentially be significant.
    Some commenters suggested alternatives, including: simplifying the 
calculations to allow banks to better understand their performance and 
course correct as needed; weighting facility-based assessment area 
performance based upon the relative share of bank deposits or the 
amount of retail lending, by loan count, and separately evaluating non-
facility-based assessment area lending at the institution level; and 
basing weighting of different areas on examiners' assessment of banks' 
retail lending patterns and their judgment regarding how much weight to 
assign outside retail lending area lending.
Final Rule
Overview of Sec.  __.22(h) and Section VIII of Appendix A
    In final Sec.  __.22(h)(1), the agencies are adopting the proposed 
approach to assigning conclusions for a bank's Retail Lending Test 
performance, with edits to reflect final rule revisions to other Retail 
Lending Test sections. Final Sec.  __.22(h)(1) includes references to 
final Sec.  __.28, section VIII of final appendix A, and final appendix 
C. In final Sec.  __.22(h) and section VIII of final appendix A, the 
agencies modified the final rule approach for calculating a bank's 
percentage of retail lending in each Retail Lending Test Area for 
purposes of determining these weights and also made minor wording 
changes to improve readability and increase consistency with other 
performance test conclusions and ratings provisions throughout the 
final rule.
    The final rule provides, in section VIII of final appendix A, the 
following:
     Performance scores for Retail Lending Test Areas. The 
agencies translate the Retail Lending Test conclusion for each Retail 
Lending Test Area (facility-based assessment areas, retail lending 
assessment areas, and an outside retail lending area, as applicable) 
into a numerical performance score.
     Performance scores for States and multistate MSAs. The 
agencies take a weighted average of performance scores across facility-
based assessment areas and retail lending assessment areas, as 
applicable, to calculate a performance score for each state and 
multistate MSA.
     Performance score for the institution. The agencies take a 
weighted average of performance scores across all applicable Retail 
Lending Test Areas to calculate a performance score for the 
institution.
    Conclusions for states, multistate MSAs, and the institution: The 
agencies develop a conclusion corresponding with the conclusion 
category that is nearest to the Retail Lending Test performance score 
for each state, multistate MSA, and for the institution. As discussed 
further below, the weighted average of each Retail Lending Test Area is 
calculated using the following: (1) percentage of deposits in the 
specific geographic area out of all the deposits in Retail Lending Test 
Areas in the State, Multistate MSA, or institution, as applicable; and 
(2) percentage of lending in the specific geographic area out of all 
the lending in product lines in Retail Lending Test

[[Page 6908]]

Areas in the State, Multistate MSA, or institution.\968\
---------------------------------------------------------------------------

    \968\ See final appendix A, section VIII.
---------------------------------------------------------------------------

    Use of performance scores. As noted, the final rule approach 
retains a system of assigning performance scores to a bank's facility-
based assessment areas, retail lending assessment areas, and outside 
retail lending area, as applicable, based on the bank's retail lending 
performance in those Retail Lending Test Areas. Under the final rule, 
the agencies then calculate a weighted average of those performance 
scores to determine Retail Lending Test conclusions at the State and 
multistate MSA levels and for the institution.
    With respect to commenter perspectives that the agencies' proposed 
approach required an excessive number of calculations and was overly 
complex, the agencies believe that the methodology adopted in the final 
rule is appropriate for transparently, comprehensively, and 
consistently assessing a bank's retail lending performance when 
assigning conclusions. In particular, the agencies believe that the use 
of a standardized quantitative approach to weighting Retail Lending 
Test Areas is preferable to the current evaluation approach, which does 
not assign a specific weight to assessment area conclusions in a 
standardized manner, including in limited-scope assessment areas.
    The final rule retains the proposed approach of assigning a 
performance score to each Retail Lending Test Area based on the 
conclusion assigned for the bank's retail lending performance in that 
area, as follows: ``Outstanding'' (10 points); ``High Satisfactory'' (7 
points); ``Low Satisfactory'' (6 points); ``Needs to Improve'' (3 
points); ``Substantial Noncompliance'' (0 points).\969\ The agencies 
have considered concerns from some commenters regarding the use of 
these five performance score values corresponding to each conclusion 
category. However, the agencies believe that it is appropriate to use 
these performance scores when determining a bank's conclusions at the 
State, multistate MSA, and institution levels, rather than to use the 
Retail Lending Test Area Score (which could be, for example, 6.5 or 8) 
that is calculated pursuant to final Sec.  __.22(f) (i.e., after 
combining all of a bank's product line scores in a Retail Lending Test 
Area for purposes of determining Retail Lending Test recommended 
conclusions). The agencies note that the Retail Lending Test Area Score 
does not take into account the additional factors provided in final 
Sec.  __.22(g), which would be considered when assigning the Retail 
Lending Test Area conclusion. In addition, pursuant to final Sec.  
__.21(d), the agencies may consider performance context information 
before assigning a conclusion. As a result, the agencies believe that 
it is appropriate to use the performance score associated with the 
bank's conclusion, rather than the bank's Retail Lending Test Area 
Score, to determine State, multistate MSA, and institution conclusions. 
Consequently, although Retail Lending Test Area Scores will play a 
significant role when the agencies assign conclusions, the agencies 
will also take qualitative considerations into account, and these 
considerations may, where appropriate, lead to adjustments of the 
conclusions that the agencies would otherwise have assigned.
---------------------------------------------------------------------------

    \969\ See the section-by-section analysis of final Sec.  
__.21(f) for a more detailed discussion of the specific scoring for 
each conclusion category.
---------------------------------------------------------------------------

    Using both deposits and retail lending to weight Retail Lending 
Test performance in different Retail Lending Test Areas. The final rule 
retains the proposed approach of weighting each Retail Lending Test 
Area in a standardized, quantitative manner, and does not adopt 
alternatives suggested by commenters to qualitatively adjust these 
weights or to assign greater weights to certain areas based on factors 
other than the bank's deposits and retail lending. As discussed further 
below, the agencies modified the final rule approach for calculating a 
bank's percentage of retail lending in each Retail Lending Test Area 
for purposes of determining these weights.
    The agencies believe that the final rule approach reflects that a 
bank's presence in a particular Retail Lending Test Area--and hence the 
importance of its performance in that Retail Lending Test Area in an 
overall evaluation of its retail lending--is grounded in its customer 
bases for both deposits and retail loans. Accordingly, the agencies 
have determined that both a bank's deposit customer base and its retail 
lending customer base in a particular Retail Lending Test Area should 
inform the weight assigned to the performance score for that area when 
determining conclusions at the State, multistate MSA, and institution 
levels.
    The agencies believe that the final rule approach provides greater 
consistency, predictability, and transparency than some suggested 
alternatives, which would introduce a certain amount of inconsistency 
due to the increased role of agency discretion in assigning weights to 
Retail Lending Test Area conclusions. The agencies also considered, but 
decline to adopt, an alternative to base Retail Lending Test Area 
weights purely on deposits, rather than on a combination of deposits 
and retail lending. In making this determination, the agencies 
considered that basing Retail Lending Test Area weights purely on 
deposits would mean that, if a bank did a very large amount of its 
retail lending in a market from which it drew few deposits, its lending 
performance there would only have a small influence on its overall 
Retail Lending Test conclusion. Alternatively, basing weights purely on 
retail lending could result in a bank's record of serving the credit 
needs of the communities from which it draws only a small amount of 
deposits having little bearing on its overall conclusion. For example, 
under a retail lending-only weighting alternative, if a bank performed 
poorly in a facility-based assessment area due to making fewer retail 
loans than necessary to meet the Retail Lending Volume Threshold that 
low level of lending would mean that the resulting facility-based 
assessment area conclusion would carry little weight in the 
corresponding State, multistate MSA, or institution conclusions, even 
if the bank draws a significant proportion of its deposits from that 
facility-based assessment area.
    Pursuant to the section VIII of final appendix A, the agencies will 
determine the percentage of a bank's deposits in a specific Retail 
Lending Test Area as follows: (1) for a bank that collects, maintains, 
and reports deposits data as provided in final Sec.  __.42, the 
calculation is determined using the bank's annual average daily balance 
of deposits reported by the bank in counties in the Retail Lending Test 
Area; and (2) for a bank that does not collect, maintain, and report 
deposits data as provided in final Sec.  __.42, this calculation is 
determined using the deposits assigned to facilities reported by the 
bank in the Retail Lending Test Area in the FDIC's Summary of Deposits 
data.\970\
---------------------------------------------------------------------------

    \970\ See final appendix A, paragraphs VIII.a.1 and VIII.b.1.
---------------------------------------------------------------------------

    Because the FDIC's Summary of Deposits data assigns all deposits to 
facility locations, and all facilities will be located in a facility-
based assessment area, the deposits assigned to retail lending 
assessment area and outside retail lending area performance scores for 
banks that do not collect and maintain deposits data will always be 
zero. The weight of the retail lending assessment area and outside 
retail lending area performance score for such a bank will, therefore, 
be one-half of the percentage of retail lending the bank conducted in a 
given retail lending

[[Page 6909]]

assessment area. As a result, for a bank not required to collect 
deposits data that obtains deposits from outside of its facility-based 
assessment areas, electing to collect deposits data for use in the 
bank's evaluation may increase the weight placed on the bank's 
performance in its retail lending assessment areas and outside retail 
lending area and decrease the weight placed on its facility-based 
assessment areas, as the concentration of deposits attributed there may 
be reduced to some degree. The agencies determined that this approach 
allows appropriate flexibility to banks with assets less than or equal 
to $10 billion to decide whether to collect deposits data for the 
purposes of CRA evaluations. Such a bank may take into consideration 
the areas from which the bank sources deposits, and the potential 
burden and complexity associated with additional data collection, 
maintenance, and reporting for the bank. Such a bank may also take into 
consideration the broader definition of deposits (including U.S., 
State, and local government deposits and deposits from foreign 
entities) that are included in the FDIC's Summary of Deposits data, as 
compared to the narrower definition of deposits data used for banks 
that collect, maintain, and report deposits data.
    Pursuant to section VIII of final appendix A, the agencies will 
determine the percentage of a bank's retail lending in a specific 
Retail Lending Test Area using not only a bank's dollar amount of 
retail lending but, rather--as discussed in the section-by-section 
analysis of final Sec.  __.12--a combination of loan dollars and loan 
count. Specifically, the agencies will use the average of: (1) the 
ratio calculated using loans measured in dollar amount; and (2) the 
ratio calculated using loans measured in number of loans, to determine 
the percentage of a bank's originated and purchased closed-end home 
mortgage loans, small business loans, small farm loans, and automobile 
loans (if automobile loans are a product line for the bank) in a 
facility-based assessment area, retail lending assessment area, or 
outside retail lending area, as applicable.
    As explained in the section-by-section analysis of final Sec.  
__.12, adopting a combination of loan dollars and loan count-based 
approach for weighting conclusions better tailors the Retail Lending 
Test to accommodate individual bank business models, insofar as the 
agencies have determined that use of this combination helps to account 
for differences across product lines, bank strategies, and geographic 
areas, relative to an approach that uses only loan dollars or only loan 
count. Additionally, the agencies believe that both loan dollars and 
loan count reflect different aspects of how a bank has served the 
credit needs of a community, with loan dollars representing the total 
amount of credit provided and loan count representing the number of 
borrowers served.
Section __.22(h)(1)(i) In General
Section __.22(h)(1)(ii) Retail Lending Test Area Conclusions
Retail Lending Test Conclusions for States and Multistate MSAs
    With some modifications relative to the proposal, section VIII of 
final appendix A describes the agencies' methodology for assigning a 
bank's Retail Lending Test conclusions for the State and multistate MSA 
levels. Specifically, the agencies will develop a bank's Retail Lending 
Test conclusions for States and multistate MSAs based on Retail Lending 
Test conclusions for its facility-based assessment areas and retail 
lending assessment areas, as applicable, in those States and multistate 
MSAs. In addition to incorporating the combination of loan dollars and 
loan count definition, the agencies have made certain clarifying and 
technical changes to the proposal to streamline the description of the 
methodology and improve readability.
    As provided in paragraph VIII.b of final appendix A, the agencies 
will calculate a bank's Retail Lending Test performance score based on 
a weighted average of performance scores from facility-based assessment 
areas and retail lending assessment areas, as applicable, within each 
respective State or multistate MSA. Specifically, the weights for each 
facility-based assessment area and retail lending assessment area in 
this calculation will be the simple average of the following two 
percentages, calculated over the years in the evaluation period:
     The percentage of deposits that the bank draws from the 
area, out of all of the dollars of deposits in the bank drawn from 
facility-based assessment areas and retail lending assessment areas in 
the respective State or multistate MSA, pursuant to final Sec.  
__.28(c); and
     Based on a combination of loan dollars and loan count, the 
percentage of the bank's loans in the area, as a percentage of all of 
the bank's loans in facility-based assessment areas and retail lending 
assessment areas in the respective State or multistate MSA, pursuant to 
final Sec.  __.28(c). The loans included in this calculation will be 
originations and purchases of closed-end home mortgage loans, small 
business loans, small farm loans, and automobile loans (if automobile 
loans are a product line for the bank).
    As proposed and as provided in paragraph VIII.c of final appendix 
A, based on this performance score, the agencies will develop a Retail 
Lending Test conclusion corresponding with the conclusion category that 
is nearest to the Retail Lending Test performance score for each State 
or multistate MSA, as illustrated in Table 31 below. The agencies will 
then consider relevant performance context factors provided in final 
Sec.  __.21(d) before assigning a Retail Lending Test conclusion for 
the State or multistate MSA.

[[Page 6910]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.045

Institution Retail Lending Test Conclusions
    With some modifications relative to the proposal, paragraphs VIII.b 
through VIII.d of final appendix A describes the agencies' methodology 
for assigning a bank's Retail Lending Test conclusions for the 
institution. Paragraphs VIII.b and VIII.c of final appendix A provide 
that the agencies will develop a bank's Retail Lending Test conclusion 
for the institution based on its Retail Lending Test conclusions for 
its facility-based assessment areas, retail lending assessment areas, 
and outside retail lending area, as applicable. The agencies made 
certain changes to the proposal to incorporate the combination of loan 
dollars and loan count definition and streamline the description of the 
methodology and improve readability.
    As provided in paragraph VIII.c of final appendix A, the agencies 
will calculate a bank's Retail Lending Test performance score for the 
institution based on a weighted average of performance scores from all 
applicable Retail Lending Test Areas. Specifically, the weights for 
each Retail Lending Test Area in this calculation will be the simple 
average of the following two percentages, calculated over the years in 
the evaluation period:
     The percentage of deposits the bank draws from each Retail 
Lending Test Area out of all of the dollars of deposits in all of the 
bank's Retail Lending Test Areas; and
     Based on a combination of loan dollars and loan count, the 
percentage of the bank's loans in each Retail Lending Test Area, as a 
percentage of all of the bank's loans in all of the bank's Retail 
Lending Test Areas. The loans included in this calculation will be 
originations and purchases of closed-end home mortgage loans, small 
business loans, small farm loans, and automobile loans (if automobile 
loans are a product line for the bank).
    As proposed and as provided in paragraphs VIII.c and VIII.d of 
final appendix A, based on this performance score, the agencies will 
develop a Retail Lending Test conclusion corresponding with the 
conclusion category that is nearest to the Retail Lending Test 
performance score for the institution, as illustrated in Table 31 
above. The agencies will then consider relevant performance context 
factors provided in final Sec.  __.21(d) before assigning a Retail 
Lending Test conclusion for the institution.
    Examples A-16 and A-17 in section VIII of appendix A illustrates 
how facility-based assessment area, retail lending assessment area, and 
outside retail lending area conclusions, as applicable, will be 
weighted in order to develop institution conclusions.
Section __.22(h)(1)(ii)(A) and (B) Exceptions
Section __.22(h)(1)(ii)(A) Facility-based Assessment Areas With no 
Major Product Line
Section __.22(h)(1)(ii)(B) Facility-based Assessment Areas in Which a 
Bank Lacks an Acceptable Basis for not Meeting the Retail Lending 
Volume Threshold
    Final Sec.  __.22(h)(1)(ii)(A) and (B) provide for two exceptions 
to the general Retail Lending Test conclusions methodology described in 
final Sec.  __.22(h)(1)(i).
    First, final Sec.  __.22(h)(1)(ii)(A) provides that the agencies 
will assign a bank a Retail Lending Test conclusion for a facility-
based assessment area in which it has no major product line--and, 
consequently, the agencies are not able to apply the distribution 
analysis in final Sec.  __.22(d) through (f)--based upon its 
performance on the Retail Lending Volume Screen, the performance 
context factors information in final Sec.  __.21(d), and the additional 
factors in Sec.  __.22(g).
    Second, final Sec.  __.22(h)(1)(ii)(B) provides that the agencies 
will assign a bank a Retail Lending Test conclusion for a facility-
based assessment area in which the bank lacks an acceptable basis for 
not meeting the Retail Lending Volume Threshold pursuant to final Sec.  
__.22(c)(3)(iii).\971\
---------------------------------------------------------------------------

    \971\ See the section-by-section analysis of final Sec.  
__.22(c) for additional information regarding how the agencies 
assign facility-based assessment area conclusions for large banks 
and, separately, for intermediate banks and small banks that opt to 
be evaluated under the Retail Lending Test where these banks lack an 
acceptable basis for not meeting the Retail Lending Volume 
Threshold.
---------------------------------------------------------------------------

Section __.22(h)(2) Ratings
    With reference to final Sec.  __.28 and final appendix D, final 
Sec.  __.22(h)(2) adopts the agencies' proposal to incorporate a bank's 
Retail Lending Test conclusions for, as applicable, the State, 
multistate MSA, and institution levels into, as applicable, its State, 
multistate MSA, and institution ratings.

Analysis of the Final Rule Using Historical Data

    The agencies analyzed historical bank lending performance under the 
final rule Retail Lending Test approach, including final rule 
provisions for the Retail Lending Volume Screen and the performance 
ranges as applied to the distribution metrics, using historical data on 
bank retail lending and other information in the CRA Analytics Data 
Tables. The analysis used data from

[[Page 6911]]

2018-2020 to calculate bank metrics, benchmarks, and weights, except 
where otherwise noted. Using this historic data, the agencies:
     Estimated recommended conclusions for Retail Lending Test 
Areas;
     Estimated Retail Lending Test conclusions at the 
institution level;
     Compared bank performance based on the proposed multiplier 
values to performance based on the final rule multiplier values; and
     Compared performance across different bank asset size 
categories, metropolitan and nonmetropolitan areas, and time periods.
    The analysis informed the agencies' decisions regarding the Retail 
Lending Test approach in various ways. Specifically, the analysis 
informed the agencies' determination that the final rule multiplier 
values produce performance ranges that are generally attainable for 
``Outstanding,'' ``High Satisfactory,'' or ``Low Satisfactory'' 
performance. As described further below, a large majority of banks 
included in this historical analysis are estimated to have performed at 
a level consistent with an institution-level conclusion of 
``Outstanding,'' ``High Satisfactory,'' or ``Low Satisfactory'' based 
on the final rule provisions. In addition, the analysis informed the 
agencies' determination that the performance ranges for a ``Low 
Satisfactory'' or higher conclusion are generally attainable across a 
variety of circumstances, such as different Retail Lending Test Areas, 
bank asset-size categories, metropolitan and nonmetropolitan areas, and 
time periods.
    Description of analysis. The agencies considered a number of 
factors in interpreting the results of this analysis, including certain 
data limitations that result in the analysis diverging from the final 
rule approach to calculating metrics and benchmarks.
    First, the agencies considered that the analysis is retrospective 
and, therefore, not a prediction of future evaluation results. In this 
regard, the agencies believe that the analysis estimates how banks 
would have performed in recent years under the final rule but does not 
necessarily describe how banks will perform in future years. For 
example, the agencies considered that, once the final rule is 
implemented, the increased consistency and transparency of the CRA 
examination process under the final rule may result in banks altering 
their behavior in ways that cause their metrics and the market 
benchmarks to deviate from the patterns observed historically. In 
addition, the agencies considered that macroeconomic conditions and 
banking practices in the future may differ from those in the historical 
periods that are examined here.
    Second, the agencies considered that the set of banks included in 
this analysis differ from the full group of banks that will be 
evaluated under the Retail Lending Test. Specifically, the analysis is 
limited to intermediate and large banks (based on the asset-size 
categories in the final rule) that reported both CRA small business and 
small farm loan data and HMDA data and does not include unreported 
loans in any bank metrics calculated in the analysis. The agencies do 
not have data to evaluate unreported loans, and therefore determined 
not to estimate the recommended conclusions and overall conclusions of 
banks that may have unreported closed-end home mortgage, small 
business, or small farm lending. Most large banks are reporters for 
both CRA small business and small farm loan data and HMDA data, but 
most intermediate banks are non-reporters of either CRA small business 
and small farm loan data, HMDA data, or both.\972\ As a result, the set 
of banks included in the analysis is not necessarily representative of 
all banks that will be evaluated under the Retail Lending Test, in 
particular intermediate banks that may be underrepresented because they 
are less likely to report both CRA and HMDA data. The set of banks 
analyzed also does not include banks that were, during the timeframe of 
the analysis, designated as wholesale or limited purpose banks--because 
these banks will generally not be evaluated under the Retail Lending 
Test--or banks evaluated under an approved strategic plan.
---------------------------------------------------------------------------

    \972\ See current 12 CFR __.42(b)(1). See also, e.g., 12 CFR 
1003.3.
---------------------------------------------------------------------------

    Third, the agencies could not analyze loans to businesses and farms 
with gross annual revenues of $250,000 or less, because existing data 
does not include an indicator identifying loans to small businesses and 
small farms at this gross annual revenue level. Instead, the analysis 
estimates performance using a single designated borrower category for 
loans made to businesses or farms with gross annual revenues of $1 
million or less. Furthermore, the agencies note that the analysis does 
not take into account the potential impact of transitioning to section 
1071 data, which, as described in the section-by-section analysis of 
final Sec. Sec.  __.22(e) and __.51, would result in changes to the 
population of small business and small farm loans considered in the 
metric and benchmark calculations.
    Fourth, because the deposits data that will be collected for large 
banks with assets greater than $10 billion is not yet available, this 
analysis used the FDIC's Summary of Deposits data as the sole source of 
deposits data for all banks, since this data is available both for each 
bank as a whole and also reflects bank deposits assigned to branch 
locations. As a result, the analysis likely overestimates the deposits 
of the largest banks because the FDIC's Summary of Deposits data uses a 
broader definition of deposits, in that it includes deposits from 
governments and foreign entities, than the data collected under the 
final rule for large banks with assets greater than $10 billion. In 
addition, because the FDIC's Summary of Deposits does not report 
deposits data based on a depositor's location, the analysis assigned 
all bank deposits to facility-based assessment areas, even when the 
deposits might have been collected from depositors in retail lending 
assessment areas or outside retail lending areas. As a result, because 
deposits data is used as part of the final rule approach to weighting 
different Retail Lending Test Area performance, the analysis likely 
assigns less weight to performance in retail lending assessment areas 
and outside retail lending areas than will be assigned under the final 
rule for banks that are required to report deposits data pursuant to 
final Sec.  __.42(b)(3) or that opt to report this data.
    Fifth, because the HMDA data collected prior to the 2018 calendar 
year do not distinguish originated or purchased home mortgage loans 
that were closed-end from those that were open-end, all home mortgage 
loans reported in HMDA for years prior to 2018 were assumed to be 
closed-end home mortgage loans.\973\
---------------------------------------------------------------------------

    \973\ While home mortgage lenders were not required to report 
open-end home mortgage loans in HMDA prior to 2018, they had the 
option of doing so. Consequently, some of the reported loans may 
have been open-end home mortgage loans, though it is not possible to 
ascertain for certain how many of the reported loans were open-end 
home mortgage loans.
---------------------------------------------------------------------------

    Sixth, the analysis does not incorporate the final rule's 
requirement that large banks delineate facility-based assessment areas 
that consist of at least one or more whole counties, as discussed in 
the section-by-section analysis of final Sec.  __.16. In contrast, the 
current regulations allow large banks to delineate partial-county 
assessment areas. Rather than make assumptions regarding how facility-
based assessment area delineations might change under the final rule

[[Page 6912]]

relative to current practice, the analysis uses the actual assessment 
areas designated by both large and intermediate banks at the time to 
delineate each bank's facility-based assessment areas, including when a 
large bank's assessment area delineation includes a partial county.
    Seventh, the analysis does not incorporate any evaluation of 
automobile lending, due to the unavailability of automobile lending 
data necessary to include in the analysis. This limitation impacts any 
bank that would have been designated as a majority automobile lender 
during the analysis period pursuant to the final rule standard and any 
bank that might have opted to have its automobile lending evaluated 
during the analysis period.
    Finally, this analysis does not take into account aspects of the 
final rule that would involve agency discretion, such as the Retail 
Lending Volume Screen acceptable basis factors provided in final Sec.  
__.22(c)(3)(i), the additional factors provided in final Sec.  
__.22(g), and performance context information provided in final Sec.  
__.21(d).
    As a result of the factors, including data limitations, discussed 
above, the agencies consider the results of this analysis to be 
estimates, and the results described here should be understood to only 
approximate how banks included in these analyses would have performed 
under the final rule Retail Lending Test.
    Final Rule Multipliers. As discussed in more detail in the section-
by-section analysis of final Sec.  __.22(f), the final rule uses lower 
values for some of the Retail Lending Test multipliers relative to 
those proposed in the NPR. The analysis of the changes to the 
multipliers are provided in Table 32, which shows a higher estimated 
distribution of institution-level conclusions on the Retail Lending 
Test during the 2018-2020 time period using the multipliers for the 
final rule compared to those proposed in the NPR. Specifically, using 
the final rule multipliers, more banks included in the analysis 
received ``Outstanding'' or ``High Satisfactory'' estimated conclusions 
and fewer banks received ``Low Satisfactory'' or ``Needs to Improve'' 
estimated conclusions. As noted in the section-by-section analysis of 
final Sec.  __.22(f), the agencies consider ``Low Satisfactory'' 
performance to represent that a bank is adequately meeting the credit 
needs of its community and consider ``High Satisfactory'' and ``Low 
Satisfactory'' conclusions to both correspond to the overall rating 
category of ``Satisfactory.'' Aside from the different multiplier 
values, the Retail Lending Test approach was applied as described in 
the final rule--both as applied to the NPR multipliers and the final 
rule multipliers--subject to the limitations listed above. To better 
focus on the impact of changing the multipliers on the estimated 
recommended conclusions assigned for each bank's loan distributions, 
the Retail Lending Volume Screen was not applied in this part of the 
analysis.

[[Page 6913]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.046

    Table 33 shows the results of the same analysis when the Retail 
Lending Volume Screen was applied to facility-based assessment areas of 
large banks included in the analysis; under this analysis, a ``Needs to 
Improve'' conclusion was assigned to those banks' facility-based 
assessment areas that do not meet the Retail Lending Volume Threshold 
and that would have otherwise received a conclusion of ``Low 
Satisfactory'' or higher based on the distribution analysis. 
Specifically, this part of the analysis shows that fewer banks would 
have received conclusions of ``Outstanding'' or ``High Satisfactory,'' 
and more banks would have received ``Needs to Improve'' conclusions, 
compared to the analysis that did not incorporate the Retail Lending 
Volume Screen, regardless of whether the multipliers used are from the 
NPR or the final rule. Table 33 also shows that the multipliers from 
the final rule resulted in more banks receiving conclusions of ``High 
Satisfactory'' or ``Outstanding'' and fewer receiving conclusions of 
``Needs to Improve'' than using the NPR multipliers, even when the 
Retail Lending Volume Screen was applied.
    The agencies note that this part of the analysis does not take into 
account the acceptable basis factors in final Sec.  __.22(c)(3)(i), and 
therefore may overestimate the frequency at which a bank would have 
been assigned a ``Needs to Improve'' conclusion in facility-based 
assessment areas where the Bank Volume Metric was lower than the Retail 
Lending Volume Threshold.\974\ The analysis does not incorporate the 
Retail Lending Volume Screen for intermediate banks, because, under the 
final rule, facility-based assessment areas of intermediate banks in 
which the Bank Volume Metric is below the Retail Lending Volume 
Threshold are assigned a recommended conclusion that more directly 
includes consideration of the lending distribution analysis.\975\
---------------------------------------------------------------------------

    \974\ The agencies also note that if a bank would have received 
a ``Substantial Noncompliance'' conclusion based on the distribution 
analysis then the agencies have assigned it a ``Substantial 
Noncompliance'' conclusion for purposes of this analysis. Otherwise, 
for purposes of this analysis as noted above, a bank that did not 
meet the Retail Lending Volume Threshold was assigned a ``Needs to 
Improve'' conclusion.
    \975\ See final Sec.  __.22(c)(3)(iii)(B) and the accompanying 
section-by-section analysis.

---------------------------------------------------------------------------

[[Page 6914]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.047

    Bank Asset Size. Consistent with the agencies' proposal, in the 
final rule, the Retail Lending Test will apply to large and 
intermediate banks, and to small banks that elect to be evaluated under 
this performance test. Accordingly, the agencies' have considered 
estimates for the Retail Lending Test conclusions at the institution 
level for banks of different asset sizes.
    Specifically, Table 34 shows the results of an analysis of 
performance under the Retail Lending Test approach in the final rule 
for banks included in the analysis in three different asset-size 
categories: intermediate banks; large banks with assets less than or 
equal to $10 billion; and large banks with assets greater than $10 
billion. As with Tables 32 and 33, the results in Table 34 reflect 
performance on the Retail Lending Test at the institution level. The 
Retail Lending Volume Screen is not applied in this institution-level 
analysis.
    As shown in Table 34, estimated performance was similar across the 
asset-size groups, with the majority of banks in each group receiving 
either a ``High Satisfactory'' or ``Low Satisfactory'' estimated 
conclusion, with ``High Satisfactory'' being somewhat more common than 
``Low Satisfactory.'' Intermediate banks more frequently received 
estimated conclusions of ``Outstanding'' or ``Needs to Improve'' than 
large banks, and one intermediate bank was the only bank in the set of 
banks analyzed to receive an estimated conclusion of ``Substantial 
Noncompliance.'' The share of intermediate banks included in the 
analysis receiving a ``Needs to Improve'' or ``Substantial 
Noncompliance'' estimated conclusion is somewhat higher than for large 
banks. Approximately 88 percent of intermediate banks, 92 percent of 
large banks with assets less than or equal to $10 billion, and 95 
percent of large banks with assets greater than $10 billion received an 
estimated conclusion ``Outstanding,'' ``High Satisfactory,'' or ``Low 
Satisfactory.'' Over 60 percent of intermediate banks, 51 percent of 
large

[[Page 6915]]

banks with assets less than or equal to $10 billion, and 67 percent of 
large banks with assets greater than $10 billion received an estimated 
conclusion of ``Outstanding'' or ``High Satisfactory.'' The agencies 
have determined, based on this data, that the final rule performance 
ranges for estimated conclusions of ``Low Satisfactory'' or higher are 
generally attainable for intermediate and large banks. In addition, as 
noted above, this analysis does not reflect the performance context 
considerations in final Sec.  __.21(d) or the additional factors in 
final Sec.  __.22(g), which will inform conclusions under the final 
rule.
[GRAPHIC] [TIFF OMITTED] TR01FE24.048

    Table 35 shows the same analysis broken out by different bank 
asset-size categories--intermediate banks, large banks with assets less 
than or equal to $10 billion, and large banks with greater than $10 
billion in assets--using the NPR multipliers. The impact of the change 
to the multipliers in the final rule relative to the proposed 
multipliers was generally consistent across bank sizes. As demonstrated 
by comparing Tables 34 and 35, across all three asset-size groups, the 
final rule multipliers increased the estimated share of banks receiving 
an ``Outstanding'' conclusion between 2.5 to 4 percentage points and 
reduced the estimated share of banks receiving a ``Needs to Improve'' 
conclusion by 1 to 3 percentage points.

[[Page 6916]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.049

    Retail Lending Assessment Areas and Outside Retail Lending Areas. 
As discussed in more detail in the section-by-section analysis of final 
Sec.  __.17 and throughout the section-by-section analysis of final 
Sec.  __.22, under the final rule the agencies will evaluate the retail 
lending performance of certain large banks in retail lending assessment 
areas. The agencies will also evaluate the retail lending of large 
banks (as well as that of certain intermediate and small banks) in 
their outside retail lending area. To understand how banks may have 
performed in 2018-2020 in these areas under the final rule approach, 
Table 34 shows the estimated distribution of Retail Lending Test 
recommended conclusions that banks included in the analysis would have 
received in facility-based assessment areas, retail lending assessment 
areas, and outside retail lending areas. Specifically, the analysis 
shows that at least two-thirds of these banks are estimated to receive 
an ``Outstanding,'' ``High Satisfactory,'' or ``Low Satisfactory'' 
recommended conclusion, with banks receiving a higher proportion of 
``Needs to Improve'' conclusions in outside retail lending areas (28 
percent) and in retail lending assessment areas 20.6 percent) when 
compared to facility-based assessment areas (8.8 percent).
    The agencies considered several aspects of these results. First, 
the agencies considered that, while performance under the final rule 
provisions are lower in retail lending assessment areas and outside 
retail lending areas, a significant majority of banks included in the 
analysis received conclusions of ``Outstanding,'' ``High 
Satisfactory,'' or ``Low Satisfactory in these areas. The agencies 
believe that this is an indication that the final rule performance 
ranges are generally attainable, because historical bank performance is 
relatively strong when applying the final rule evaluation standards.
    The agencies also considered that estimated bank conclusions at the 
institution level reflect strong overall performance, with 
approximately 90 percent of banks in the data set receiving an '' 
``Outstanding,'' ``High Satisfactory,'' or ``Low Satisfactory'' 
estimated conclusion at the institution

[[Page 6917]]

level as shown above in Table 32. This reflects the final rule Retail 
Lending Test approach that allows for stronger performance in some 
geographic areas to potentially compensate for weaker performance in 
other geographic areas. This can take place because the institution-
level Retail Lending Test conclusion is based on a weighted average of 
a bank's performance in each facility-based assessment area, each 
retail lending assessment area, and the outside retail lending area, as 
applicable. As a result, for a bank with multiple Retail Lending Test 
Areas, receiving a ``Needs to Improve'' conclusion in one or more areas 
may, depending on the weight of each area, be compensated for by strong 
performance in other geographic areas. The agencies also note that the 
requirement that a large bank receive at least a ``Low Satisfactory'' 
conclusion in 60 percent of its facility-based assessment areas and 
retail lending assessment areas in order to receive a ``Satisfactory'' 
institution-level rating can impact whether stronger performance in 
some areas may compensate for weaker performance in other areas. As 
shown in Table 36, the agencies note that at an aggregate level for all 
banks included in this analysis, 74 percent of bank lending by dollar 
volume was in facility-based assessment areas, 18 percent was in 
outside retail lending areas, and 8 percent was in retail lending 
assessment areas.
    The agencies also note that, under the current approach, banks are 
generally not evaluated for retail lending performance outside of areas 
where they maintain deposit-taking facilities. As a result, the 
analysis does not include any changes that could have resulted in bank 
performance under this approach.

[[Page 6918]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.050

    Table 37 shows the same analysis broken out by different Retail 
Lending Test Areas--facility-based assessment areas, retail lending 
assessment areas, and outside retail lending areas--using the NPR 
multipliers. Similar patterns

[[Page 6919]]

are observed when the analysis is conducted using the multipliers 
proposed in the NPR (Table 37). The analysis shown in Table 37, as with 
the other analyses described above, indicates that the multipliers 
included in the final rule produce a higher estimated distribution of 
recommended conclusions than the multipliers proposed in the NPR.
[GRAPHIC] [TIFF OMITTED] TR01FE24.051

    Facility-Based Assessment Area Location. Under the final rule, the 
agencies will apply the Retail Lending Test metrics, benchmarks, and 
performance ranges across different metropolitan and nonmetropolitan

[[Page 6920]]

geographic areas, and the approach is intended to adjust for 
differences in credit needs and opportunities in different areas. Table 
38 compares the estimated distribution of recommended Retail Lending 
Test conclusions for facility-based assessment areas located in MSAs 
and those located in the nonmetropolitan portion of States for banks 
included in the analysis. Specifically, the analysis shows that the 
distributions in MSAs and nonmetropolitan areas are similar overall. 
This analysis informed the agencies' determination that the performance 
ranges are generally attainable in both metropolitan and 
nonmetropolitan areas.
[GRAPHIC] [TIFF OMITTED] TR01FE24.052

    Time Period. Table 39 shows the distribution of estimated 
institution-level conclusions on the Retail Lending Test for banks 
included in the analysis for five three-year time periods: 2006-2008; 
2009-2011; 2012-2014; 2015-2017; and 2018-2020. For this analysis, the 
agencies applied the final rule approach for calculating the metrics, 
performance ranges, and weights to all five periods, to gain further 
insight into historical bank performance over different time periods 
under this approach. Because the benchmarks are based on community and 
market data from each evaluation period, the resulting performance 
ranges applied to a specific Retail Lending Test Area vary

[[Page 6921]]

across evaluation periods. As discussed in the section-by-section 
analysis of final Sec.  __.22(e), the agencies believe that this 
approach to setting benchmarks allows the performance ranges to reflect 
changes in credit needs and opportunities over time.
    As shown in Table 39, the share of banks included in the analysis 
that would have received institution-level conclusions of ``High 
Satisfactory'' is estimated to have remained relatively stable over 
time at around 48 percent on average (ranging from 42.6 percent to 53.2 
percent). In addition, the analysis shows a trend of declining 
``Outstanding'' estimated conclusions and increasing ``Low 
Satisfactory'' and ``Needs to Improve'' estimated conclusions at the 
institution level over this time period.
    Supplementary analyses conducted by the agencies suggest that the 
decline in ``Outstanding'' estimated conclusions over time is 
associated with changing small business lending patterns. As shown in 
Table 40, between the 2006-2008 and 2018-2020 time periods, the share 
of Retail Lending Test Areas where the estimated product line score for 
small business lending was consistent with an ``Outstanding'' 
conclusion (i.e., the product line score is 8.5 or higher) declined by 
22 percentage points from 56.9 percent to 33.9 percent. In contrast, as 
shown in Table 41, for closed-end home mortgage loans, the estimated 
product line scores consistent with an ``Outstanding'' conclusion were 
comparatively flat (increasing slightly from 22.3 percent in 2006-2008 
to 24.4 percent in 2018-2020.
[GRAPHIC] [TIFF OMITTED] TR01FE24.053


[[Page 6922]]


[GRAPHIC] [TIFF OMITTED] TR01FE24.054


[[Page 6923]]


[GRAPHIC] [TIFF OMITTED] TR01FE24.055

Section __.23 Retail Services and Products Test

Section __.23(a)(1) Retail Services and Products Test--In General
Section __.23(a)(2) Main Offices
Section __.23(a)(3) Exclusion
Current Approach
    Under current CRA regulations, the service test, which only applies 
to large banks, establishes four criteria for evaluating retail 
services: (1) the current distribution of branches among low-, 
moderate-, middle-, and upper-income census tracts; \976\ (2) a bank's 
record of opening and closing branches, particularly branches in low- 
or moderate-income geographies or that primarily serve low- or 
moderate-income individuals; \977\ (3) the availability and 
effectiveness of alternative systems for delivering retail banking 
services (or non-branch delivery systems) in low- and moderate-income 
geographies and to low- and moderate-income individuals; \978\ and (4) 
the range of services provided in low-, moderate-, middle-, and upper-
income geographies and the degree to

[[Page 6924]]

which the services are tailored to meet the needs of those 
geographies.\979\
---------------------------------------------------------------------------

    \976\ See current 12 CFR __.24(d)(1).
    \977\ See current 12 CFR __.24(d)(2).
    \978\ See current 12 CFR __.24(d)(3). Under the OCC's CRA 
regulation, current 12 CFR 25.24(d)(3) provides that alternative 
delivery systems include ``ATMs, ATMs not owned or operated 
exclusively for the bank or savings association, banking by 
telephone or computer, loan production offices, and bank-at-work or 
bank-by-mail programs.'' Under the Board's CRA regulation, current 
12 CFR 228.24(d)(3) provides that alternative delivery systems 
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.'' Under the FDIC's CRA 
regulation, current 12 CFR 345.24(d)(3) describes alternative 
delivery systems as ``RSFs [remote service facilities], RSFs 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.''
    \979\ See current 12 CFR __.24(d)(4).
---------------------------------------------------------------------------

The Agencies' Proposal
    In Sec.  __.23(a)(1), the agencies proposed a new Retail Services 
and Products Test that would evaluate the following for large banks: 
(1) delivery systems and (2) credit and deposit products responsive to 
the needs of low- and moderate-income individuals and census 
tracts.\980\ Under this test, the agencies proposed to use a 
predominately qualitative approach while incorporating quantitative 
measures as guidelines. For the first part of the test, in Sec.  
__.23(b), the proposal sought to achieve a balanced evaluation 
framework that, depending on bank asset size, considered the following 
bank delivery systems: (1) branch availability and services; (2) remote 
service facility availability; and (3) digital and other delivery 
systems.\981\ For the second part of the test, in Sec.  __.23(c), the 
proposal aimed to evaluate a bank's efforts to offer credit and deposit 
products responsive to the needs of low- and moderate-income 
individuals, small businesses, and small farms depending on bank asset 
size.\982\ The agencies also proposed in Sec.  __.23(a)(2) that 
activities considered for a bank under the Community Development 
Services Test may not also be considered under the Retail Services and 
Products Test. (For a discussion of the evaluation of community 
development services, see the section-by-section analysis for the 
Community Development Services Test in Sec.  __.25.)
---------------------------------------------------------------------------

    \980\ See proposed Sec.  __.23(a)(1).
    \981\ See proposed Sec.  __.23(b).
    \982\ See proposed Sec.  __.23(c).
---------------------------------------------------------------------------

    The agencies proposed a tailored approach to the Retail Services 
and Products Test based on a large bank's asset size. As discussed in 
more detail in the section-by-section analysis of Sec.  __.23(b) and 
(c), for large banks with assets of $10 billion or less in both of the 
prior two calendar years, based on the assets reported on its four 
quarterly Call Reports for each of those calendar years, the agencies 
proposed making certain components optional to reduce the data burden 
of new data collection requirements for banks within this asset 
category. For large banks with assets of over $10 billion, the agencies 
proposed requiring the full evaluation under the proposed Retail 
Services and Products Test.
Comments Received
    Many of the commenters addressing the Retail Services and Products 
Test generally supported the agencies' proposal, although there were 
differences among commenters on how to apply the test, with several of 
these commenters making recommendations on how the test could be 
improved. A few commenters argued that the test's quantitative 
guidelines do not add value in measuring bank performance, but 
supported the use of both qualitative and quantitative approaches if 
banks are given the opportunity to explain performance that falls short 
of the targets. Other commenters recommended that the test include a 
more rigorous assessment of retail banking and services, with two 
commenters noting that, while there are improvements to the service 
test, the test needs further developing to guide examiners against 
ratings inflation. Two commenters believed the test should be applied 
to small and intermediate banks to determine the effectiveness and 
impact of retail services and products, with one of these commenters 
believing application to these banks would be critical to ensuring 
branches are present in low-income communities and communities of 
color. One other commenter suggested that some activities included 
under the proposed Community Development Services Test--financial 
literacy and technical assistance to small businesses--should instead 
be included under the Retail Services and Products Test. A few other 
commenters recommended that direct and indirect consumer lending be 
evaluated quantitatively in the Retail Lending Test, but also 
qualitatively in the Retail Services and Products Test.
    A few commenters recommended that aspects of the test be more 
flexible to address different business models and account for recent 
and future changes in digital banking. One of these commenters 
expressed concern that the proposed Retail Services and Products Test 
could be interpreted as requiring a bank to provide particular products 
and services deemed to be beneficial to low- and moderate-income people 
and requested clarification that this was not intended. This commenter 
also believed that the test would be inconsistent with both the 
agencies' stated goal of tailoring the framework to different business 
models and the safe and sound statutory requirement. A few commenters 
also suggested that the agencies avoid making peer-based comparisons 
under the final rule in which one particular bank is penalized for not 
offering a particular product or service that is offered by another 
bank.
    Some commenters provided recommendations for incorporating race and 
ethnicity into the proposed Retail Services and Products Test. One 
commenter asserted that all elements of the agencies' proposed Retail 
Services and Products Test applicable to low- and moderate-income 
consumers and communities could also be applied to minority consumers 
and communities. This commenter indicated, for example, that in 
addition to evaluating branching in low- and moderate-income 
communities the agencies could evaluate branching in minority 
communities. Another commenter asserted that the banking industry 
increasingly resorts to providing digital access to financial services 
and products and services to reduce costs, but in doing so risks 
further excluding minority consumers and communities given that they 
then have both less access to branches and more limited digital 
capabilities than white consumers and communities. A commenter 
expressed the view that the agencies should expand qualitative reviews 
in the Retail Services and Products Test to provide consideration for 
activities that close the racial wealth gap by affirmatively serving 
racial minority consumers and communities. This commenter provided 
examples such as special purpose credit programs targeted to minority 
consumers, affirmative marketing and offering of affordable products to 
minority consumers, and responsible lending practices to prevent 
displacement. Another commenter proposed that positive consideration be 
given for special purpose credit programs, small-dollar home mortgage 
programs, limited English proficiency products, and products for first-
generation homebuyers, indicating that they all contributed to racial 
equity in housing. This commenter added that incentivizing bank 
activities with first-time, socially disadvantaged homebuyers would 
meaningfully address the racial minority home ownership gap. One 
commenter stated that the agencies, when evaluating the distribution of 
services and products to low- and moderate-income consumers and 
communities, should assess a bank's strategies and initiatives to 
serve, and the responsiveness of the bank's services and products to, 
the needs of minority consumers and communities. Another commenter 
asserted that the CRA regulations should incentivize banks to meet the 
credit needs of minority communities in a variety of ways, including by 
creating products and services specifically responsive to minority 
community needs, placing branches in majority-minority neighborhoods, 
and investing in

[[Page 6925]]

community development projects that serve minority communities. A 
commenter asserted that banks that only offer expensive products that 
do not serve community needs should be adversely rated. Another 
commenter stated that agencies should evaluate the qualitative impact 
of all bank lending, and prohibit predatory practices like negative 
amortization, interest-only loans, and adjustable-rate mortgages. A 
number of commenters asserted that whether a bank maintains branches in 
minority communities should be a performance factor. For example, a 
commenter stated that the agencies should consider a bank's branch 
distribution across tracts with different racial demographics, 
including majority-minority census tracts, in comparison to the 
aggregate distribution. The agencies have considered these comments and 
are addressed in section III.C of this SUPPLEMENTARY INFORMATION.
Final Rule
    For the reasons discussed below, the agencies are adopting, with 
certain revisions, the proposed scope and framework of the Retail 
Services and Products Test in Sec.  __.23(a)(1). More specifically, the 
agencies are revising the description of the scope of final Sec.  
__.23(a)(1) by clarifying that the test evaluates the availability and 
accessibility of a bank's retail banking services and products and the 
responsiveness of those services and products to the needs of the 
bank's entire community, including but not limited to low- and 
moderate-income individuals, families, or households and low- and 
moderate-income census tracts, as well as the needs of small businesses 
and small farms. In response to comments, the agencies are also 
removing the word ``targeted'' from the regulatory text in this 
paragraph to make clear that this evaluation does not mandate that 
banks make available certain products or services or target certain 
populations. In addition, as explained in more detail in the section-
by-section analysis of Sec.  __.23(b) (retail banking services) and (c) 
(retail banking products), the agencies are making certain revisions to 
the components of the Retail Services and Products Test upon 
consideration of the comments received.
    The agencies are also adding clarity in final Sec.  __.23(a)(2) 
that branches, for the purposes of the Retail Services and Products 
Test, also include a main office of a bank, if the main office is open 
to, and accepts deposits from, the general public. It was the intent of 
the agencies to consider a main office that offers deposits and is open 
to the general public as part of the test. No change in meaning is 
intended and this addition is meant to provide clarity to the 
evaluation.
    Finally, to ensure that bank activities that are considered under 
the Retail Services and Products Test are not also considered under the 
Community Development Services Test, the agencies are retaining the 
exclusion as proposed in final Sec.  __.23(a)(3), with a technical edit 
to change the word ``activities'' to ``services.'' The agencies believe 
the use of the word ``services'' rather than ``activities'' more 
clearly represents the types of activities evaluated under both the 
Community Development Services Test and the Retail Services and 
Products Test.
    As explained in the proposal, the agencies are drawing on the 
existing approach used to evaluate a bank's retail services, while also 
updating and standardizing the evaluation criteria to reflect the now 
widespread use of mobile and online banking. Although some commenters 
expressed concern with how benchmarks are applied, the agencies believe 
that utilizing both a quantitative and qualitative approach to the test 
achieves the goals of maintaining the current approach to retail 
services while better standardizing the evaluation criteria. The 
agencies are sensitive to concerns about examiner judgment and 
understand the need to provide examiners guidance on applying the test. 
The agencies note that, while examiner judgment is an important part of 
the CRA evaluation process, the agencies will endeavor to minimize 
unnecessary subjectivity and increase consistency among examiners by 
providing updated guidance, training, and standards applicable to 
evaluations under this test while also attempting to guard against 
ratings inflation. The agencies believe that measured examiner judgment 
is necessary to account for the unique characteristics of a bank, 
including its constraints, business model, and the needs of its 
community. The agencies are also clarifying that the intent of the 
Retail Services and Products Test is not to mandate that a bank offer 
particular products or programs or to evaluate or penalize a bank based 
on the types of products or services its peers offer. Rather, the 
agencies intend to measure the availability and responsiveness of a 
bank's retail services to the needs of its communities.
    The agencies also considered commenters' recommendation to require 
the evaluation of the Retail Services and Products Test for small and 
intermediate banks. As explained in the section-by-section analysis of 
Sec. Sec.  __.21 (performance tests), __.29 (small banks), and __.30 
(intermediate banks), these banks have more limited capacities and are 
less able to offer as wide a range of retail services and products as 
their larger counterparts. Requiring this test would increase the 
burden on these banks without sufficient compensating benefits. The 
agencies believe that additional consideration for activities under the 
Retail Services and Products Test for small and intermediate banks 
without a requirement to collect additional data is appropriate, as it 
may encourage additional activities in low- and moderate-income 
communities, without imposing additional burden. The agencies also 
considered commenters' recommendations with respect to the evaluation 
of other activities, such as financial literacy and technical 
assistance to small businesses. The agencies, however, believe that 
services such as these are best evaluated under the Community 
Development Services Test. Evaluating community development services 
separately from the Retail Services and Products Test underscores the 
importance of these services for fostering partnerships among different 
stakeholders, building capacity, and creating the conditions for 
effective community development.

Section __.23(b) Retail Banking Services

Section __.23(b)(1) Scope of Evaluation
The Agencies' Proposal
    For large banks with assets of over $10 billion, the agencies 
proposed in Sec.  __.23(b), to evaluate the full breadth of a bank's 
delivery systems by both maintaining an emphasis on branches and 
increasing the focus on digital and other delivery channels. 
Specifically, the agencies proposed to evaluate three components of the 
bank's performance: (1) branch availability and services in proposed 
Sec.  __.23(b)(1); (2) remote service facility availability in proposed 
Sec.  __.23(b)(2); and (3) digital and other delivery systems in 
proposed Sec.  __.23(b)(3). The proposal required large banks with 
assets of $10 billion or less to be evaluated only under the first two 
components of delivery systems, unless the bank requested additional 
consideration of its digital and other delivery systems and collected 
the requisite data.\983\ The agencies asked for feedback on whether the 
evaluation of digital and other delivery systems

[[Page 6926]]

should be optional or required for banks with assets of $10 billion or 
less as proposed, or alternatively, whether the agencies should 
maintain current evaluation standards for alternative delivery systems 
for banks within this tier. The current evaluation standards include, 
for example, the ease of access and use, reliability of the system, 
range of services delivered, cost to consumers as compared with the 
bank's other delivery systems, and rate of adoption and use.
---------------------------------------------------------------------------

    \983\ See proposed Sec. Sec.  __.23(b) and __.42(a)(4)(ii).
---------------------------------------------------------------------------

Comments Received
    Most commenters that addressed branch availability and services, 
and remote service facility availability agreed that branches remain an 
important component in the evaluation of a bank's delivery systems, 
with some of these commenters noting that availability of branches 
curtails the proliferation and use of predatory lenders in those areas. 
Other commenters questioned the application of the evaluation to 
digital banks with relatively few or no branches or remote service 
facilities.
    Some commenters suggested that banks deemed to be performing at a 
``High Satisfactory'' or ``Outstanding'' level on the proposed Retail 
Lending Test should receive a presumption that their distribution 
channels are sufficiently serving low- and moderate-income communities, 
or at least receive a relatively perfunctory evaluation of their 
channels of distribution. One commenter asked for clarity on how the 
evaluation criteria will be used to assess branch availability and 
services, remote service facility availability, digital alternatives, 
and other delivery systems in practice. Another commenter expressed 
concern that banks maintaining branches in underserved areas with 
little commercial or lending activity would be unable to pass the 
Retail Lending Volume Screen forcing these banks to close branches in 
these underserved areas and disincentivizing potential new market 
entrants from growing into rural markets. Two other commenters asked 
that the agencies consider the following: clarify that delivery 
services would be evaluated holistically to consider whether all 
delivery channels together effectively meet the needs of a bank's 
customers and communities; mitigate business-related factors behind 
branch closures; determine the weight of each type of delivery system, 
including branches, based on the bank business model and in proportion 
to the bank's use of such systems; provide favorable consideration for 
branch openings in low- and moderate-income communities and other areas 
of need; and apply a totality of the circumstances approach that 
includes, e.g., the availability and responsiveness of the bank's 
branches and services in low- or moderate-income census tracts and to 
low- or moderate-income individuals, customer complaints or 
testimonials, and the bank's own policies and procedures.
    One commenter argued that the proposal over-emphasizes delivery 
systems without acknowledging that banks are effectively meeting the 
needs of low- and moderate-income consumers through existing delivery 
channels. This commenter further stated that the emphasis on physical 
branches makes it likely that the rule would need to be updated again, 
as digital banking becomes more common. Another commenter asserted that 
the proposed framework to evaluate the distribution of a bank's 
branches and remote service facilities penalizes banks that primarily 
operate through their branch and ATM network and appears to favor a 
business model with few or no branches. This commenter urged the 
agencies to consider, instead, an evaluation of branches and ATMs that 
can only be favorably considered in a bank's Retail Services and 
Products Test conclusion.
    Most commenters that addressed the agencies' request for comment on 
whether large banks with assets of $10 billion or less should be 
subject to an evaluation of their digital and other delivery systems 
recommended that all large banks, including those with assets of $10 
billion or less, should be subject to this evaluation. A few of these 
commenters suggested that, at minimum, the agencies should consider 
evaluating large banks with assets of $10 billion or less under this 
component, if a certain amount of their deposit activity (e.g., one 
third) is generated from digital channels. One commenter recommended 
that the evaluation should be optional for banks in the intermediate 
bank category and above. Another commenter recommended that military 
banks or banks serving military and veteran customers that have assets 
of $10 billion or less have the ability to request additional 
consideration of its digital delivery systems and other delivery 
systems. Another commenter suggested that CRA modernization should be 
used to encourage small and intermediate banks to incorporate digital 
channels and capabilities, including through partnerships with 
fintechs, to better reach low- and moderate-income consumers and small 
businesses. By contrast, some commenters recommended that evaluation of 
digital and other delivery systems should remain optional for all large 
banks. One other commenter stated that the asset threshold for optional 
evaluation of this component of $10 billion or less was too low and 
recommended that it be increased to $100 billion or less.
Final Rule
    The final rule adopts Sec.  __.23(b) with technical edits related 
to the organization of the retail banking services evaluation. 
Specifically, final Sec.  __.23(b) renames the section header from 
``delivery systems'' to ``retail banking services'' and adds the same 
terminology throughout the regulatory text where appropriate. No change 
in meaning is intended and this revision is meant to provide clarity 
that the evaluation measures the availability and accessibility of a 
bank's retail banking services, including through delivery systems such 
as branches. The final rule also includes a revision related to the 
consideration of digital delivery systems and other delivery systems 
for large banks with assets of $10 billion or less as of December 31 in 
either of the prior two calendar years that do not operate branches or 
remote service facilities. The agencies are also making the 
clarification that the respective evaluations of bank branches or 
remote service facilities only apply to a particular bank if the bank 
has one or more branches or remote service facilities. Specifically, 
the final rule requires large banks with assets of over $10 billion to 
be evaluated for their delivery systems under: final Sec.  __.23(b)(2) 
(branch availability and services), if the bank operates one or more 
branches, final Sec.  __.23(b)(3) (remote service facility 
availability), if the bank operates one or remote service facilities, 
and final Sec.  __.23(b)(4) (digital delivery systems and other 
delivery systems) (see the section-by-section analysis of Sec.  
__.23(b)(2) through (4) for additional details). Large banks, including 
military banks,\984\ with assets of $10 billion or less that have

[[Page 6927]]

branches will be evaluated only under the first two components unless 
they opt for consideration of digital delivery systems and other 
delivery systems. Further, military banks that are small and 
intermediate banks may also request consideration for digital and other 
delivery systems pursuant to Sec.  __.29(b) or Sec.  __.30(b), as 
applicable.
---------------------------------------------------------------------------

    \984\ As discussed in the section-by-section analysis of final 
Sec.  __.21(a)(5), the agencies are adopting a new paragraph in the 
final rule to clarify the evaluation of military banks. Under the 
final rule, the agencies will evaluate a military bank that chooses 
to delineate the entire United States and its territories as its 
sole facility-based assessment area because its customers are not 
located within a defined geographic area, as specified in final 
Sec.  __.16(d), exclusively at the institution level based on the 
bank's performance in its sole facility-based assessment area. For 
purposes of the final Retail Services and Products Test, the 
agencies will evaluate these banks at the facility-based assessment 
area level pursuant to the provisions of final Sec.  __.16 for 
retail banking services, and, as with other large banks with assets 
of $10 billion or less, military banks can request the evaluation of 
digital delivery systems and other delivery systems at the 
institution level.
---------------------------------------------------------------------------

    In response to comments, the final rule clarifies that a large bank 
that had assets of $10 billion or less as of December 31 in either of 
the prior two calendar years and that does not operate branches will be 
evaluated only for its digital delivery systems and other delivery 
systems under Sec.  __.23(b)(4). This is a change from the proposal, 
which required the evaluation of this component only for large banks 
with assets of over $10 billion. The agencies believe requiring the 
evaluation of digital delivery systems and other delivery channels for 
branchless large banks with assets of $10 billion or less is 
appropriate, recognizing that such banks do not deliver retail services 
to their customers through branches.
    However, the agencies decline to require in the final rule an 
evaluation of digital delivery systems and other delivery systems for 
all large banks as suggested by some commenters. The agencies remain 
sensitive to the impact of new data collection requirements for large 
banks with assets of $10 billion or less, and believe it is preferable 
to only require this evaluation component for such banks with no 
branches as described above. The agencies believe requiring evaluation 
of the digital delivery systems and other delivery systems of 
branchless banks with assets of $10 billion or less ensures that the 
delivery systems of such banks are evaluated, while appropriately 
tailoring the approach for banks with assets of $10 billion or less, 
which may have less capacity to meet new data collection requirements.
    The agencies note that the approach used in the final rule for 
evaluating a large bank's retail banking services would leverage 
quantitative benchmarks to inform the branch and remote service 
facility availability analysis and provide favorable qualitative 
consideration for branch locations in certain geographic areas. In 
comparison to the current CRA regulations, the final rule also more 
fully evaluates digital and other delivery systems, as applicable, in 
recognition of the trend toward greater use of online and mobile 
banking.
    The agencies decline to adopt the recommendation from some 
commenters that a large bank receiving a ``High Satisfactory'' or 
``Outstanding'' level of performance on the Retail Lending Test should 
be exempted in some way from a Retail Services and Products Test 
evaluation or be awarded a presumptive conclusion under the Retail 
Services and Products Test. The agencies believe that a high level of 
performance in the Retail Lending Test does not obviate the importance 
of evaluating how well the bank serves its community through branches 
and other delivery systems. The agencies believe that the branch 
distribution and availability, remote services availability, and 
digital delivery systems and other delivery systems evaluations are 
important components in evaluating how well a bank is meeting the 
credit needs of its communities, including low- and moderate-income 
individuals, families, or households and low- and moderate-income 
census tracts. The agencies note that in determining how well the bank 
serves its communities through retail services and products, as 
explained in more detail in the section-by-section analysis of Sec.  
__.23(d), the final rule considers the bank's business model and other 
performance context factors when evaluating the bank's retail banking 
services. Examiners will account for, among other things, mitigating 
factors for closing branches and whether the bank's delivery channels 
are meeting the needs of the bank's communities and customers.
Section __.23(b)(2) Branch Availability and Services
Section __.23(b)(2)(i) Branch Distribution
Section __.23(b)(2)(i)(A) Branch Distribution Metrics
Section __.23(b)(2)(i)(B) Benchmarks
Current Approach
    Under the current CRA regulations, the service test performance 
criteria for retail banking services place primary emphasis on full 
service branches while still considering alternative delivery 
systems.\985\ Interagency guidance explains that the principal focus is 
on an institution's current distribution of branches and its record of 
opening and closing branches, particularly branches located in low- or 
moderate-income geographies or that primarily serve low- or moderate-
income individuals.\986\ An evaluation of a large bank's branch 
locations involves a review primarily of information gathered from a 
bank's public file.\987\ Using various methods, the agencies evaluate 
the distribution of branches across census tracts of different income 
levels relative to the percentage of census tracts by income level, 
households (or families), businesses, and population in the census 
tracts.
---------------------------------------------------------------------------

    \985\ See current 12 CFR __.24(d).
    \986\ See Q&A Sec.  __.24(d)--1.
    \987\ See Interagency Large Institution CRA Examination 
Procedures (Apr. 2014).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to evaluate a large bank's distribution of 
branches among low-, moderate-, middle-, and upper-income census 
tracts, compared to a series of quantitative benchmarks \988\ that 
reflect community and market characteristics as the first component of 
the delivery systems evaluation. Specifically, the agencies proposed, 
in Sec.  __.23(b)(1)(i)(A), to consider the number and percentage of 
the bank's branches within low-, moderate-, middle-, and upper-income 
census tracts, referred to as branch distribution metrics, using the 
data in proposed Sec.  __.23(b)(1)(i)(B), referred to as benchmarks, to 
evaluate a bank's branch distribution among low-, moderate-, middle-, 
and upper-income census tracts.\989\ The agencies further proposed that 
consideration of the branch distribution metrics in a facility-based 
assessment area would be informed by benchmarks for the distribution of 
census tracts, households, total businesses, and all full-service bank 
branches by census tract income level.\990\ Each income level and data 
point (census tracts, households, businesses, and branches) would have 
a benchmark, specific to each assessment area.\991\ The agencies asked 
for feedback on whether the agencies should use the percentage of 
families and total population in an assessment area by census tract 
income level in addition to the other comparators listed (i.e., census 
tracts, households, and businesses) for the assessment of branches and 
remote service facilities.
---------------------------------------------------------------------------

    \988\ See proposed Sec.  __.23(b)(1)(i)(B).
    \989\ See proposed Sec.  __.23(b)(1)(i)(A) and (B).
    \990\ See proposed Sec.  __.23(b)(1)(i)(B)(1) through (4).
    \991\ See id.
---------------------------------------------------------------------------

    As explained more fully below, in the section-by-section analysis 
of Sec.  __.23(b)(1)(i)(C), the agencies also proposed to consider the 
availability of branches in low or very low branch access census 
tracts, middle- and upper-income census tracts in which branches 
deliver services to low- and moderate-income individuals, distressed or 
underserved nonmetropolitan middle-income census tracts, and Native 
Land Areas.

[[Page 6928]]

Comments Received
    Several commenters supported the application of branch distribution 
metrics and benchmarks, and recommended removal of examiner judgment by 
providing examiners with enough guidance on how to apply the metrics 
and weigh the distribution of benchmarks to guard against ratings 
inflation. Commenters also expressed a range of views in response to 
the agencies' request for feedback on whether the percentage of 
families and total population should be used as additional comparators 
to those in the proposal to assess branches and remote service 
facilities. A vast majority of commenters that responded to this 
request stated that introducing these additional data points would be 
unnecessary and redundant given the comparators proposed in the rule 
such as census tracts, households, and businesses. One commenter 
believed the use of total population in an assessment area by census 
tract would be an unreliable indicator due to population income shifts 
over time. Another commenter recommended instead that the agencies 
consider external factors, such as commuting patterns, which may impact 
branch access. One commenter suggested broadening the criteria for 
evaluating a bank's branch distribution so that the agencies consider 
the population density and amount of economic activity in a particular 
census tract. Another commenter suggested information such as public 
transportation and accessibility should also be considered. One 
commenter requested clarification on how the agencies arrived at the 
benchmarks for branch distribution as they appeared to be arbitrary.
Final Rule
    The agencies are adopting proposed Sec.  __.23(b)(1)(i)(A) (branch 
distribution metrics) and (B) (benchmarks), renumbered in the final 
rule as Sec.  __.23(b)(2)(i)(A) and (B), respectively, with minor word 
changes for clarity and with no change in meaning intended.\992\ The 
agencies believe that the analysis of a bank's branch distribution 
through the use of metrics and benchmarks is appropriate to promote 
more transparency and consistency in the evaluation process and are 
incorporating and building upon on current practices. Examiners will be 
able to compare a bank's branch distribution to local data to help 
determine whether branches are accessible in low- or moderate-income 
communities, to households of different income levels, and to 
businesses in the assessment area.
---------------------------------------------------------------------------

    \992\ See supra note 145.
---------------------------------------------------------------------------

    In light of the comments received, the agencies have determined 
that the benchmarks sufficiently measure branch distribution. As a 
result, the agencies believe that other external data factors such as 
commuting patterns, public transportation, population density, and 
other factors are not necessary for this analysis. The agencies plan to 
provide guidance to examiners on how to consider market and demographic 
benchmarks when comparing to branch distribution. However, the agencies 
note that examiners will continue to have the ability to consider 
qualitative factors to inform the analysis of a bank's branch 
distribution.
    In response to the commenter that requested the agencies provide 
clarification on how they arrived at the benchmarks, as explained in 
the proposal, the agencies believe that the three community benchmarks 
are important to provide additional context for each assessment area. 
The percentage of census tracts in a facility-based assessment area by 
income level enables the agencies to compare a bank's distribution of 
branches in census tracts of each income level to the overall 
percentage of those census tracts in the assessment area. For example, 
if 20 percent of a bank's branches are located in low-income census 
tracts in an assessment area, and 10 percent of census tracts in the 
assessment area are low-income, the agencies may consider the bank to 
have a relatively high concentration of branches in low-income census 
tracts. The percentage of households and the percentage of total 
businesses in the facility-based assessment area by census tract income 
level are important complements to the percentage of census tracts in a 
facility-based assessment area by income level, because households, 
businesses, and farms reflect a bank's potential customer base, and may 
not be distributed evenly across census tracts. Therefore, the agencies 
would consider all benchmark levels to inform a judgment about the 
bank's branch distribution in the market.
    As further explained in the proposal, the agencies also believe 
that using a new aggregate measurement of branch distribution--referred 
to as a market benchmark \993\--that would measure the distribution of 
all full-service bank \994\ branches in the same facility-based 
assessment area by census tract income, would improve the branch 
distribution analysis in several ways. First, having such data would 
give examiners more information for determining the extent that branch 
services are provided in census tracts of different income levels. 
Second, examiners would have market data on branches within facility-
based assessment areas to identify the extent that census tracts of 
various income levels are served by other banks' branches relative to 
community benchmarks. For example, if few other banks have branches in 
low-income or moderate-income census tracts within a given area, then a 
bank's higher share would indicate responsive or meaningful branch 
activity relative to their peers.
---------------------------------------------------------------------------

    \993\ The aggregate number of branches in an assessment area 
figure in a market benchmark is comprised of full-service and 
limited-service branch types as defined in the FDIC's Summary of 
Deposits.
    \994\ The agencies intend to issue guidance to explain the term 
``full-service bank'' and how the agencies will apply the term.
---------------------------------------------------------------------------

Section __.23(b)(2)(i)(C) Geographic Considerations Access
The Agencies' Proposal
    In addition to the consideration of branch metrics in Sec.  
__.23(b)(1)(i)(A) and benchmarks in Sec.  __.23(b)(1)(i)(B) for the 
evaluation of a bank's branch distribution analysis, the agencies also 
proposed to consider the availability of branches in the following 
geographic areas: (1) low or very low branch access census tracts; (2) 
middle- and upper-income census tracts in which branches deliver 
services to low- and moderate-income individuals; (3) distressed or 
underserved nonmetropolitan middle-income census tracts; and (4) Native 
Land Areas.
    In Sec.  __.23(b)(1)(i)(C)(1), the agencies proposed providing 
favorable consideration for banks that operate branches in ``low branch 
access census tracts'' or ``very low branch access census tracts.'' 
\995\ The agencies proposed definitions for these two types of census 
tracts.\996\ A census tract would qualify as low branch access or very 
low branch access based on the number of bank branches, including 
branches of commercial banks, savings and loan associations, and credit 
unions found within a certain distance of the census tract's center of 
population.\997\ Low branch access census tracts would have been those 
in which there is only one branch within this distance or within the 
census tract itself, and very low branch access census tracts would 
have been those in which there are no

[[Page 6929]]

branches within this distance or within the census tract itself.\998\
---------------------------------------------------------------------------

    \995\ See proposed Sec.  __.23(b)(1)(i)(C)(1).
    \996\ See proposed Sec.  __.12.
    \997\ See id.
    \998\ See id.
---------------------------------------------------------------------------

    The agencies indicated in the proposal that they were considering 
two distance-based approaches: (1) the proposed ``fixed distance 
approach;'' and (2) the alternative ``local approach,'' to determine 
the relevant distance threshold for each census tract. The agencies 
also considered a second, more qualitative alternative, which did not 
set specific geographic distances in the identification of areas that 
may experience limited access to branches.
    Proposed approach to low and very low branch access (fixed distance 
approach). In the proposed approach, a fixed distance threshold would 
be established based on whether the census tract is in an urban, 
suburban, or rural area.\999\ Urban areas would have a distance 
threshold of two miles, suburban areas would have a distance threshold 
of five miles, and rural areas would have a distance threshold of 10 
miles.\1000\ The agencies proposed providing the following scenarios 
with favorable consideration: (1) a bank opens a branch that alleviates 
one or more census tracts' very low branch access status; or (2) a bank 
maintains a branch in one or more census tracts' low branch access 
status. In addition, the agencies proposed assessing whether a bank 
provides effective alternatives for reaching low- and moderate-income 
individuals, communities, and businesses when closing a branch that 
would lead to one or more census tracts being designated low or very 
low branch access. The agencies sought feedback on how narrowly 
designations of low branch access and very low branch access should be 
tailored so that banks may target additional retail services 
appropriately.
---------------------------------------------------------------------------

    \999\ See proposed Sec.  __.12.
    \1000\ See id.
---------------------------------------------------------------------------

    Alternative approach to low and very low branch access (local 
alternative approach). In the alternative approach described by the 
agencies in the SUPPLEMENTARY INFORMATION of the proposal, a separate 
local area would be identified for each set of central counties of a 
metropolitan area and metropolitan division, the outlying counties of 
each metropolitan area and metropolitan division, and the 
nonmetropolitan counties of each State, as defined by the Office of 
Management and Budget. This alternative approach would determine the 
distance thresholds for defining low and very low branch access census 
tracts relative to local variation in population density and land-use 
patterns, and would adjust over time as branches open and close. The 
agencies sought feedback on how geographies should be divided to 
appropriately identify different distance thresholds and whether a 
fixed distance standard, such as that in the proposed approach, or a 
locally determined distance threshold, such as in the alternative 
approach, would be most appropriate when identifying areas with limited 
branch access.
    Qualitative alternative approach to evaluating areas with few or no 
branches (qualitative alternative approach). Under a qualitative 
alternative approach described by the agencies in the SUPPLEMENTARY 
INFORMATION of the proposal, the agencies would not define a ``low 
branch access census tract,'' a ``very low branch access census 
tract,'' or any similar term. Instead, in addition to considering the 
bank's branch distribution metrics compared to benchmarks and record of 
opening and closing branches for each facility-based assessment area, 
the agencies would undertake a qualitative consideration of certain 
factors related to low- and moderate-income census tracts with few or 
no branches. These factors may include considering the availability of 
a bank's branches; the bank's actions to maintain branches; the bank's 
actions to otherwise deliver banking services; and specific and 
concrete actions by a bank to open branches in these areas.
    Under the proposed and alternative approaches, the agencies 
proposed providing the following scenarios with favorable 
consideration: (1) a bank opens a branch that alleviates one or more 
census tracts' very low branch access status; or (2) a bank maintains a 
branch in one or more census tracts' low branch access status. In 
addition, the agencies proposed assessing whether a bank provides 
effective alternatives for reaching low- and moderate-income 
individuals, communities, and businesses when closing a branch that 
would lead to one or more census tracts being designated low or very 
low branch access. The agencies sought feedback on how narrowly 
designations of low branch access and very low branch access should be 
tailored so that banks may target additional retail services 
appropriately.
    Lastly, the agencies sought feedback on whether the presence of 
credit unions should be considered under any of the proposed 
approaches, and on other alternative approaches or definitions that 
should be considered in designating places with limited branch access.
Comments Received
    In response to the agencies' proposed fixed distance approach and 
the alternative local distance approach, commenters were divided in 
their views on which of the two approaches would be most appropriate to 
use in determining the relevant distance threshold for census tracts 
proposed to be defined as low or very low branch access. Several 
commenters supported the fixed distance approach, with one commenter 
stating it would create a more consistent framework. This commenter 
argued that the local approach may disincentivize banks from adding 
branches in low branch access areas as it would result in the distance 
threshold decreasing in the next evaluation. By contrast, other 
commenters argued that the local approach would be preferable, with one 
of these commenters stating that the local approach has a broader reach 
and is a more precise measure due to the local context. A few other 
commenters asked for clarification on how low and very low branch 
access would be considered in the examination, with one of these 
commenters further noting that the concept lacked clarity with respect 
to the impact opening or closing of branches would have on these 
geographies. One commenter suggested that a smaller distance, such as a 
quarter mile, should be used in densely populated areas. Another 
commenter suggested that the definitions of ``low'' and ``very low'' 
branch access should connect to branches per population and rates of 
unbanked and underbanked populations, and that the agencies should 
consider community input in making a final determination.
    Commenters' views on how geographies should be divided were 
generally in line with the proposed approach. However, one commenter 
recommended that the agencies use existing data tools to delineate or 
divide geographies for each distance threshold. For example, the 
agencies could use a combination of the FFIEC's guidance on census 
tracts to delineate or divide geographies for each distance threshold 
and the USDA's Economic Research Service, which provides rural-urban 
codes to classify how commutable certain rural and urban census tracts 
are based on urbanization, population density, and daily commuting 
patterns.
    In response to how often local distances for the alternative local 
distance approach, if adopted, should be updated, some commenters 
recommended different frequencies including: updating in real-time 
using geographic mapping applications;

[[Page 6930]]

annually; over a period of under three years; and no more frequently 
than every five years so as not to exacerbate issues regarding distance 
thresholds decreasing, and the resulting increase in areas being 
designated as low branch access.
    Some commenters expressed a range of views with respect to whether 
credit union branches should be considered in the geographic 
considerations. Most of these commenters believed that credit union 
locations should not be considered for several reasons, including that 
credit unions are not subject to CRA, have limitations in their 
membership that could disqualify members of the community from 
utilizing their services, and pursue very different models from banks. 
Two commenters believed credit union locations should be included, with 
one commenter stating that credit union product offerings are very 
similar to those of banks. One commenter noted that if activities 
evaluated under the CRA are offered by credit unions, then their 
locations should be considered.
Final Rule
    The agencies are not finalizing proposed Sec.  __.23(b)(1)(i)(C)(1) 
to provide consideration for the availability of branches in low or 
very low branch access census tracts in the evaluation of a bank's 
branch distribution analysis. In making this determination, the 
agencies considered several points. As noted by some commenters, the 
agencies considered that while each of the approaches identified by the 
agencies had benefits, there were also downsides to each approach. The 
decision to remove these criteria is responsive to comments received 
regarding limitations of each of the methodologies proposed in terms of 
including local context, minimizing unnecessary complexity in the final 
rule, and avoiding unintended effects. Furthermore, the agencies 
believe that, without direct consideration of low and very low branch 
access areas, the final rule already includes sufficient consideration 
for branches in additional geographic areas which supplement the 
benchmarks based on tract-level median incomes. The final rule includes 
additional geographic considerations for areas that include: middle- 
and upper-income census tracts with branches delivering services used 
by low- and moderate-income individuals, families, or households; 
distressed or underserved nonmetropolitan middle-income census tracts 
that are defined, in part, based on being remote and lacking population 
density; and Native Land Areas. These additional geographic 
considerations are discussed below.
Section __.23(b)(2)(i)(C)(1) Middle- and Upper-Income Census Tracts
Section __.23(b)(2)(i)(C)(2) Distressed or Underserved Nonmetropolitan 
Middle-Income Census Tracts
Section __.23(b)(2)(i)(C)(3) Native Land Areas
The Agencies' Proposal
    In addition to the agencies' proposal to designate low and very low 
branch access census tracts, the agencies proposed providing 
qualitative consideration for banks operating branches in other 
geographic areas.\1001\ These areas would be favorably considered when 
evaluating overall accessibility of delivery systems, including to low- 
and moderate-income populations.
---------------------------------------------------------------------------

    \1001\ See proposed Sec.  __.23(b)(1)(i)(C)(2) through (4).
---------------------------------------------------------------------------

    Specifically, in Sec.  __.23(b)(1)(i)(C)(2), the agencies proposed 
providing qualitative consideration for retail branching in middle- and 
upper-income census tracts if a bank can demonstrate that branch 
locations in these geographies deliver services to low- or moderate-
income individuals.\1002\ The agencies sought feedback on what 
information banks should be required to provide to demonstrate the 
delivery of such services to low- or moderate-income individuals.
---------------------------------------------------------------------------

    \1002\ See proposed Sec.  __.23(b)(1)(i)(C)(2).
---------------------------------------------------------------------------

    In addition, in Sec.  __.23(b)(1)(i)(C)(3), the agencies proposed 
providing qualitative consideration for banks that operate branches in 
a ``distressed or underserved nonmetropolitan middle-income census 
tract'' as defined in proposed Sec.  __.12. The agencies sought 
feedback on whether branches in distressed or underserved 
nonmetropolitan middle-income census tracts should receive qualitative 
consideration without additional bank documentation that the branch 
provides services to low- or moderate-income individuals. Finally, in 
Sec.  __.23(b)(1)(i)(C)(4), the agencies proposed providing qualitative 
consideration if banks operate branches in ``Native Land Areas'' as 
defined in proposed Sec.  __.12.
Comments Received
    With respect to providing consideration for retail branching in 
middle- and upper-income census tracts, several commenters supported 
favorable qualitative consideration based on proximity to low- or 
moderate-income census tracts or if a bank can demonstrate with data 
that these locations deliver services to low- and moderate-income 
individuals. However, a few commenters opposed giving qualitative 
consideration for retail branching in higher-income census tracts, with 
one commenter stating that it could be used to avoid opening branches 
in low- or moderate-income census tracts. A few other commenters also 
opposed giving qualitative credit for branches in middle- and upper-
income census tracts on the basis that it would be redundant, with one 
commenter explaining that if the agencies adopt the proposal to 
consider deposit products used by customers residing in low- or 
moderate-income census tracts, regardless of the location of the branch 
providing the product, that performance measures would already capture 
branches in non-low- or moderate-income census tracts that effectively 
offer deposit products to customers residing in low- or moderate-income 
census tracts.
    Some commenters generally supported favorable qualitative 
consideration for branches located in distressed and underserved 
nonmetropolitan middle-income census tracts. A few commenters supported 
consideration only if documentation is provided that demonstrates these 
branches serve low- or moderate-income individuals. Two of these 
commenters noted that deposits data could be utilized to support usage 
by low- or moderate-income individuals. Other commenters supported the 
addition of positive consideration for banks that operated branches in 
Native Land Areas. One commenter requested that U.S. military 
installations be added to the list of geographies where banks could 
receive additional consideration if they have branches placed in these 
geographies.
Final Rule
    After considering the comments received, the agencies are adopting 
proposed Sec.  __.23(b)(1)(i)(C)(2) through (4), renumbered in the 
final rule as Sec.  __.23(b)(2)(i)(C)(1) through (3), largely as 
proposed with clarifying edits. In evaluating the overall accessibility 
of retail banking services, including to low- and moderate-income 
individuals, families, or households and low- and moderate-income 
census tracts, the agencies believe it appropriate to provide 
qualitative consideration for operating branches in: (1) middle- and 
upper-income census tracts in which branches deliver services to low- 
and moderate-income individuals, families, or households to

[[Page 6931]]

the extent that low- and moderate-income individuals, families, or 
households use the services offered; (2) distressed and underserved 
nonmetropolitan middle-income census tracts; and (3) Native Land Areas.
    The agencies believe that it is appropriate to extend qualitative 
consideration to bank branches providing retail banking services to 
low- and moderate-income individuals, families, or households because 
access to those services is integral to the financial well-being of 
low- and moderate-income individuals, families, or households wherever 
they reside. Furthermore, the agencies agree with the commenters' 
recommendation that, to ensure that the services provided confer an 
actual benefit to low- and moderate-income individuals, families, or 
households, the consideration of branches in middle- and upper-income 
census tracts should include a requirement that banks demonstrate the 
extent to which low- and moderate- income individuals, families, or 
households utilize the services at these branch locations. Accordingly, 
the final rule provides that if a bank seeks consideration for a branch 
located in a middle- or upper-income census tract, the bank should be 
prepared to provide documentation that indicates the extent to which 
low- or moderate-income individuals, families, or households use the 
services offered. To the extent helpful, the agencies will consider 
providing additional guidance to banks or examiners regarding how banks 
could demonstrate both that their branches in middle- or upper-income 
tracts deliver services to low- or moderate-income individuals, 
families, or households, and the extent to which low- and moderate-
income individuals, families, or households use the services offered.
    The agencies expect banks to use available information to 
demonstrate the degree to which bank branch services in middle- and 
upper-income census tracts are used by low- and moderate-income 
individuals, families, or households. However, in response to 
commenters who suggested the use of deposits data for these purposes, 
the agencies note that the deposits data reported to the agencies at 
the county level under final Sec.  __.42(b)(3) does not have the 
necessary information for the agencies to use that data in making a 
determination whether branches are used by low- or moderate-income 
individuals, families, or households. In addition, deposits data 
reported to the agencies under final Sec.  __.42(b)(3) will be reported 
only by large banks with assets over $10 billion, as well as other 
banks that may opt in to reporting these data. As a result, these data 
will not be useful for determining the income level of the census 
tracts where depositors live or the depositors' income level. However, 
despite the limitations of deposits data, the agencies encourage banks 
to use information available to the bank to demonstrate that branches 
outside of low- and moderate-income census tracts are serving low- and 
moderate-income individuals, families, or households.
    The agencies also believe that qualitative consideration should be 
given to the availability of branches in distressed or underserved 
nonmetropolitan middle-income census tract because, given the economic 
characteristics of these areas, residents, businesses, and farms may 
have limited access to financial services. Additionally, in facility-
based assessment areas where there are few or no low- and moderate-
income census tracts, the consideration of bank branch availability in 
distressed or underserved census tracts could provide examiners with 
additional insight into the bank's overall branch availability.
    The agencies also recognize that branch access is limited for many 
Native communities and consider it appropriate to emphasize bank 
placement of branches in Native Land Areas.\1003\ As previously 
discussed in the section-by-section analysis of Sec.  __.13(j), 
majority-Native American counties have an average of two bank branches 
compared to the nine-branch average in nonmetropolitan counties and 
well below the 27-branch overall average for all counties.\1004\ For 
that reason, the final rule provides additional qualitative 
consideration for bank branches located in Native Land Areas. In 
response to one commenter who suggested additional consideration of 
branches on military installations the agencies note that statistics 
from the 2015 to 2019 American Community Survey show that current 
active-duty and reserve members of the military, as well as veterans 
live in households with higher incomes than households that do not 
contain veterans and decline the inclusion of this addition to the 
final rule.
---------------------------------------------------------------------------

    \1003\ See Miriam Jorgensen and Randall K.Q. Akee, ``Access to 
Capital and Credit in Native Communities: A Data Review, Native 
Nations Institute'' (Feb. 2017), https://www.novoco.com/sites/default/files/atoms/files/nni_find_access_to_capital_and_credit_in_native_communities_020117.pdf.
    \1004\ Information calculated using the FDIC's Summary of 
Deposits (2020).
---------------------------------------------------------------------------

    Finally, the agencies believe that other changes to the final rule 
regarding the positive consideration of deposits products address 
concerns raised by some commenters regarding the redundancies of 
considering deposits products used by customers in low- and moderate-
income census tracts, regardless of branch location.
Section __.23(b)(2)(ii) Branch Openings and Closings
Section __.23(b)(2)(iii) Branch Hours of Operation and Services
Current Approach
    Under current CRA regulations, the agencies evaluate a bank's 
branch openings and closings during the evaluation period relative to 
the bank's branch distribution and consider if any changes impacted 
low- or moderate-income census tracts and accessibility for low- or 
moderate-income individuals.\1005\
---------------------------------------------------------------------------

    \1005\ See current 12 CFR __.24(d)(2); see also Q&A Sec.  
__.24(d)-1.
---------------------------------------------------------------------------

The Agencies' Proposal
    In reviewing a bank's branch availability and services, in proposed 
Sec.  __.23(b)(1)(ii), the agencies proposed to evaluate a bank's 
record of opening and closing branch offices in facility-based 
assessment areas since the previous examination to inform the degree of 
accessibility of banking services to low- and moderate-income 
individuals and in low- and moderate-income census tracts. 
Specifically, the agencies proposed to include an assessment of whether 
branch openings and closings improved or adversely affected the 
accessibility of its delivery systems, particularly in low- and 
moderate-income census tracts and to low- and moderate-income 
individuals.
    In proposed Sec.  __.23(b)(1)(iii)(A), the agencies proposed to 
evaluate the reasonableness of branch hours in low- and moderate-income 
census tracts compared to middle- and upper-income census tracts, 
including but not limited to whether branches offer extended and 
weekend hours. The agencies also proposed in Sec.  __.23(b)(1)(iii)(B) 
to evaluate the range of services provided at branch locations that 
improve access to financial services or decrease costs for low- or 
moderate-income individuals. The agencies proposed further that 
examples of such services could include, but are not limited to:
     Providing bilingual/translation services; \1006\
---------------------------------------------------------------------------

    \1006\ See proposed Sec.  __.23(b)(1)(iii)(B)(1).
---------------------------------------------------------------------------

     Free or low-cost check cashing services, including 
government and payroll check cashing services; \1007\
---------------------------------------------------------------------------

    \1007\ See proposed Sec.  __.23(b)(1)(iii)(B)(2).

---------------------------------------------------------------------------

[[Page 6932]]

     Reasonably priced international remittance services; 
\1008\ and
---------------------------------------------------------------------------

    \1008\ See proposed Sec.  __.23(b)(1)(iii)(B)(3).
---------------------------------------------------------------------------

     Electronic benefit transfer accounts.\1009\
---------------------------------------------------------------------------

    \1009\ See proposed Sec.  __.23(b)(1)(iii)(B)(4).
---------------------------------------------------------------------------

    The agencies sought feedback on whether there are other branch-
based services that could be considered as responsive to low- and 
moderate-income needs. The agencies also proposed in Sec.  
__.23(b)(1)(iii)(C) to evaluate the degree to which branch services are 
responsive to the needs of low- and moderate-income individuals in a 
bank's facility assessment area.
Comments Received
    Several commenters emphasized the importance of branches, with some 
recommending additional consideration as an incentive for banks that 
operate and maintain branches in low- or moderate-income, rural, 
minority, or Native communities. Other commenters recommended stronger 
consequences, including negative consideration, such as penalties, for 
banks closing branches in low- and moderate-income and majority- 
minority communities, including Native American communities. Some 
commenters recommended that the agencies analyze branch closures over a 
period of time that is longer than the examination period and implement 
related quantitative performance metrics. Another commenter believed 
that qualitative factors should be used, as it would be unreasonable to 
draw conclusions about branch accessibility by relying only on 
quantitative calculations of physical branch distribution. Two 
commenters requested guidance related to how a disproportionate number 
of closings or openings in a low- or moderate-income census tract would 
impact the service test score.
    Commenters provided a variety of examples of other branch-based 
services that could be considered responsive to low- and moderate-
income needs. Examples of such services included language services 
geared to individuals with limited English proficiency, including at 
ATM and other remote facilities; other culturally appropriate services 
and resources; individual tax identification number (ITIN) accounts; 
credit-builder loans; other products and services targeting low- and 
moderate-income consumers, including but not limited to low- and 
moderate-income consumers with disabilities; free notary services; free 
or low-cost money orders; access for people with prior banking issues, 
such as those flagged in ChexSystems; and activities that address 
potential fraud. One commenter suggested the ability to come into a 
branch while also being able to meet with a loan officer virtually as 
an example of a branch-based service that should receive consideration. 
Other commenters suggested that deposit-taking automated services and 
ATMs/interactive teller machines could be considered responsive branch-
based services, with one of these commenters particularly noting those 
in banking deserts could be considered responsive to low branch access 
areas. A few commenters expressed support for, and noted the importance 
of, banking services including hours of operation and services 
responsive to low- and moderate-income individuals and in low- and 
moderate-income communities. Other commenters requested that when 
evaluating banking services such as extended hours and ATM placement, 
the agencies should consider different business models (e.g., a grocery 
store in middle- or upper-income areas) and clarify that a bank would 
not be expected to offer such hours at branches located in low- or 
moderate-income census tracts if the bank does not do so at similarly-
situated branches located in middle- or upper-income census tracts.
Final Rule
    The agencies are finalizing Sec.  __.23(b)(1)(ii) (branch openings 
and closings) and (iii) (branch hours of operation and services) as 
proposed, renumbered in the final rule as Sec.  __.23(b)(2)(ii) and 
(iii), respectively, with technical edits not intended to have a change 
in meaning, including revisions of the language with respect to ``check 
cashing services'' and ``electronic benefit transfer accounts.''
    Regarding branch openings and closings, the final rule builds on 
the agencies' current practice in which the evaluation includes an 
assessment of whether branch openings and closings improved or 
adversely affected the accessibility of the bank's retail banking 
services, particularly to low- and moderate-income census tracts and 
low- and moderate-income individuals, families, or households. In 
response to commenters who recommended using incentives for banks 
opening or penalties for closing branches in communities of need, the 
agencies note that the quantitative measures of final Sec.  
__.23(b)(1)(ii) are a single aspect of the branch availability 
evaluation that, similar to the current CRA regulations, extends 
positive consideration for branch openings increasing accessibility of 
banking services to low- and moderate-income individuals, families, or 
households and census tracts. Similarly, branch closings that limit or 
otherwise restrict the availability of retail banking for the same 
individuals and geographies are also considered in evaluating bank 
performance. Under the final rule, examiners will also use qualitative 
factors, such as performance context, to draw conclusions regarding a 
bank's openings and closings of branches, which may impact a bank's 
performance for this evaluation. Importantly, although not considered 
for purposes of the CRA evaluation, the agencies do consider opening 
and closing branches in minority areas for purposes of fair lending 
reviews.
    Also in response to comments, the agencies further note that 
evaluating branch opening and closings over a different time period 
than the time period during which other activities are evaluated with 
respect to the Retail Services and Products Test and other tests would 
make it difficult to measure the bank's overall CRA performance within 
the set evaluation period. The agencies believe that accounting for 
branch openings and closings within the same evaluation period as all 
other bank activities gives a clear overall picture of how well the 
bank is serving its community within a set time period.
    With respect to the bank's hours of operation and services in low- 
and moderate-income census tracts, the agencies considered comments 
regarding the consideration of different business models and branch 
hours expectations in the final rule. The agencies believe the 
evaluation should remain qualitative and that it is not appropriate to 
require that branches offer extended or weekend hours. For that reason, 
final Sec.  __.23(b)(1)(iii)(A) considers the reasonableness of bank 
branch hours in low- and moderate-income census tracts in comparison to 
middle-and upper-income census tracts as the primary qualitative 
consideration. Whether a branch offers extended or weekend hours is 
only one means through which the bank can demonstrate the 
reasonableness of its hours in low- and moderate-income census tracts. 
During their review, examiners will consider a range of qualitative 
factors, including the bank's business model.
    The agencies received a variety of suggestions from commenters as 
to additional responsive branch-based services and considered whether 
these suggested services should be added to the agencies' proposed list 
of services considering the range of services in final Sec.  
__.23(b)(1)(iii)(B). However, the agencies do not believe that it is

[[Page 6933]]

necessary to add the additional examples suggested by commenters to the 
list provided in the final rule because it is not an exhaustive list. 
The agencies note that examiners may consider additional services 
provided at bank branches in low-, moderate-, middle-, and upper-income 
census tracts. Moreover, with respect to some recommendations made by 
commenters, such as providing CRA consideration for language services 
for individuals with limited English proficiency and other culturally 
appropriate services and resources, the agencies agree that this type 
of activity should be eligible for CRA credit; therefore, the Retail 
Services and Products Test includes bilingual and translation services 
in the evaluation of branch services. Other recommendations, such as 
placement of ATMs and extended hours are also already considered in the 
Retail Services and Products Test. The agencies are adopting Sec.  
__.23(b)(1)(iii)(C) as proposed with minor edits as commenters 
supported responsive retail banking services.
Section __.23(b)(3) Remote Service Facility Availability
Current Approach
    Currently, examiners determine whether a large bank's non-branch or 
alternative delivery systems,\1010\ such as ATMs, are available and 
effective in providing retail banking services in low- and moderate-
income areas and to low- and moderate-income individuals.\1011\ With 
respect to alternative delivery systems, examiners consider factors 
such as: the ease of access and use; reliability of the system; range 
of services delivered; cost to consumers as compared with the bank's 
other delivery systems; and the rate of adoption and use.\1012\ 
Examiners also consider any information a bank maintains and provides 
to examiners to demonstrate that the bank's alternative delivery 
systems are available to, and used by, low- or moderate-income 
individuals, such as data on customer usage or transactions.\1013\ 
Although examiners may consider several factors, evaluations of non-
branch delivery systems generally focus on the distribution of the 
bank's ATMs across low-, moderate-, middle-, and upper-income census 
tracts, and a comparison of that distribution to the percentage of 
census tracts by income level, households (or families), businesses, or 
populations across these census tracts, particularly low- and moderate-
income census tracts. Examiners also review the types of services 
offered by a bank's ATMs (i.e., deposit-taking and cash-only) and 
consider other qualitative factors that improve access to ATMs in low- 
and moderate-income census tracts.
---------------------------------------------------------------------------

    \1010\ The Board's and OCC's current CRA regulations provide a 
non-exhaustive list of alternative systems for delivering retail 
banking services 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.'' See current 12 CFR __.24(d)(3). Under the FDIC's CRA 
regulations, current 12 CFR 345.24(d)(3) describes alternative 
delivery systems as ``RSFs, RSFs 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.''
    \1011\ See Interagency Large Institution CRA Examination 
Procedures; see also Q&A Sec.  __.24(d)(3)-1.
    \1012\ See Q&A Sec.  __.24(d)(3)-1.
    \1013\ See id.
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to separately evaluate a large bank's remote 
service facility availability \1014\ from the bank's digital and other 
delivery systems in order to focus on the availability of these 
facilities and leverage community benchmarks in the evaluation. In 
comparison to the current CRA regulations, the agencies proposed an 
independent evaluation of remote service facilities to underscore the 
effects these facilities have on low- and moderate- income individuals 
and communities.
---------------------------------------------------------------------------

    \1014\ The agencies define ``remote service facility'' to mean 
an automated, virtually staffed, or unstaffed banking facility owned 
or operated by, or operated exclusively for, the bank, such as an 
ATM, interactive teller machine, cash dispensing machine, or other 
remote electronic facility at which deposits are received, cash 
dispersed, or money lent. See proposed Sec.  __.12.
---------------------------------------------------------------------------

    As with the branch distribution analysis, the agencies proposed to 
evaluate the bank's distribution of remote service facilities among 
low-, moderate-, middle-, and upper-income census tracts in Sec.  
__.23(b)(2)(i), referred to as metrics, compared to the three data 
points in Sec.  __.23(b)(2)(ii), referred to as benchmarks, which would 
complement a qualitative evaluation. The agencies proposed that an 
evaluation of a bank's remote service facilities distribution metrics 
would be informed by comparing those metrics to the following 
benchmarks, which are specific to each facility-based assessment area: 
(1) the percentage of census tracts in the facility-based assessment 
area that are low-, moderate-, middle-, and upper-income census tracts; 
\1015\ (2) the percentage of households in the facility-based 
assessment area that are in low-, moderate-, middle-, and upper-income 
census tracts; \1016\ and (3) the percentage of total businesses in the 
facility-based assessment area that are in low-, moderate-, middle-, 
and upper-income census tracts.\1017\ The evaluation would also include 
an assessment of remote service facilities in low- and moderate-income 
census tracts and changes to the placement of remote service facilities 
since the previous examination.
---------------------------------------------------------------------------

    \1015\ See proposed Sec.  __.23(b)(2)(ii)(A).
    \1016\ See proposed Sec.  __.23(b)(2)(ii)(B).
    \1017\ See proposed Sec.  __.23(b)(2)(ii)(C).
---------------------------------------------------------------------------

    In addition to using the community benchmarks, in Sec.  
__.23(b)(2)(iii), the agencies proposed to consider whether the bank 
offers customers fee-free access to out-of-network ATMs in low- and 
moderate-income census tracts.
Comments Received
    There was no consensus among commenters regarding the evaluation of 
remote service facilities such as ATMs. A few commenters did not 
support the consideration of ATMs when evaluating a bank's presence in 
low- or moderate-income communities, with one of these commenters 
noting that ATMs are not the same as full-service branches. A few other 
commenters made specific recommendations for CRA consideration, which 
included considering ATM placement in low- and moderate-income 
geographies on an optional basis or providing favorable consideration 
in the Retail Services and Products Test conclusion but not downgrading 
a bank if it does not place a certain number of ATMs in low- and 
moderate-income census tracts, and favorably considering a bank's 
policy to reimburse fees when customers access out-of-network ATMs or 
partner with third-party ATM networks that have robust coverage of low- 
and moderate-income areas. One commenter asked for clarification on how 
seasonal ATMs would be considered in the evaluation.
Final Rule
    The agencies are adopting proposed Sec.  __.23(b)(2)(i) and (ii), 
renumbered in the final rule as Sec.  __.23(b)(3)(i) and (ii), 
pertaining to the remote service facilities distribution metrics and 
benchmarks, respectively, with a revision to add the availability of 
remote service facilities in other geographies and other technical 
edits, as explained below. The agencies believe that the use of metrics 
and benchmarks will allow for the comparison of a bank's remote service 
facilities availability to local data (i.e., percentage of census 
tracts, households, and total businesses) to help determine whether 
remote service facilities are accessible in low- or moderate-income 
communities, to

[[Page 6934]]

individuals of different income levels, and to businesses in the 
assessment area and are incorporating and building on current practice. 
The agencies believe this type of comparison requires robust data that 
would not be generated with an optional evaluation. Accordingly, the 
agencies decline to follow commenters' suggestion to make this an 
optional evaluation for large banks.
    The agencies agree with commenter suggestions that both branches 
and remote service facilities remain an important component in the 
evaluation of a bank's delivery systems as a means to obtain credit and 
banking services. For that reason, the agencies are further adopting 
final Sec.  __.23(b)(3)(i)(C) with respect to additional geographic 
considerations to mirror the other geographic areas considered for 
branches in final Sec.  __.23(b)(2)(i)(C). The agencies also agree that 
while both are important, remote service facilities are not the same as 
branches and retained the remote service facility evaluation 
independent from the branch evaluation. The agencies believe that 
commenters' concerns that bank performance on the Retail Services and 
Products Test may be downgraded if it does not have ATMs in low- or 
moderate-income census tracts will also be addressed by the additional 
consideration of remote service facilities in: (1) middle- and upper-
income census tracts in which a remote service facility delivers 
services to low- and moderate-income individuals, families, or 
households, to the extent that low- and moderate-income individuals, 
families, or households use the services offered; (2) distressed or 
underserved nonmetropolitan middle-income census tracts; and (3) Native 
Land Areas.
    Finally, the agencies are adopting Sec.  __.23(b)(2)(iii), 
renumbered in the final rule as Sec.  __.23(b)(3)(ii), as proposed. As 
explained in the proposal, the agencies believe that bank partnerships 
with out-of-network ATM providers may contribute to expanded access to 
financial services and may assist with lowering access costs, which can 
be particularly important in low- and moderate-income census tracts. 
The agencies changed the heading to the paragraph to conform to the 
regulatory text which referenced ATMs. A commenter's suggestion to 
consider seasonal ATMs may be considered in future guidance.
Section __.23(b)(4) Digital Delivery Systems and Other Delivery Systems
Current Approach and the Agencies' Proposal
    Currently, examiners determine whether a large bank's non-branch or 
alternative delivery systems, such as mobile and online banking 
services, and telephone banking are available and effective in 
providing retail banking services in low- and moderate-income areas and 
to low- and moderate-income individuals. Examiners consider factors 
such as the ease of access and use, reliability of the system, range of 
services delivered, cost to consumers as compared with the bank's other 
delivery systems, and rate of adoption and use. Examiners also consider 
any information a bank maintains to demonstrate that the bank's 
alternative delivery systems are available to, and used by, low- or 
moderate-income individuals, such as data on customer usage or 
transactions.
    The agencies proposed to evaluate the availability and 
responsiveness of a bank's digital delivery systems (e.g., mobile and 
online banking services) and other delivery systems (e.g., telephone 
banking, bank-by-mail, and bank-at-work programs), including to low- 
and moderate-income individuals, as the third component of the delivery 
systems evaluation in proposed Sec.  __.23(b)(3). The agencies proposed 
to require this evaluation for large banks with assets over $10 
billion, and to permit large banks with assets of $10 billion or less 
to opt to have this component of delivery systems evaluated under the 
Retail Services and Products Test.\1018\
---------------------------------------------------------------------------

    \1018\ See proposed Sec.  __.23(b).
---------------------------------------------------------------------------

    The agencies explained in the proposal that they believe that it is 
important to evaluate a bank's retail banking services and products 
comprehensively and recognize that banks deliver services beyond branch 
and remote service facilities. Because usage of online and mobile 
banking delivery systems by households is pervasive and is expected to 
continue to grow, the agencies further explained that these trends 
support a renewed focus on the evaluation of digital and other delivery 
systems while also recognizing that many consumers continue to rely on 
branches.
    The agencies proposed using three factors to evaluate the 
availability and responsiveness of a bank's digital and other delivery 
systems: (1) digital activity by individuals in low-, moderate-, 
middle-, and upper-income census tracts; \1019\ (2) the range of 
digital and other delivery systems; \1020\ and (3) the bank's strategy 
and initiatives to serve low- and moderate-income individuals with 
digital and other delivery systems.\1021\ Regarding the first factor, 
the agencies proposed to measure digital activity by individuals in 
low-, moderate-, middle-, and upper-income census tracts and provided 
examples of information that could be used to inform this 
analysis.\1022\ The proposal included examples such as the number of 
checking and savings accounts opened digitally, and accountholder usage 
data by type of digital and other delivery system.\1023\ The agencies 
proposed evaluating this data using census tract income level since 
banks have stated that they do not routinely collect customer income 
data at account opening.\1024\ With respect to the second factor, the 
agencies proposed to qualitatively consider the range of a bank's 
digital and other delivery systems, including but not limited to: 
online banking; mobile banking; and telephone banking.\1025\ In 
addition, the agencies proposed to consider a bank's strategies and 
initiatives to meet low- and moderate-income consumer needs through 
digital and other delivery systems.\1026\ The agencies explained that 
these strategies and initiatives could include, for example, marketing 
and outreach activities to increase uptake of these channels by low- 
and moderate-income individuals or partnerships with community-based 
organizations serving targeted populations.
---------------------------------------------------------------------------

    \1019\ See proposed Sec.  __.23(b)(3)(i).
    \1020\ See proposed Sec.  __.23(b)(3)(ii).
    \1021\ See proposed Sec.  __.23(b)(3)(iii).
    \1022\ See proposed Sec.  __.23(b)(3)(i).
    \1023\ See proposed Sec.  __.23(b)(3)(i)(A) and (B).
    \1024\ See proposed Sec.  __.23(b)(3)(i).
    \1025\ See proposed Sec.  __.23(b)(3)(ii).
    \1026\ See proposed Sec.  __.23(b)(3)(iii).
---------------------------------------------------------------------------

    The agencies sought feedback on additional ways to evaluate the 
digital activity of individuals in low-, moderate-, middle-, and upper-
income census tracts, as part of a bank's digital and other delivery 
systems evaluation. Additionally, the agencies sought feedback on 
whether affordability should be one of the factors used in evaluating 
digital and other delivery systems and, if so, what data the agencies 
should consider. Finally, the agencies sought feedback on comparators 
that could be considered to assess the degree to which a bank is 
reaching individuals in low- or moderate-income census tracts through 
digital and other delivery systems.

[[Page 6935]]

Comments Received
    Some commenters expressed concern that the data and methodology for 
reviewing a bank's digital and other delivery systems would be too 
rigid when considering the quantitative metrics and the use of proxies 
(such as the number of checking accounts opened digitally in low- or 
moderated-income areas). These commenters further raised concerns that 
these metrics do not assess whether a bank's delivery systems are 
accessible to low- or moderate-income consumers. One commenter 
supported the evaluation of mobile and online banking. One commenter, 
while supportive of the agencies' proposal, noted that there are 
limitations in evaluating a number of the proposed activities at a 
census-tract level, particularly in nonmetropolitan areas, and urged 
the agencies to provide, instead, full qualitative consideration for 
this component. A few commenters generally stated that accessibility 
and responsiveness of a bank's digital and other delivery systems are 
not accurately measured by account opening and usage rates. One of 
these commenters suggested the final rule should focus on evaluation of 
the accessibility of a bank's digital and other delivery systems and 
the bank's approaches for serving low- or moderate-income individuals 
with these systems, rather than focusing on account opening and usage 
rates associated with these systems. Other commenters recommended 
comparative data such as customer location, click rates on promotional 
emails, broadband access, and Federal Communications Commission data to 
assess the degree to which a bank is reaching low- or moderate-income 
consumers through digital and other delivery systems.
    A number of commenters responded to the agencies' request for 
feedback on ways to further evaluate the digital activity by 
individuals in low-, moderate-, middle-, and upper-income census tracts 
as part of the agencies' evaluation of a bank's digital and other 
delivery systems. Some commenters suggested the agencies should 
consider product design, marketing, and product uptake via delivery 
systems on a qualitative basis. Another commenter recommended assessing 
how active digital accounts are across income levels, comparing a bank 
to its peers with a market benchmark, displaying data on digital 
activity in the CRA performance evaluation tables, and verifying 
representations that modes of access to digital services are available 
to low- or moderate-income census tracts.
    A majority of commenters responding to the agencies' request for 
feedback agreed that affordability should be a factor in evaluating 
digital and other delivery systems. Most of these commenters 
recommended that data on costs and fees, such as overdraft, monthly 
account maintenance, minimum balance, and dormant account fees, among 
others, should be collected to determine affordability, with one 
commenter suggesting low- and moderate-income individuals should be 
charged lower or no fees for digital services. One commenter 
recommended considering the difference in fees between in-person 
application and digital applications to determine if these fees allow 
for a different level of digital access. One commenter indicated that 
the agencies should develop specific standards to require banks engaged 
in digital banking to avoid discriminatory or predatory practices.
Final Rule
    Throughout final Sec.  __.23(b)(4), the agencies are adopting new 
definitions of ``digital delivery system'' and ``other delivery 
system'' (based on the substantive provision of proposed Sec.  
__.23(b)(3)) in order to distinguish and make clear the types of 
systems encompassed in each delivery channel. The final rule defines 
``digital delivery system'' to mean a ``channel through which banks 
offer retail banking services electronically, such as online banking or 
mobile banking.'' \1027\ Under the final rule ``other delivery system'' 
is defined to mean a ``channel, other than branches, remote services 
facilities, or digital delivery systems, through which banks offer 
retail banking services.'' \1028\ This may include telephone banking, 
bank-by-mail, or bank-at-work.\1029\ In addition, the agencies are 
clarifying in final Sec.  __.23(b)(4) that the evaluation of digital 
delivery systems and other delivery systems is conducted at the 
institution level. This change is also consistent with the proposed and 
final rule approaches described in appendix C.\1030\
---------------------------------------------------------------------------

    \1027\ See final Sec.  __.12.
    \1028\ See id.
    \1029\ See id.
    \1030\ See proposed appendix C, paragraph c.3.i.A.2; see also 
final appendix C, paragraph c.2.iv.A.2.
---------------------------------------------------------------------------

    Specifically, the agencies are finalizing as proposed Sec.  
__.23(b)(3)(ii), renumbered in the final rule as Sec.  __.23(b)(4)(i), 
regarding the agencies' evaluation of the range of services and 
products offered by a large bank. Final Sec.  __.23(b)(4)(i) provides 
that, when evaluating the availability and responsiveness of a bank's 
digital delivery systems and other delivery systems, the agencies 
consider the range of retail banking services and retail banking 
products offered through digital delivery systems and other delivery 
systems. By considering the range of digital delivery systems and other 
delivery systems, the agencies may then consider additional detail 
related to those systems, such as the bank's strategy and initiatives 
to serve low- and moderate-income individuals, families, or households 
and activity by individuals, families, or households related to those 
systems.
    The agencies are revising proposed Sec.  __.23(b)(3)(iii), 
renumbered in the final rule as Sec.  __.23(b)(4)(ii), with additional 
language in response to commenter feedback that the bank's strategy and 
initiatives to serve low- and moderate-income individuals, families, or 
households with digital delivery systems and other delivery systems 
should be evaluated by considering factors such as cost, features, and 
marketing. This list of non-exhaustive factors adopted by the agencies 
were some of the factors recommended by commenters to measure the 
affordability of digital delivery systems or other delivery systems or 
otherwise measure the effectiveness of the bank's strategy or 
initiatives related to those systems. The agencies believe this 
modification is appropriate and enables consideration of affordability 
and effectiveness of digital and delivery systems without increasing 
the data collection burden.
    Further, the agencies are revising proposed Sec.  
__.23(b)(3)(i)(A), renumbered in the final rule as Sec.  
__.23(b)(4)(iii)(A), to clarify that the number of checking and savings 
accounts opened during each calendar year of the evaluation period 
digitally and through other delivery systems are considered by the 
agencies as evidence of digital delivery systems and other delivery 
systems. The agencies are also revising proposed Sec.  
__.23(b)(3)(i)(B) in response to comments, renumbered in the final rule 
as Sec.  __.23(b)(4)(iii)(B), to provide that the agencies will 
consider the number of checking and savings accounts opened digitally 
and through other delivery systems that are active at the end of each 
calendar year during the evaluation period as evidence of digital 
delivery systems and other delivery systems, rather than require banks 
to provide accountholder usage data, by type, of digital delivery 
systems and other delivery systems. The agencies believe this revision 
will reduce the burden for banks providing these data and will build on 
other data elements in the rule. To provide further clarity, certainty, 
and consistency in the

[[Page 6936]]

required information for this evaluation, the agencies removed the 
``such as'' language in proposed Sec.  __.23(b)(3)(i), renumbered in 
the final rule as Sec.  __.23(b)(4)(iii), because the agencies consider 
the checking and savings account information described in paragraphs 
(b)(3)(i)(A) and (B) of final Sec.  __.23. In final Sec.  
__.23(b)(4)(iii)(C), the agencies indicate that they will consider any 
other bank data that indicates that bank digital delivery systems and 
other delivery systems are available to low- and moderate-income 
individuals, families, or households and low- and moderate-income 
census tracts.
    In response to the commenter that suggested the agencies should 
provide a fully qualitative consideration for digital and other 
delivery systems, the agencies decline to implement this recommendation 
because a strictly qualitative review, without standardized data, 
limits the evaluation of this component across banks by not providing 
certainty and consistency in elements reviewed under this component. In 
addition, without specific data elements, the data banks provide may 
not support the accessibility and usage of digital delivery systems and 
other delivery systems. The agencies believe that the quantitative 
consideration of digital delivery systems and other delivery systems 
activity, informed by specific data points, combined with the 
qualitative consideration of the bank's range of services and products 
and their strategies and initiatives strikes the right balance to 
evaluate this component fully. The agencies believe this evaluation is 
especially important for banks that will not be evaluated under the 
other components of retail banking services such as branches and remote 
service facilities.
    Although commenters expressed concerns about the rigidity of the 
data and methodology for reviewing a bank's digital delivery systems 
and other delivery systems, and that the measures do not adequately 
represent accessibility or usage of digital delivery systems and other 
delivery systems by low- or moderate-income individuals, families, or 
households, the agencies believe these measures are sufficient without 
additional data collection requirements other than the data collection 
requirements in the final rule. Moreover, given that banks have stated 
that they do not typically collect customer income data at account 
opening for deposit customers, the agencies believe using census tract 
income level is an appropriate approach.
    In response to these concerns and commenters' feedback for other 
data that may be used to measure availability of digital delivery 
systems and other delivery systems, the agencies are adopting new Sec.  
__.23(b)(4)(iii)(C) to allow banks to provide any other data, other 
than the data required in final paragraphs (b)(4)(iii)(A) and (B) of 
the section, to demonstrate that their digital delivery systems and 
other delivery systems are available to individuals and in census 
tracts of different income levels, including low- and moderate-income 
individuals, families, or households, and low- and moderate-income 
census tracts. The agencies believe this addition will allow banks the 
flexibility to provide additional information along with the data 
proposed.
    The agencies have carefully considered other recommendations made 
by commenters, including click rates on promotional emails, broadband 
access, and others, but have determined, in their supervisory 
experience, that the data points as finalized will achieve the 
agencies' goal to provide clarity, consistency, and transparency in the 
evaluation of a bank's digital delivery systems and other delivery 
systems without significantly increasing burden to banks.

Section __.23(c) Retail Banking Products Evaluation

Section __.23(c)(1) Scope of Evaluation
Current Approach
    Under the current CRA regulations, retail credit products and 
programs are qualitatively evaluated under the large bank lending test. 
A bank's lending performance is evaluated by, among other things, its 
``use of innovative or flexible lending practices in a safe and sound 
manner to address the credit needs of low- and moderate-income 
individuals or geographies.'' \1031\ Current interagency guidance 
provides examples that illustrate the range of practices that examiners 
may consider when evaluating the innovativeness or flexibility of a 
bank's lending practices and notes that when evaluating such practices, 
examiners will not be limited to reviewing the overall variety and 
specific terms and conditions of the credit product themselves.\1032\ 
Examiners also consider whether, and the extent to which, innovative or 
flexible terms or products augment the success and effectiveness of the 
bank's loan programs that are intended to address the credit needs of 
low- or moderate-income geographies or individuals.\1033\
---------------------------------------------------------------------------

    \1031\ See current 12 CFR __.22(b)(5).
    \1032\ See Q&A Sec.  __.22(b)(5)-1.
    \1033\ See id.
---------------------------------------------------------------------------

    A bank's retail deposit products and services are evaluated under 
the current service test for large banks, which as explained in the 
section-by-section analysis of Sec.  __.23(a)(1), establishes four 
criteria for evaluating retail services.\1034\ The fourth criterion of 
the service test--the range of services provided in low-, moderate-, 
middle-, and upper-income geographies and the degree to which the 
services are tailored to meet the needs of those geographies \1035\--is 
the primary consideration given to deposit products in the current 
test. Examiners consider information from the bank's public file and 
other information provided by the bank that are related to the range of 
services generally offered at their branches, such as loan and deposit 
products, and the degree to which services are tailored to meet the 
needs of particular geographies.\1036\ Current interagency guidance 
also explains that examiners will consider retail banking services that 
improve access to financial services or decrease costs for low- or 
moderate-income individuals.\1037\ More specifically, interagency 
guidance identifies low-cost deposit accounts among the examples of 
retail banking services that improve access to financial services, or 
decrease costs, for low- or moderate-income individuals.\1038\ 
Examiners 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, which 
demonstrates that a bank's services are tailored to meet the 
convenience and needs of its assessment areas, particularly in low- and 
moderate-income geographies or to low- and moderate-income 
individuals.\1039\
---------------------------------------------------------------------------

    \1034\ See current 12 CFR __.24(d).
    \1035\ See current 12 CFR __.24(d)(4).
    \1036\ See Interagency Large Institution CRA Examination 
Procedures; see also Q&A Sec.  __.24(d)(4)-1.
    \1037\ See Q&A Sec.  __.24(a)-1.
    \1038\ See id.
    \1039\ See Q&A Sec.  __.24(d)(4)-1.
---------------------------------------------------------------------------

The Agencies' Proposal
    In the second part of the Retail Services and Products Test, the 
agencies proposed in Sec.  __.23(c), an evaluation that focused on 
large bank: (1) credit products and programs responsive to the needs of 
low- and moderate-income individuals, small businesses, and small 
farms; and (2) deposit products responsive to the needs of low- and 
moderate-income individuals. When

[[Page 6937]]

applicable to a particular bank, bank performance on both the credit 
products and programs and the deposit products components of the Retail 
Services and Products Test would be assessed at the institution 
level.\1040\ Evaluation of both these components would be required for 
large banks with assets over $10 billion in both of the prior two 
calendar years, based on the assets reported on its four quarterly Call 
Reports for each of those calendar years.\1041\ The proposal required 
evaluation of only the first component--the responsiveness of credit 
products and programs--for banks with assets of $10 billion or 
less,\1042\ while all large banks with assets of $10 billion or less 
could request additional consideration for their responsive deposit 
products.
---------------------------------------------------------------------------

    \1040\ See proposed appendix C, paragraph c.3.i.
    \1041\ See id.; see also proposed Sec.  __.23(c).
    \1042\ See proposed Sec.  __.23(c).
---------------------------------------------------------------------------

Comments Received
    A variety of commenters commented on the proposal to evaluate the 
responsiveness of credit products and programs and deposit products. 
Overall, most of these commenters supported the general concepts of the 
proposal and provided a variety of suggestions for how best to evaluate 
a bank's credit and deposit products. A few commenters urged the 
agencies to provide both a quantitative and qualitative review of 
responsive credit and deposit products, with a few commenters stating 
that all features of credit and deposit products should be evaluated 
including, for example, terms, rates, fees, defaults, and collections. 
A few other commenters also recommended that the agencies: review the 
quality of all bank credit and deposit products; evaluate not only the 
bank's offering of products, but also how effectively banks connect 
consumers to these products; consider programs that measure the 
financial health of consumers; and evaluate all products and programs 
offered by bank affiliates, subsidiaries, and partnerships for 
potential evasion of usury caps and other abusive practices. One 
commenter stated that accessibility and affordability of responsive 
products and services in low- and moderate-income neighborhoods should 
be compared against responsive products and services in middle- and 
upper-income neighborhoods at the assessment area level. Another 
commenter suggested that the agencies make the focus of the examination 
not on whether a bank has responsive products ``on the shelf,'' but the 
extent to which such products are marketed to, and used by, low- and 
moderate-income and underserved individuals and communities.
Final Rule
    In the final rule, the agencies are adopting Sec.  __.23(c) largely 
as proposed, to evaluate the responsiveness of a bank's credit products 
and programs and deposit products, with technical edits related to the 
overall organization of the scope of the evaluation of retail banking 
products and revisions to conform to changes made throughout the final 
rule to provide clarity regarding how the agencies will consider these 
retail banking products in the evaluation of the Retail Services and 
Products Test.
    Specifically, final Sec.  __.23(c) renames the section header from 
``credit products and programs and deposit products'' to ``retail 
banking products evaluation'' for conciseness and added the same 
terminology in the regulatory text where appropriate. No change in 
meaning is intended with this revision since the evaluation of retail 
banking products includes credit products and programs and deposit 
products. The agencies note, however, that the evaluation of retail 
banking products does not include an evaluation of other products and 
programs that are not credit products or programs and deposit products 
such as insurance and financial investment products. In addition, new 
final Sec.  __.23(c)(1) reorganizes and clarifies the scope of the 
evaluation of credit products and programs in final Sec.  __.23(c)(2) 
and deposit products in final Sec.  __.23(c)(3) to conform to 
organizational changes made to the evaluation of delivery systems in 
Sec.  __.23(b) and to other tests in the final rule.
    Specifically, final Sec.  __.23(c)(1) provides that the agencies 
evaluate a bank's retail banking products under paragraphs (c)(2) and 
(3) of the section at the institution level. Final Sec.  __.23(c)(1)(i) 
provides that the agencies will evaluate the credit products and 
programs of all large banks. Final Sec.  __.23(c)(1)(ii) provides that 
the agencies will evaluate the deposit products of large banks that had 
assets over $10 billion as of December 31 in both of the prior two 
calendar years.\1043\ Moreover, consistent with the proposal, under the 
final rule, the agencies will evaluate the deposit products of large 
banks that had assets of $10 billion or less as of December 31 in 
either of the prior two calendar years only at the bank's option.\1044\
---------------------------------------------------------------------------

    \1043\ See final Sec.  __.23(c)(1)(ii)(A).
    \1044\ See final Sec.  __.23(c)(1)(ii)(B).
---------------------------------------------------------------------------

    As explained in the proposal, evaluating credit products and 
programs and deposit products together in the same test, which as 
explained above is a change from the current practice, is intended to 
provide a more holistic evaluation of credit products and program and 
deposit products that work in tandem to facilitate credit access for 
low- and moderate-income individuals, families, or households. The 
agencies believe this change will facilitate a more robust evaluation 
of a bank's performance with respect to meeting the credit needs of its 
community, as this evaluation also incorporates important qualitative 
factors that capture a bank's commitment to serving low- and moderate-
income individuals, families, or households, residents of low- and 
moderate-income census tracts, small businesses, and small farms.
    While the agencies agree with commenters perspective that 
quantitative factors can play a role in determining whether a product 
or service is responsive, the agencies also believe that a qualitative 
evaluation should be the predominate method of measuring the 
responsiveness of retail banking products because it allows for a well-
rounded review of the bank's retail banking products, as well as the 
consideration of the impact such products and programs have on low- and 
moderate-income individuals, families, or households, and low- and 
moderate-income census tracts. Although the agencies intend to address 
many of commenters' suggestions for how to best evaluate a bank's 
retail banking products through examination procedures and interagency 
guidance, the agencies also note that examiners may qualitatively 
consider aspects of retail banking products, such as the features, 
accessibility, and affordability of such products and programs, to 
determine whether they are responsive to the needs of low- and 
moderate-income individuals, families, and households. The agencies 
believe that, as finalized, Sec.  __.23(c) is consistent with the 
agencies' goal of encouraging the availability of responsive products 
to low- and moderate-income individuals, families, or households.
    The agencies are also making additional revisions to Sec.  
__.23(c)(2) (credit products and programs) and (3) (deposit products) 
that are described below in the respective section-by-section analysis.

[[Page 6938]]

Section __.23(c)(2) Credit Products and Programs
Current Approach
    As discussed above, the current CRA regulations provide 
consideration for a bank's use of innovative or flexible lending 
practices in a safe and sound manner to address the credit needs of 
low- and moderate-income individuals or geographies.\1045\
---------------------------------------------------------------------------

    \1045\ See current 12 CFR __.22(b)(5)
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed in Sec.  __.23(c)(1), to qualitatively 
evaluate the responsiveness of a large bank's credit products and 
programs to the needs of low- and moderate-income individuals 
(including through low-cost education loans), small businesses, and 
small farms.\1046\ The agencies also proposed in Sec.  __.23(c)(1) that 
they would evaluate whether the bank's credit products and programs are 
conducted in a safe and sound manner. To qualify for consideration, the 
agencies proposed to consider relevant information about a bank's 
credit products and programs, including information provided by the 
bank and from the bank's public file.\1047\
---------------------------------------------------------------------------

    \1046\ See proposed Sec.  __.23(c)(1).
    \1047\ See proposed Sec. Sec.  __.23(c)(1) and __.43(a)(5).
---------------------------------------------------------------------------

    The proposal did not provide a specific list of retail lending 
products and programs that qualified under this provision.\1048\ 
Instead, in proposed Sec.  __.23(c)(1)(i) through (iii), the agencies 
proposed an illustrative list of broader categories of responsive 
credit products and programs that may be responsive to the needs of 
low- and moderate-income individuals, small businesses, and small 
farms. Consistent with safe and sound operations, responsive credit may 
include, but is not limited to, credit products and programs that, in a 
safe and sound manner: (1) facilitate home mortgage and consumer 
lending for low- or moderate-income borrowers; \1049\ (2) meet the 
needs of small businesses and small farms, including to the smallest 
businesses and smallest farms; \1050\ and (3) are conducted in 
cooperation with MDIs, WDIs, LICUs, or Treasury Department-certified 
CDFIs.\1051\
---------------------------------------------------------------------------

    \1048\ See proposed Sec.  __.23(c)(1).
    \1049\ See proposed Sec.  __.23(c)(1)(i).
    \1050\ See proposed Sec.  __.23(c)(1)(ii).
    \1051\ See proposed Sec.  __.23(c)(1)(iii).
---------------------------------------------------------------------------

    The agencies requested feedback regarding whether the CRA 
regulations should list special purpose credit programs as an example 
of a responsive credit product or program that facilitates home 
mortgage and consumer lending targeted to low- or moderate-income 
borrowers. The agencies also requested feedback on whether there are 
other categories of responsive credit products and programs, offered in 
a safe and sound manner, that should be taken into consideration when 
deciding whether to give qualitative consideration to credit products 
and programs, and whether the agencies should provide specific or 
general guidance regarding what credit products and programs may be 
considered especially responsive.
Comments Received
    Comments regarding how to evaluate credit products and programs. 
Several commenters supported the agencies' proposal to evaluate credit 
products and programs under the Retail Services and Products Test. Some 
commenters identified what they viewed as shortcomings in the proposal 
and requested clarification or offered suggestions for improvement. For 
instance, a few commenters asserted that a final rule needs to define, 
and include an analysis of, affordability based on interest rate caps 
and/or fees, or establish standards for both consumer and mortgage 
loans to determine the appropriate level of CRA consideration to grant 
a financial institution.
    Commenters also urged the agencies to develop an ability-to-repay 
standard, with some noting that the agencies need to regulate third 
party out-of-state bank partnerships with entities such as payday loan 
dealers to address what was characterized as evasion of usury limits. A 
few commenters suggested evaluating credit products, including mortgage 
and home equity loans that address existing barriers to homeownership, 
such as stringent underwriting criteria, appraisal bias, and other 
factors. One of these commenters also suggested that credit products 
must be offered responsibly and sustainably to small business owners, 
such as by examining the product's annual percentage rate.
    In addition, several commenters urged the agencies to expand the 
scope of the impact factor review to also include the proposed Retail 
Services and Product Test. These commenters suggested that the agencies 
incorporate an analysis of loan pricing and consumer product terms to 
ensure that retail products are meeting local needs instead of 
extracting wealth, and further recommended that the agencies evaluate 
how well loan products match local needs and give credit to activities 
that close the racial wealth gap by affirmatively serving communities 
of color. A few commenters stated that CRA rules should clearly 
penalize branch closures and poor coverage in low- and moderate-income, 
BIPOC and rural communities. Other commenters stated that the agencies 
should include in impact scoring branch openings in low- and moderate-
income communities, communities of color, and rural communities. These 
comments are also discussed in the section-by-section analysis of Sec.  
__.15.
    A few commenters objected to the inclusion of credit products, 
particularly consumer loans, in the evaluation, with one commenter 
stating that the agencies did not provide implementation guidelines, 
while the other commenters expressed concern that the public did not 
have a meaningful opportunity to understand and comment on the 
requirement to evaluate consumer loans within this test. One commenter 
suggested that the agencies' proposed analysis of consumer loans as a 
type of credit product or program would be a departure from the CRA's 
historical focus on home mortgage and small business loans because 
consumer loans do not provide the type of foundational, wealth-building 
credit that the CRA has traditionally focused on promoting and 
incentivizing; the commenter also indicated that consumer loans may be 
a poor fit for meeting the needs of low-and moderate-income 
communities. One commenter recommended that the agencies provide 
further clarity on how banks will be evaluated for responsiveness under 
this test.
    Comments regarding consumer loans other than automobile loans. 
Several commenters recommended a qualitative evaluation of consumer 
loans and made suggestions about the nature and scope of the 
qualitative evaluation. In general, these commenters expressed that 
examiners should perform a qualitative analysis to ensure that a bank's 
consumer lending is responsible and sustainable, such as loan 
marketing, language access, repayment rates, loan terms, loan pricing 
(including interest and fees), delinquency and default rates, and 
collection practices. A commenter suggested that the agencies conduct 
an analysis of the annual percentage rate (APR) that a bank charges on 
its consumer loans and compare the bank's APR to the average APR for 
the relevant market. Another commenter recommended that the agencies 
harmonize their CRA regulations as much as possible with the 
Interagency Lending Principles for Offering Responsible Small-Dollar 
Loans to further signal regulatory stability and encourage banks to 
offer more small-dollar loan products, which the commenter 
characterized as a net

[[Page 6939]]

benefit to consumers.\1052\ In contrast, another commenter encouraged 
the agencies to consider expanded metrics under the Retail Services and 
Products Test for evaluating the impact of unsecured consumer debt, 
including loan modifications directly negotiated between the bank and 
the borrower (without the involvement of a for-profit debt settlement 
company), as well as a bank's repayment policies regarding concessions 
to borrowers experiencing financial hardships.
---------------------------------------------------------------------------

    \1052\ See OCC, FDIC, Board, NCUA, ``Interagency Lending 
Principles for Offering Responsible Small-Dollar Loans'' (May 2020), 
https://www.fdic.gov/news/press-releases/2020/pr20061a.pdf.
---------------------------------------------------------------------------

    Comments regarding other categories of responsive credit products. 
The agencies received a number of comments and suggestions regarding 
additional categories and examples of responsive credit products and 
programs for consideration. Beyond the proposed products and programs 
to be considered, the categories suggested by commenters included: 
affordable products geared to borrowers with limited English 
proficiency; programs that use alternative data such as rent, 
utilities, and telecom payments to assist in loan decisioning for 
applicants who would not otherwise be eligible for mortgage loans based 
on traditional credit scores; and small dollar mortgages and small loan 
alternatives to payday lending. Commenters also suggested: credit 
products offering lower rates after a borrower establishes a payment 
history; mortgage and home improvement loans with low down payment 
requirements for first generation homebuyers; mortgage products that 
are equivalent to the loan products of the Federal Housing 
Administration, Veteran Affairs, Federal Home Loan Banks, and Housing 
Financing Agencies; auto and other consumer lending that reduce 
reliance on high-cost predatory debt; other lending programs and 
underwriting that do not discriminate against individuals with criminal 
records; microfinance products and small business lending products that 
incorporate an evaluation of loan quality and pricing; affordable small 
installment loan programs; responsive loan products offered by 
NeighborWorks affiliates; debt repayment and modification programs and 
policies; negative consideration for predatory activities; responsive 
loan products that finance equitable media; and personal loans for 
manufactured housing. Other commenters stated that purchased loans from 
institutions that do not have the ability to sell loans to the GSEs, or 
other access to secondary markets, should receive favorable 
consideration under the Retail Services and Products Test to encourage 
banks to set up purchasing programs for these loans. One commenter 
discouraged the agencies from including additional regulatory 
requirements that have not been specifically vetted in the proposal. 
Instead, this commenter encouraged the agencies to adopt a final 
regulation that will allow future guidance to address new approaches as 
they are developed.
    Comments regarding whether the agencies should provide specific or 
general guidance regarding categories of credit products and programs 
considered most responsive. Commenters addressing this request for 
feedback expressed mixed views. Some commenters noted that it was 
preferable to provide general criteria so as not to discourage a bank 
from pursuing impactful and responsive activities that may deviate from 
the specific examples. One commenter stated that guidance should be 
left general and institutions should be allowed to self-certify 
responsive products and then justify their choices.
    In contrast, other commenters expressed support for specific 
guidance. For instance, one commenter supported specific guidance on 
types of credit products and programs considered especially responsive, 
with the stipulation that the bank may pursue other impactful or 
responsive activities that may not be included in the guidance. 
Commenters urged the agencies to incorporate into the rule: a local 
qualitative analysis of credit products (and usage) to assure banks 
meet local needs; reviews of bank lending that include an affordability 
analysis; penalties such as downgrades for abusive products and 
practices; and an evaluation of retail credit products that emphasizes 
the extent to which responsive products are marketed to and used by 
low- and moderate-income and underserved individuals and communities. 
Another commenter stated that banks should not be able to pass their 
CRA examination if they only offer expensive products that do not 
actually serve the needs of the community. Two commenters suggested 
that banks should be downgraded for harm such as discrimination, 
displacement, and fee gouging. A few commenters also suggested that the 
agencies consider the environmental and climate impact of bank credit 
products. Some commenters recommended that the CRA framework include 
scrutiny of bank financing of polluting activities and the associated 
disparate impact on access to credit in low- and moderate-income 
communities and communities of color. These comments also suggested the 
agencies should impose penalties for financing industries that 
contribute to climate change, particularly in low- and moderate-income 
neighborhoods, while not financing renewable or clean energy. Other 
commenters recommended that the agencies provide an illustrative and 
non-exhaustive list of what the agencies deem to be products and 
programs that are especially responsive and, when possible, include 
products that specifically will not qualify as responsive. Commenters 
suggested the agencies include a submission process, similar to the 
agencies' proposed confirmation process for community development 
activities, with one commenter recommending that there be a clear 
process for banks and strategic partners to seek pre-approval on a 
given program before fully implementing new ideas. Another commenter 
suggested that the agencies recommend specific credit products if they 
have research or studies that support their recommendation.
    Comments regarding special purpose credit products. Commenters 
universally supported the final rule listing special purpose credit 
programs as an example of a responsive credit product or program that 
facilitates mortgage and consumer lending targeted to low- or moderate-
income borrowers. Some commenters requested that the final rule specify 
that special purpose credit programs can include programs that focus on 
either people or communities of color. These commenters supported 
favorable consideration for special purpose credit programs in CRA 
examinations and asserted that the agencies should more explicitly 
recognize the importance of special purpose credit programs as a 
critical way for banks to serve minority communities. A commenter 
recommended that the agencies clarify that special purpose credit 
programs targeted to the needs of minority consumers and communities, 
and not solely to low- and moderate-income consumers and communities, 
are highly responsive programs for CRA purposes. Another commenter 
suggested that the agencies confer ``impact points'' across all CRA 
performance tests for banks with special purpose credit programs 
targeted to racial, ethnic, and other underserved groups. This 
commenter also suggested that each bank should be required to offer at 
least one special purpose credit program. Another commenter indicated 
that special purpose credit programs should be targeted to Black low- 
and moderate-

[[Page 6940]]

income consumers and communities and not to other low- and moderate-
income consumers and communities that have historically benefited more 
from CRA. Some of these commenters noted that special purpose credit 
programs are an important part of the remedy for targeting formerly 
redlined neighborhoods and people of color. Other commenters 
recommended that the final rule specify that special purpose credit 
products can include home mortgage lending, small business lending, 
consumer lending, or deposit products. One commenter believed that an 
explicit provision in the final rule that banks will receive CRA credit 
for qualified special purpose credit programs at both the bank level, 
and when targeted geographically to specific areas, at the assessment 
area level, would encourage more banks to utilize special purpose 
credit programs as a tool to help disadvantaged individuals. Another 
commenter addressed the significant uncertainty that exists with 
special purpose credit programs, noting that the rules could change in 
the future, leaving them exposed to risk of fair lending violations, 
and asked for clearer guidance from regulators and examiners. However, 
two commenters noted that the inclusion of special purpose credit 
programs would be consistent with recent HUD guidance that the use of 
such programs in accordance with ECOA and 12 CFR part 202 (Regulation 
B) is lawful under the Fair Housing Act.
Final Rule
    The agencies are adopting Sec.  __.23(c)(1), renumbered in the 
final rule as Sec.  __.23(c)(2), largely as proposed pertaining to the 
evaluation of a bank's credit products and programs, with clarifying 
edits. Moreover, and as discussed in more detail below, the agencies 
are also finalizing as proposed the categories of responsive credit 
products and programs in final Sec.  __.23(c)(2)(i) through (iii). The 
agencies are also adopting new paragraphs (c)(2)(iv) and (v) to include 
low-cost education loans and special purpose credit programs, 
respectively, as separate categories of responsive credit products and 
programs.
    In final Sec.  __.23(c)(2), the agencies are retaining the 
expectation that the bank's credit products and programs are conducted 
in a safe and sound manner. The agencies are also adding regulatory 
text that provides they evaluate whether a bank's credit products and 
programs are responsive to the credit needs of the bank's entire 
community as well as the residents of low- and moderate-income census 
tracts. Consequently, final Sec.  __.23(c)(2) provides that the 
agencies evaluate whether a bank's credit products and programs are, 
consistent with safe and sound operations, responsive to the credit 
needs of the bank's entire community, including the needs of low- and 
moderate-income individuals, families, or households, residents of low- 
and moderate-income census tracts, small businesses, or small farms. 
Final Sec.  __.23(c)(2) then provides a non-exhaustive list of credit 
products and programs that the agencies consider responsive.
    Qualitative evaluation of responsive credit products and programs. 
The final rule in Sec.  __.23(c)(2) retains a qualitative evaluation of 
responsive credit products and programs in the Retail Services and 
Products Test. As explained in the proposal, the agencies believe that 
using responsiveness as part of the evaluation standard instead of the 
current innovative and flexible standard better captures the focus on 
community credit needs. The agencies also believe that using the term 
responsiveness helps improve consistency of terminology throughout the 
final rule. The agencies further believe this approach is preferable to 
including it as part of the more metrics-based Retail Lending Test 
because it pairs a qualitative evaluation of the responsiveness of a 
bank's lending products and programs with other qualitative criteria 
under the Retail Services and Products Test. The agencies believe that 
the qualitative consideration of credit products and programs is 
consistent with the intent to emphasize the impact of the product or 
program in helping to meet the credit needs of low- and moderate-income 
individuals, families, or households, residents of low- and moderate-
income census tracts, small businesses, and small farms.
    The agencies considered the comments asserting that the agencies 
need to define, and include an analysis of, affordability based on 
interest rate caps and/or fees, or establish standards for both 
consumer and mortgage loans to determine the appropriate level of CRA 
consideration to grant a financial institution, and the comments urging 
the agencies to develop an ability-to-repay standard. The agencies also 
considered a commenter's recommendation to harmonize the CRA 
regulations as much as possible with the existing principles for 
offering responsible small-dollar loans. As an initial matter, the 
agencies note that the CRA statute does not give the agencies the 
authority to impose substantive requirements on the types of credit 
products and programs a bank offers as recommended by commenters. 
Instead, the agencies' focus under the CRA is on the bank's record of 
meeting community credit needs consistent with safe and sound 
operations, which includes sound underwriting practices for all 
lending. For example, in May 2020, the agencies, together with the 
NCUA, issued a set of principles to encourage supervised banks, savings 
associations, and credit unions to offer responsible small-dollar loans 
to customers for both consumer and small business purposes to meet 
customers' short-term credit needs.\1053\ Banks are assessed for 
compliance with numerous consumer laws, including section 5 of the 
Federal Trade Commission Act \1054\ and others. Banks that make loans 
in violation of laws, rules, or regulations, either directly or as a 
result of failing to properly manage relationships with third parties, 
may be subject to enforcement action. As a result of any such 
violations, banks may also be subject to a downgrade of their CRA 
rating pursuant to final Sec.  __.28, if they engage in discriminatory 
or other illegal credit practices with respect to their credit products 
and programs.
---------------------------------------------------------------------------

    \1053\ See id.
    \1054\ See 15 U.S.C. 45.
---------------------------------------------------------------------------

    In response to commenter suggestions to expand metrics for 
evaluating the impact of unsecured consumer debt under the Retail 
Services and Products Test, the agencies note that to the extent that 
certain loan products and services are responsive to the needs of low- 
and moderate-income individuals, households, or families, small 
businesses, and small farms, they may be given consideration. In 
addition, the agencies believe that the qualitative approach to 
evaluation under final Sec.  __.23(c)(2) is a better measure of the 
responsiveness of credit products.
    After considering the comments, the agencies determined that a 
separate category to evaluate barriers to homeownership was 
unnecessary. The final rule provides that credit products that overcome 
barriers to homeownership for low- and moderate-income first-time 
homebuyers are responsive credit products falling within the category 
of ``credit products and programs that facilitate home mortgage lending 
for low- and moderate-income borrowers.''
    In response to the commenter that asked for additional clarity on 
how the agencies will evaluate banks for responsiveness under this 
test, the agencies intend to evaluate responsiveness consistent with 
current interagency guidance. More specifically, when evaluating 
responsiveness,

[[Page 6941]]

examiners will consider three important factors: quantity, quality, and 
performance context. Examiners will evaluate the volume and type of an 
institution's activities, for example, loans and services, as a first 
step in evaluating the institution's responsiveness the needs of the 
bank's communities, including the needs of low- and moderate-income 
individuals, families, or households, residents of low- and moderate-
income census tracts, small businesses, and small farms. In addition, 
an assessment of ``responsiveness'' will encompass the qualitative 
aspects of performance, including the effectiveness of the activities. 
For example, some activities require specialized expertise or effort on 
the part of the institution or provide a benefit to the community that 
would not otherwise be made available. In some cases, a smaller loan 
may have more benefit to a community than a larger loan. In other 
words, when evaluated qualitatively, some activities are more 
responsive than others. Activities are more responsive if they are 
successful in meeting identified credit and community development 
needs. Examiners also evaluate the responsiveness of an institution's 
activities to credit and community development needs in light of the 
institution's performance context, as explained in more detail in the 
section-by-section analysis of Sec.  __.21(d). That is, examiners 
consider the institution's capacity, its business strategy, the needs 
of the community, and the opportunities for lending and services in the 
community.
    In response to the comments that suggested that the public did not 
have a meaningful opportunity to understand and comment on the 
requirement to evaluate consumer loans within this test, the agencies 
note that they explicitly indicated in the proposal their intent to 
potentially consider consumer loans as a type of credit product and 
provided opportunity to comment on this approach. The 90-day comment 
period is consistent with the requirements of the Administrative 
Procedures Act and, in the agencies' supervisory experience, provided 
sufficient time for public consideration and comment. Indeed, the 
agencies received many detailed and thoughtful comments on the issue of 
whether consumer loans should be considered as credit products.
    The agencies have considered concerns described by commenters that 
considering the responsiveness of consumer loans under credit products 
and programs departs from prior agency practice that traditionally 
focuses on wealth-building products such as home mortgages and small 
business loans. The agencies conclude that they are authorized by the 
CRA to evaluate a bank's consumer loans in assessing a bank's record of 
meeting the credit needs of their entire community, including low- and 
moderate-income census tracts. The agencies also do not agree with the 
commenter's suggestion that reviewing the responsiveness of consumer 
loans should be limited because they have a limited usefulness for low-
and moderate-income communities.
    The agencies considered commenter suggestions to expand the scope 
of the impact and responsiveness factors to include such review in the 
Retail Services and Product Test. The agencies believe that the test in 
the final rule sufficiently considers qualitative factors, including 
the responsiveness and availability of products and services to low- 
and moderate-income individuals, families, or households; residents of 
low- and moderate-income census tracts; small businesses; and small 
farms. To the extent retail banking products and retail banking 
services are responsive to the needs of these groups, the agencies may 
provide CRA consideration.
    Categories of responsive credit products and programs. With respect 
to the categories of responsive credit products and programs, as noted 
above, the agencies are adopting, with technical edits, proposed Sec.  
__.23(c)(1)(i), renumbered in the final rule as Sec.  __.23(c)(2)(i) 
(credit products and programs that facilitate home mortgage and 
consumer lending); proposed Sec.  __.23(c)(1)(ii), renumbered in the 
final rule as Sec.  __.23(c)(2)(ii) (credit products and programs that 
meet the credit needs of small businesses and small farms); and 
proposed Sec.  __.23(c)(1)(iii), renumbered in the final rule as Sec.  
__.23(c)(2)(iii) (credit products and programs that are conducted in 
cooperation with MDIs, WDIs, LICUs, or CDFIs). Specifically, final 
Sec.  __.23(c)(2)(i) through (iii) removes ``in a safe and sound 
manner'' from each of the categories of responsive credit products and 
programs. The agencies determined the references were unnecessary and 
repetitive of the reference to ``in a safe and sound manner'' in final 
Sec.  __.23(c)(2). In addition, the agencies are making a clarifying 
revision to Sec.  __.23(c)(2)(ii) changing ``smallest businesses'' and 
smallest farms'' to those ``with gross annual revenue of $250,000 or 
less.''
    The agencies believe that inclusion of these categories of credit 
products and programs is important because they outline broader 
categories of non-exhaustive examples of credit products and programs 
that are responsive to community credit needs. The final rule 
recognizes the unique needs of low- and moderate-income borrowers, 
small businesses, and small farms, and attempts to encourage the 
provision of credit to these groups. Under the final rule, the agencies 
are retaining Sec.  __.23(c)(2)(i), credit products and programs that 
``facilitate mortgage and consumer lending targeted to low- or 
moderate-income borrowers,'' as one category of responsive credit 
products and programs. Small-dollar mortgages and consumer lending 
programs that utilize alternative credit histories in a manner that 
would benefit low- or moderate-income individuals could be examples of 
a responsive credit product or program in this category. The agencies 
are revising final Sec.  __.23(c)(2)(ii), to encompass credit products 
and programs that ``meet the needs of small businesses and small farms, 
including small businesses and small farms with gross annual revenues 
of $250,000 or less,'' as another category of responsive credit 
products or programs. Examples in this category include microloans 
(such as loans of $50,000 or less) and patient capital to entrepreneurs 
through longer-term loans. Finally, the agencies are also retaining 
Sec.  __.23(c)(2)(iii), credit products and programs that are conducted 
in cooperation with MDIs, WDIs, LICUs, or CDFIs, as a category of 
responsive credit products and programs. Examples include home mortgage 
loans and small business loans that banks purchase from MDIs, WDIs, 
LICUs, and CDFIs. The agencies acknowledge the importance of supporting 
institutions such as CDFIs, MDIs, CDFIs, and LICUs in their efforts to 
provide access to credit and other financial services in traditionally 
underserved communities. Bank purchases of MDI, WDI, LICU, and CDFI 
loans can provide necessary liquidity to these lenders and extend their 
capability to originate loans to low- and moderate-income individuals, 
families, or households, in low- and moderate-income census tracts, and 
to small businesses and small farms.
    The agencies have considered the recommendations made by commenters 
regarding other categories of responsive credit products and programs. 
As discussed above, the agencies are finalizing Sec.  __.23(c)(2) 
without a more detailed list of categories of responsive credit 
products or programs. The agencies agree with commenters who do not 
believe that a more detailed list of

[[Page 6942]]

products and programs is warranted in the regulation. The agencies 
believe that the approach taken is appropriate because the proposed 
list is broad and recognizes that bank credit products and programs may 
vary to meet the needs of different communities and may be dependent on 
a bank's business model and focus. Moreover, given that the list of 
categories of responsive credit products and programs is not 
exhaustive, the list permits examiners to consider additional products 
and programs and allows sufficient flexibility for the agencies to 
consider new approaches as they are developed.
    The agencies appreciate other recommendations, such as programs to 
provide affordable credit products to individuals with limited English 
proficiency, and note that some suggestions may also qualify as a 
responsive credit product or program. For instance, in the proposal, 
the agencies listed examples of credit products that can be challenging 
for consumers to obtain because they generate less revenue for a bank 
than larger loans, because borrowers do not have sufficient down 
payments, or because consumers have limited conventional credit 
histories.\1055\ Some of the suggested products also contain these 
characteristics. Other suggestions, such as responsive loan products 
that finance equitable media, fall outside of the scope of this 
regulation.
---------------------------------------------------------------------------

    \1055\ See 87 FR 33884, 33966 (June 2022).
---------------------------------------------------------------------------

    The agencies note that commenter suggestion to consider purchased 
loans under the Retail Services and Products Test is unnecessary given 
that these loans are already considered under the Retail Lending Test 
(which addresses liquidity support for institutions raised by this 
comment). However, purchased loans could potentially be considered 
under this component of the Retail Services and Products Test if a bank 
purchased a responsive credit product identified in Sec.  __.23(c)(2); 
for example, a loan that was purchased from an MDI or CDFI would be 
considered.
    The agencies are sensitive to concerns from some commenters who 
believe that a detailed list or specific guidance is needed to provide 
banks with certainty, which is often needed before implementing new 
ideas. However, as explained in the proposal, the agencies believe that 
a specific list of retail lending products and programs within the 
regulation could have the unintended consequence of constraining bank 
efforts to meet the credit needs of its communities and pursuing more 
impactful activities that may deviate from the specific examples. 
Nevertheless, the agencies acknowledge that a more detailed list of 
examples of responsive credit products and programs could be provided 
outside of the regulation and will continue exploring the feasibility 
of whether such a list would be helpful to provide banks and partners 
with additional certainty regarding qualifying activities under the 
Retail Services and Products Test. Similarly, in reference to 
suggestions from commenters that the agencies develop and provide a 
non-exhaustive illustrative list of qualifying activities, the agencies 
have committed to assessing whether to provide additional guidance 
regarding qualifying responsive credit products outside of the 
regulation.
    Regarding recommendations from commenters on evaluating credit 
products that impact the environment or lead to displacement, the 
agencies have developed a criterion under final Sec.  __.13(i) that 
will qualify loans and investments that help improve the disaster 
preparedness and weather resiliency of such communities. The agencies 
did not find it appropriate to restrict the types of consumer products 
and programs because the agencies did not find persuasive evidence that 
consumer products and programs had environmental or displacement 
impacts.
    Low-Cost Education Loans. To clarify that low-cost education loans, 
as defined in final Sec.  __.12, are an example of responsive credit 
products and programs under the Retail Services and Products Test, the 
agencies are adopting new final Sec.  __.23(c)(2)(iv) as a fourth 
category of responsive credit products and programs. Although the 
agencies proposed ``evaluating the responsiveness of a large bank's 
credit products and programs to the needs of low- and moderate-income 
individuals (including through low-cost education loans),'' the 
agencies believe it is appropriate to separately enumerate low-cost 
education loans given the explicit CRA statutory requirement that the 
agencies consider low-cost education loans provided by banks to low-
income borrowers as a factor when evaluating the bank's record of 
meeting community credit needs.\1056\
---------------------------------------------------------------------------

    \1056\ See 12 U.S.C. 2903(d).
---------------------------------------------------------------------------

    Special Purpose Credit Products. In response to comments received, 
the agencies are also adopting new final Sec.  __.23(c)(2)(v), which 
adds special purpose credit programs under 12 CFR 1002.8 as a fifth 
category of responsive credit programs, regardless of whether the 
special purpose credit programs includes income limitations. In 
response to comments and the agencies' internal considerations, the 
agencies decided to add this category rather than to include special 
purpose credit program as an example of a program that facilitates 
mortgage and consumer lending targeted to low- or moderate-income 
borrowers. This decision is based on the fact that not all special 
purpose credit programs have income limitations, and some do not 
necessarily target low- and moderate-income borrowers, which means that 
these programs may be ineligible under final Sec.  __.23(c)(2)(i). 
Moreover, as banks consider how they may expand access to credit to 
better address specific social needs, the agencies believe including 
special purpose credit programs as a category of responsive credit 
products and programs eligible for CRA consideration will encourage 
creditors to explore opportunities to develop these programs consistent 
with applicable law, including, but not limited to, ECOA and Regulation 
B, as well as applicable safe and sound lending principles. The 
inclusion of special purpose credit programs is particularly important 
given that in February 2022, several Federal agencies issued an 
interagency statement to remind creditors of the ability under ECOA and 
Regulation B to establish special purpose credit programs to meet the 
credit needs of specified classes of persons.\1057\ Importantly, the 
agencies do not determine whether a program qualifies for special 
purpose credit program status, banks with questions about any aspect of 
ECOA and Regulation B's special purpose credit program provisions may 
consult their appropriate regulatory agencies.
---------------------------------------------------------------------------

    \1057\ See Board, FDIC, NCUA, OCC, CFPB, HUD, U.S. Dept. of 
Justice, Federal Housing Finance Agency, ``Interagency Statement on 
Special Purpose Credit Programs Under the Equal Credit Opportunity 
Act and Regulation B'' (Feb. 22, 2022), https://www.fdic.gov/news/financial-institution-letters/2022/fil22008a.pdf.
---------------------------------------------------------------------------

Section __.23(c)(3) Deposit Products
Current Approach
    As discussed above, a bank's retail deposit products and services 
are evaluated under the current service test for large banks, primarily 
as part of the range of services provided in low-, moderate-, middle-, 
and upper-income geographies and the degree to which the services are 
tailored to meet the needs of those geographies.\1058\
---------------------------------------------------------------------------

    \1058\ See current 12 CFR __.24(d)(4); see also Q&A Sec.  
__.24(d)(4)-1.
---------------------------------------------------------------------------

The Agencies' Proposal
    In proposed Sec.  __.23(c)(2) the agencies proposed modernizing the

[[Page 6943]]

existing evaluation of a bank's deposit products and services by adding 
a more explicit focus on the financial inclusion of deposit products 
and by adding specific measures for evaluation, such as availability 
and usage.\1059\ Specifically, for large banks with assets of over $10 
billion in both of the prior two calendar years, based on the assets 
reported on its four quarterly Call Reports for each of those calendar 
years, the agencies proposed to evaluate the availability and usage of 
a bank's deposit products that are responsive to the needs of low- and 
moderate-income individuals.\1060\ This evaluation would be optional 
for large banks with assets of $10 billion or less, though the agencies 
requested feedback on whether the evaluation should be required for 
these banks.\1061\
---------------------------------------------------------------------------

    \1059\ See proposed Sec.  __.23(c)(2).
    \1060\ See proposed Sec.  __.23(c) introductory text 
(application to large banks with assets of over $10 billion) and 
(c)(2)(i) (availability) and (ii) (usage).
    \1061\ See proposed Sec.  __.23(c).
---------------------------------------------------------------------------

Comments Received
    The agencies received a number of comments addressing the proposed 
evaluation of deposit products responsive to the needs of low- and 
moderate-income individuals. The commenters were generally supportive 
of the proposal, although some provided recommendations for 
improvement. For instance, one commenter urged the agencies to also 
evaluate the responsiveness of deposit products for small businesses 
and claimed that their exclusion from the test would disadvantage banks 
with a small business lending model. A few commenters suggested that 
the agencies consider the quality of the products offered as measured, 
for example, by the deposit account revenue derived from overdraft or 
insufficient fund fees. One commenter urged the agencies to require the 
collection of the income of the consumers receiving responsive deposit 
accounts; however, two commenters opposed such a requirement stating 
that large banks do not collect income information related to the 
opening of accounts, and even if they did, the data collected would 
have to be updated regularly. Another commenter recommended that the 
agencies mirror the 1995 CRA rules' performance standards by evaluating 
the responsiveness of deposit products using qualitative factors, while 
allowing banks to support their evaluation of performance. Another 
commenter recommended expanding consideration of deposit products to 
the needs of military personnel, veterans, and their families.
    In contrast, a few commenters opposed the inclusion of a bank's 
deposit products in the evaluation of the test altogether. These 
commenters asserted that: there is no statutory basis in the CRA for 
evaluating the features of bank deposit products; there is no statutory 
basis for regulating these products under the CRA; the CRA is not the 
appropriate vehicle through which to regulate a bank's product 
offerings and associated fees; and the proposed approach contains no 
apparent limiting principle and leaves unanswered key questions 
regarding the scope of agency authority to evaluate deposit products. 
One of these commenters suggested the evaluation of deposit products 
should serve only as performance context, but not as a mandatory 
element or minimum requirement.
    In response to the agencies' request for feedback on whether, in 
addition to deposit accounts, there are other products or services that 
encourage retail banking activities that may increase credit access, 
the agencies received several comments which provided suggestions on 
other retail services or products that may increase access to credit in 
addition to deposit accounts. The most common recommendation across the 
variety of commenters was financial counseling. Other commenters 
suggested products or services such as: credit-building loans; small 
dollar loans for homeowners and small businesses; GSE pilot programs; 
community land trusts; direct deposit advances; secured credit cards; 
and refund transfers.
    The agencies received several comments in response to the request 
for feedback on whether large banks with assets of $10 billion or less 
should be subject to a responsive deposit products evaluation with 
mixed views. Two commenters argued that this component should be 
required for large banks with assets of $10 billion or less as it is 
for large banks with assets of over $10 billion, with one suggesting 
that intermediate banks should be provided with a formal option for 
electing to be considered under the proposed Retail Services and 
Products Test. A few commenters went further and suggested that this 
component should be required for banks of all asset sizes, as they all 
should be responsive to the deposit needs of people in the bank's 
delineated assessment areas in order to ensure that low- and moderate-
income families have easy access to banking products. In contrast, 
other commenters favored the proposal's optionality for large banks 
with assets of $10 billion or less stating it is an important factor 
that should be maintained. One commenter noted that while larger banks 
can have a disproportionate impact because of their ability to scale 
products more effectively, requiring this additional evaluation could 
hinder scaling innovative products. Another commenter suggested that 
banks with assets $10 billion or less have the option of a qualitative 
review with the focus on product design and demonstration of products 
being openly available.
Final Rule
    As explained below, the agencies are finalizing Sec.  __.23(c)(2), 
renumbered in the final rule as Sec.  __.23(c)(3), largely as proposed 
to provide for the evaluation of the availability of deposit products 
responsive to low- and moderate-income individuals, families, or 
households, renumbered in the final rule as Sec.  __.23(c)(3)(i), and 
the usage of deposit products, renumbered in the final rule as Sec.  
__.23(c)(3)(ii). The agencies also made clarifying changes, including 
but not limited to a change to the heading.
    The agencies conclude that they have statutory authority to 
evaluate responsive large bank deposit products under the final rule. 
While the operational provisions of the CRA instructs the agencies to 
evaluate a bank's record of meeting the credit needs of its 
communities,\1062\ the agencies have found that there is a sufficient 
nexus between deposit products and the provision of credit such that, 
to comprehensively assess large bank performance for banks with more 
than $10 billion in assets, it is appropriate to evaluate deposit 
accounts responsive to the needs of low- and moderate-income 
individuals, families, or households. For the reasons described below, 
the availability of bank deposit products that meet the needs of low- 
and moderate-income individuals, families, or households frequently 
assume a foundational role in the ability for individuals to access 
credit responsive to their particular needs.
---------------------------------------------------------------------------

    \1062\ See 12 U.S.C. 2903(a)(1) and 2906(a)(1).
---------------------------------------------------------------------------

    First, the agencies believe that deposit products are important for 
supporting the credit needs of low- and moderate-income individuals, 
families, or households because they increase credit access by helping 
individuals improve their financial stability and build wealth through 
deposit accounts.\1063\ A greater

[[Page 6944]]

focus on responsive deposit products could strengthen a bank's ability 
to serve the credit needs of its communities.
---------------------------------------------------------------------------

    \1063\ See, e.g., Ryan M. Goodstein, Alicia Lloro, Sherrie L. 
Rhine, & Jeffrey M. Weinstein, ``What accounts for racial and ethnic 
differences in credit use?'', 55 J. of Consumer Affairs 389-416 
(2021); FDIC, ``2017 FDIC National Survey of Unbanked and 
Underbanked Households'' (October 2018), https://www.fdic.gov/analysis/household-survey/2017/index.html; Michael Barr, Jane K. 
Dokko, & Benjamin J. Keys, ``And Banking for All?'' Board Finance 
and Economics Discussion Series Working Paper No. 2009-34 (Aug, 
2009), https://www.federalreserve.gov/pubs/feds/2009/200934/200934pap.pdf.
---------------------------------------------------------------------------

    Second, deposit products can help consumers qualify for loans by 
facilitating consumers' savings so that they can post collateral and to 
pay transactions costs. Consumers frequently rely on deposit accounts 
to save for and then fund the down payment for a house, the money down 
on a car, or the initial capital for a small business. Deposit products 
may also assist consumers in improving their credit scores. Features 
like scheduled recurring or automatic bill payments, check writing 
privileges, and quick availability of funds make it much easier for 
consumers to make payments on time and build their credit scores. Data 
from consumers' use of deposit accounts are also sometimes included in 
credit evaluations as ``alternative data.'' While the use of these data 
is not currently widespread, the agencies have encouraged the 
responsible use of alternative data and noted that it could expand the 
availability of credit.
    Finally, deposit products are a pathway for a bank customer to 
establish an ongoing relationship with a bank. Customers who hold 
deposit products have contact with a bank--either physically or 
electronically--every time they perform a transaction. Banks can use 
various touch points to market credit products, explain how credit 
products can help consumers meet financial needs, and provide services 
to improve consumers' financial literacy. The bank also obtains 
valuable information from interactions with their customers. Some banks 
rely on ``relationship lending,'' or using this ``soft'' data based on 
an ongoing relationship with a customer to make underwriting 
decisions.\1064\
---------------------------------------------------------------------------

    \1064\ Elyas Elyasiani & Lawrence G. Goldberg, Relationship 
lending: a survey of the literature, 56 J. Econ. & Bus. 315-330 
(2004).
---------------------------------------------------------------------------

    Data and empirical studies support the idea that deposit accounts 
facilitate lending and improved financial outcomes. A 2019 study 
provides some causal evidence that increases in consumers' access to 
deposit accounts led to increased savings, increased net worth, and 
increased holdings of various types of credit.\1065\ The effects could 
be more important for low-income consumers, since the increases in bank 
access they study were larger in places where incomes were lower. There 
also is a strong correlation between deposit accounts and mainstream 
credit, though this correlation could be for several other reasons as 
well.\1066\
---------------------------------------------------------------------------

    \1065\ Claire Celerier & Adrien Matray, Bank-Branch Supply 
Financial Inclusion and Wealth Accumulation, 32 Rev. of Fin. Stud. 
4767-4809 (Dec. 2019); A related study uses a different design to 
provide evidence that exposure to banking as a child leads to higher 
credit scores and lower delinquency rates as an adult: James R. 
Brown, J. Anthony Cookson & Rawley Z. Heimer, Growing up without 
finance, 134 J. Fin. Econ. 591-616 (Dec. 2019).
    \1066\ One reason why there could be a correlation without 
causation is omitted variable bias. Consumers who have bank accounts 
could also be more likely to have credit because of some other 
characteristic that would lead to both. For example, consumers with 
higher incomes are more likely to own bank accounts and higher 
incomes also make it easier for consumers to borrow. For the 
statistic, see FDIC, Table 10.1, ``Use of Credit by Bank Account 
Ownership, 2017-2021,'' of the ``2021 FDIC National Survey of 
Unbanked and Underbanked Households'' (Oct. 2022), https://www.fdic.gov/analysis/household-survey/2021report.pdf.
---------------------------------------------------------------------------

    The agencies note that deposit products are considered under the 
existing CRA framework.\1067\ The agencies retain discretion under the 
final rule to consider other factors and features in determining if a 
deposit product is responsive to low- and moderate-income individuals, 
families, or households. Examples of products that meet the 
responsiveness standard include accounts certified by the Cities for 
Financial Empowerment as meeting the Bank On National Account standard, 
which precludes overdraft and insufficient funds fees, and ``second-
chance accounts.'' Savings accounts targeted toward low- or moderate-
income individuals, families, or households such as Family Self-
Sufficiency Accounts are another example of a product that would be 
considered responsive. These are not exclusive examples, and the 
agencies will be able to consider other factors. The agencies decided 
not to require the collection of income for consumers opening accounts 
to help determine responsiveness because the burden could present a 
barrier to bank participation in offering such products.
---------------------------------------------------------------------------

    \1067\ See e.g., current 12 CFR __.24(d)(4); see also Q&A Sec.  
__.24(a)-1 and Q&A Sec.  __.24(d)(4)-1.
---------------------------------------------------------------------------

    In response to the recommendation that the agencies mirror the 1995 
CRA rules' performance standards, the agencies believe that the 
approach taken in the final rule modernizes the existing evaluation of 
a bank's products and services by adding a more explicit focus on the 
financial inclusion potential of these products and by adding specific 
measures for evaluation, such as availability and usage.
    The agencies are sensitive to concerns raised by some commenters 
that the final rule should not operate in a way that regulates or 
otherwise requires banks to provide certain deposit products. The 
agencies note that evaluation of deposit product in final Sec.  
__.23(c)(3) does not regulate or set the prices of a bank's product 
offerings and associated fees. Furthermore, as described below in Sec.  
__.23(d)(1), the evaluation of a banks deposit products only 
contributes positively to a bank's Retail Services and Products Test 
conclusion.
    The agencies have considered the comments, and after further 
analysis, the agencies have decided against requiring a responsive 
deposit product assessment for banks with assets of $10 billion or 
less, but instead retain it as an option for such banks. The agencies 
are sensitive to concerns that institutions with assets of $10 billion 
or less may not have sufficient resources for the data collection 
contemplated by this assessment. Additionally, the required data 
collection for this evaluation could be burdensome.
    The agencies decline commenter suggestions to make the 
consideration of deposit accounts a type of performance context or 
otherwise make it a type of evaluation in the Retail Services or 
Products Test an optional requirement for all large banks. As discussed 
above, because the agencies believe that deposit accounts responsive to 
the needs of low- and moderate-income individuals play a vital role in 
the access to credit products, it is appropriate to require the 
consideration for banks with assets greater than $10 billion and 
provide banks with assets of $10 billion or less an option to have 
their responsive deposit accounts considered.
    The agencies considered the comments on whether, in addition to 
deposit accounts, there are other products or services that encourage 
retail banking activities that may increase credit access. While the 
agencies believe that most suggestions provided by commenters in 
response to the question may actually increase access to credit, these 
recommendations are generally captured in other parts of the rule. For 
example, a bank may receive consideration for financial counseling as a 
type of community development service under final Sec. Sec.  __.13(1) 
and __.25.

[[Page 6945]]

Section __.23(c)(3)(i) Availability of Deposit Products Responsive to 
the Needs of Low- and Moderate-Income Individuals, Families, or 
Households

The Agencies' Proposal
    The agencies proposed to evaluate in Sec.  __.23(c)(2)(i) whether a 
bank offers deposit products that have features and cost 
characteristics that, consistent with safe and sound operations, 
include, but are not limited to: (1) low-cost features; \1068\ (2) 
features facilitating broad functionality and accessibility; \1069\ and 
(3) features facilitating inclusivity of access.\1070\ The agencies 
proposed taking these three types of features into consideration when 
evaluating whether a particular deposit product has met the 
``responsiveness to low- and moderate-income needs'' standard.
---------------------------------------------------------------------------

    \1068\ See proposed Sec.  __.23(c)(2)(i)(A).
    \1069\ See proposed Sec.  __.23(c)(2)(i)(B).
    \1070\ See proposed Sec.  __.23(c)(2)(i)(C).
---------------------------------------------------------------------------

    The agencies requested comment on whether the features of cost, 
functionality, and inclusion of access are appropriate for establishing 
whether a deposit product is responsive to the needs of low- and 
moderate-income individuals or whether other features or characteristic 
should be considered. The agencies also requested comment on whether a 
minimum number of features should be met in order to be considered 
``responsive.''
Comments Received
    The agencies received several comments in response to their request 
for feedback on whether there are other features or characteristics 
that the agencies should consider. These commenters were generally 
supportive of the proposed features to determine if a deposit product 
is responsive. Most commenters generally agreed that considering the 
features of cost, functionality, and accessibility to determine if a 
deposit product is responsive to the needs of low- and moderate-income 
individuals is appropriate. Some commenters made additional 
recommendations. For example, one commenter agreed with the list of 
features, but urged the agencies to clarify that a responsive product 
needs to be both low-cost and accessible. Another commenter supported 
the approach but recommended that the agencies include a fourth 
feature--wealth enabling opportunities, such as financial wellness 
coaching, wealth building advice, credit repair, money management 
assistance, and bank career training opportunities. A few commenters 
suggested that banks should be evaluated not only for offering, for 
example, Bank On accounts, which preclude the assessment of overdraft 
and insufficient funds fees, but for actually connecting consumers with 
such accounts. Other commenters recommended expanding the features to 
consider whether the deposit product: is inclusive of immigrant 
communities or is part of the Veterans Benefits Banking Program; 
provides noncustodial accounts for foster youth; ensures that people 
with disabilities and older adults have equal access to the products; 
if the deposit product is a checking account, is free, with no 
overdraft fees, and with features such as bill pay and debit cards; or 
is a second chance account that requires no ChexSystems approval and 
has no, or low, fees.
    A few commenters expressed concern about the proposed cost 
features. Some of these commenters urged the agencies to ensure that 
the evaluation of a bank's deposit products would not depend on a 
comparison to peer banks, while a few other commenters warned the 
agencies against regulating costs and fees, asserting that the statute 
does not authorize the agencies to do so. Two commenters encouraged the 
agencies to omit the evaluation of deposit products or at least clarify 
that the enumerated factors will be reviewed holistically and will not 
serve as a checklist. Similarly, another commenter noted that the 
analysis of low-cost features could force banks to offer certain 
products at particular prices and fees and urged the agencies to 
implement safeguards to prevent the evaluation from causing such a 
result.
    Only a few commenters addressed whether a certain number of 
features should be met. These commenters stated that setting a minimum 
threshold for consideration of responsiveness was not necessary, with 
one of these commenters explaining that product design offsets may be 
required to ensure a product is viable in a marketplace and that, in 
the course of an examination, a bank should be able to explain how the 
product is responsive to the needs of its particular community. 
However, one of the commenters urged the agencies to also compare a 
bank's products to their peers' offerings. A few commenters expressed 
concern that the proposed list of relevant features implies that any 
one feature would make a product responsive, and therefore requested 
that the agencies clarify that in order to be responsive to the needs 
of underserved consumers, deposit products must be both low-cost and 
accessible, and that low-cost refers both to front-end fees and back-
end fees.
Final Rule
    The agencies are finalizing Sec.  __.23(c)(2)(i), renumbered in the 
final rule as Sec.  __.23(c)(3)(i), as proposed, to evaluate whether a 
bank offers deposit products that have features and characteristics 
responsive to the needs of low- and moderated-income individuals, 
families, or households, including low-cost features, features 
facilitating broad functionality and accessibility, and features 
facilitating inclusivity of access.
    The agencies believe the proposed features are appropriate and 
sufficient. For instance, consideration of deposit products with low-
cost features is consistent with current guidance, and cost issues 
remain a prevalent reason cited by unbanked individuals as to why they 
do not have a bank account.\1071\ As such, the agencies believe that 
low-cost should remain a feature of responsive deposit product despite 
concerns expressed by some commenters.
---------------------------------------------------------------------------

    \1071\ See FDIC, ``2021 FDIC National Survey of Unbanked and 
Underbanked Households'' (Oct. 2022), https://www.fdic.gov/analysis/household-survey/2021report.pdf.
---------------------------------------------------------------------------

    Similarly, the agencies are retaining in the final rule features 
facilitating broad functionality and accessibility and facilitating 
inclusivity of access, which are also consistent with current 
guidance.\1072\ The agencies believe that the ability to conduct 
transactions and access funds in a timely manner is highly relevant for 
lower-income individuals or unbanked and underserved individuals, who 
otherwise might acquire financial services at a higher cost from 
predatory sources, and that research indicates that prior bank account 
problems remain barriers for consumers who are unbanked.\1073\
---------------------------------------------------------------------------

    \1072\ See Q&A Sec.  __.24(a)-1; Q&A Sec.  __.24(d)(4)-1.
    \1073\ See FDIC, ``How America Banks: Household Use of Banking 
and Financial Services,'' 2019 FDIC Survey (Oct. 2020), https://www.fdic.gov/analysis/household-survey/2019report.pdf; Federal 
Reserve Bank of Dallas, ``Closing the Digital Divide: A Framework 
for Meeting CRA Obligations'' (July 2016), https://
www.dallasfed.org/~/media/documents/cd/pubs/digitaldivide.pdf.
---------------------------------------------------------------------------

    While some of the recommended additional features suggested by 
commenters may be helpful in establishing responsiveness, the agencies 
believe that the features in the final rule are sufficient without 
adding burden. The proposed standards for responsiveness, in addition 
to being consistent with current guidance, also align with the national 
account standards issued by the Cities for

[[Page 6946]]

Financial Empowerment Fund's Bank On program, which are regarded with 
favorable CRA consideration today.\1074\ The Bank On national account 
standards were informed by the FDIC's Model Safe Accounts Template, a 
set of guidelines for offering cost-effective transactional and savings 
accounts that are safe and affordable, and meet the needs of 
underserved consumers.\1075\
---------------------------------------------------------------------------

    \1074\ See Q&A Sec.  __.24(a)-1; Cities for Financial 
Empowerment Fund, ``Bank On National Account Standards (2023-
2024),'' https://bankon.wpenginepowered.com/wp-content/uploads/2022/08/Bank-On-National-Account-Standards-2023-2024.pdf.
    \1075\ See FDIC, ``FDIC Model Safe Accounts Pilot'' (Apr. 5, 
2012), https://www.fdic.gov/consumers/template/; FDIC, ``FDIC Model 
Safe Accounts Template'' (Apr. 2012), https://www.fdic.gov/consumers/template/template.pdf.
---------------------------------------------------------------------------

    The agencies note that, in response to the commenter that 
recommended adding wealth-enabling opportunities as a fourth feature, 
this section focuses on deposit products that are responsive to low- 
and moderate-income individuals, families, or households. The agencies 
believe that the features listed in the regulation, which are not 
exclusive, do create opportunities to build wealth. In addition, a 
number of the commenter suggested additions would be considered under 
the Community Development Services Test. Lastly, the list in the 
regulation is broad and not exhaustive; therefore, it allows examiners 
the flexibility to consider some of the additional features recommended 
by commenters that are not explicitly listed.
    With respect to commenter suggestions that the agencies set a 
minimum number of features for consideration of responsiveness, the 
agencies do not believe it is necessary. In reaching this decision, the 
agencies balanced concerns about being overly prescriptive in 
establishing standards, while recognizing that categories, including 
cost and broad functionality and accessibility, are important 
considerations in determining responsiveness. However, the agencies are 
noting that in order to be responsive to the needs of underserved 
consumers, deposit products should have both low-cost and accessible 
characteristics, and that low-cost features should refer both to front-
end fees and back-end fees.

Section __.23(c)(3)(ii) Usage of Deposit Products Responsive to the 
Needs of Low- and Moderate-Income Individuals, Families, or Households

The Agencies' Proposal
    The agencies also proposed in Sec.  __.23(c)(2)(ii), to evaluate 
usage of responsive deposit products in Sec.  __.23(c)(2)(ii)(A) 
through (C), by considering, for example: (1) the number of responsive 
accounts opened and closed during each year of the evaluation period in 
low-, moderate-, middle-, and upper-income census tracts, respectively; 
\1076\ (2) the percentage of total responsive deposit accounts compared 
to total deposit accounts for each year of the evaluation period; 
\1077\ and (3) marketing, partnerships, and other activities that the 
bank has undertaken to promote awareness and use of responsive deposit 
accounts by low- and moderate-income individuals.\1078\ The agencies 
also proposed considering outreach activity undertaken to promote 
awareness and use of responsive deposit accounts by low- and moderate-
income individuals. In particular, the agencies proposed giving 
qualitative consideration to marketing, partnerships, and other 
activities to attract low- and moderate-income individuals.
---------------------------------------------------------------------------

    \1076\ See proposed Sec.  __.23(c)(2)(ii)(A).
    \1077\ See proposed Sec.  __.23(c)(2)(ii)(B).
    \1078\ See proposed Sec.  __.23(c)(2)(ii)(C).
---------------------------------------------------------------------------

    The agencies requested feedback regarding whether the proposed 
usage factors are appropriate for an evaluation of responsive deposit 
products and whether the agencies should consider the total number of 
active deposit products relative to all active consumer deposit 
accounts offered by the bank, which was proposed in Sec.  
__.23(c)(2)(ii)(B) as an example of a usage feature. The agencies also 
requested feedback on whether the agencies should take other 
information into consideration when evaluating the responsiveness of a 
bank's deposit products under proposed Sec.  __.23(c)(2)(ii), such as 
the location where the responsive deposit products are made available.
Comments Received
    Comments related to the appropriateness of usage factors. The 
agencies received several comments expressing differing opinions in 
response to whether the proposed usage factors are appropriate for an 
evaluation of responsive deposit products and whether the agencies 
should consider the total number of active deposit products relative to 
all active consumer deposit accounts offered by the bank. Commenters 
were overwhelmingly in support of the general usage factors even though 
many also suggested additions to, and clarifications of, the factors. 
Another commenter urged the agencies to create a market benchmark to 
compare a bank's percentage of accounts in low- and moderate-income 
census tracts to peer data and also suggested that openings and 
closings are a useful indicator that should be paired with evaluation 
of transaction activity, marketing, and partnerships. Another commenter 
suggested the agencies should add analysis of higher-cost products and 
fees, including overdraft, ATM, and maintenance fees by geography.
    By contrast, some commenters believed the proposed usage factors 
were not appropriate and requested that the agencies measure deposit 
products qualitatively and only require an optional, if any, evaluation 
of the usage factors. One of these commenters asserted that 
quantitative factors such as usage are not appropriate for a 
qualitative assessment of deposit products nor are they an accurate 
measure to assess the responsiveness of deposit products. Other 
commenters urged the agencies to provide optional evaluation of usage 
rates and account openings by people in low- and moderate-income census 
tracts as a means for banks to show that they are reaching low- and 
moderate-income individuals given that these rates are an imperfect 
proxy for actual rates of usage by low- and moderate-income 
individuals. A few of these commenters also noted that it may be 
extremely burdensome to try to accurately evaluate or monitor these 
factors quantitatively. For instance, two commenters suggested that 
usage of deposit products in low- and moderate-income areas cannot 
accurately reflect the overall ``responsiveness'' and ``availability'' 
of a bank's deposit products to low- and moderate-income individuals, 
with one of these commenters stating that there is no data that 
suggests low- and moderate-income individuals live only, or primarily, 
in low- and moderate-income census tracts, and the other commenter 
noting there is data that suggests there are significantly more low- 
and moderate-income individuals living in middle- and upper-income 
tracts combined, than low- and moderate-income people living in low- 
and moderate-income tracts combined.
    Comments related to the consideration of total number of active 
responsive deposit products relative to all active consumer deposit 
accounts offered by the bank. There was similar disagreement with 
respect to whether the agencies should consider the total number of 
active responsive deposit products relative to all active consumer 
deposit accounts offered by the bank as proposed in Sec.  
__.23(c)(2)(ii)(B). A few commenters opposed this approach for several 
reasons, including that the approach lacks accuracy, since low- and

[[Page 6947]]

moderate-income individuals do not necessarily have the resources to 
open multiple accounts compared to middle- and upper-income 
individuals, which: skews comparison; would be too complex and 
challenging for most non-CDFI institutions; is not probative of whether 
a bank is adequately serving low- and moderate-income individuals 
because there may be valid reasons for closing accounts; and is more 
qualitative than it is quantitative. Another commenter expressed 
concern about whether the total number of active responsive deposit 
products relative to all active consumer deposit accounts offered by 
the bank would be an indicator of responsiveness because, if a bank 
offers an account opening reward, there could be a surge in account 
openings and a drop after the reward is no longer offered. Instead, 
this commenter recommended that the agencies consider deposit account 
closures in the same manner as deposit account openings are evaluated 
in terms of responsiveness. Conversely, two other commenters generally 
supported the proposal and agreed that the ratio of active responsive 
deposit products relative to all active deposit accounts would be an 
appropriate metric for evaluation, with one of these commenters also 
noting that this metric must also be compared to the performance of 
peers. Another group supported considering the number of responsive 
accounts opened and closed during each year of the evaluation period in 
low-, moderate-, middle- and upper-income census tracts.
    Comments related to the review of marketing, partnerships, and 
other activities to promote awareness and use of responsive deposit 
accounts. Various commenters supported the review of marketing 
materials. One commenter agreed with assessing whether products are 
marketed to and used by low- and moderate-income individuals and 
communities. Another commenter recommended that examiners engage 
community stakeholders in this assessment to better assess the extent 
and rigor of the bank's activities.
    Comments related to whether other information, such as location, 
should be taken into consideration in the evaluation of responsive 
deposit accounts. A variety of commenters discussed whether other 
information, such as location, should be taken into consideration when 
evaluating the responsiveness of a bank's deposit products under 
proposed Sec.  __.23(c)(2)(ii). A few commenters were supportive of 
including a review of the location where the responsive deposit product 
is made available. For instance, a commenter noted that location of a 
product's availability is reflective of its responsiveness, but 
cautioned that a product offered in-branch in a low-income census tract 
is unlikely to be responsive if the product is not marketed or staff 
are not trained in its design and purpose. Another commenter encouraged 
the agencies to also consider how a customer's inability to access a 
location, and perceived safety near a location, influences how and when 
they make deposits. Another commenter recommended that the agencies 
assess whether responsive deposit products are offered in branches and 
at remote service facilities in low- and moderate-income census tracts. 
Two other commenters suggested the agencies look to the Federal Reserve 
Bank of St. Louis' Bank On National Data Hub for workable metrics for 
account engagement and whether a deposit product is responsive to the 
needs of low- and moderate-income communities.
    However, a commenter cautioned the agencies against using geography 
as a primary factor in determining whether a bank's deposit products 
and delivery channels are serving low- and moderate-income individuals, 
because some low- and moderate-income individuals reside outside low- 
and moderate-income areas and there is a lower concentration of low- 
and moderate-income individuals in census tracts outside metropolitan 
areas. Instead, this commenter urged the agencies to focus the 
evaluation on qualitative factors, such as a bank's strategies and 
initiatives for reaching low- and moderate-income individuals as well 
as an assessment of whether the bank's deposit offerings are responsive 
to their needs, and consider performance context when evaluating 
products and services. A commenter expressed the view that the agencies 
should always consider additional information, but cautioned against 
stipulating a requirement because it could have the unintended 
consequence of limiting innovation. This commenter further noted that 
full impact of a responsive product should be subject to examiner 
judgement based on location and other limiting factors in order to 
encourage credit for particularly impactful products without adding to 
reporting burden. Other commenters provided recommendations on useful 
information to review including affordability of deposit accounts for 
low- and moderate-income communities by comparing and refining, if 
necessary, fee information collected in Call Report data.
Final Rule
    The agencies are finalizing proposed Sec.  __.23(c)(2)(ii), 
renumbered in the final rule as Sec.  __.23(c)(3)(ii), by retaining the 
usage factors in renumbered Sec.  __.23(c)(3)(ii)(A) through (C). The 
usage factors include the consideration of the percentage of responsive 
deposit accounts compared to total deposit accounts for each year in 
final Sec.  __.23(c)(3)(ii)(B). The agencies are adopting new Sec.  
__.23(c)(3)(ii)(D) in the final rule. This provision is intended to 
offer banks the flexibility to provide any other information not 
captured by paragraphs (c)(3)(ii)(A) through (C) of final Sec.  __.23 
that demonstrates usage of deposit products responsive to the needs of 
low- and moderate-income individuals, families, or households. The 
agencies are also making clarifying edits.
    Regarding the usage factors and in response to commenters' concerns 
about burden, the agencies will require examiners to rely on data 
provided by banks and will not include depositor income levels. The 
agencies agree with commenters who assert that the usage factors are 
appropriate.
    For instance, the information about deposit account openings and 
closings could be an approximate indicator of the extent to which the 
needs in low- and moderate-income areas are being met. The comparison 
of responsive deposit accounts to total deposit accounts is intended to 
give a sense of the magnitude of the commitment to broadening the 
customer base to include low- and moderate-income individuals, 
families, or households. Also, bank outreach and marketing may 
contribute to the successful take-up of deposit products targeted to 
low- and moderate-income individuals, families, or households. These 
factors are important criteria to help facilitate evaluating whether a 
bank's deposit products are responsive to the needs of low- and 
moderate-income individuals, families, or households.
    Although the agencies considered the commenters' recommendations, 
such as the creation of a market benchmark, comparison of performance 
to peers, and concerns that the usage features of account opening by 
people in low- and moderate-income geographies is not a perfect measure 
of actual usage by low- and moderate-income individuals, the agencies 
believe that the approach taken in the final rule balances the needs 
for flexibility against the increased burden that may result from 
enhanced data collection and monitoring of low- and moderate-income 
individual's, family's, or household's usage of the accounts.

[[Page 6948]]

    The agencies also decided not to adopt commenter suggestions to 
only measure deposit products qualitatively. Quantitative data such as 
information on account openings could be used to measure the 
penetration or usage of the responsive product in low- and moderate-
income areas. Lastly, the agencies believe that focusing on the income 
level of census tracts (even with its limitations), rather than 
depositor income, reflects stakeholder feedback that banks do not 
collect depositor income levels for deposit accounts.
    As noted above, the agencies are also adopting new Sec.  
__.23(c)(3)(ii)(D) as a catchall provision that offers banks the 
flexibility to provide any additional information that ``demonstrates 
usage of the bank's deposit products that have features and cost 
characteristics responsive to the needs of low- and moderate-income 
individuals, families, or households and low- and moderate-income 
census tracts.'' The agencies carefully considered the contrasting 
comments that responded to the agencies' request for feedback on the 
consideration of other information and were persuaded by commenter 
statements regarding the value of reviewing all information, including 
location, to determine whether a bank's deposit products are serving 
low- and moderate-income individuals, families, or households.
    The agencies are sensitive to concerns regarding the use of 
geography as a primary factor in determining whether a bank's deposit 
products serve low- and moderate-income individuals, families, or 
households and agree that many low- and moderate-income individuals 
reside outside of low- and moderate-income areas and there is less 
concentration of low- and moderate-income individuals, families, or 
households by census tracts outside metropolitan areas. However, on 
balance, the agencies believe that using geography as a proxy is the 
best measure of responsiveness of a bank's products in reaching and 
serving low- and moderate-income individuals, families, or households 
given available data and the need to minimize burden.
    The agencies recognize that some of the additional recommended 
information suggested by commenters could be helpful in determining 
responsiveness, and believe that the approach taken in the final 
regulation provides flexibility for agency consideration without adding 
burden. The agencies will continue the practice of reviewing public 
file information for the locations of available services and products. 
The information needed to make a determination is in the public file, 
and examiners can use bank management interviews to confirm findings 
and inquire as to any discrepancy in offerings or terms, without adding 
burden. Additionally, the review of responsive deposit products will 
consider performance context.

Section __.23(d) Retail Services and Products Test Performance 
Conclusions and Ratings

Section __.23(d)(1) Conclusions
Current Approach
    Currently, Sec.  __.24(d) of the CRA regulation requires the 
agencies to evaluate the availability and effectiveness of a bank's 
systems for delivering retail banking services and the extent and 
innovativeness of its community development services.\1079\ The 
conclusions assigned by the agencies are informed by a qualitative 
evaluation, are determined at the assessment area level, and are 
descriptive of the bank's performance relating to: (1) accessibility of 
delivery systems, (2) its record of opening and closing branches, (3) 
business hours and services, and (4) its community development 
services. Based on a bank's performance in these four areas, examiners 
reach an overall assessment area conclusion for the service test.
---------------------------------------------------------------------------

    \1079\ See current 12 CFR __.24(d)(1) through (4).
---------------------------------------------------------------------------

The Agencies' Proposal
    In proposed Sec.  __.23(d)(1), the agencies proposed to assign 
conclusions for a bank's Retail Services and Products Test performance 
in each facility-based assessment area, State, multistate MSA, and at 
the institution level in accordance with proposed Sec.  __.28 and 
proposed appendix C of the CRA regulations. The agencies proposed, in 
appendix C, that a bank's conclusions for its performance in the bank's 
facility-based assessment areas would form the basis for conclusions at 
the State, multistate MSA, and institution levels. As applicable, a 
bank's performance conclusion at the institution level would have also 
been informed by the bank's performance regarding digital and other 
delivery systems under proposed Sec.  __.23(b)(3) and credit products 
and programs and deposit products under proposed Sec.  __.23(c).\1080\
---------------------------------------------------------------------------

    \1080\ See proposed appendix C, paragraph c.
---------------------------------------------------------------------------

    Facility-based Assessment Area Retail Services and Products Test 
Conclusion. The agencies proposed, in paragraph c.1.i of proposed 
appendix C, to reach a single conclusion for a bank's performance under 
the Retail Services and Products Test in each of the bank's facility-
based assessment areas based on two of the delivery systems components: 
(1) branch availability and services, and (2) remote service facility 
availability. The agencies would evaluate these two components 
qualitatively using community and market benchmarks (as described above 
in the section-by-section analysis of Sec.  __.23(b)(1) and (2)) to 
inform the conclusions along with performance context for each 
facility-based assessment area. Based on an assessment of the 
evaluation criteria associated with branch availability, branch-based 
services, and remote service facility availability, the bank would be 
assigned a conclusion corresponding with the conclusion category 
nearest to the performance score as follows: ``Outstanding'' (10 
points); ``High Satisfactory'' (7 points); ``Low Satisfactory'' (6 
points); ``Needs to Improve'' (3 points); or ``Substantial 
Noncompliance'' (0 points).\1081\
---------------------------------------------------------------------------

    \1081\ See proposed appendix C, paragraph c.1.ii.
---------------------------------------------------------------------------

    State and Multistate MSA Retail Services and Products Test 
Conclusions. The agencies proposed, in paragraph c.2 of appendix C, to 
develop State and multistate MSA level conclusions for the Retail 
Services and Products Test based exclusively on the bank's performance 
in its facility-based assessment areas. The agencies would then 
calculate the simple weighted average of a bank's conclusions across 
its facility-based assessment areas in each relevant State and 
multistate MSA. The point value assigned to each assessment area 
conclusion would be weighted by its average share of loans and share of 
deposits of the bank within the assessment area, out of all the bank's 
dollars of retail loans and dollars of deposits in facility-based 
assessment areas in the State or multistate MSA area, as applicable, to 
derive a State-level score.\1082\ Similar to the proposed weighting 
approach for assigning Retail Lending Test conclusions, pursuant to 
proposed Sec.  __.42(a)(7), deposits would be based on collected and 
maintained deposits data for banks that collect deposits data, and on 
the FDIC's Summary of Deposits for banks that do not collect deposits 
data.\1083\ The State level score would then be rounded to the nearest 
conclusion category point value to determine the Retail Services and 
Products Test conclusion for the State or multistate MSA.\1084\
---------------------------------------------------------------------------

    \1082\ See proposed appendix C, paragraph c.2.
    \1083\ See id.; see also proposed appendix A, section VII.1.
    \1084\ See proposed appendix C, paragraph c.2.
---------------------------------------------------------------------------

    Institution Retail Services and Products Test Conclusion. The 
agencies proposed to assign a Retail Services and

[[Page 6949]]

Products Test conclusion for the institution based on the combined 
assessment of both parts of the test: delivery systems and credit and 
deposit products.\1085\
---------------------------------------------------------------------------

    \1085\ See proposed appendix C, paragraph c.3.i.
---------------------------------------------------------------------------

    Delivery systems evaluation. The agencies proposed in paragraphs 
c.3.i.A.1 and 2 of proposed appendix C that a bank's delivery systems 
evaluation would be based on the three proposed parts of the delivery 
systems evaluation, as applicable: (1) branch availability and 
services; (2) remote service facility availability; and (3) digital and 
other delivery systems. The first two parts of the evaluation would 
apply for all large banks at the facility-based assessment area and 
aggregated to form a branch and remote service facilities subcomponent 
conclusion at the institution level. For large banks with assets of 
over $10 billion and large banks with assets of $10 billion or less 
that elect to have digital and other delivery systems considered, the 
agencies proposed evaluating digital and other delivery systems at the 
institution level. For large banks with assets of $10 billion or less 
that do not elect to have their digital and other delivery systems 
considered, the institution-level delivery systems evaluation would be 
based exclusively on the bank's branch availability and services and 
remote service facility availability.
    The agencies proposed that examiners would derive the institution 
delivery systems evaluation by considering the bank's performance for 
each of the three parts of the delivery system evaluation and allowing 
for examiner discretion to determine the appropriate weight that should 
be given to each part. The agencies also indicated that examiners would 
take into account a bank's business model and strategies when 
determining the appropriate weighting.
    Credit products and programs and deposit products evaluation. The 
agencies proposed in paragraph c.3.i.B of proposed appendix C, that a 
bank's credit and deposit products evaluation would be based on the 
performance for the applicable parts of the credit and deposit products 
evaluation, which are: (1) the responsiveness of credit products and 
programs to the needs of low- and moderate-income individuals, small 
businesses, and small farms; and (2) deposit products responsive to the 
needs of low- and moderate-income individuals. The agencies proposed to 
apply the first part of the evaluation to all large banks at the 
institution level. The agencies also proposed evaluating the bank's 
deposit products at the institution level for large banks with assets 
of over $10 billion and for large banks with assets of $10 billion or 
less electing to have their responsive deposit products considered. For 
large banks with assets of $10 billion or less that do not elect to 
have their responsive deposit products considered, the institution-
level credit products and programs and deposit products evaluation 
would be based exclusively on the responsiveness of a bank's credit 
products and programs to the needs of low- and moderate-income 
individuals, small businesses, and small farms.
    As with the delivery systems evaluation, the agencies proposed that 
examiners, considering performance context, would reach a determination 
at the institution level for the credit and deposit products evaluation 
of: ``Outstanding'' (10 points); ``High Satisfactory'' (7 points); 
``Low Satisfactory'' (6 points); ``Needs to Improve'' (3 points); or 
``Substantial Noncompliance'' (0 points).\1086\
---------------------------------------------------------------------------

    \1086\ See proposed appendix C, paragraph c.3.ii.
---------------------------------------------------------------------------

    Retail Services and Products Test conclusion for the institution. 
The agencies proposed to assign a Retail Services and Products Test 
conclusion based on a combined assessment of the bank's delivery 
systems evaluation and the credit and deposit products evaluation, as 
applicable. The agencies proposed that examiner judgment would be 
relied upon to determine the appropriate weighting between these two 
parts of the Retail Services and Products Test for purposes of 
assigning the institution conclusion, in recognition of the importance 
of local community credit needs and bank business model and strategy in 
determining the amount of emphasis to give delivery systems and credit 
and deposit products, respectively. Based on this consideration, the 
agencies would assign an institution-level conclusion on the Retail 
Services and Products Test. This conclusion would be translated into a 
performance score using the following mapping: ``Outstanding'' (10 
points); ``High Satisfactory'' (7 points); ``Low Satisfactory'' (6 
points); ``Needs to Improve'' (3 points); or ``Substantial 
Noncompliance'' (0 points).
    The agencies requested feedback on a series of questions regarding 
the proposed approach. With respect to the evaluation of delivery 
systems, the agencies asked whether branches and remote services 
facilities should be evaluated at the assessment area level and digital 
and other delivery systems at the institution level, as proposed. The 
agencies also asked whether the proposed weighting of the digital and 
other delivery systems component relative to the physical delivery 
systems according to bank business model, as demonstrated by the share 
of consumer accounts opened digitally, was appropriate; whether 
weighting should be based on performance context; or whether a 
different approach was appropriate. With respect to the evaluation of 
credit and deposit products, the agencies requested feedback on whether 
the two subcomponents (credit and deposit products) should receive 
equal weight, or should be based on examiner judgement and performance 
context. The agencies also asked whether each subcomponent should 
receive its own conclusion that would be combined with the delivery 
systems evaluation for an overall institution conclusion, or whether 
favorable performance in the credit and deposit products evaluation 
should be used solely to upgrade the delivery systems conclusion. The 
agencies further asked how test conclusions should be determined for 
banks with assets of $10 billion or less that opt to be evaluated on 
their digital delivery systems and deposit products. Finally, the 
agencies requested feedback on whether each part of the Retail Services 
and Products Test should receive equal weighting.
Comments Received
    Delivery systems evaluation. There was no consensus among the 
commenters responding to the agencies' request for feedback regarding 
the appropriateness of the proposed approach to evaluate the bank's 
delivery systems (branches and remote service facilities) at the 
assessment area level, and their digital and other delivery systems at 
the institution level. A few commenters supported evaluating each 
subcomponent as proposed by the agencies. One of these commenters noted 
that this approach would be appropriate, particularly given that 
digital delivery systems are consistent across the institution and that 
the institution-level assessment provides the best allocation of a 
limited regulatory burden budget given the cost of developing, 
promoting, and maintaining high quality systems. Some commenters 
supported evaluating both subcomponents at the same level, and at both 
the assessment area and institution levels, with another commenter 
stating local responsiveness to needs is best evaluated at the 
assessment area level.
    With respect to the agencies' proposal to weight the digital and 
other delivery systems component relative to the physical delivery 
systems and according to the bank's business model (as

[[Page 6950]]

demonstrated by the share of consumer accounts opened digitally), 
commenters were also divided. One commenter was supportive of the 
agencies' approach and found the proposal appropriate, while commenters 
preferred that weighting be determined based on performance context, 
stating that it is key to understanding the position of a bank. A few 
other commenters asserted that the weighting should be determined based 
on both business model and performance context, while another commenter 
recommended that weighting should be appropriate to the bank's business 
model. Two commenters were of the view that, because low- and moderate-
income customers rely more heavily on branches, the physical delivery 
component should weigh more (e.g., a bank that gathers 50 percent or 
more of its deposits from branches should have a weight for their 
physical delivery systems and their digital delivery systems of two-
thirds and one-third, respectively). One commenter recommended that the 
agencies offer flexible weighting based on a bank's business model for 
the three types of delivery systems (branches, remote service 
facilities, and digital and other). Several other commenters 
recommended that banks with few or no physical branches or remote 
service facilities should be evaluated on their primary delivery 
channels, e.g., their digital delivery systems. Another commenter 
stated that the share of consumer accounts opened digitally should be 
the metric and that it is not clear why physical delivery systems are 
relevant and how much a bank's business model should be factored into 
the evaluation unless the bank offers no digital banking services.
    Credit and deposit products evaluation. In response to how the 
agencies should weight the two subcomponents of the credit and deposit 
products evaluation, commenters provided a variety of recommendations. 
Two commenters recommended that the two subcomponents generally receive 
equal weighting, with one commenter recommending that if a bank is 
mostly a lender, credit products should be weighted more heavily, and 
conversely, if the bank mostly offers deposit services, deposit 
products should be weighted more heavily. This commenter also 
recommended that examiners should not determine weights since it would 
be too subjective, and that the agencies should develop a table of 
weights based on business models. Another commenter similarly 
recommended that examiners should not determine the weights, but 
recommended that credit products receive greater weight, expressing the 
view that providing credit has a more significant beneficial impact on 
the community. Two commenters expressed a different view, stating that 
examiner judgment and performance context should be used to determine 
the relative weight of the two subcomponents, with one of these 
commenters stating that doing so would impart flexibility with regard 
to a bank's business model, assessment area characteristics, and 
product demand. Two other commenters believed weighting should be 
determined based on the business model and performance context, and 
another commenter asserted that weighting should also depend on the 
importance of each product to the communities in the assessment area.
    A few commenters addressed the agencies' request for feedback 
concerning how the credit and deposit products evaluation should be 
considered when developing a bank's overall Retail Services and 
Products Test conclusion. Most of these commenters recommended that the 
evaluation should have its own conclusion rather than use the 
evaluation to upgrade the delivery systems conclusion, with one 
commenter stating that the credit and deposit products evaluation 
should be considered a qualitative factor in the Retail Lending Test.
    Weighting the components to derive the institution conclusion. A 
small number of commenters responded to the agencies' request for 
comment on whether each part of the Retail Services and Products Test 
should receive equal weighting to derive the institution's conclusion 
or vary the weight based on business model and performance context. A 
few commenters supported weighting each part of the test based on 
business model and performance context, with one of these commenters 
stating it would encourage responsiveness and innovation. Another one 
of these commenters also stated that weighting should be treated much 
like the current innovative and flexible lending test to supplement the 
rating. Another commenter supported an overall institution conclusion 
with the appropriate weighting of each composite evaluation and 
recommended that the agencies weight delivery systems conclusions less 
than the other systems conclusions if they are deemed less critical. 
Two other commenters generally supported equal weight for each part of 
the test, with one of these commenters also recommending consideration 
of business model but not relying on examiner judgment to establish the 
weight. Some commenters expressed concern that digital banks may not 
have data or products to be evaluated under this test and, given the 
great deal of examiner judgment provided under the proposal, that it is 
unknown whether examiners would disregard those tests, adding 
significant uncertainty for the assessed institution. Other commenter 
recommendations included the following: the delivery systems portion of 
the test should be given more weight, and if the agencies provide 
additional guidance on the impact and responsiveness of an activity, 
then each part of the test should be weighted according to the specific 
guidance; a clearly-defined grading system should be created that 
emphasizes lending, branches, fair lending performance, and responsible 
loan products for working class families; and banks should not be 
permitted to pass if they fail to serve communities with branches and 
affordable and accessible products, and provide banking and deposit 
products equitably, as can happen with strict numerical weighting 
systems.
Final Rule
    The agencies are adopting Sec.  __.23(d)(1) largely as proposed, 
assigning conclusions for a bank's Retail Services and Products Test in 
each facility-based assessment area, State, multistate MSA, and at the 
institution level in accordance with final Sec.  __.28 and final 
appendix C of the CRA regulations. As explained in more detail below, 
the agencies are also revising proposed appendix C to provide that the 
agencies will consider the bank's performance regarding its retail 
banking products, as applicable, to determine whether the bank's 
performance contributes positively to the bank's overall Retail 
Services and Products Test conclusion. The agencies are also clarifying 
in appendix C that consideration of a bank's retail banking products 
evaluated at the institution level may include retail banking products 
offered in facility-based assessment areas and nationwide. As a result 
of the revisions made in the final rule to the proposed conclusions for 
retail banking products, the agencies are also revising proposed 
appendix C with respect to a bank's overall institution Retail Services 
and Products Test conclusion. Specifically, paragraph c.2.iv.B.3 of 
final appendix C clarifies that ``[t]he bank's lack of responsive 
retail products does not adversely affect the bank's Retail Services 
and Products Test performance conclusion.'' Final

[[Page 6951]]

Sec.  __.23(d)(1) is also revised to add that ``[i]n assigning 
conclusions under this performance test, the [Agency] may consider 
performance context information as provided in Sec.  __.21(d). The 
evaluation of a bank's retail banking products under paragraph (c) of 
this section may only contribute positively to the bank's Retail 
Services and Products Test conclusion.''
    Delivery systems conclusion. Conclusions in the final rule with 
respect to the delivery systems, component of the test are based on the 
conclusions for each of the three parts of the delivery systems 
evaluation: branch availability and services, remote service facility 
availability, and digital and other delivery systems. Consistent with 
the proposal, the final rule evaluates branches and remote service 
facilities for all large banks at the facility-based assessment area 
level and then aggregates those conclusions to form a branch 
availability and services and remote service facility availability 
subcomponent conclusion at the institution level, as provided in 
paragraph c.1 of final appendix C.
    The final rule evaluates digital and other delivery systems for 
large banks with assets of over $10 billion, large banks with assets of 
$10 billion or less that have no branches, and large banks with assets 
of $10 billion or less that elect to have digital and other delivery 
systems considered. The agencies will develop an institution-level 
conclusion for these banks' digital and other delivery systems 
subcomponent. The agencies believe it is appropriate to evaluate 
digital and other delivery systems at the institution level because the 
features of this subcomponent are generally not place-based and may 
extend beyond facility-based assessment areas. Digital and other 
delivery systems are also generally consistent across the institution.
    In the final rule, the institution-level delivery systems 
conclusion for large banks with assets of $10 billion or less that have 
branches and do not elect to have their digital and other delivery 
systems considered will be based exclusively on the evaluation of such 
bank's branch availability and services and remote service facility 
availability.
    The final rule also contemplates that examiner judgment will be 
relied upon to determine the appropriate weight that should be given to 
each subcomponent of delivery systems at the institution level based on 
the bank's business model and performance context. As noted in the 
proposal, this approach for developing delivery systems conclusions is 
intended to provide the agencies with the flexibility to take into 
account the unique business models and strategies of different banks. 
For example, if a majority of the bank's new deposit accounts are 
opened via digital channels during the evaluation period, then the 
agencies may give more weight to the digital and other delivery systems 
conclusion.
    The agencies considered and appreciate commenters' suggestions 
regarding how weighting of the subcomponents of delivery systems should 
be determined. The agencies note that the final rule will not require 
weighting as demonstrated by the share of consumer accounts opened 
digitally. As noted above, the final rule adds consideration of 
performance context, which is important to understanding the bank's 
business model and strategy. The agencies believe that dictating the 
specific measures in the regulation for how to derive conclusions for 
delivery systems could also be limiting. On balance, the agencies 
believe that the approach in the final rule will provide flexibility to 
banks and examiners to consider other factors, while minimizing burden.
    Retail banking products conclusion. In response to comments, and to 
conform to changes made in the test, the agencies will evaluate the 
bank's performance regarding its retail banking products and determine 
whether the bank's performance contributes positively to the bank's 
Retail Services and Products Test. Under the final rule, examiner 
judgment and performance context will be considered in determining the 
responsiveness of a bank's retail banking products.
    The lack of responsive retail banking products will not adversely 
affect the evaluation of the bank's Retail Services and Products Test 
performance. If the bank presents and has the data to support that its 
credit products and programs are responsive to the needs of low- and 
moderate-income individuals, families, or households, residents of low- 
and moderate-income census tracts, small businesses and small farms, 
and are offered and used, such data will be presented in the CRA 
performance evaluation. However, if a bank does not offer or originate, 
or does not provide for consideration, any credit products and programs 
responsive to the credit needs of low- and moderate-income individuals, 
families, or households, residents of low- and moderate-income census 
tracts, small businesses, or small farms, the CRA performance 
evaluation will state as such.
    If the bank presents and has the data to support that its deposit 
products are responsive to the needs of low- and moderate-income 
individuals, families, or households, and are offered and used, the 
agencies will evaluate such data for positive consideration under this 
test. If the agencies provide positive consideration of deposit 
products, such consideration will be presented in the CRA performance 
evaluation. If the bank does not offer any deposit products responsive 
to the needs of low- or moderate-income individuals, families, or 
households, such information will not be reflected in the CRA 
performance evaluation.
    The agencies believe that permitting agency discretion and 
performance context to be used to determine the impact of any positive 
consideration of retail banking products is appropriate because it 
would impart flexibility to consider a bank's business model and 
strategy. The agencies determined that evaluating the retail banking 
products solely for positive consideration rather than weighting was 
appropriate given the nature of the review. The agencies also 
acknowledge concerns about examiner subjectivity, but on balance, the 
agencies believe that the approach in the final rule will allow banks 
more flexibility and will take into consideration bank sizes, business 
models, and the retail banking product needs of the local communities 
served by the bank. The agencies also disagree with comments that 
recommended that credit or deposit products should receive greater 
weight in the final rule. The agencies believe that both credit 
products and programs and deposit products have a beneficial impact on 
the community and that the agencies should not be constrained in 
evaluating banks with varying business models.
    In response to commenters that suggested including retail banking 
products as a qualitative factor in the Retail Lending Test, the 
agencies disagree and believe that the Retail Lending Test should 
maintain its primarily quantitative approach to evaluating retail 
lending. The agencies believe further that the Retail Services and 
Products Test is the appropriate place to evaluate these products and 
programs qualitatively. The quantitative approach to the Retail Lending 
Test is discussed more in-depth in that section of the preamble.
    Retail Services and Products Test Conclusion. For the reasons 
stated above, the agencies are not finalizing an institution-level 
conclusion based on conclusions derived for delivery systems and credit 
and deposit products as proposed. Instead, the delivery systems 
evaluation will receive a conclusion, and the agencies will determine 
whether the retail banking products evaluation contributes

[[Page 6952]]

positively to the bank's Retail Services and Products Test conclusion. 
The agencies will consider a bank's retail banking products offered in 
facility-based assessment areas and nationwide in determining whether 
the evaluation of retail banking products contributes positively to the 
bank's Retail Services and Products Test. The agencies believe that 
this consideration supports the agencies' objectives to adapt to 
changes in the banking industry as banks offer products and programs 
beyond their branch locations.
    The final rule also provides for agency discretion, considering a 
bank's business model and other performance context factors, to 
determine the appropriate weight to give each subcomponent of the 
retail banking services evaluation and to assess the responsiveness of 
a bank's retail banking products. The agencies agree with commenters 
who supported weighting each part of the test based on business model 
and performance context because the flexibility could encourage 
responsiveness and innovation. The agencies disagree, however, with the 
recommendations to establish definitive weighting for each part of the 
test or a strict numerical grading system. While the agencies are 
sensitive to concerns that relying on agency discretion, bank business 
model, and performance context may run counter to the stated objective 
of more certainty, the agencies believe that this approach is 
appropriate because it allows for flexibility without increased burden 
on banks.
Section __.23(d)(2) Ratings
Current Approach and the Agencies' Proposal
    Current Sec.  __.24(f) of the CRA regulations provides that the 
agencies rate each large bank's service test performance pursuant to 
current appendix A. Under current appendix A, each bank's performance 
is assigned of the following five ratings: ``Outstanding,'' ``High 
Satisfactory,'' ``Low Satisfactory,'' ``Needs to Improve,'' or 
``Substantial Noncompliance.'' As noted above, retail services are part 
of the overall service test rating along with community development 
services. Therefore, retail services do not get their own rating in the 
current regulations. Instead, the ratings for retail services are 
determined pursuant to paragraphs (b)(3)(i) through (v) of current 
appendix A. The ratings are determined at the State, multistate MSA, 
and institution levels.
    The agencies proposed to incorporate a bank's Retail Services and 
Products Test conclusions into its State, multistate MSA, and its 
institution ratings as provided in Sec.  __.28 and appendices C and D.
Final Rule
    The agencies received no comments related to the specific language 
in Sec.  __.23(d)(2) about the agencies' proposal to assign ratings and 
are finalizing Sec.  __.23(d)(2) as proposed, with technical edits not 
intended to have a change in meaning. The final rule incorporates the 
changes in conclusions noted above into the ratings for the Retail 
Services and Products Test pursuant to final Sec.  __.28 and final 
appendices C and D. The agencies are clarifying that business model and 
performance context are considered when assigning conclusions as well 
as the ratings for the bank's performance under the Retail Services and 
Products Test. Also, included specifically for the evaluation of a 
bank's retail banking products, the agencies will determine whether the 
bank's performance contributes positively to the bank's Retail Services 
and Products Test conclusion and rating.

Section __.24 Community Development Financing Test

Section __.24 In General

Current Approach
    Under current CRA regulations and interagency examination 
procedures, the agencies assess community development loans and 
community development investments (community development financing 
activities) differently based on the asset size and business model of a 
bank.\1087\ For small banks, the agencies consider community 
development investments only at a bank's option for consideration of an 
``Outstanding'' rating for the institution overall.\1088\ The agencies 
may consider a small bank's community development loans as part of 
lending-related activities under the lending test applicable to small 
banks as discussed in the section-by-section analysis of Sec.  __.29. 
For intermediate small banks and wholesale and limited purpose banks, 
the agencies consider community development loans, community 
development investments, and community development services together 
under the applicable community development test.\1089\
---------------------------------------------------------------------------

    \1087\ The current performance tests and standards are included 
in subpart B of the current rule.
    \1088\ See current appendix A (Ratings); Q&A Sec.  __.26(d)-1.
    \1089\ See current 12 CFR __.25(c) and __.26(c).
---------------------------------------------------------------------------

    For large banks, the agencies consider community development loans 
together with retail loans as part of the lending test, while the 
agencies consider community development investments separately in the 
investment test.\1090\ A large bank receives consideration for both the 
number and dollar amount of community development loans originated and 
community development investments made during the evaluation period, as 
well as the remaining book value of community development investments 
the bank made during prior evaluation periods that remain on the bank's 
balance sheet. Under the current evaluation framework, banks do not 
receive consideration for community development loans that remain on a 
bank's balance sheet from prior evaluation periods.
---------------------------------------------------------------------------

    \1090\ See current 12 CFR __.22 and __.23.
---------------------------------------------------------------------------

    For banks that are not small banks, the current rule also includes 
consideration of qualitative factors, including the innovativeness and 
complexity of community development financing activities, the 
responsiveness of the bank to credit needs in its assessment areas, and 
the degree of leadership the bank exhibits through its activities. The 
agencies assign conclusions at the assessment area level based on both 
the number and dollar amount of community development financing 
activities, as well as the qualitative factors.
    The current approach emphasizes community development financing 
activities that serve one or more of a bank's assessment areas but also 
allows for flexibility in the geographic scope and focus of activities, 
subject to certain conditions. A community development financing 
activity that specifically serves an assessment area receives 
consideration, as does a community development financing activity that 
serves a broader statewide or regional area containing one or more of a 
bank's assessment areas.\1091\ For a bank with a nationwide footprint, 
this could include community development loans and investments that are 
nationwide in scope.\1092\ In addition, if a bank has met the community 
development needs of its assessment areas, it may also receive 
consideration for community development financing activities within a 
broader statewide or regional area that includes an assessment area 
that do not benefit its assessment area.\1093\
---------------------------------------------------------------------------

    \1091\ See current 12 CFR __.12(h)(2)(ii); see also Q&A Sec.  
__.12(h)--6.
    \1092\ Q&A Sec.  __.23(a)-2.
    \1093\ Q&A Sec.  __.12(h)-6.
---------------------------------------------------------------------------

The Agencies' Proposal
    In Sec.  __.24 of the NPR, the agencies proposed a new Community

[[Page 6953]]

Development Financing Test applicable to large banks and any 
intermediate bank that opted to be evaluated under this test.\1094\ The 
proposed Community Development Financing Test consisted of community 
development financing metrics, applicable benchmarks, and an impact 
review. The agencies proposed using these components to evaluate banks' 
community development loans and investments in facility-based 
assessment areas, States and multistate MSAs where banks have facility-
based assessment areas, and in the nationwide area. These metrics, as 
compared to benchmarks and the impact reviews, would inform conclusions 
at those levels.
---------------------------------------------------------------------------

    \1094\ The agencies also proposed evaluating wholesale and 
limited purpose banks under the Community Development Financing Test 
for Wholesale and Limited Purpose Banks, as discussed in proposed 
Sec.  __.26.
---------------------------------------------------------------------------

    The agencies proposed using the bank community development 
financing metrics to measure the dollar value of a bank's community 
development loans \1095\ and community development investments \1096\ 
together, relative to the bank's capacity, as reflected by the dollar 
value of deposits. The proposed benchmarks would reflect local context, 
including the amount of community development financing activities in 
the applicable area by other banks, as well as national context that 
would provide additional information for the evaluation of facility-
based assessment areas. The agencies would use the benchmarks in 
conjunction with the metrics to assess a bank's performance. The 
proposed metrics and benchmarks would provide additional consistency 
and clarity in evaluating a bank's community development financing 
activities under the otherwise qualitative evaluation under the 
proposed Community Development Financing Test.
---------------------------------------------------------------------------

    \1095\ See proposed Sec.  __.12.
    \1096\ Id.
---------------------------------------------------------------------------

    The impact review, in proposed Sec.  __.15, would evaluate the 
impact and responsiveness of a bank's community development loans and 
investments through the application of a series of specific qualitative 
factors described in more detail in the section-by-section analysis of 
Sec.  __.15. The impact review would provide appropriate recognition 
under the Community Development Financing Test of community development 
loans and investments that are considered to be particularly impactful 
and responsive to community needs, including loans and investments that 
may be relatively small in dollar amount.
Comments Received
    The agencies received many comments on the proposed Community 
Development Financing Test in Sec.  __.24 from a variety of commenters. 
Although some commenters supported parts of the proposed Community 
Development Financing Test, other commenters objected to certain 
aspects of the proposed performance test, including some commenters 
that opined that the proposed performance test was too complicated, 
would weaken the CRA rule, or would water down community development 
investments. Some of these commenters offered alternative options for 
the agencies to consider. The proposed rule, comments received, and 
final rule are described in more detail below.
Final Rule
    The agencies considered the comments on proposed Sec.  __.24 and 
are finalizing the Community Development Financing Test with the 
substantive, conforming, clarifying, and technical revisions discussed 
below.\1097\ As with the proposal, the final Community Development 
Financing Test applies to large banks, and to intermediate banks that 
opt into the test. Consistent with the current rule and the proposal, 
the Community Development Financing Test is a qualitative evaluation; 
however, the final rule builds on the current rule by introducing 
standardized metrics and benchmarks that examiners will use to inform 
their evaluation of bank's capacity to engage in community development 
financing activity. The metrics and benchmarks included in the final 
Community Development Financing Test increase consistency by providing 
examiners with standardized information to evaluate bank community 
development financing performance. Nonetheless, the final Community 
Development Financing Test is a qualitative evaluation of banks' 
community development loans and investments in facility-based 
assessment areas, States, and multistate MSAs (as applicable pursuant 
to Sec.  __.28(c)),\1098\ and the nationwide area because the final 
rule does not include thresholds for determining conclusions.\1099\
---------------------------------------------------------------------------

    \1097\ See supra note 145.
    \1098\ Final Sec.  __.28(c) explains when the agencies evaluate 
and conclude on a bank's performance in a State or multistate MSA. 
See the section-by-section analysis of final Sec.  __.28(c).
    \1099\ As discussed below, the agencies could consider adding 
thresholds to the Community Development Financing Test in the future 
after reviewing and analyzing data on community development loans 
and investments and once they have experience applying the new 
metrics and benchmarks.
---------------------------------------------------------------------------

    In addition to the proposed metrics and benchmarks that the 
agencies are adopting in the final rule, in response to comments, the 
agencies included an additional investment metric and benchmark for 
evaluating community development investments in the nationwide area for 
large banks that had assets greater than $10 billion. The final rule 
also includes consideration of the impact and responsiveness of banks' 
community development loans and investments. The final rule does not 
prescribe weighting for community development loans or investments 
within the Community Development Financing Test, nor does it prescribe 
weighting for the metrics and benchmarks or impact and responsiveness 
review components.

Banks Subject to the Community Development Financing Test

Current Approach
    Under the current rule, the agencies evaluate community development 
loans and investments for both large banks and intermediate small banks 
under the tests applicable to those banks. As discussed above, the 
agencies evaluate large banks' community development lending and 
investments under the lending test in current Sec.  __.22 and the 
investment test in current Sec.  __.23. The agencies evaluate 
intermediate small banks' community development loans, community 
development investments, and community development services under the 
community development test in current Sec.  __.26(c).
The Agencies' Proposal
    The proposed Community Development Financing Test, in Sec.  __.24, 
applicable to large banks and to intermediate banks that opted into the 
test, combined the evaluation of community development loans and 
investments into a single test. As proposed, the agencies would 
continue to evaluate intermediate banks' community development loans, 
community development investments, and community development services 
using a community development test modeled on the community development 
test in current Sec.  __.26(c). The proposal provided, however, that 
intermediate banks could elect evaluation under proposed Sec.  __.24.
Comments Received
    As discussed above in the section-by-section analysis of Sec.  
__.21, the agencies received comments on the applicability of the 
performance tests

[[Page 6954]]

and standards to different sizes and types of banks. For example, a 
commenter suggested that the proposal to eliminate the community 
development test for certain banks would eliminate those banks' 
accountability for providing community development financing activities 
and branches in underserved communities and lacks justification. 
Another commenter stated that the agencies should require intermediate 
banks to be evaluated under the proposed Community Development 
Financing Test, as opposed to making it optional. The commenter 
suggested that subjecting both large and intermediate banks to the new 
test would create consistency among banks and examiners and provide 
others in the community development industry with a common 
understanding of how the agencies evaluate banks.
Final Rule
    The agencies are finalizing these provisions of the rule as 
proposed; the final Community Development Financing Test will apply to 
all large banks and to intermediate banks that opt into the performance 
test. The agencies included clarifying edits in Sec.  __.24 of the 
final rule to reference intermediate banks that opt into the test. 
Although the agencies understand the concerns raised by the commenters, 
as discussed in greater detail above in the section-by-section analysis 
of Sec.  __.21, the agencies believe that the additional burden of 
requiring the Community Development Financing Test for intermediate 
banks was not justified after accounting for these banks' more limited 
capacity to engage in community development loans and investments. 
Further, for the reasons discussed above, the agencies also believe 
that the changes to the asset size thresholds for banks appropriately 
balance the burden of meeting the requirements of the Community 
Development Financing Test with the need to assess a bank's record of 
helping to meet the credit needs of its community.

Combined Consideration of Community Development Loans and Investments

Current Approach
    Under the current rule, as discussed above, the agencies separately 
evaluate large banks' community development loans and investments. The 
agencies evaluate a large bank's community development loans under the 
lending test in current Sec.  __.22 along with its retail lending. The 
agencies evaluate a large bank's community development investments 
under the investment test in current Sec.  __.23. For intermediate 
small banks, as noted above, the agencies evaluate community 
development loans, community development investments, and community 
development services under a single community development test in 
current Sec.  __.26(c) of the current rule.
The Agencies' Proposal
    In Sec.  __.24 of the NPR, the agencies proposed to evaluate 
community development loans and investments together under the 
Community Development Financing Test to allow banks to make the 
community development loans or investments that are best suited to 
their expertise and most needed for the community development projects 
the banks are financing. The agencies intended for the proposed 
approach to simplify the evaluation of community development loans and 
investments while addressing concerns expressed by some stakeholders 
that the current approach favors one form of financing over another. 
The agencies believed that the proposed metrics would appropriately 
measure both community development loans and investments. As discussed, 
the agencies would also consider the impact and responsiveness of 
community development loans and investments as part of the proposed 
impact review.
Comments Received
    The agencies received many comments on the proposal to combine the 
evaluation of community development lending and investments into a 
single Community Development Financing Test in proposed Sec.  __.24. 
The majority of commenters objected to the combined evaluation of 
community development loans and investments under a single test or 
urged the agencies to retain separate evaluations for these activities 
within the Community Development Financing Test.
    Some commenters supported combining the evaluation of community 
development loans and investments into a single Community Development 
Financing Test. Reasons provided by these commenters for supporting a 
single Community Development Financing Test include that it: (1) can be 
challenging for smaller banks to make community development 
investments; (2) would eliminate the unintended consequences of a 
mismatch in the type of funds a project needs and the funding banks 
will receive credit for providing; (3) would allow banks to have the 
flexibility to create and implement a broader variety of business 
plans, while serving low- and moderate-income individuals and 
communities in a more efficient manner; (4) can be difficult to 
distinguish between whether a financing activity is equity or debt, 
such as with investment structures that are credit-enhanced loans; (5) 
would avoid privileging one type of funding over the other, allowing 
the needs of the project to dictate the financing vehicle; (6) would 
provide banks with greater flexibility in determining the most 
effective financing structures for developments; and (7) would allow 
banks to meet community development needs in local communities through 
lending if 12 CFR part 24 requirements restrict a bank's ability to 
make investments. Even amongst the commenters that supported the 
combined evaluation of community development loans and investments, 
however, certain commenters noted sensitivity to concerns about banks 
overlooking community development investments.
    In contrast, most commenters on this issue objected to the combined 
evaluation of community development loans and investments and 
predominantly focused on the potential disruptive or negative impact 
that the proposed test could have on community development investment 
markets. Commenters expressed concern that the proposal would allow 
banks to meet their CRA obligations through community development 
lending, instead of through community development investments, the 
latter of which are often harder to make. For example, commenters 
stated that banks may engage in fewer community development investments 
because equity investments generally require more costly capital, have 
a longer term and higher origination costs, are more illiquid, and 
carry greater risk. Other commenters expressed concern that banks may 
make fewer grants and donations because these activities, even with 
consideration as an impactful and responsive factor pursuant to final 
Sec.  __.15, are smaller dollar activities that will not factor 
significantly in the proposed metrics and benchmarks. One of these 
commenters suggested the agencies consider grants under the Community 
Development Services Test with a metric specific to grants and 
contributions to nonprofit organizations.
    Commenters also noted that combining the evaluation of community 
development loans and investments may not result in the best financing 
for a particular community or project. A commenter expressed concern 
that the proposed Community Development Financing Test may incentivize

[[Page 6955]]

financial institutions to select one financing option over the other, 
without considering which option would be more beneficial for the 
project. The commenter noted that capital stacks required for community 
development initiatives vary from one project to another, and impactful 
projects may be delayed if the proper capital cannot be obtained.
    Many of the commenters that objected to the combined evaluation of 
community development loans and investments expressed concern that 
eliminating the current, separate tests could have a particularly 
negative impact on the equity tax credit markets. Certain commenters 
expressed concern that the proposed approach could disincentivize or 
result in banks making fewer LIHTC or NMTC investments because these 
investments are often more complex and may have lower returns than 
community development loans. Other commenters noted that the current 
investment test has served as an incentive for banks to engage in these 
types of loans and investments and banks make up a large portion of the 
LIHTC and NMTC markets. Further, a few commenters asserted that any 
decrease in the appetite for LIHTC will likely result in fewer 
affordable housing deals, as well as higher costs, which will translate 
into decreased affordability for projects that do get built.
    Other commenters focused on the potential impact that eliminating 
the current investment test could have on CDFI investments, with some 
stating that eliminating the current investment test could cause a 
shift in banks' CRA activity away from making equity investments in, or 
providing grants to, CDFIs, which are labor and time intensive but 
impactful. A commenter also stated that eliminating the current 
investment test could discourage bank investment in community 
development venture capital funds and other CDFIs that provide flexible 
risk capital to businesses and projects in low-income communities, 
noting that these funds cannot be prudently capitalized with debt.
    Other commenters said that focusing primarily on the dollar volume 
of lending and investment transactions, without also evaluating the 
number of transactions and originations, favors larger loans that are 
easier to make instead of more impactful, and generally smaller, 
investments and loans. Further, at least one individual and a community 
development organization stated that combining consideration of 
community development loans and investments into a single test would 
remove longstanding precedent where the agencies base a portion of 
banks' CRA performance on community development investments.
    Suggestions for Addressing Concerns With Combined Evaluation of 
Community Development Loans and Investments. To address their concerns 
about combined evaluation of community development loans and 
investments, commenters provided several suggestions for revisions or 
alternatives to the proposed Community Development Financing Test. As 
discussed below, commenter suggestions included retaining the current 
performance evaluation tests, adding subtests to the proposed Community 
Development Financing Test, and implementing other methods of ensuring 
banks continue to make community development investments, such as 
specifying weightings and minimums. Certain commenters also focused 
their suggestions on particular aspects of the community development 
investment markets, including the tax credit markets, grants, and 
mortgage-backed securities.
    Certain commenters suggested retaining versions of the current 
performance tests, which evaluate community development loans and 
investments separately. Specifically, a commenter supported retaining 
the current large bank three-test evaluation, where the agencies 
evaluate the relative merits of lending, investments, and services 
separately. A few commenters, suggested that the agencies should 
consider all lending under the Retail Lending Test and all investments 
under the Community Development Financing Test.
    Other commenters suggested that the agencies incorporate separate 
community development lending and community development investment 
subtests into the Community Development Financing Test. Some of these 
commenters suggested that including separate subtests would encourage 
banks to make LIHTC investments, grants, and equity equivalent 
investments. These commenters also suggested weighting for the tests 
ranging from 15 percent to greater than 50 percent for the investment. 
As discussed in the section-by-section analysis of Sec.  __.21(a), 
other commenters recommended a single community development test and 
certain of these commenters recommended weighting for the subtests as 
follows, community development lending (weighted 25 percent), community 
development investments (weighted 20 percent), and community 
development services (weighted 5 percent).
    Commenters also provided other suggestions for ensuring that 
community development investments receive appropriate emphasis under 
the final rule. Some commenters suggested that, to ensure that banks 
still make community development investments, the agencies should 
require a minimum amount of community development financing activities 
to be in the form of equity investments. One of these commenters stated 
that a portion of this investment minimum should not be tied to tax 
credits. Another commenter suggested as an alternative that the 
agencies should not assign a bank an ``Outstanding'' rating without an 
adequate level of equity investments.
    Instead of including an investment minimum in the Community 
Development Financing Test, certain commenters suggested that the 
agencies include investment-based metrics and benchmarks in the 
performance test. Commenters stated the Community Development Financing 
Test should include some or all of the following: (1) an institution-
level equity metric and benchmark; (2) a measurement of the new 
institution-level equity investments over time to identify reductions; 
or (3) a high-impact metric and benchmark. Some of these commenters 
believe that banks should not receive a higher score on the Community 
Development Financing Test than on this recommended equity investment 
metric. Certain commenters suggested structuring the investment metric 
like the proposed institution-level Community Development Financing 
Metric, to measure community development equity investments in the 
numerator and deposits in the bank in the denominator. A few of these 
commenters recommended excluding mortgage-backed securities from the 
metric or benchmark.
    Commenters also offered suggestions for how the agencies could 
incorporate the metrics or benchmarks into the Community Development 
Financing Test. Certain commenters recommended the agencies use an 
equity benchmark based on a comparison of investments to deposits as a 
peer comparator and assign higher Community Development Financing Test 
ratings to banks that devote a larger portion of their community 
development financing activities to equity investments. One of these 
commenters also suggested the agencies use a benchmark that measures 
total equity investments--exclusive of mortgage-backed securities--as a 
percentage of a bank's total community development loans and 
investments as a peer comparator. A commenter further suggested that a 
high equity metric

[[Page 6956]]

could be considered as a factor for an ``Outstanding'' rating.
    Some commenters also suggested that the agencies monitor levels of 
equity investments compared to the current baseline level, both for 
individual banks and nationwide, and take action to prevent reductions 
in equity investments, with certain commenters focusing specifically on 
reductions in tax credit investments. One of these commenters also 
encouraged examiners to potentially downgrade banks that have 
significantly cut back their investments without a reasonable 
explanation. Relatedly, a commenter suggested that, in lieu of a 
separate investment test, the agencies could require data collection on 
community development loans and investments to identify imbalances 
between the categories.
    Commenters also made other recommendations for how the agencies 
could continue to ensure that banks participate in the affordable 
housing and tax credit markets. In the absence of a separate investment 
test, commenters strongly urged the agencies to: (1) put mitigating 
factors in place to protect LIHTC investments; (2) establish another 
robust mechanism to motivate both intermediate and large banks to 
participate in the equity markets for NMTCs and other effective 
community development tax credit investments; or (3) otherwise 
implement strong mechanisms to preserve impactful equity investments in 
affordable housing and community development. For example, a commenter 
requested that the agencies ensure that the rule reviews separately and 
helps increase affordable housing tax credits investments and lending.
    Other commenters recommended that the agencies limit credit for 
investments in mortgage-backed securities so that the mortgage-backed 
securities investment option does not overwhelm the Community 
Development Financing Test. Commenter recommendations included: (1) 
limiting credit for mortgage-backed securities to 20-25 percent of the 
institution-level Community Development Financing Test conclusions and 
ratings; (2) requiring a two-year holding period for mortgage-backed 
securities, with a retrospective review of the holding period applied 
to the next bank examination; (3) counting only the first or second 
purchase of mortgage-backed securities; or (4) counting only the value 
of affordable loans in a qualifying mortgage-backed security, rather 
than the full value of the security.
Final Rule
    The agencies are adopting the Community Development Financing Test 
as proposed with the combined evaluation of community development loans 
and investments. To address commenter concerns, however, the final rule 
includes a Bank Nationwide Community Development Investment Metric 
\1100\ and a Nationwide Community Development Investment 
Benchmark,\1101\ for large banks that have assets greater than $10 
billion, discussed in greater detail below in the section-by-section 
analysis of Sec.  __.24(e).
---------------------------------------------------------------------------

    \1100\ See final Sec.  __.24(e)(2)(iii).
    \1101\ See final Sec.  __.24(e)(2)(iv).
---------------------------------------------------------------------------

    The agencies carefully considered commenters' concerns about the 
potential negative or disruptive impact that combining the evaluation 
of community development loans and investments could have on banks' 
provision of community development investments, including tax credit 
investments, CDFI investments, affordable housing investments, and 
grants and other small dollar investments and loans. The agencies also 
considered the reasons for combining consideration of community 
development loans and investments, both those articulated in the 
proposal and provided by commenters.
    After weighing the potential benefits and consequences of adopting 
the Community Development Financing Test as proposed, the agencies 
continue to believe that the combined evaluation of community 
development loans and investments will best serve the interests of 
banks and communities by providing flexibility for banks to focus on 
the community development financing methods most consistent with their 
expertise. The combined evaluation of community development loans and 
investments also will enable banks to identify the financing most 
needed for a community development project without regard to how that 
loan or investment would affect the bank's CRA evaluation. Further, the 
agencies considered that there are circumstances in which banks are not 
competitive for certain types of community development loans or 
investments or there are limited opportunities in particular markets 
for one or the other type of financing. Combining the evaluation of 
community development loans and investments into a single Community 
Development Financing Test will reduce the consequences of these supply 
and demand issues on banks' CRA evaluations.
    Nonetheless, the agencies understand that certain community 
development investments involve significant time and effort, are 
complex, and play an important role in supporting much-needed community 
development, including affordable rental housing and economic 
development in low- and moderate-income communities and other 
underserved communities. The agencies did not intend for the proposed 
Community Development Financing Test to incentivize banks to make fewer 
impactful investments. To mitigate the potential risk that banks may 
put less emphasis on community development investments, the final rule 
includes both a Bank Nationwide Community Development Investment Metric 
and a Nationwide Community Development Investment Benchmark for banks 
with assets greater than $10 billion. Under the final rule, the new 
investment metric and benchmark may only contribute positively to a 
bank's performance under the Community Development Financing Test.
    Several commenters suggested that if the agencies retained a single 
Community Development Financing Test, the test should incorporate an 
investment metric and benchmark. The agencies agree that including 
these components in the Community Development Financing Test would 
allow the agencies to better understand the level of community 
development investments that banks are making, both individually and 
collectively. The agencies considered the other more specific 
suggestions provided by commenters for addressing the potential 
negative impact of eliminating the current investment test and 
determined that the addition of the Bank Nationwide Community 
Development Investment Metric and the Nationwide Community Development 
Investment Benchmark will provide sufficient additional information 
within the otherwise qualitative evaluation envisaged under the 
Community Development Financing Test. These metrics and benchmarks are 
part of a holistic consideration of a bank's community development 
financing performance; some of the more specific recommendations are 
better addressed through the impact and responsiveness review in Sec.  
__.15 (e.g., implementing a mechanism to recognize tax credit 
investments) or could inappropriately emphasize a particular type of 
community development investment that may not--in an examiner's view--
be appropriate or necessary for a particular bank or community (e.g., 
recognizing a particular type of equity

[[Page 6957]]

investment for a bank that does not have the expertise to engage in 
that activity). The structure and applicability of the Bank Nationwide 
Community Development Investment Metric and the Nationwide Community 
Development Investment Benchmark are discussed below.

Community Development Loan and Investment Evaluation Methodology, in 
General Inclusion of Metrics and Benchmarks in the Community 
Development Financing Test

Current Approach
    As noted above, the agencies currently evaluate large bank 
community development loans and investments in their assessment areas 
under the lending test in Sec.  __.22 and the investment test in Sec.  
__.23. In contrast, the agencies consider intermediate small bank 
community development activities under a single community development 
test in current Sec.  __.26 that assesses loans, investments, and 
services. The applicable tests include performance criteria for 
evaluating the number and amount of a bank's community development 
loans and community development investments.
    For banks that are not small banks, the current approach also 
includes the evaluation of certain qualitative factors, such as the 
innovativeness and complexity of the bank's community development loans 
and investments. The current approach relies on examiner judgment to 
conclude on bank performance. Examiners apply the performance criteria 
in accordance with the CRA regulations, interagency examination 
procedures, and the agencies' guidance (including the Interagency 
Questions and Answers).\1102\
---------------------------------------------------------------------------

    \1102\ See Q&A Sec.  __.21(a)--1.
---------------------------------------------------------------------------

    Under the current rule, the agencies do not use standard metrics or 
benchmarks for evaluating community development loans and investments. 
Rather, the agencies weight community development financing activities 
based on how responsive the loans and investments are to community 
needs.\1103\ Banks with a smaller dollar volume of highly responsive 
community development loans or investments may receive similar 
conclusions and ratings as banks with a larger dollar volume of less 
responsive loans and investments. In the absence of standard metrics 
and benchmarks, however, stakeholders have noted that there is 
substantial variability between agencies and between examiners within 
the same agency in how much weight a particular community development 
loans or investment receives.
---------------------------------------------------------------------------

    \1103\ See Q&A Sec.  __.21(a)--2.
---------------------------------------------------------------------------

The Agencies' Proposal

    The agencies sought to address some of the criticism of the current 
performance tests and standards by introducing standardized metrics and 
benchmarks in proposed Sec.  __.24(b) and (c) of the Community 
Development Financing Test, which applied to facility-based assessment 
areas, States and multistate MSAs, as applicable, and the nationwide 
area.\1104\ Although the agencies included metrics and benchmarks to 
the Community Development Financing Test, due to the currently limited 
data on community development lending and lack of data on community 
development investments, the agencies did not include thresholds in the 
test. As a result, the proposed Community Development Financing Test 
remained a qualitative evaluation informed by the proposed metrics and 
benchmarks that would continue to rely on examiner judgment to assess 
the dollar volume of community development loans and investments and 
conclude on bank performance. The agencies believed the use of uniform 
metrics and benchmarks would improve the consistency and clarity of 
evaluations as compared to the current approach. Further, the agencies 
introduced a more formalized impact review in the proposal for 
assessing performance under the Community Development Financing Test.
---------------------------------------------------------------------------

    \1104\ The Community Development Financing Test metrics and 
benchmarks as they apply to specific geographic areas are discussed 
in greater detail below.
---------------------------------------------------------------------------

Comments Received

    Some commenters that addressed the Community Development Financing 
Test stated that the proposed test included improvements compared to 
the current approach. Specifically, a few of these commenters 
identified the inclusion of metrics and benchmarks in the Community 
Development Financing Test as an improvement on the current framework. 
A commenter stated that using consistent metrics and benchmarks would 
provide greater uniformity and clarity under this test.
    However, a few commenters, including some commenters that supported 
the proposed revisions, expressed concern that the Community 
Development Financing Test did not contain sufficient rigor, structure, 
or standards to guide examiner judgment in assigning performance scores 
and ratings. A few commenters stated that the Community Development 
Financing Test needed to be further developed to prevent ratings 
inflation and to make CRA evaluations more consistent and less 
subjective. Commenters also recommended that the agencies issue 
guidance illustrating how performance under the Community Development 
Financing Metric would correspond to a performance score.
    Other commenters urged the agencies to extend the rigor of the 
proposed large bank lending test \1105\ to the other tests or suggested 
how the agencies could evaluate performance under the Community 
Development Financing Test. For example, a commenter stated that the 
Community Development Financing Test should incorporate thresholds tied 
directly to conclusions in the quantitative portion of the evaluation--
similar to the Retail Lending Test--and stated that the agencies should 
add structure to the qualitative portion of the evaluation, including 
how the Community Development Financing Test maps to facility-based 
assessment area conclusions. The commenter provided, as an example, 
that if a bank had a much higher score than other banks on either the 
local or national benchmarks, it would likely score an ``Outstanding.'' 
At least one local government commenter recommended the agencies base 
the Community Development Financing Test on the lower of a bank's 
nationwide area or facility-based assessment area performance. Further, 
a commenter stated that an appendix could more clearly explain how 
performance under the Community Development Financing Test relates to 
ratings.\1106\
---------------------------------------------------------------------------

    \1105\ The commenters referenced the ``large bank lending 
test;'' however, the agencies understand these commenters to be 
referring to the Retail Lending Test in proposed Sec.  __.22.
    \1106\ For a discussion of how performance test scores are 
aggregated to develop ratings under the final rule, see the section-
by-section analysis of final Sec.  __.28.
---------------------------------------------------------------------------

    Other commenters emphasized the importance of flexibility or 
tailoring in evaluating a bank's community development loans and 
investments. Specifically, a financial institution expressed concern 
that many MSAs and counties do not have sufficient community 
development lending and investment opportunities, particularly in rural 
areas; therefore, the commenter stated, any metrics or measurements 
included in the final rule must be flexible. A commenter also 
recommended that the agencies consider community needs in determining 
the relevance of a bank's performance using the proposed

[[Page 6958]]

Community Development Financing Metric.
Final Rule
    After considering the comments on the structure and rigor of the 
Community Development Financing Test, the agencies have decided to 
finalize the test as proposed without adding thresholds for measuring 
banks' performance under the metrics and the applicable benchmarks. The 
agencies continue to believe the use of uniform metrics and benchmarks 
will improve the consistency and clarity of CRA evaluations relative to 
the current approach because they provide standard data that examiners 
can use to inform conclusions. While the agencies also believe that 
consistency could be improved using thresholds in the Community 
Development Financing Test, current data limitations \1107\ preclude 
the agencies' ability to explore including thresholds in the test at 
this time. The agencies note that they could consider thresholds in a 
future rulemaking once they have accumulated data and have experience 
applying the metrics and benchmarks. For now, the agencies intend to 
issue guidance to further clarify how they will apply the Community 
Development Financing Test.
---------------------------------------------------------------------------

    \1107\ Currently, the CRA rule requires data collection on the 
aggregate number and aggregate amount of community development loans 
originated or purchased. The current rule does not require data 
collection for community development investments. See current 12 CFR 
__.42(b)(2).
---------------------------------------------------------------------------

    The agencies also note the importance of flexibility in evaluating 
bank performance under the Community Development Financing Test, 
including the importance of considering the particular circumstances of 
individual banks and the needs and opportunities of the communities 
where banks operate. The Community Development Financing Test generally 
remains qualitative in nature with standardized metrics and benchmarks 
to promote consistency. The agencies considered that the dollar volume 
of a loan or investment does not always provide a complete picture of 
the impact that a loan or investment has on a community. In 
consideration of comments received, and based on supervisory 
experience, the agencies believe that in some instances, a small dollar 
loan or investment that is targeted to a specific community need can 
have a greater impact than a larger dollar loan or investment that is 
less targeted, such as a mortgage-backed security. Therefore, 
regardless of whether the agencies consider adding thresholds to the 
Community Development Financing Test after they have analyzed data 
collected under Sec.  __.42 of the final rule, qualitative 
consideration of community development loans and investments will 
remain an integral part of the Community Development Financing 
Test.\1108\ In particular, the Community Development Financing Test 
includes the impact and responsiveness review discussed in the section-
by-section analyses of Sec. Sec.  __.15 and __.24(b), which provides 
enhanced qualitative consideration for certain community development 
loans and investments. In addition, performance context remains a part 
of an examiner's evaluation of a bank's performance under the Community 
Development Financing Test. Therefore, the agencies are adopting the 
proposed framework for the evaluation of community development 
financing performance as proposed for facility-based assessment areas, 
States and multistate MSAs, and the nationwide area with the 
substantive and clarifying edits discussed in this section-by-section 
analysis along with other conforming and technical edits.
---------------------------------------------------------------------------

    \1108\ See the section-by-section analysis of final Sec.  __.21 
for discussion of performance context consideration, and the 
section-by-section analysis of final Sec.  __.15 for a discussion of 
the impact and responsiveness review.
---------------------------------------------------------------------------

Section __.24(a)(1) In General

Current Approach and Proposal
    The current rule generally provides that retail loans, except 
multifamily affordable housing loans (i.e., multifamily loans that meet 
the definition of community development in 12 CFR __.12(g)), may not be 
considered as community development loans.\1109\ However, for current 
intermediate small banks that are not subject to HMDA reporting, a home 
mortgage loan, small business loan, and a small farm loan may be 
considered, at the bank's option, as a community development loan, 
provided it meets the definition of ``community development.'' \1110\ 
Consistent with the current approach, the agencies proposed to exclude 
retail loans receiving consideration under the proposed Retail Lending 
Test from receiving consideration under the proposed Community 
Development Financing Test as a general principle.\1111\ Also 
consistent with the current approach, the proposal provided an 
exception in which a multifamily loan described in proposed Sec.  
__.13(b) may be considered under both the Retail Lending Test and the 
Community Development Financing Test.\1112\ In addition, the proposed 
rule allowed that an intermediate bank that is not required to report a 
home mortgage loan, a small business loan, or a small farm loan may opt 
to have the home mortgage loan, small business loan, or small farm loan 
considered either under the Retail Lending Test in Sec.  __.22 or, if 
the loan is a qualifying activity pursuant to Sec.  __.13, under the 
Community Development Financing Test or the intermediate bank community 
development evaluation in Sec.  __.29, as applicable. The agencies 
aimed to reduce the potential for double counting a loan, thereby 
potentially skewing results.
---------------------------------------------------------------------------

    \1109\ See current 12 CFR __.23(b) and Q&A Sec.  __.42(b)(2)--1. 
See also Q&A Sec.  __.12(h)--2.
    \1110\ Q&A Sec.  __.12(h)--3.
    \1111\ See proposed Sec.  __.24(a)(2)(i).
    \1112\ See proposed Sec.  __.24(a)(2)(ii).
---------------------------------------------------------------------------

Comments Received
    A few commenters suggested that the agencies eliminate the 
exclusion set forth in proposed Sec.  __.24(a)(2)(i) for considering 
retail loans with a community development purpose under the Community 
Development Financing Test. Reasons provided for eliminating the 
exclusion included that the proposed exclusion of retail loans could 
produce unintended results once the agencies replace the CRA definition 
of ``small business loan'' with a definition based on the CFPB's 
Section 1071 Final Rule. One of the commenters explained that many 
community development loans are made to special purpose, startup, or 
nonprofit entities that do not have gross annual revenues of more than 
$5 million. The commenter suggested that the proposed Retail Lending 
Test would incentivize banks to distribute their small business loans 
in a particular way but would not provide incentives for banks to make 
small business loans that satisfy the community development definition, 
which can be especially impactful loans. The commenter further 
explained that there would be no ``double counting'' of small business 
loans if the Community Development Financing Test allowed for certain 
small business loans to qualify as community development loans because 
the Retail Lending Test and the Community Development Financing Test 
would evaluate different aspects of the same qualifying small business 
loan.
Final Rule
    In the final rule, the agencies eliminated the exclusion for 
considering certain types of retail loans under the Community 
Development Financing Test consistent with the changes to the community 
development loan and

[[Page 6959]]

community development investment definitions and the Retail Lending 
Test in final Sec.  __.22, discussed above.\1113\ The Retail Lending 
Test and the Community Development Financing Test generally considers 
different aspects of a bank's lending. For example, in the agencies' 
view, considering loans that meet the definition of ``small business 
loan'' for purposes of the Retail Lending Test under the Community 
Development Financing Test if those loans support community development 
would not result in double counting. The Retail Lending Test focuses on 
the distribution of the number of loans while the Community Development 
Financing Test considers the dollar volume of loans.
---------------------------------------------------------------------------

    \1113\ Along with eliminating the exclusion, the agencies 
eliminated the exceptions (in proposed Sec.  __.24(a)(2)(ii) and 
(iii)) to the exclusions as they are no longer necessary.
---------------------------------------------------------------------------

    The agencies also considered commenters' suggestions that the 
Community Development Financing Test consider the number of community 
development loans and investments in addition to the dollars to ensure 
that smaller loans and investment are not ignored. The agencies did not 
modify the Community Development Financing Test to include this 
suggestion. As is discussed elsewhere, the agencies also believe that 
smaller, more impactful loans and investments are an important way of 
helping to meet community credit needs. However, the mechanism in the 
final rule for incentivizing those types of loans and investments is 
the impact and responsiveness review. Further, under performance 
context, examiners can consider any information about retail banking 
and community development needs and opportunities provided by the bank 
or other relevant sources, including, but not limited to, members of 
the community, community organizations, State, local, and tribal 
governments, and economic development agencies.\1114\ If a bank fails 
to meet identified community needs and only engages in large dollar, 
low-impact community development loans and investments, the agencies 
could consider that information when concluding on a bank's 
performance. Finally, as discussed above, the agencies determined that 
they would remove the exclusion under the Community Development 
Financing Test for certain retail loans with a community development 
purpose because the tests evaluate different aspects of a bank's 
lending. If the agencies incorporated consideration of the number of 
community development loans and investments into the Community 
Development Financing Test, it would eliminate this distinction and the 
rationale for the agencies supporting the removal of the exclusion.
---------------------------------------------------------------------------

    \1114\ See final Sec.  __.21(d)(4).
---------------------------------------------------------------------------

Section __.24(a)(2) and Section I of Appendix B

Inclusion of Prior Period Loans and Valuation of Community Development 
Financing Activities

Valuation and Allocation of Community Development Loans and Investments

Current Approach
    The agencies currently consider the dollar value of community 
development loans based on their origination or purchase value. Because 
the agencies do not consider community development loans originated or 
purchased during a prior evaluation period that remain on a bank's 
balance sheet (prior period community development loans) under the 
current framework, a renewed or refinanced loan is valued as an 
origination based on the value of the loan in the year it was renewed 
or refinanced. Under the current rule, the agencies consider community 
development investments based on (1) the value of the investment in the 
year it was made for investments made during the current evaluation 
period and (2) the outstanding book value of the investment at the end 
of the evaluation period for investments made during a prior evaluation 
period. The agencies also consider the total value of legally binding 
commitments to extend credit or invest. As explained in the Interagency 
Questions and Answers, the agencies currently provide guidance on the 
valuation of equity type or equity equivalent investments, which allows 
banks to consider a portion of these investments under the current 
lending \1115\ and investment tests.\1116\ The current rule does not 
include metrics and benchmarks that are calculated on an annual basis; 
therefore, the agencies consider the dollar value of each community 
development loan or investment qualitatively for the evaluation period.
---------------------------------------------------------------------------

    \1115\ See current 12 CFR __.22.
    \1116\ See current 12 CFR __.23; see also Q&A Sec.  __.22(d)--1 
and Q&A Sec.  __.23(b)--1.
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed that the Community Development Financing Test 
would consider the dollar value of community development loans and 
investments originated or made during the evaluation period, as well as 
prior period loans and investments that remain on a bank's balance 
sheet.\1117\ The proposal included consideration of prior period 
community development loans, in addition to investments, to incentivize 
banks to provide patient capital and to disincentivize unnecessary 
short-term lending and churning loans by refinancing, renewing, or 
modifying a loan each evaluation period to receive ongoing credit for 
the activity. Further, the proposed change would improve internal 
consistency in the rule by treating prior period loans the same as 
prior period investments, which receive consideration under the current 
rule. In appendix B, the proposal described the numerator for the 
metrics and benchmarks used in Sec. Sec.  __.24 and __.26, which 
includes: (1) community development loans originated and community 
development investments made; (2) the increase in an existing community 
development loan that is renewed or modified; and (3) the outstanding 
value of community development loans originated or purchased and 
community development investments made in previous years that remain on 
the bank's balance sheet.
---------------------------------------------------------------------------

    \1117\ See proposed appendix B, section 1.
---------------------------------------------------------------------------

Comments Received
    Inclusion of new and prior period community development loans and 
investments. Several commenters provided feedback on the inclusion of 
both new community development loans and investments and prior period 
community development loans and investments in the proposed Community 
Development Financing Test metrics and benchmarks. Commenters' views on 
this issue varied. Certain commenters supported the proposal to 
consider both new and prior period community development loans and 
investments on a bank's balance sheet in the metrics and benchmarks. 
These commenters noted that the proposal would reduce artificial 
inflation of banks' balance sheets, lessen the incentive for CRA-
motivated loan churn, and remove the incentive to provide artificially 
short terms for community development loans and investments, which can 
impede community groups' ability to project capital availability.
    Other commenters suggested that the agencies should be careful in 
how they implement the inclusion of new and prior period lending in the 
community development ratio.\1118\ Some of these

[[Page 6960]]

commenters acknowledged the importance of providing credit for prior 
period loans to incentivize long-term patient capital but asserted that 
the agencies should not allow banks to substantially reduce 
originations of impactful loans. A few commenters stated that banks 
should be incentivized to make new community development loans and 
investments in each evaluation period, noting that a significant drop 
in new financing should be a cause for concern. A few other commenters 
suggested limiting the inclusion of prior period community development 
lending to loans from the previous examination cycle. A commenter also 
asserted that the agencies should not give repeated credit for loans 
with low impact or harmful features (e.g., a loan for a property where 
the landlord maintains the building in poor condition).
---------------------------------------------------------------------------

    \1118\ The agencies understand the commenter's reference to 
``community development ratio'' to be a reference to the proposed 
community development financing metrics.
---------------------------------------------------------------------------

    Other commenters opposed consideration of prior period community 
development loans. One of these commenters stated that allowing banks 
to carry prior period community development loans and investments into 
their current review period will disincentivize new investment,\1119\ 
cutting down overall CRA investment in historically disinvested 
communities. At least one commenter recommended the agencies limit 
credit for prior period loans to nonprofits and use the impact and 
responsiveness review to incentivize meeting unmet longer-term credit 
needs elsewhere.
---------------------------------------------------------------------------

    \1119\ The agencies understand the commenter's reference to 
``investment'' to be a reference to the flow of new money into the 
community; not to the defined term ``community development 
investment.''
---------------------------------------------------------------------------

    Lastly, a commenter requested that the agencies develop a 
streamlined process for inclusion of prior period activities during 
subsequent CRA examinations. The commenter believed that redundancies 
in ``re-proving'' a loan or investment in each examination cycle, after 
it has already been qualified by an examiner, is inefficient and the 
elimination of the need to ``re-prove'' could aid both the bank and its 
regulator.
    Community development loan and investment valuation. The agencies 
received a few comments on how to value community development loans and 
investments. These commenters identified certain forms of community 
development lending and investment that they believed should be valued 
in certain ways. A few commenters recommended that the full value of 
legally binding commitments to lend or invest, rather than the amount 
drawn, receive CRA consideration in the final rule. One of these 
commenters explained that if banks do not receive CRA consideration for 
commitments to fund future affordable housing projects, such 
commitments would evaporate and cause a decrease in new affordable 
housing units.
    Commenters also provided feedback on the valuation of equity 
equivalent investments, particularly in CDFIs. Specifically, a 
commenter supported the creation of a mechanism for recognizing banks' 
equity equivalent investments in CDFIs. The commenter noted that the 
proposed quantitative measures in the Community Development Financing 
Test would treat equity equivalent investments in CDFIs the same as 
standard debt products.
    A commenter stated that the agencies should grant extra credit to 
banks that syndicate or sponsor funds supporting LIHTC or NMTC 
projects, consistent with the now-rescinded OCC 2020 CRA Final Rule. 
Commenters also requested that the agencies clarify how they would 
consider different loans and investments under a new CRA rule.
    A few commenters expressed that the rule needs to be clear about 
the treatment of purchased and renewed community development loans. A 
commenter suggested that: (1) ``purchased'' community development loans 
and investments should be treated the same as ``originated'' community 
development loans and investments; and (2) renewals (with full 
underwriting) of lines of credit should receive consideration as 
``originated'' loans.
Final Rule
    Inclusion of new and prior period community development loans and 
investments. Under the final rule, banks will receive consideration for 
new community development loans and investments and community 
development loans and investments that remain on a bank's balance 
sheet.\1120\ The agencies considered the comments about including prior 
period community development loans and investments in the Community 
Development Financing Test metrics and benchmarks and determined to 
finalize the rule as proposed. The agencies believe that providing 
consideration for both new originations and purchases and community 
development loans and investments that remain on a bank's balance sheet 
is a more accurate reflection of a bank's financing efforts and strikes 
the appropriate balance between incentivizing new community development 
loans and patient capital for community development projects. As 
discussed below, under the current framework, to receive credit for 
community development loans in each evaluation period, banks would need 
to renew or refinance the loans. In contrast, the agencies currently 
consider community development investments that remained on a bank's 
balance sheet in an evaluation period.
---------------------------------------------------------------------------

    \1120\ See final appendix B, paragraph I.a.1. The method for 
valuing community development loans and investments is discussed 
below.
---------------------------------------------------------------------------

    The agencies understand that the practice of renewal and 
refinancing of community development loans for the purpose of getting 
additional CRA consideration presented practical planning challenges 
for organizations engaged in community development projects because the 
financing was unpredictable. By providing consideration for both 
community development loans or investments that remain on a bank's 
balance sheet, the agencies believe the final rule will incentivize 
banks to engage in new loans and provide the length and type of 
financing that is most appropriate for the community development 
project and the bank's business model and expertise.
    The agencies determined not to limit consideration for community 
development loans and investments that remain on a bank's balance sheet 
to loans and investments originated or purchased during the prior 
evaluation cycle or to loans and investments with nonprofit 
organizations because these limitations would not further the goal of 
incentivizing banks to provide patient capital matched to the needs of 
the organization engaging in the community development project. With 
respect to limiting the length of consideration to community 
development loans and investments made in the prior evaluation period, 
the agencies note that CRA evaluation periods are typically about three 
years in length.\1121\ Based on the agencies' experience, it can take 
much longer than three years for an organization to raise capital and 
bring a community development project to completion. Limiting 
consideration for prior period community development loans and 
investments to the evaluation period following the one in which the 
loans or investments were originated, purchased, or made would 
perpetuate the mismatch between the needs of the community development 
project and the financing provided by banks. In addition, the length of 
evaluation

[[Page 6961]]

periods, rather than the length of time the activity had an impact on 
the community benefited or served, may impact the consideration that 
banks receive for community development loans and investments.
---------------------------------------------------------------------------

    \1121\ There is some variation in the length of evaluation 
periods between agencies and due to bank size or specific bank 
circumstances; however, in general, CRA evaluation periods are at 
least two years and not longer than five years in length.
---------------------------------------------------------------------------

    With respect to community development financing activities 
involving nonprofit organizations, the agencies also do not believe 
that there is a reason to treat community development loans and 
investments involving nonprofit organizations differently than other 
types of community development loans and investments. As discussed in 
the section-by-section analysis for Sec.  __.13, the agencies gave 
considerable thought to the types of loans and investments that support 
community development. In Sec.  __.13 of the final rule, the agencies 
specify whether an activity must involve a nonprofit organization for 
the agencies to consider it to support community development. If a loan 
or investment meets the requirements of Sec.  __.13, the agencies do 
not believe it is appropriate to impose further limitations on the 
amount of credit a bank receives for that loan or investment. The 
agencies believe that all community development loans and investments 
are designed to help meet community needs; to the extent that a 
community development loan or investments is particularly impactful or 
responsive, the mechanism for addressing that in a CRA evaluation is 
the impact and responsiveness review in Sec.  __.15, not limitations on 
the length of time that the bank can get credit for the community 
development loan or investment that remains on the bank's balance 
sheet.
    In response to commenters concerns about providing repeated credit 
for lower impact or harmful community development loans and 
investments, the agencies do not believe this is a reason for limiting 
credit for prior period community development loans or investments. 
Under the final rule, the appropriate Federal financial supervisory 
agency determines whether a loan or investment supports community 
development when the loan or investment is originated, made, or 
purchased. If the appropriate Federal financial supervisory agency 
later identifies that there is evidence of discriminatory or other 
illegal credit practices pursuant to Sec.  __.28(d), it will consider 
that information in the bank's CRA evaluation.
    Community development loan and investment valuation. After 
considering the comments regarding valuing community development loans 
and investments, the agencies are finalizing an annual valuation 
methodology; however, the agencies are clarifying this aspect of the 
proposal to explain how the final rule values different forms of 
community development loans and investments.
    The agencies believe that annual valuation of community development 
loans and investments is appropriate because banks receive 
consideration for the full dollar volume of the loan or investment in 
the year that it is originated, purchased, or made and the remaining 
value on a bank's balance sheet in other years. This valuation 
methodology helps to incentivize new loans and investments by both 
giving full credit for new loans and investments and diminishing the 
value as the loan or investment is paid off or changes value. Annual 
valuation also allows the agencies to calculate the metrics and 
benchmarks for banks with different evaluation periods because they can 
include the annual value in the appropriate calculations, which 
enhances consistency in the consideration of community development 
loans and investments.
    The agencies added further detail to paragraph I.a of appendix B in 
two areas. First, the agencies clarified the general description of the 
inputs for the numerator \1122\ and added a description for the inputs 
for the denominator for the metrics and benchmark calculations in 
Sec. Sec.  __.24 and __.26. These descriptions provide the annual 
building blocks for the metrics and benchmark calculations in the 
Community Development Financing Test (i.e., the annual dollar volume 
\1123\ of community development loans and community development 
investments and the annual dollar volume of deposits).\1124\
---------------------------------------------------------------------------

    \1122\ Final Sec.  __.24 provides that the Community Development 
Financing Test evaluates a bank's record of helping to meet the 
credit needs of its entire community through community development 
loans and community development investments. As provided in final 
Sec.  __.21, under certain circumstances this evaluation will 
include community development loans and investments of operations 
subsidiaries or operating subsidiaries, as applicable, other 
affiliates, consortiums, and third parties. To ensure that the rule 
clearly provides that the agencies will consider community 
development loans and investments from all of these entities when 
appropriate, not just those of a bank or its operations subsidiaries 
or operating subsidiaries, as applicable, final appendix B, 
paragraph I.a, clarifies that the agencies include community 
development loans and community development investments ``attributed 
to the bank pursuant to Sec.  __.21(b) and (c)'' in the numerator of 
the metrics and benchmarks in the Community Development Financing 
Test. This is a clarifying revision that is not intended to have a 
substantive effect.
    \1123\ As discussed in the section-by-section analysis of final 
Sec.  __.24(b)(1), for purposes of consistency in the final rule, 
the agencies changed the description in the final rule to use only 
the word ``volume'' instead ``value'' in final Sec.  __.24 and final 
appendix B. The agencies do not intend this to be a substantive 
change.
    \1124\ For use in the metrics and benchmarks calculations in 
final Sec.  __.26, final appendix B, paragraph I.a.2.ii, also 
includes a description of the ``annual dollar volume of assets.''
---------------------------------------------------------------------------

    Second, the agencies clarified how to value different forms of 
community development loans and investments for purposes of calculating 
the metrics and benchmarks, including by adding additional detail and 
explaining that the calculations are determined annually. The proposal 
described determining the value of community development loans 
originated and community development investments made, the increase in 
an existing community development loan that is renewed or modified, and 
the outstanding value of community development loans originated or 
purchased and community development investments made in previous years 
that remain on the bank's balance sheet.\1125\ As was clear from the 
comments, this description did not sufficiently explain how the 
agencies would value all forms of community development loans and 
investments or for what period the agencies would value the loans and 
investments. Under the final rule, and consistent with the proposal, 
banks value community development loans and investments annually as of 
December 31 of each calendar year. The annual dollar volume of a 
community development loan or investment will depend on whether the 
loan or investment is new to the bank that year or is a loan or 
investment from a prior year.
---------------------------------------------------------------------------

    \1125\ See proposed appendix B, section 1.
---------------------------------------------------------------------------

    The agencies also clarified in paragraph I.a of appendix B of the 
final rule that they will treat purchased loans the same as loans 
originated and investments made in a year. In proposed appendix B, the 
agencies explained how they would value purchased community development 
loans that remain on a bank's balance sheet. Commenters noted that the 
agencies should also explain how to value a community development loan 
purchased by a bank in the year of purchase. Consistent with current 
practice, under the final rule, appendix B explains that the agencies 
will value a purchased community development loan the same way as an 
origination in the year the bank originated the loan. In the agencies' 
experience, a secondary market for community development loans ensures 
that banks can manage their balance sheets based on their business 
models and capacity and are not disincentivized from seeking out new 
opportunities because they cannot

[[Page 6962]]

free up capital to pursue those opportunities. The final rule also 
provides additional detail on the valuation of legally binding 
commitments to lend and invest. The agencies determined that banks 
should receive credit for the full dollar volume committed for all 
legally binding commitments to extend credit and legally binding 
commitments to invest. However, the agencies also determined that after 
the commitment is made the valuation depends on whether the commitment 
has been drawn upon.
    The agencies considered that valuing a commitment to extend credit 
or invest only on the drawn portion of the commitment would put banks 
that entered into commitments at a disadvantage because these banks 
would have committed resources and may not have capacity to originate, 
purchase, or make other community development loans and investments. 
Further, the agencies consider legally binding commitments to extend 
credit or invest a necessary tool in financing certain community 
development projects, and, for that reason, included commitments in the 
definition of community development loan and community development 
investment. If the agencies limited credit for commitments to extend 
credit or invest to the drawn portion of the commitment, the 
disadvantage created could disincentivize banks from making 
commitments, which could impact the viability of certain community 
development projects. However, the agencies also recognize that once a 
commitment has been drawn upon, the drawn portion of a commitment to 
extend credit or invest is no longer a ``commitment'' but is an 
outstanding loan or investment. Therefore, to give appropriate value to 
commitments, non-drawn commitments are valued based on the full dollar 
volume committed, but commitments that have been drawn upon are valued 
based on a combination of both the outstanding dollar volume of the 
commitment and the drawn portion of the commitment. Specifically, final 
appendix B includes a footnote that the dollar volume of a legally 
binding commitment to extend credit or legally binding commitment to 
invest in any given calendar year is (1) the full dollar volume 
committed; or (2) if drawn upon, the combined dollar volume of the 
outstanding commitment and any drawn portion of the commitment.\1126\
---------------------------------------------------------------------------

    \1126\ See footnote 1 to final appendix B, paragraph I.a.1.i.A.
---------------------------------------------------------------------------

    The final rule also clarifies how the agencies will value 
refinances and renewals in the year of the refinance or renewal and in 
subsequent years.\1127\ The agencies' clarifications to the valuation 
of refinances and renewals are to ensure that banks receive 
consideration for these loans or investments without incentivizing 
banks to churn loans solely for the purpose of receiving credit in each 
evaluation period. Under the final rule, the agencies will provide 
banks with credit for the dollar volume of any increase in the calendar 
year to an existing community development loan that is refinanced or 
renewed and in an existing community development investment that is 
renewed.\1128\
---------------------------------------------------------------------------

    \1127\ The agencies note that refinances and renewals are 
treated differently under the Retail Lending Test in final Sec.  
__.22 and the Community Development Financing Test in final Sec.  
__.24 because of differences between the performance tests. 
Specifically, because the Community Development Financing Test 
considers the dollar volume of community development loans and 
investments, it was necessary that the rule provide a method for 
valuing refinances and renewals that balanced the incentives for new 
originations and patient capital. Therefore, for purposes of the 
Community Development Financing Test, refinances and renewals are 
addressed and valued separately from originations and purchases.
    \1128\ See final appendix B, paragraph I.a.1.i.B.
---------------------------------------------------------------------------

    Banks will receive credit for the outstanding dollar volume of 
community development loans originated or purchased in previous 
calendar years and community development investments made in previous 
calendar years, as of December 31 of each calendar year that the loan 
or investment remains on the bank's balance sheet.\1129\ Banks will 
also receive credit for the outstanding dollar volume, less any 
increase in the same calendar year, of a community development loan a 
bank refinanced or renewed in a calendar year subsequent to the 
calendar year of origination or purchase, as of December 31 for each 
calendar year that the loan remains on the bank's balance sheet, and an 
existing community development investment renewed in a calendar year 
subsequent to the calendar year of the investment, as of December 31 
for each calendar year that the investment remains on the bank's 
balance sheet.\1130\ As discussed above, the agencies believe that 
these valuation methods strike the appropriate balance between 
incentivizing new community development loans and investments and 
encouraging patient capital.
---------------------------------------------------------------------------

    \1129\ See final appendix B, paragraph I.a.1.i.C.
    \1130\ See final appendix B, paragraph I.a.1.i.D.
---------------------------------------------------------------------------

    The agencies proposed to value the outstanding value of community 
development loans originated or purchased and community development 
investments made in previous years based on the value that remained on 
the bank's balance sheet on the last day of each quarter of the year, 
averaged across the four quarters of the year. The final rule instead 
values these community development loans and investments based on the 
value as of December 31 of each calendar year that the loan or 
investment remains on the bank's balance sheet. The agencies made this 
revision in response to overall comments received about the complexity 
and burden of the proposed rule. The agencies believe this change 
simplifies the rule and appropriately balances burden associated with 
data collection under the final rule with the need for data to 
calculate the metrics and benchmarks.
    The agencies determined not to treat equity equivalent investments 
and syndications differently than other community development loans and 
investments. Under the final rule, community development loans and 
investments are considered in the single Community Development 
Financing Test. This contrasts with the current rule where large banks 
are separately evaluated under different tests for community 
development loans and investments. Therefore, the final rule eliminates 
the motivation for accounting for a portion of an equity equivalent 
investment as a loan and a portion as an investment to receive 
consideration under each of the current lending and investment 
tests.\1131\ Under the final rule, if an equity equivalent investment 
supports community development pursuant to Sec.  __.13, the agencies 
will provide consideration for the full value of the investment under 
the Community Development Financing Test. Further, if the equity 
equivalent investment or syndication is consistent with one of the 
impact and responsiveness factors, banks will receive additional 
qualitative consideration for the investment. The agencies believe that 
this combined quantitative and qualitative consideration of equity 
equivalent investments and syndications under the Community Development 
Financing Test appropriately accounts for the value of these 
investments and further enhanced valuations are not necessary.
---------------------------------------------------------------------------

    \1131\ See current 12 CFR __.22 and __.23.
---------------------------------------------------------------------------

    With respect to the comments regarding ``re-proving'' in a later 
evaluation period that a loan or investment that remains on a bank's 
balance sheet supports community development, the agencies expect that 
they will engage in data integrity assessments under the final rule 
consistent with their current practices. In general, the agencies take 
a measured approach to data integrity to reduce

[[Page 6963]]

burden. Under the final rule, community development loans and 
investments generally remain qualifying for a bank as long as the loan 
or investment remains on the bank's balance sheet, even if the agency 
has determined that the loan or investment no longer meets the 
requirements of Sec.  __.13.\1132\ For this reason, in most 
circumstances banks need only maintain the information used to 
substantiate that the loan or investment supported community 
development at the time it was originated, purchased, or made.
---------------------------------------------------------------------------

    \1132\ See final Sec.  __.14(a)(2)(ii).
---------------------------------------------------------------------------

Denominator for the Community Development Financing Test, Paragraph I.a 
of Appendix B
    In considering the comments on the valuation of community 
development loans and investments, as well as other comments about the 
metric and benchmark calculations, the agencies determined that 
additional information regarding the inputs to the calculations would 
help clarify the rule. Therefore, in addition to the revisions and 
clarifications that the agencies made to the numerator of the metrics 
and benchmarks in final paragraph I.a of appendix B, the agencies also 
provided additional clarifications to the denominator for the metrics 
and benchmarks.
    The final rule provides in paragraph I.a.2.i of appendix B that for 
purposes of the metrics and benchmarks in Sec.  __.24, the appropriate 
Federal financial supervisory agency calculates an annual dollar volume 
of deposits in a bank that is specific to each metric or benchmark for 
each calendar year in the evaluation period. The final rule describes 
this as the annual dollar volume of deposits and that term is used in 
the calculations for the Community Development Financing Test. The 
final rule goes on to reference the source of deposits for banks based 
on the definition of deposit in Sec.  __.12. Specifically, the final 
rule states that for a bank that (1) collects, maintains, and reports 
deposits data as provided in Sec.  __.42, the annual dollar volume of 
deposits is determined using the annual average daily balance of 
deposits in the bank as provided in bank statements (e.g., monthly, or 
quarterly) based on the deposit location and (2) does not collect, 
maintain, and report deposits data as provided in Sec.  __.42, the 
annual dollar volume of deposits is determined using the deposits 
assigned to each branch pursuant to the FDIC's Summary of Deposits 
data.

Section __.24(a)(2) Allocation of Community Development Financing 
Activities (and Paragraph I.b of Appendix B)

Current Approach
    Under the current rule, community development loans and investments 
must benefit a bank's assessment areas or a broader statewide or 
regional area that includes at least one of a bank's assessment 
areas.\1133\ The current rule does not include specific provisions for 
the allocation of the dollar value of community development loans and 
investments in circumstances where a bank cannot clearly attribute the 
loan or investment to one or more of its assessment areas.\1134\
---------------------------------------------------------------------------

    \1133\ See Q&A Sec.  __.12(h)--6.
    \1134\ See Interagency Large Institution CRA Examination 
Procedures (April 2014) at appendix.
---------------------------------------------------------------------------

The Agencies' Proposal
    In Sec.  __.24 and section 14 of appendix B of the NPR, the 
agencies proposed an approach to consistently allocate the dollar value 
of community development loans and investments for the purpose of 
calculating the metrics and benchmarks used in the Community 
Development Financing Test. The agencies intended that the proposed 
approach would attribute the dollar value of community development 
loans and investments to the geographic areas benefited or served by 
the loan or investment and provide certainty that community development 
loans and investments benefiting geographic areas outside of a bank's 
facility-based assessment areas would receive consideration, as 
provided for in the proposed rule.
    The agencies proposed that banks would allocate the dollar amount 
of community development loans and investments to one or more 
counties,\1135\ States, or the nationwide area, depending on specific 
documentation or the geographic scope of the activity. As proposed, at 
the facility-based assessment area level, the agencies would sum the 
dollar value of community development loans and investments assigned to 
the counties within the facility-based assessment area in calculating 
the Bank Assessment Area Community Development Financing Metric and the 
benchmarks applicable to facility-based assessment areas, which would 
inform the facility-based assessment area conclusions. In States in 
which a bank has at least one facility-based assessment area, the 
agencies would sum the dollar value of community development loans and 
investments allocated to the State and to any counties within the State 
to calculate the Bank State Community Development Financing Metric and 
the benchmark applicable to the State. In multistate MSAs in which a 
bank has at least one facility-based assessment area, the agencies 
would sum the dollar value of community development loans and 
investments allocated to the multistate MSA and to any counties within 
the multistate MSA to calculate the Bank Multistate MSA Community 
Development Financing Metric and the benchmark applicable to the 
multistate MSA. In the nationwide area, the agencies would sum the 
dollar value of all of a bank's community development loans and 
investments--those allocated to counties, States, multistate MSAs, and 
the nationwide area--to calculate the Bank Nationwide Community 
Development Financing Metric and the proposed benchmark applicable to 
the nationwide area.
---------------------------------------------------------------------------

    \1135\ Under the proposal and the final rule, ``county'' means 
``any county or statistically equivalent entity as defined by the 
U.S. Census Bureau.'' See proposed Sec.  __.12 and final Sec.  
__.12.
---------------------------------------------------------------------------

    The agencies believed this approach would allow for metrics that 
consistently measure performance at the different levels and was 
intended to support a balance between emphasizing facility-based 
assessment area performance and considering community development loans 
and investments that benefit geographic areas outside of those 
assessment areas. The agencies intended that the proposed approach 
would emphasize facility-based assessment area performance because it 
would allow the agencies to measure the dollar value of community 
development loans and investments that specifically serve a facility-
based assessment area, distinct from community development loans and 
investments that serve a broader geographic area or that primarily 
serve other areas. At the same time, the proposal also would have 
considered all community development loans and investments in the 
nationwide metric.\1136\ The agencies believed this would provide 
additional certainty and flexibility relative to the current approach 
and allow banks the opportunity to conduct impactful and responsive 
community development loans and investments in areas that may have few 
assessment areas.
---------------------------------------------------------------------------

    \1136\ See proposed Sec.  __.24(c)(4)(ii)(A).
---------------------------------------------------------------------------

    The agencies proposed to determine the geographic scope of a 
community loan or investment based on information provided by the bank, 
and as needed, publicly available information and information provided 
by government or community sources that demonstrates

[[Page 6964]]

that the activity serves individuals or census tracts located within 
the area. Proposed Sec.  __.24 also cross-referenced proposed section 
14 of appendix B, where the agencies proposed to allocate a community 
development loan or investment that benefited a single county to that 
county. For an activity that benefited multiple counties, the agencies 
proposed two options for allocating the dollar value of the activity. 
Under the first proposed option, if a bank produced documentation for 
an activity specifying the appropriate dollar amount to assign to the 
counties benefited by the activity, then the bank would allocate the 
dollar value of the activity accordingly at the county level. In the 
alternative, if a bank did not produce documentation specifying how to 
allocate the loan or investment to the geographic area benefited or 
served by the particular activity, the bank would allocate the dollar 
amount based on the proportion of low- and moderate-income families in 
the applicable areas.
    Under the second proposed option, for a community development loan 
or investment that served multiple counties but not an entire statewide 
area, the agencies proposed that banks would allocate the dollar amount 
of the loan or investment across the counties served, in proportion to 
the percentage distribution of low- and moderate-income families across 
those counties.\1137\ The agencies proposed that community development 
loans or investments that served one or more States, but not the entire 
nation, would be allocated at the State level, and not to specific 
counties within the State, based on the proportion of low- and 
moderate-income families in each State.\1138\ Lastly, the agencies 
proposed that for a community development loan or investment with a 
nationwide scope, for which the bank did not provide documentation, the 
bank would allocate loan or investment to the institution level and not 
to specific States or counties.\1139\ The agencies believed the use of 
demographic data for allocating the dollar value of community 
development loans and investments without documentation of locations 
served would provide certainty and consistency compared to the current 
approach and would reflect the population served by community 
development financing activities.
---------------------------------------------------------------------------

    \1137\ See proposed appendix B, section 14.
    \1138\ Id.
    \1139\ Id.
---------------------------------------------------------------------------

    The agencies sought feedback on other data points that the agencies 
could use for allocating community development loans and investments 
and may more appropriately reflect the population served, such as total 
population or number of small businesses. The agencies also sought 
feedback regarding whether community development loans and investments 
that cannot be allocated to a specific county or State should be 
considered at the highest geographic level benefited or served by a 
loan or investment instead of being allocated to multiple counties or 
counties within States based upon the distribution of all low- and 
moderate-income families. In addition, the agencies sought feedback on 
what methodology should be used to allocate the dollar value of 
activities to specific counties for activities that serve multiple 
counties (i.e., allocate based on the distribution of low- and 
moderate-income families or some other method).
Comments Received
    In general, commenters that provided feedback on the allocation of 
community development loans and investments did not object to including 
an allocation method in the rule. Commenters' opinions varied, however, 
on how to allocate these community development loans and investments. A 
commenter generally supported the proposed geographic flexibility for 
allocating the dollar value of community development loans and 
investments under the Community Development Financing Test, which the 
commenter stated could help bring community development capital to more 
neighborhoods away from areas where banks have branches--especially 
Native and rural communities.
    Commenters expressed differing views on whether to allocate 
community development loans and investments based on the percentage of 
low- and moderate-income families when banks did not provide specific 
documentation for allocating a loan or investment. A few commenters 
supported the agencies proposed approach of allocating community 
development loans or investments in proportion to the percentage of 
low- and moderate-income families. Other commenters instead recommended 
that the agencies allocate community development financing activities 
based on the distribution of low- and moderate-income households. One 
of these commenters supported its position by explaining that this 
allocation method reflects the intended beneficiaries of CRA. As an 
alternative, a commenter suggested that the agencies could use a 
simpler approach of allocating community development loans and 
investments based on the distribution of all families. Another 
commenter recommended the agencies use an allocation approach based on 
the proportion of low- and moderate-income families, small businesses, 
and small farms. The commenter also recommended the agencies conduct 
targeted impact assessments using surveys and other research tools that 
gauge how much and which residents or businesses benefit the most from 
banks' community development loans and investments in each assessment 
area.
    Commenters also provided opposing views on whether, in the absence 
of specific documentation, the agencies should allocate community 
development loans and investments at the highest geographic level. A 
few commenters objected to allocating community development financing 
activities at the highest geographic level. For example, a state 
government commenter stated that the Community Development Financing 
Test is intended to measure banks' loans and investments against 
benchmarks that reflect local context, which the commenter asserted is 
incongruous with the idea that a bank with a nationwide footprint could 
include community development loans and investments that are nationwide 
in scope. The commenter believes that banks should have the burden of 
demonstrating local-, county-, or State-level impact. Another commenter 
requested that banks receive credit at the assessment area level for 
housing credit investments made anywhere in the State where a bank has 
more than one assessment area.
    Commenters offered several alternatives to allocating at the 
highest geographic level including that the agencies should: (1) make 
best efforts to ensure that they assign community development loans and 
investments in a manner that is consistent with the bank's preferences, 
as well as with standard industry practices; (2) permit geographic 
allocation based on allocation or side letters; (3) base allocations on 
the capital committed for an investment, even if the fund has not 
identified all of its specific development sites or other projects; (4) 
allocate loans and investments to each assessment area as the loan or 
investment indicates or equally to each applicable assessment area 
served; (5) allocate based on the purpose, mandate, or function of the 
organization or activity, including which geographic areas are served; 
or (6) permit the bank and the recipient of the loan or investment to 
identify a reasonable geographic allocation (e.g., allow banks to rely 
on geographic

[[Page 6965]]

allocations provided by the recipient or consortium).
    In contrast, a few commenters supported allocating community 
development loans and investments that cannot be allocated to a certain 
area at the highest geographic level, whether that be the State, 
multistate MSA, or institution level. One of these commenters noted 
that, if the community development loans and investments are broad 
reaching, the State, county, or regional planning commission may have 
accompanying metrics the agencies could use in assessing the impact on 
a State or county. Another commenter expressed that allocating a 
community development loan or investment across multiple counties would 
create an impossible burden for many of the local (and often nonprofit) 
bank partners that help banks serve their communities. Some commenters 
recommended allocating community development loans and investments at 
the institution level.
Final Rule
    The agencies are finalizing the allocation provisions included in 
the proposed rule with certain revisions to clarify how banks will 
allocate community development loans and investments. Section 
__.24(a)(2) of the final rule provides that the agencies consider 
community development loans and investments allocated pursuant to 
paragraph I.b of appendix B. Final paragraph I.b of appendix B includes 
the specific allocation provisions that were included in proposed 
section 14 of appendix B, with clarifying revisions.\1140\
---------------------------------------------------------------------------

    \1140\ The Community Development Financing Test for Limited 
Purpose Banks includes a similar provision for allocation in final 
Sec.  __.26(c)(2), which also cross-references final appendix B, 
paragraph I.b.
---------------------------------------------------------------------------

    The agencies determined that permitting banks to choose between 
allocating community development loans and investments based on 
specific documentation or the geographic scope of an activity provided 
the appropriate level of flexibility. As such, the final rule retains 
both options. The agencies considered feedback from certain commenters 
noting that banks should have flexibility in allocating community 
development loans and investments. Further, the agencies considered the 
options provided by commenters for allocating community development 
loans and investments, including permitting the use of side letters, 
considering allocation information from the recipient, or basing 
allocations on the purpose, mandate, or function of the recipient of 
the loan or investment.
    The agencies continue to believe it is important that banks can 
receive consideration in specific geographic areas if they are able to 
demonstrate that a community development loan or investment, or a 
portion of a loan or investment, benefited or served a particular area. 
Allowing for allocation based on specific documentation enhances the 
accuracy of the metrics and benchmarks in the Community Development 
Financing Test. Further, it provides an incentive for banks to serve 
particular communities by including a method for the bank to get 
consideration for the whole or a specific portion of a community loan 
or investment in the area benefited or served.
    Under the final rule, the agencies would consider any documentation 
provided by the bank that specifies the appropriate dollar volume of a 
community development loan or investment to assign to each county, such 
as the specific addresses and dollar volume associated with each 
address, or other information that indicates the specific dollar volume 
of the loan or investment that benefited or served each county. 
Consistent with commenters' suggestions, specific documentation could 
include, but would not be limited to, side or allocation letters; 
information on the purpose, mandate, or function of the organization 
that received the community development loan or investment; or any 
other information that reasonably demonstrates the specific dollar 
volume of the activity that benefited or served a county. The agencies 
removed the word ``accounting'' before ``information'' to clarify that 
they did not intend to limit the type of information considered 
strictly to information related to accounting; information could also 
include, for example, a mission statement for the organization that 
received the community development loan or investment.
    If a bank does not provide specific documentation, the agencies 
determined it is appropriate to allocate a community development loan 
or investment to the highest geographic level that the activity 
benefits or serves (i.e., county, State, multistate MSA,\1141\ or 
nationwide area) based on the geographic scope \1142\ of the loan or 
investment and in proportion to the percentage of low- and moderate-
income families in the area benefited or served by the loan or 
investment. Following consideration of the comments, the agencies 
determined that allocating at the highest geographic level benefited or 
served appropriately balances the burden of allocating community 
development loans and investments at a more granular level with the 
desire for accuracy of the metrics and benchmarks. If a community 
development loan or investment has a geographic scope of benefiting or 
serving one or more entire States, multistate MSAs, or the nationwide 
area and the bank cannot attribute the loan or investment to any 
particular county, then the loan or investment will be allocated to the 
State(s) or multistate MSA(s) that the activity benefits or serves or, 
if the activity benefits or serves the nationwide area, to the 
nationwide area. Consequently, a bank will not receive consideration 
for community development loans or investments allocated to a State, 
multistate MSA, or the nationwide area in its lower geographic-level 
evaluations. For the purposes of allocating community development loans 
and investments, the agencies consider low- or moderate-income families 
to be located in a State or multistate MSA, as applicable, consistent 
with final Sec.  __.28(c). The agencies determined that this was 
appropriate because allocating community development financing 
activities to the county, State, or multistate MSA level in the absence 
of specific documentation that the loan or investment benefited or 
served that area could result in an artificial inflation of the metrics 
and benchmarks because the loan or investment may not have benefited or 
served one of the geographic areas where the agencies are allocating a 
portion of the dollar value. Further, allocating part of a community 
development loan or investment to a county, State, or multistate MSA 
that did not actually benefit from that loan or investment may 
disincentivize banks from engaging in more targeted loans and 
investments that do benefit or serve those areas.
---------------------------------------------------------------------------

    \1141\ The NPR discussed allocating at the multistate MSA level. 
The agencies did not include this level of allocation in proposed 
appendix B. The final rule includes allocation at the multistate MSA 
level because allocation at this level is necessary based on the 
structure of the proposal and the final rule.
    \1142\ The agencies determine the highest geographic level for 
allocating a community development financing activity based on the 
geographic scope of the activity. For example, the agencies would 
allocate an investment in a statewide economic development fund for 
which the bank does not have specific documentation identifying 
projects financed at the county level to the State--not the 
nationwide area.
---------------------------------------------------------------------------

    The agencies also considered the comments suggesting alternatives 
to the proposed approach of allocating community development loans and

[[Page 6966]]

investments in proportion to the percentage of low- and moderate-income 
families in the geographic area benefited or served. The agencies are 
finalizing allocation based on the percentage of low- and moderate-
income families because they believe this: (1) is consistent with the 
CRA statute's and CRA regulations' focus on helping to meet the credit 
needs of a bank's entire community, including low- and moderate-income 
communities; and (2) it does not introduce additional complexity that 
would result from allocating based on a combination of low- and 
moderate-income families, small businesses, and small farms. The 
agencies determined that other options for allocating community 
development loans or investments, such as allocation based on all 
families or dividing between facility-based assessment areas, lacked 
the connection to low- and moderate-income communities that the 
agencies believe is at the core of the CRA. Further, the agencies 
considered commenter feedback and determined that it was not 
appropriate to allocate one type of activity, such as housing tax 
credit investments, differently than other types of activities because 
the mechanism for recognizing particularly impactful activities under 
the final rule is the impact and responsiveness review. The final rule 
includes the following table outlining how community development loans 
and investments will be allocated:
[GRAPHIC] [TIFF OMITTED] TR01FE24.103

    Final paragraph I.b.2.ii.B of appendix B also includes a footnote 
explaining that for purposes of allocating community development loans 
and investments, the agencies consider low- or moderate-income families 
to be located in a State or multistate MSA, as applicable, consistent 
with final Sec.  __.28(c). As noted above, the agencies also made 
several clarifying edits to proposed Sec.  __.24(a) and paragraph I.b 
of appendix B. The agencies divided proposed Sec.  __.24(a) into two 
paragraphs, so that the allocation paragraph \1143\ is independent of 
the general paragraph describing the performance test.\1144\ The 
agencies removed the portion of proposed Sec.  __.24(a) referencing the

[[Page 6967]]

documentation that banks can provide, or the agencies will use, to 
support the allocation of community development loans and investments 
because this concept is adequately addressed in paragraph I.b of 
appendix B of the final rule. Under the final rule, paragraph I.b.1 of 
appendix B provides that, as appropriate, the appropriate Federal 
financial supervisory agency may also consider publicly available 
information and information provided by government or community sources 
that demonstrates that a community development loan or community 
development investment benefits or serves a facility-based assessment 
area, State, or multistate MSA, or the nationwide area. The agencies 
intend that these changes will clarify, but not substantively alter, 
the proposal.
---------------------------------------------------------------------------

    \1143\ See final Sec.  __.24(a)(2).
    \1144\ See final Sec.  __.24(a)(1).
---------------------------------------------------------------------------

    Further, the agencies reorganized paragraph I.b of appendix B and 
added additional detail to explain the allocation process for community 
development loans and investments. First, following the paragraphs on 
valuation in paragraph I.a.i of appendix B, paragraph I.a.ii explains 
that to calculate the metrics and benchmarks provided in Sec. Sec.  
__.24 and __.26, the agency includes all community development loans 
and community development investments that are allocated to the 
specific facility-based assessment area, State, multistate MSA, or 
nationwide area, respectively, in the numerator for the metric and 
benchmarks applicable to that geographic area and then cross references 
paragraph I.b of appendix B, which includes the allocation provisions. 
Second, the agencies included in paragraph I.b.1 of appendix B cross 
references to Sec.  __.42(a)(5)(ii)(D) and (E), which explain the data 
a bank must provide to support the allocation of a community 
development loan or investment. The agencies also made other conforming 
revisions.

Section __.24(b) Facility-Based Assessment Area Evaluation

Current Rule and the Agencies' Proposal
    As discussed above, the agencies currently evaluate banks' 
community development performance in banks' assessment areas. The 
agencies proposed to continue evaluation of community development 
financing activities in facility-based assessment areas consistent with 
the current rule.
Comments Received
    Commenters generally supported the continued evaluation of 
community development financing performance in facility-based 
assessment areas. The comments regarding specific aspects of the 
proposed facility-based assessment area evaluation, including the 
applicable metrics, benchmarks, impact review, and conclusions are 
discussed below in the relevant section-by-section analyses.
Final Rule \1145\
---------------------------------------------------------------------------

    \1145\ As discussed in the section-by-section analysis of final 
Sec.  __.21(a)(5), the agencies are adopting a new paragraph in the 
final rule to clarify the evaluation of military banks. Under the 
final rule, the agencies will evaluate a military bank that chooses 
to delineate the entire United States and its territories as its 
sole facility-based assessment area because its customers are not 
located within a defined geographic area, as specified in final 
Sec.  __.16(d), exclusively at the institution level based on the 
bank's performance in its sole facility-based assessment area. For 
purposes of the final Community Development Financing Test, the 
agencies will evaluate these banks pursuant to the facility-based 
assessment area provisions in final Sec.  __.24(b).
---------------------------------------------------------------------------

    Under the final rule, the appropriate Federal financial supervisory 
agency evaluates a bank's community development financing performance 
in a facility-based assessment areas using (1) the Bank Assessment Area 
Community Development Financing Metric in Sec.  __.24(b)(1); (2) the 
applicable benchmarks, which include the Assessment Area Community 
Development Financing Benchmark and the MSA and Nonmetropolitan 
Nationwide Community Development Financing Benchmarks (referred to as 
the local and national benchmarks in the section-by-section analysis of 
Sec.  __.24(b)(2)); and (3) the impact and responsiveness review in 
Sec.  __.24(b)(3). The final rule also provides that the agency assigns 
conclusions for a bank's facility-based assessment areas pursuant to 
paragraph d.1 of appendix C. This section includes conforming and 
technical edits to update the numbering in the rule and other wording 
for purposes of consistency and clarity that are not intended to have a 
substantive effect.
Section __.24(b)(1) Bank Assessment Area Community Development 
Financing Metric
The Agencies' Proposal
    The agencies proposed in Sec.  __.24(b)(1) to use a Bank Assessment 
Area Community Development Financing Metric to measure the dollar value 
of a bank's community development loans and investments compared to 
deposits from the bank's deposit accounts \1146\ in the facility-based 
assessment area. As discussed below, the agencies also proposed 
comparing this metric to certain benchmarks for the purpose of 
informing the evaluation of bank performance.\1147\
---------------------------------------------------------------------------

    \1146\ See proposed Sec.  __.12 (defining ``deposits'').
    \1147\ See proposed Sec.  __.24(b)(2).
---------------------------------------------------------------------------

    Bank Assessment Area Community Development Financing Metric--
Numerator. The agencies proposed in Sec.  __.24(b)(1) and section 2 of 
appendix B that the Bank Assessment Area Community Development 
Financing Metric would be the ratio of a bank's community development 
financing dollars (the numerator) that serve the facility-based 
assessment area, averaged over the years of the evaluation period, 
relative to the dollar value of the deposits from the bank's deposit 
accounts (the denominator) in a bank's facility-based assessment area, 
averaged over the evaluation period.
    The agencies proposed that the numerator of the Bank Assessment 
Area Community Development Financing Metric would be a bank's annual 
average of dollars of community development loans and investments that 
serve a facility-based assessment area.\1148\ As discussed above, for 
each year in an evaluation period this calculation would include the 
dollar amount of all community development loans originated and 
community development investments made in that year. The agencies also 
proposed to include the dollar amount of any increase in an existing 
community development loan that is renewed or modified in that 
year.\1149\ The proposed numerator would also include the quarterly 
average value of community development loans and community development 
investments originated or purchased in a prior year that remained on a 
bank's balance sheet on the last day of each quarter during the 
evaluation period.\1150\ Considering the outstanding balance of a loan 
or investment in bank's metric on an annual basis would make long-term 
financing beneficial to a bank's metric.
---------------------------------------------------------------------------

    \1148\ See proposed Sec.  __.24(b)(1) and proposed appendix B, 
section 1.
    \1149\ See proposed appendix B, section 1.
    \1150\ Id.
---------------------------------------------------------------------------

    Bank Assessment Area Community Development Financing Metric--
Denominator. The proposed denominator of the Bank Assessment Area 
Community Development Financing Metric would be a bank's annual average 
dollar amount of deposits from the bank's deposit accounts sourced from 
a facility-based assessment area during the evaluation period.\1151\ As 
proposed in Sec.  __.42, collecting and maintaining deposits data would 
be required for banks with assets

[[Page 6968]]

greater than $10 billion as of December 31 in both of the prior two 
calendar years and optional for banks with assets of $10 billion or 
less as of December 31 of either of the prior two calendar years.\1152\ 
Under the proposal, banks that collected and maintained deposits data 
under proposed Sec.  __.42 would compute the average deposits 
(calculated based on average daily balances as provided in statements 
such as monthly or quarterly statements, as applicable) for depositors 
located in the assessment area.\1153\ An annual average would then be 
computed across the years of the evaluation period. The agencies 
proposed that, for banks that do not collect and maintain deposits data 
under proposed Sec.  __.42, CRA evaluations would use the FDIC's 
Summary of Deposits data in order to tailor data requirements for these 
banks.
---------------------------------------------------------------------------

    \1151\ Id.
    \1152\ The proposed rule was silent as to whether intermediate 
banks that opted into the Community Development Financing Test could 
opt to collect and maintain deposits data for purposes of 
calculating the Community Development Financing Test metrics.
    \1153\ See proposed Sec.  __.42(b)(5).
---------------------------------------------------------------------------

    This denominator was an indicator of a bank's financial capacity to 
conduct community development loans and investments because deposits 
are a major source of bank funding for loans and investments. The 
agencies considered that, in their view, the greater a bank's volume of 
deposits, the greater its capacity and CRA obligation to lend and 
invest would become.\1154\ Therefore, the proposed approach for the 
Bank Assessment Area Community Development Financing Metric would 
establish a proportionately greater obligation to serve facility-based 
assessment areas for banks with a greater presence in that market.
---------------------------------------------------------------------------

    \1154\ See 12 U.S.C. 2901.
---------------------------------------------------------------------------

    As an alternative, the agencies considered basing the Bank 
Assessment Area Community Development Financing Metric denominator on 
the share of a bank's depositors residing in a facility-based 
assessment area. Using this alternative, the agencies would calculate 
the denominator by multiplying the bank's institution level deposits by 
the percentage of the bank's depositors that reside in a facility-based 
assessment area. For example, if the bank had a total of $100,000,000 
in deposits and one percent of the bank's depositors resided in a given 
facility-based assessment area, then the denominator for that 
assessment area's metric would be $100,000,000 x .01 = $1,000,000. The 
objective of this alternative approach would be to more evenly allocate 
a bank's CRA obligations across markets, including less affluent 
markets in which a bank's depositors hold relatively small amounts of 
deposits, because deposits would be allocated to facility-based 
assessment areas in proportion to the number of depositors. However, 
the agencies considered that this option would require all large banks 
and any intermediate banks that opt into the Community Development 
Financing Test to collect and maintain the number of depositors 
residing in each of their facility-based assessment areas and in other 
geographic areas because this information is not available from 
existing data such as the FDIC's Summary of Deposits data.
Comments Received
    The agencies received several comments on the proposed Bank 
Assessment Area Community Development Financing Metric.\1155\ 
Commenters generally supported the proposed metric; however, at least 
one commenter objected and recommended the agencies use only the number 
of loans and investments and consider their overall impact in assessing 
banks' CRA performance. Further, some comments on the proposed metric 
may reflect a misunderstanding of the proposed calculations.
---------------------------------------------------------------------------

    \1155\ The agencies note that comments on the Bank Assessment 
Area Community Development Financing Metric related to the 
calculation of the metric apply equally to the other metrics in the 
Community Development Financing Test. These comments will not be 
separately discussed when considering the other metrics in this 
performance test.
---------------------------------------------------------------------------

    Bank Assessment Area Community Development Financing Metric--
numerator. With respect to the proposed calculation of the numerator of 
the Bank Assessment Area Community Development Financing Metric, the 
agencies received several comments expressing differing views on the 
proposal for averaging banks' on balance sheet community development 
loans and investments for purposes of the Bank Assessment Area 
Community Development Financing Test Metric numerator. A commenter 
objected to using a three-year average of community development loans 
and investments because the loan values would likely decrease over that 
time, which the commenter stated would devalue community development 
loans. The commenter urged the agencies to consider an approach where 
the Bank Assessment Area Community Development Financing Test Metric 
numerator is the sum of: (1) the annual average of community 
development loans and investments originated or purchased in a prior 
evaluation period that remain on a bank's balance sheet; and (2) the 
total of all of community development loans and investments originated 
or purchased during the current evaluation period, without annual 
averaging.\1156\ The commenter stated this approach would promote the 
provision of long-term capital since banks would still receive credit 
for remaining balances in the next evaluation period while encouraging 
community development financing generally by allowing banks to realize 
the full value of their community development loans and investments in 
the current evaluation period.
---------------------------------------------------------------------------

    \1156\ The agencies note that the commenter's suggestion is 
generally consistent with the proposal.
---------------------------------------------------------------------------

    Another commenter stated that the proposed methodology of the Bank 
Assessment Area Community Development Financing Metric would 
artificially inflate the numerator by giving consideration during the 
current review period for activities in each year. The commenter 
suggested that a better way of encouraging patient capital would be to 
consider ``past'' loans and investments to refer only to prior 
evaluation period activities. Notwithstanding these concerns, the 
commenter suggested that if the agencies proceed with finalizing the 
current proposal, the final rule should include three additional 
ratios: (1) current community development financing activity divided by 
deposits; (2) past community development financing activity divided by 
deposits; and (3) total community development financing activity 
divided by deposits. Another commenter also expressed concern that 
providing consideration for current review period activities each year 
would limit the number of new loan originations.
    Bank Assessment Area Community Development Financing Metric--
denominator. Commenters that provided feedback on the denominator for 
the Bank Assessment Area Community Development Financing Metric and 
other metrics in the Community Development Financing Test generally 
expressed a preference for using the dollar value of deposits as 
proposed. Commenters generally did not support the alternative of using 
the share of bank depositors residing in a facility-based assessment 
area as the Bank Assessment Area Community Development Financing Metric 
denominator.
    Commenters provided several reasons for their objection to the 
alternative denominator. One commenter noted that obtaining accurate 
data on the actual share of bank depositors residing

[[Page 6969]]

in an assessment area would be difficult. Another commenter stated that 
the agencies' proposed approach of using deposits as the Bank 
Assessment Area Community Development Financing Metric denominator was 
simpler and offered a more realistic chance for obtaining accurate 
data. Another commenter stated that it understood the agencies' desire 
to account for population and resource differences across assessment 
areas but that it was not clear the alternative approach would 
accomplish this goal. Lastly, a commenter noted that the spirit of the 
CRA includes how well banks are lending compared to where they are 
taking deposits.
    The agencies also sought feedback regarding whether the source of 
deposits data for the Bank Assessment Area Community Development 
Financing Metric denominator should be collected deposits data or the 
FDIC's Summary of Deposits data for banks with assets less than or 
equal to $10 billion. Some commenters supported the proposed use of 
Summary of Deposits data for the denominator for banks with assets of 
$10 billion or less. A commenter also recommended that all banks, not 
just banks with assets less than or equal to $10 billion, use Summary 
of Deposits data for the Bank Assessment Area Community Development 
Financing Metric denominator. This commenter suggested that banks may 
voluntarily collect and maintain deposits data for the sake of ensuring 
accurate metrics and weights.
    Alternatively, some commenters preferred using collected deposits 
data for the denominator. Specifically, certain commenters recommended 
that the agencies should require deposits data collection for all large 
banks for use in determining the denominator. One of these commenters 
stated that collected deposits data more accurately reflect bank 
performance under the Community Development Financing Test. Another 
commenter recommended allowing banks to rely on the FDIC's Summary of 
Deposits data to mitigate compliance burden but suggested that banks 
may opt to collect and report deposits data to offset the risk of 
inaccuracy associated with the use of Summary of Deposits data.
Final Rule
    After considering the comments, the agencies are finalizing the 
Bank Assessment Area Community Development Financing Metric as proposed 
with certain revisions, including clarifying and conforming revisions, 
to final Sec.  __.24(b)(1) and paragraph II.a of final appendix B 
(proposed as section 2 of appendix B).
    Bank Assessment Area Community Development Financing Metric--
numerator. With respect to the numerator of the Bank Assessment Area 
Community Development Financing Metric, the commenters focused on: (1) 
the types of loans and investments included in the numerator; (2) when 
banks originated, purchased, or made those loans and investments; and 
(3) whether they were averaged annually over the evaluation period. As 
discussed in the section-by-section analysis of Sec.  __.24(a), the 
agencies considered how to value community development loans and 
investments to encourage patient capital while still giving appropriate 
consideration for new community development loans and investments and 
believe that the final rule strikes the right balance.
    The agencies considered the alternatives suggested by commenters, 
including averaging only the annual value of prior period community 
development loans and investments and adding additional metrics if the 
rule is finalized as proposed. The agencies determined not to adopt 
these or other alternatives. Because the same metrics and benchmarks 
apply to all banks evaluated under the Community Development Financing 
Test, banks that want to differentiate themselves will need to increase 
their community development lending and investments in comparison to 
their peers. Banks that substantially reduce the amount of new 
community development lending and investments will likely perform 
poorly in comparison to peers that maintain or increase their level of 
community development lending and investment. For this reason, the 
introduction of standard metrics and benchmarks will encourage banks to 
increase their community development lending and investment.
    The agencies also note that the Community Development Financing 
Test includes consideration of the performance context information 
provided in Sec.  __.21(d), as further discussed in that section-by-
section analysis. Performance context that the agencies may consider 
under the final rule includes: (1) information regarding a bank's past 
performance; (2) any information about community development needs and 
opportunities; and (3) any other information the appropriate Federal 
financial supervisory agency deems relevant. Given that the agencies 
will use the metrics and benchmarks to inform a qualitative assessment 
of a bank's community development financing performance, an examiner 
could consider these performance context factors in concluding on a 
bank's performance in circumstances where the bank has substantially 
reduced the amount of new community development loans and investments 
during an evaluation period.
    Bank Assessment Area Community Development Financing Metric--
denominator. The agencies considered commenter feedback on the Bank 
Assessment Area Community Development Financing Metric denominator and 
for this purpose, deposits are an indicator of a bank's financial 
capacity to conduct community development loans and investments because 
deposits are a major source of bank funding for loans and investments. 
Although the alternative described in the proposal of using the share 
of a bank's depositors residing in an facility-based assessment area 
for the denominator may have allowed the agencies to more evenly 
allocate a bank's CRA obligations across markets--including less 
affluent markets in which the bank's depositors hold relatively small 
amounts of deposits--the burden associated with this option outweighs 
the benefit of using depositors as the denominator because it would 
require data collection for all banks evaluated under the Community 
Development Financing Test. Using deposits as the denominator is 
consistent with the spirit of the CRA because it enables the agencies 
to assess the extent to which banks are reinvesting in the communities 
where they take deposits.
    The agencies also considered the comments regarding the use of 
deposits data collected pursuant to Sec.  __.42 as opposed to the 
FDIC's Summary of Deposits data in the denominator for the Bank 
Assessment Area Community Development Financing Metric. The split in 
commenters' views on this issue reflects the inherent tradeoffs 
associated with each option. While use of collected deposits data would 
make the Bank Assessment Area Community Development Financing Metric 
more accurate, collecting data on deposits would be a new data 
collection requirement that imposes burden on banks. In contrast, 
although using Summary of Deposits data in the denominator eliminates 
the burden on banks to collect data, it may not accurately reflect the 
dollar volume of deposits drawn from a particular geographic area. The 
agencies are adopting the final rule as proposed because it balances 
the tradeoff between increased burden associated with collecting, 
maintaining, and reporting

[[Page 6970]]

deposits data and the accuracy of the deposits data.
    The final rule requires banks that had assets greater than $10 
billion to collect, maintain, and report deposits data. It is important 
to tailor the requirement to collect, maintain, and report deposits 
data in order to only apply to banks with greater resources. The 
agencies determined that, due to the greater resources of banks that 
had assets greater than $10 billion, these banks have the capacity to 
collect, maintain, and report more accurate data and the benefit of 
more accurate deposits data outweighs the burden of collecting, 
maintaining, and reporting that data. See the section-by-section 
analysis of Sec.  __.42. For banks that had assets less than or equal 
to $10 billion, the final rule uses the FDIC's Summary of Deposits data 
in the denominator, thereby limiting the burden for these banks. 
Nonetheless, because certain banks that had assets of less than or 
equal to $10 billion may have dispersed deposits or the assignment of 
the banks' deposits under the Summary of Deposits data may not reflect 
the actual location of the deposits, the final rule provides these 
banks with the option to collect, maintain, and report deposits data. 
Providing this option mitigates the potential negative consequences of 
using Summary of Deposits data in the denominator because banks that 
would not perform well compared to their peers using Summary of 
Deposits data will be able to choose to collect, maintain, and report 
deposits data pursuant to final Sec.  __.42 to provide a fuller and 
more accurate picture of their community development lending and 
investment.
    Section __.24(b)--clarifying, conforming, and technical revisions 
to the facility-based assessment area evaluation. Although the agencies 
are finalizing the facility-based assessment area evaluation, including 
the Bank Assessment Area Community Development Financing Metric, 
substantively as proposed, as noted by commenters, the structure of 
proposed Sec.  __.24 and appendix B may be confusing. To address that 
concern, the agencies revised aspects of the final rule for clarity and 
consistency. With respect to the facility-based assessment area 
evaluation, the agencies included technical revisions to cross 
reference the sections of the final rule that include the metrics, 
benchmarks, and the impact and responsiveness review as well as how the 
agencies assign conclusions.\1157\ The agencies also enhanced the 
descriptions of the metrics and benchmarks in final Sec.  __.24 and 
clarified the calculations in appendix B by segmenting the descriptions 
into steps and adding sample formulas to the examples. These edits are 
intended to eliminate unintended inconsistencies and inaccuracies in 
the calculations in the final rule and improve the ability to 
understand and apply the metrics and benchmarks in the final Community 
Development Financing Test.
---------------------------------------------------------------------------

    \1157\ See, e.g., final Sec.  __.24(b).
---------------------------------------------------------------------------

    Under the final rule, Sec.  __.24(b)(1) provides that the Bank 
Assessment Area Community Development Financing Metric measures the 
dollar volume of a bank's community development loans and community 
development investments \1158\ that benefit or serve a facility-based 
assessment area compared to those deposits in the bank that are located 
in the facility-based assessment area, calculated pursuant to paragraph 
II.a of appendix B.
---------------------------------------------------------------------------

    \1158\ The agencies consider a bank's community development 
loans and investments to include those community development loans 
and investments that the bank is required or elects to have the 
agencies consider under final Sec.  __.21(b) and (c) (i.e., 
community development loans and investments conducted by operations 
subsidiaries or operating subsidiaries, as applicable, other 
affiliates, third parties, or consortiums).
---------------------------------------------------------------------------

    Paragraph I.a.1 of appendix B of the final rule provides that the 
appropriate Federal financial supervisory agency calculates an annual 
dollar volume of community development loans and community development 
investments based on the annual dollar volume of these loans and 
investments. Paragraph I.a.2.i of appendix B of the final rule provides 
that the agency also determines the annual dollar volume of deposits. 
The agencies use the annual dollar volume of community development 
loans and investments and the annual dollar volume of deposits to 
calculate the Bank Assessment Area Community Development Financing 
Metric pursuant to paragraph II.a of appendix B. Paragraph II.a of 
appendix B includes the three steps for calculating the Bank Assessment 
Area Community Development Financing Metric. Specifically, the agency 
calculates the Bank Assessment Area Community Development Financing 
Metric by: (1) summing the bank's annual dollar volume of community 
development loans and community development investments that benefit or 
serve the facility-based assessment area for each year in the 
evaluation period (sum of community development loans and investments); 
(2) summing the annual dollar volume of deposits located in the 
facility-based assessment area (sum of deposits); and (3) dividing the 
result of the sum of community development loans and investments by the 
sum of deposits.
    The agencies made a technical change to consistently use the term 
``dollar volume'' when describing community development loans and 
investments and deposits in the Bank Assessment Area Community 
Development Financing Metric. The agencies also revised the phrase used 
to describe deposits in the Bank Assessment Area Community Development 
Financing Metric. In the proposal, community development loans were 
compared to ``deposits from the bank's deposit accounts.'' The agencies 
determined that this description could be misinterpreted to mean the 
bank's own accounts (i.e., accounts containing the bank's money). To 
clarify the denominator, the final rule uses the phrase ``deposits in 
the bank.''
    The agencies made conforming revisions to the remainder of final 
Sec.  __.24 and final appendix B to reflect these clarifying, 
conforming, and technical revisions.

Section __.24(b)(2) Benchmarks

The Agencies' Proposal
    The agencies proposed establishing local \1159\ and national \1160\ 
benchmarks for each facility-based assessment area. To help develop 
facility-based assessment area conclusions, the agencies would compare 
the Bank Assessment Area Community Development Financing Metric to both 
(1) an Assessment Area Community Development Financing Benchmark (local 
benchmark) and, as applicable, (2) a Metropolitan or a Nonmetropolitan 
Nationwide Community Development Financing Benchmark (national 
benchmarks).\1161\ These benchmarks would enable the agencies to 
compare an individual bank's community development financing 
performance to other banks in a clear and consistent manner. The 
agencies based the proposed benchmarks on the aggregate amount of 
community development loans and investments and the total dollar value 
of deposits in the bank's facility-based assessment area or nationwide 
area, among all large banks.
---------------------------------------------------------------------------

    \1159\ See proposed Sec.  __.24(b)(2)(i) and proposed appendix 
B, section 3.
    \1160\ See proposed Sec.  __.24(b)(2)(ii) and proposed appendix 
B, section 4.
    \1161\ See proposed Sec.  __.24(b)(2)(i) and (ii).
---------------------------------------------------------------------------

    As proposed, the aggregate amounts of deposits for these benchmarks 
would be based on reported deposits data for banks that had assets 
greater than $10 billion and the FDIC's Summary of Deposits data for 
banks that had assets less than or equal to $10 billion, using

[[Page 6971]]

the deposits assigned to branches located in each assessment area for 
which the benchmark is calculated.\1162\ The agencies sought feedback 
on the proposed approach to using the Summary of Deposits data for 
calculating community development financing benchmarks, the tradeoffs 
of the proposed approach, and potential alternatives to the proposed 
approach.
---------------------------------------------------------------------------

    \1162\ See proposed Sec.  __.12 (defining ``deposits'') and 
proposed appendix B, sections 3 and 4.
---------------------------------------------------------------------------

    The proposed approach of using both local and national benchmarks 
would provide the agencies, banks, and the public with additional 
context about the local level of community development lending and 
investment that could help to interpret and set goals for performance. 
For example, a bank whose metric fell short of the local benchmark, in 
a facility-based assessment area where the local benchmark is much 
lower than the national benchmark, could be considered to have 
conducted a relatively low volume of loans and investments. The 
agencies also intended the national benchmarks to provide a baseline 
for evaluating the level of a particular bank's community development 
loans and investments in a facility-based assessment area with few or 
no other large banks from which to calculate a local benchmark. In the 
preamble to the proposed rule, the agencies suggested the benchmarks 
would be made publicly available, for example, in dashboards.
    Assessment Area Community Development Financing Benchmark.\1163\ 
The agencies provided in section 3 of proposed appendix B that the 
numerator for the Assessment Area Community Development Financing 
Benchmark would be the annual average dollar amount of all large banks' 
community development financing activities in the facility-based 
assessment area during the evaluation period. Under this proposed 
section, the denominator for the Assessment Area Community Development 
Financing Benchmark would be the annual average of the total dollar 
amount of all deposits held in the assessment area by large banks. The 
agencies proposed that the deposits in the facility-based assessment 
area would be the sum of: (1) the annual average of deposits in 
counties in the facility-based assessment area by all banks that had 
assets greater than $10 billion over the evaluation period, as reported 
under proposed Sec.  __.42; and (2) the annual average of deposits 
assigned to branches in the facility-based assessment area by all large 
banks that had assets less than or equal to $10 billion, according to 
the FDIC's Summary of Deposits data, over the evaluation period.\1164\
---------------------------------------------------------------------------

    \1163\ The agencies note that many of the comments on the 
Assessment Area Community Development Financing Benchmark apply 
equally to the other benchmarks in the Community Development 
Financing Test. This SUPPLEMENTARY INFORMATION does not separately 
discuss these comments when considering the other benchmarks in this 
performance test.
    \1164\ See proposed appendix B, section 2.
    [GRAPHIC] [TIFF OMITTED] TR01FE24.105
    
    The Assessment Area Community Development Financing Benchmark would 
reflect local conditions that vary across assessment areas, such as the 
level of competition from other banks and the availability of community 
development opportunities, which may contribute to differences in the 
level of community development lending and investment across 
communities and within a community across time. The agencies considered 
that using a standard local benchmark would improve the consistency of 
the current evaluation approach, which does not include consistent data 
points that reflect local levels of community development lending and 
investment.
    Metropolitan and Nonmetropolitan Nationwide Community Development 
Financing Benchmarks. In Sec.  __.24(b)(2)(ii), the agencies proposed 
to develop separate nationwide community development financing 
benchmarks for all metropolitan areas and all nonmetropolitan areas 
(the national benchmarks), respectively. The agencies would apply one 
of these national benchmarks to each facility-based assessment area, 
depending on whether the facility-based assessment area was located in 
a metropolitan area or nonmetropolitan area.\1165\ Based on the 
agencies' analysis, the ratio of banks' community development loans and 
investments to deposits is higher in metropolitan facility-based 
assessment areas than in nonmetropolitan assessment areas.\1166\ The 
agencies proposed setting the national benchmark separately for 
metropolitan and nonmetropolitan areas to help account for differences 
in the level of community development opportunities in these areas.
---------------------------------------------------------------------------

    \1165\ See proposed Sec.  __.24(b)(2)(ii) and proposed appendix 
B, section 4.
    \1166\ The analysis used a sample of 5,735 assessment areas from 
large retail bank performance evaluation records from 2005 to 2017 
in the Board's CRA Analytics Data Tables, which note the dollar 
volume of current period community development loan originations, as 
well as current period and prior period community development 
investments in each assessment area. The total dollar volume of 
community development loans and investments was divided by the 
length in years of each examination evaluation period, to produce an 
annual average for each assessment area evaluation. The FDIC's 
Summary of Deposits data was used to identify the dollar volume of 
deposits associated with the corresponding bank's branches in the 
assessment area, which is the best available approach for estimating 
the dollar volume of deposits associated with each of a bank's 
assessment areas. The aggregate ratio of annualized dollars of 
community development loans and investments to dollar volume 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 
exams 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 agencies proposed that the numerator for the national 
benchmarks would be the annual average of the total dollar amount of 
all large banks' community development loans and investments (in either 
metropolitan or nonmetropolitan areas, depending on the facility-based 
assessment area) during the evaluation period. The

[[Page 6972]]

proposed denominator was the annual average of the total dollar amount 
of deposits (again, either in metropolitan or nonmetropolitan areas) 
during the evaluation period. Under the proposal, the deposits in the 
metropolitan or nonmetropolitan areas would be the sum of: (1) the 
annual average of deposits in counties in the metropolitan or 
nonmetropolitan areas reported by all banks that had assets greater 
than $10 billion over the evaluation period (as reported under proposed 
Sec.  __.42); and (2) the annual average of deposits assigned to 
branches in the metropolitan or nonmetropolitan areas by all banks that 
had assets less than or equal to $10 billion, according to the FDIC's 
Summary of Deposits data, over the evaluation period.\1167\
---------------------------------------------------------------------------

    \1167\ See proposed Sec.  __.24(b)(2)(ii) and proposed appendix 
B, section 4.
[GRAPHIC] [TIFF OMITTED] TR01FE24.106

    Timing of benchmark data. The agencies also considered whether they 
should calculate and fix the benchmarks based on community development 
lending, community development investment, and deposits data that are 
available at least one year in advance of the end of the evaluation 
period. For example, for a three-year evaluation period ending in 
December 2024, the agencies could determine the benchmarks for that 
evaluation period using data over the three-year timeframe spanning 
from 2021 to 2023. This alternative would have provided additional 
certainty that the benchmarks that a bank would be compared to would 
not change in the final year of an evaluation period. However, the 
agencies did not propose this alternative because they believed the 
benchmarks to which a bank is compared under this alternative may not 
reflect the credit needs and opportunities in the assessment area to 
the same degree as the proposed approach, which calculated the 
benchmarks based on the years in the evaluation period, especially if 
there were significant changes in community development opportunities 
during the final year of the evaluation period.
Comments Received
    Local and national benchmarks. Commenters that addressed the 
agencies' proposal to compare the Bank Assessment Area Community 
Development Financing Metric to both local and national benchmarks 
expressed varying views regarding the use of the proposed benchmarks. 
Certain commenters supported the use of local and national benchmarks 
stating that the benchmarks would create more transparency and 
consistency across performance evaluations and more certainty as to 
whether banks will receive credit for community development loans and 
investments outside of facility-based assessment areas. For example, a 
commenter expressed the view that the local and national benchmarks 
would encourage more investments in underserved communities, as well as 
in statewide and national funds.
    A few other commenters expressed support for the inclusion of the 
local benchmarks in the Community Development Financing Test but 
opposed or expressed reservations about the national benchmarks. These 
commenters provided several reasons for objecting to the use of 
national benchmarks, including that: (1) they would compare a regional 
bank's performance against that of much larger, nationwide banks, 
thereby requiring regional banks to attempt to make up for quantitative 
deficiencies in the comparison of the bank's metric to the benchmarks 
through qualitative considerations; (2) the availability of community 
development loans and investments varies considerably from region to 
region; and (3) they fail to account for peculiarities or limitations 
in an assessment area or factors beyond a bank's control. One of these 
commenters requested that if the agencies retain the nationwide area 
benchmarks,\1168\ the final rule should allow banks the option of a 
nationwide area review. A few commenters expressed concern that a 
formulaic approach for the use of benchmarks may have unintended 
consequences due to its lack of nuance. One of these commenters stated 
that a national benchmark is not appropriate in facility-based 
assessment areas with low levels of community development lending and 
investments because opportunities in these areas tend to be limited and 
a national benchmark could be unduly demanding. The commenter noted 
that, on the other hand, use of a national benchmark in facility-based 
assessment areas with high levels of community development lending and 
investment opportunities could be unduly lenient.
---------------------------------------------------------------------------

    \1168\ The agencies understand the commenter to be referring to 
the proposed national benchmarks.
---------------------------------------------------------------------------

    The agencies also asked for feedback on the appropriate method for 
using the local and national benchmarks. Commenters generally supported 
allowing examiner judgement regarding the use of benchmarks. However, 
consistent with the comments on enhancing the rigor of the Community 
Development Financing Test, discussed above, other commenters preferred 
that the agencies standardize the use of benchmarks, with one commenter 
stating that the agencies should only use

[[Page 6973]]

examiner judgement until they collect community development lending and 
investment data and identify patterns.
    Other commenters requested that the agencies provide examiners with 
guidelines for using the local and national benchmarks. For example, a 
few commenters expressed concern that the proposal failed to provide 
enough guidelines for comparing the Bank Assessment Area Community 
Development Financing Metric to either the local or national benchmarks 
making it possible for an examiner to inflate a rating by choosing the 
lowest comparator benchmark.
    Certain comments suggested additional guidelines for the local and 
national benchmarks. A few commenters suggested the agencies establish 
the following guidelines: (1) weight the national benchmark at 60 
percent and local benchmark at 40 percent in facility-based assessment 
areas where the local benchmark is lower than the national benchmark to 
motivate banks to exceed the local benchmark; and (2) weight the local 
benchmark at 60 percent and the national benchmark at 40 percent in 
facility-based assessment areas where the local benchmark is higher 
than the national benchmark. These commenters further suggested that 
the agencies could refine these weights by determining the distribution 
of local benchmarks as measured by percentiles or other distances from 
the median or mean benchmarks. A commenter suggested that examiners 
could tailor the weighting of the local and national benchmarks to 
emphasize the stronger of the two ratios for a bank's facility-based 
assessment areas.
    Timing of benchmark data. The agencies also sought feedback on what 
other considerations they could undertake to ensure clarity and 
consistency in the benchmark calculations. Specifically, the agencies 
sought feedback on whether they should calculate the benchmarks based 
on data available prior to the end of the evaluation period or align 
calculation of the benchmarks with data available at the beginning and 
end of the evaluation period.
    In response, a few commenters supported aligning data with the 
evaluation period while others noted that the agencies should set 
benchmarks based on data that are available prior to a bank's 
evaluation period. One of the commenters that supported aligning the 
benchmark calculations with the beginning and end of the evaluation 
period specified that the agencies should do so in the initial year 
implementing the new CRA regulations to determine changes in 
performance levels. The commenter suggested, however, that the agencies 
may not need this process in subsequent periods.
    In contrast to the commenters that supported using data from the 
evaluation period to establish the benchmarks, other commenters 
requested that the agencies make the benchmarks known to banks in 
advance of evaluation periods. One of these commenters stated that this 
approach would ensure that banks know the target to which they are 
being held, and the community would have a clear standard to which they 
can hold banks accountable. Another commenter stated that it is a 
fundamental matter of fairness and due process that banks know the 
benchmarks the agencies will use to evaluate banks' performance prior 
to the evaluation period.
    Certain commenters offered alternatives to using data as of the end 
of the evaluation period. A few of these commenters recommended that 
the benchmarks be set annually, based on the most recent year that data 
are available, which would align with the proposed annual assessment. 
For example, data from year one would be available in year two, and the 
agencies could use that data to set the benchmarks for year three. 
These commenters stated that this approach would provide banks more 
transparency and predictability and avoid applying different benchmarks 
to comparable banks depending on the timing of their evaluation 
periods. To offer greater clarity, another commenter suggested the 
agencies use data available by the start of every year, even if it 
means the agencies use lagging data. To calculate the benchmarks, a 
commenter recommended that the agencies average data for the 
examination period to best reflect any market shifts or changing 
circumstances. The commenter also recommended that the agencies should 
use the maximum amount of data available for the CRA examination even 
if the available market data do not match up perfectly in terms of 
availability at the time of the examination.
Final Rule
    After considering the comments on the local and national 
benchmarks, the agencies are finalizing the benchmarks as proposed with 
certain clarifying revisions. The final rule provides in Sec.  
__.24(b)(2) that the appropriate Federal financial supervisory agency 
compares the Bank Assessment Area Community Development Financing 
Metric \1169\ to (1) the Assessment Area Community Development 
Financing Benchmark \1170\ and (2) either the MSA or Nonmetropolitan 
Nationwide Community Development Financing Benchmark, depending on 
whether the facility-based assessment area is within an MSA or a 
nonmetropolitan area.\1171\
---------------------------------------------------------------------------

    \1169\ See final Sec.  __.24(b)(1).
    \1170\ See final Sec.  __.24(b)(2)(i).
    \1171\ See final Sec.  __.24(b)(2)(ii).
---------------------------------------------------------------------------

    The agencies considered commenters' concerns with applying the 
national benchmark to evaluate community development lending and 
investments in facility-based assessment areas. However, the local and 
national benchmarks are both useful tools for examiners and will help 
to improve consistency in CRA performance evaluations. As explained in 
the proposal, the local and national benchmarks provide useful 
information for understanding how a bank's community development 
lending and investment compares to other banks in their local markets 
and nationwide. In particular, the local benchmark is based on 
community development lending and investment in a facility-based 
assessment area for large banks, and, therefore, provides insight into 
the performance of other banks operating in the same community, while 
the national benchmark provides a baseline comparator for the 
nationwide performance of all large banks in MSAs or nonmetropolitan 
areas, as applicable.
    The agencies are sensitive to the concerns raised by commenters 
about variations in lending and investment between regions, economic 
cycles, and types of banks. For this reason, the agencies emphasize 
that the benchmarks provide standardized data points that the agencies 
will consider in evaluating banks' community development lending and 
investment, but performance context remains an important part of CRA 
performance evaluations. Through performance context, examiners can 
consider any variations in lending and investment among banks and the 
reasons for those variations, such as those noted by commenters, and 
account for a bank's particular circumstances in concluding on 
performance in a facility-based assessment area. In those circumstances 
where the local benchmarks may lack robust data due to limited market 
participants, the agencies may rely more heavily on the national 
benchmark because the local benchmark may provide less meaningful 
information against which to compare a bank's performance. The agencies 
may also rely more heavily on supervisory experience

[[Page 6974]]

and performance context, particularly market opportunities and bank 
capacity and constraints, in considering a bank's performance under the 
Community Development Financing Test in these circumstances.
    The agencies also determined that, under the final rule, they will 
calculate the local and national benchmarks using data from the 
evaluation period, as proposed with clarifying revisions. The agencies 
understand commenters' concerns that using community development 
lending and investment and deposits data that correspond to the years 
in the evaluation period would mean that banks would not know the 
benchmarks in advance of conducting the community development lending 
and investments that the agencies will compare to those benchmarks. 
However, lagging benchmarks (i.e., benchmarks based on data from before 
the evaluation period) would be an inappropriate measure given that 
they would not reflect lending and investment conducted contemporaneous 
to the community development loans and investments considered in a 
bank's CRA performance evaluation. Based on our supervisory experience, 
the agencies have observed that changes in economic cycles and other 
external factors influence the level of community development lending 
and investment that banks engage in during a given year. For that 
reason, using more timely data for comparison, coupled with 
consideration of performance context, will result in the most useful 
information for evaluating bank performance under the Community 
Development Financing Test.
    Consistent with the revisions to the Bank Assessment Area Community 
Development Financing Metric, the agencies made conforming revisions to 
streamline the discussion of the benchmarks in final Sec.  __.24(b)(2) 
and clarify the calculation of the benchmarks in paragraphs II.b and 
II.c of final appendix B. The agencies intend for these revisions to 
clarify the final rule and eliminate inconsistencies that were present 
in the proposal.
    The local benchmark is provided in final Sec.  __.24(b)(2)(i), 
which applies in each facility-based assessment area. Under the final 
rule, the Assessment Area Community Development Financing Benchmark 
measures the dollar volume of community development loans and 
investments that benefit or serve the facility-based assessment area 
for all large banks compared to deposits located in the facility-based 
assessment area for all large banks. The appropriate Federal financial 
supervisory agency calculates the local benchmark pursuant to paragraph 
II.b of final appendix B, which provides that the agency calculates the 
Assessment Area Community Development Financing Benchmark for each 
facility-based assessment area by: (1) summing all large banks' annual 
dollar volume of community development loans and investments that 
benefit or serve the facility-based assessment area for each year in 
the evaluation period (sum of community development loans and 
investments); (2) summing all large banks' annual dollar volume of 
deposits located in the facility-based assessment area for each year in 
the evaluation period (sum of deposits); and (3) dividing the result of 
the sum of community development loans and investments by the result of 
the sum of deposits.
    The final rule includes the national benchmarks in final Sec.  
__.24(b)(2)(ii). The MSA Nationwide Community Development Financing 
Benchmark \1172\ applies to a bank's facility-based assessment areas 
within an MSA. The MSA Nationwide Community Development Financing 
Benchmark measures the dollar volume of community development loans and 
investments that benefit or serve MSAs in the nationwide area for large 
banks compared to deposits located in the MSAs in the nationwide area 
for all large banks. The Nonmetropolitan Nationwide Community 
Development Financing Benchmark \1173\ applies to a bank's facility-
based assessment areas within a nonmetropolitan area. The 
Nonmetropolitan Nationwide Community Development Financing Benchmark 
measures the dollar volume of community development loans and 
investments that benefit or serve nonmetropolitan areas in the 
nationwide area for large banks compared to deposits located in 
nonmetropolitan areas in the nationwide area for all large banks. The 
appropriate Federal financial supervisory agency calculates the MSA and 
Nonmetropolitan Nationwide Community Development Financing Benchmarks 
pursuant to paragraph II.c of final appendix B.\1174\
---------------------------------------------------------------------------

    \1172\ See final Sec.  __.24(b)(2)(ii)(A). In the proposal, this 
benchmark was described as the Metropolitan Nationwide Community 
Development Financing Benchmark. In the final rule, the agencies 
retitled this benchmark the MSA Nationwide Community Development 
Financing Benchmark to more accurately reflect the geographic areas 
included in the calculation.
    \1173\ See final Sec.  __.24(b)(2)(ii)(B).
    \1174\ See final Sec.  __.24(b)(2)(ii)(C).
---------------------------------------------------------------------------

    The agency calculates the MSA and Nonmetropolitan Nationwide 
Community Development Financing Benchmarks by: (1) summing all large 
banks' annual dollar volume of community development loans and 
investments that benefit or serve MSAs or nonmetropolitan areas in the 
nationwide area for each year in the evaluation period (sum of 
community development loans and investments); (2) summing all large 
banks' annual dollar volume of deposits located in MSAs or 
nonmetropolitan areas in the nationwide area for each year in the 
evaluation period (sum of deposits); and (3) dividing the result of the 
sum of community development loans and investments by the result of the 
sum of deposits.\1175\
---------------------------------------------------------------------------

    \1175\ See final appendix B, paragraph II.c.
---------------------------------------------------------------------------

Section __.24(b)(3), (c)(2)(iii), (d)(2)(iii), and (e)(2)(v) Impact and 
Responsiveness Review

Current Approach
    Under the current rule, the performance criteria in the large bank 
lending test and investment test and the community development test 
applicable to intermediate small banks include several qualitative 
components. The lending test includes consideration of a bank's use of 
innovative or flexible lending practices in a safe and sound manner to 
address the credit needs of low- or moderate-income individuals or 
census tracts.\1176\ The agencies consider, under the investment test: 
(1) the innovativeness or complexity of community development 
investments; and (2) the responsiveness of community development 
investments to credit and community development needs.\1177\ For 
intermediate small banks, the community development test includes 
consideration of a bank's responsiveness to community development 
lending, investment, and service needs through community development 
loans, investments, and services.\1178\ These qualitative performance 
criteria are components of the current performance tests and standards 
and the agencies consider these components in conjunction with the 
bank's performance context in evaluating a bank's community development 
lending and investment.
---------------------------------------------------------------------------

    \1176\ See current 12 CFR __.22(b)(5). The current rule uses the 
defined term ``geographies,'' which means census tracts.
    \1177\ See current 12 CFR __.23(e)(2) and (3).
    \1178\ See current 12 CFR __.26(c)(4).
---------------------------------------------------------------------------

    The interagency examination procedures reference these performance 
criteria without elaborating on how to identify whether certain 
community development loans or investments are particularly innovative, 
flexible,

[[Page 6975]]

complex, or responsive, as applicable. Over time, stakeholders 
indicated that these concepts were not well understood, and the 
agencies endeavored to provide additional clarity through the 
Interagency Questions and Answers.\1179\ Although these Interagency 
Questions and Answers provided some additional guidance, questions 
remained as to what types of community development loans, investments, 
or services were considered most responsive or impactful to a community 
because of the extent or manner in which they helped to meet community 
needs.
---------------------------------------------------------------------------

    \1179\ See Q&A Sec.  __.21(a)--3 and Q&A Sec.  __.21(a)-4.
---------------------------------------------------------------------------

The Agencies' Proposal
    To complement the community development financing metrics and 
benchmarks, the agencies proposed evaluating the impact and 
responsiveness of a bank's community development loans and investments 
in facility-based assessment areas, States and multistate MSAs, as 
applicable, and the nationwide area.\1180\ The qualitative evaluation 
in proposed Sec.  __.24 would draw on the impact factors defined in 
proposed Sec.  __.15, and on any other performance context information, 
as provided in proposed Sec.  __.21(e), considered by the agencies to 
determine how the bank's community development loans and investments 
were responsive to the geographic area's community development needs 
and opportunities. This approach would advance the CRA's purpose by 
ensuring a strong emphasis on the impact and responsiveness of 
community development loans and investments in meeting community credit 
needs; increase consistency in the evaluation of qualitative factors 
relative to the current approach by creating clear factors to consider; 
and foster transparency for banks and the public by providing 
information about the type and purpose of community development loans 
and investments considered to be particularly impactful or responsive.
---------------------------------------------------------------------------

    \1180\ See proposed Sec.  __.24(b) and (c).
---------------------------------------------------------------------------

    Consideration of qualitative factors as a supplement to the dollar-
based metrics and benchmarks was aligned with the CRA's purpose of 
strengthening low- and moderate-income communities by more fully 
accounting for factors that may reflect the overall impact or 
responsiveness of a community development loan or investment. First, a 
qualitative review could consider the responsiveness of community 
development loans and investments to local context, including community 
development needs and opportunities that vary from one community to 
another. Banks and their community partners may make great effort to 
design a community development loan or investment to reflect this 
context and address specific credit needs of the community, which can 
further the loan's or investment's impact or responsiveness.
    Second, a qualitative evaluation was important for emphasizing 
relatively small loans or investments that nonetheless have a 
significant positive impact on the communities served. For example, 
grants and other monetary or in-kind donations that support 
organizations providing assistance to small businesses tend to have 
small dollar balances relative to loans to larger businesses, but they 
are critically important for addressing small business credit needs. 
Third, the qualitative evaluation could emphasize community development 
loans and investments that serve low- and moderate-income populations 
and census tracts that have especially high community development 
needs, which often entail greater complexity and effort on the part of 
the bank. This emphasis helps to encourage community development loans 
and investments that reach a broad range of low- and moderate-income 
communities, including those that are more challenging to serve. 
Finally, the qualitative review could emphasize specific categories of 
community development loans and investments aligned with the CRA's 
purpose of strengthening credit access for a bank's communities, 
including low- and moderate-income communities, such as loans and 
investments that support specified mission-driven financial 
institutions.
    To promote greater consistency and transparency in the evaluation 
approach, the agencies noted in the NPR that they would consider 
whether a bank's community development loans and investments met the 
impact factors defined in proposed Sec.  __.15,\1181\ based on 
information provided by the bank, local community data, community 
feedback, and other performance context information.
---------------------------------------------------------------------------

    \1181\ Id.
---------------------------------------------------------------------------

    Given the current lack of data to set thresholds, the agencies 
proposed that this process initially would be qualitative in nature. 
Specifically, the agencies explained in the proposed rule that they 
would consider a bank's community development loans and investments 
that meet each impact factor but would not use multipliers or specific 
thresholds to directly tie the impact review factors to specific 
conclusions. Under the proposed rule, a more significant volume of 
community development loans and investments that align with the impact 
review factors would positively affect conclusions. In the proposed 
rule, the agencies indicated that after banks report and the agencies 
analyze additional community development lending and investment data, 
the agencies could consider whether the agencies should implement 
additional approaches, such as quantitative measures, to evaluate 
impact and responsiveness.
Comments Received
    Impact and responsiveness review, in general. The agencies received 
several comments on the inclusion of an impact review in the Community 
Development Financing Test. Certain commenters supported this aspect of 
the proposed rule; however, other commenters expressed concerns, in 
particular with the lack of clarity regarding its application as 
discussed further in the section-by-section analysis of Sec.  __.15.
    Specifically, a few commenters stated that the proposal's 
incorporation of an impact and responsiveness review in the Community 
Development Financing Test would encourage high-quality community 
development loans and investments. A commenter stated that the impact 
review should expressly incorporate the actual quality of a community 
development loan or investment, rather than a simple categorical 
assessment. This commenter, as well as another, stated that the 
agencies should use the impact review to uplift impactful or innovative 
small-dollar activities that banks might otherwise perceive as too 
risky, complex, or small to pursue.
    Other commenters expressed concerns with the lack of clarity on how 
the impact review would affect conclusions. For example, certain 
commenters stated that it was unclear how the agencies would apply the 
impact review and whether the impact and responsiveness factors would 
have enough of an effect on banks' actions to mitigate disincentives 
created by the proposed Community Development Financing Test. Another 
commenter supported greater transparency in the impact review and 
generally more transparency in the methodologies and considerations 
used by examiners in forming performance context, as well as some of 
the justifications banks provide to support the inclusion of community 
development loans and investments in their Community Development 
Financing Test evaluation.

[[Page 6976]]

    Weighting of the Metrics and Benchmarks and the Impact and 
Responsiveness Review Components. The proposal asked what approaches 
would enhance the clarity and consistency for assigning conclusions 
under the Community Development Financing Test, such as assigning 
separate conclusions for the metric and benchmarks component and the 
impact review component. The agencies also sought feedback from 
commenters regarding the appropriate weighting for each of these 
components. The agencies asked, for example, if they should weight both 
components equally or weight the metric and benchmarks component more 
than the impact review component.
    In response to these questions, commenters provided varying views 
on the appropriate weighting of the metrics and benchmarks and the 
impact review components of the Community Development Financing Test. A 
few commenters advocated for weighting one component more than the 
other. Certain commenters stated that the agencies should give 
significant weight to the impact review component. One of these 
commenters stated that, in general, the impact review component should 
carry the most weight because smaller investments have an outsized 
impact and should carry more weight than higher dollar investments that 
have materially less impact. In contrast, certain commenters favored 
weighting the metrics and benchmarks component more, with a commenter 
stating that a higher weight for the metrics and benchmarks component 
would ensure banks conduct reasonable amounts of community development 
lending and investments while still providing qualitative 
consideration.
    Some commenters suggested specific weighting for the metrics and 
benchmarks and the impact review components of the Community 
Development Financing Test. A few commenters supported a weight of 60 
percent for the metrics and benchmarks component and 40 percent for the 
impact review component, explaining that assigning more weight to the 
metrics and benchmarks ensures a minimal level of community development 
financing activity in each assessment area. At least one of these 
commenters, however, stated that the agencies should also consider the 
provision of small dollar, high impact financing that can be more 
responsive to community needs. Another commenter stated that it would 
support a slightly heavier weight for the metrics and benchmarks 
component, of between 55 to 75 percent, and a lower weight for the 
impact review component, of between 25 to 45 percent.
    Alternatively, certain commenters supported a more flexible 
approach, with one commenter recommending that the agencies, rather 
than assigning separate conclusions for the metric and benchmarks and 
the impact review components, consider using them to assess performance 
trends or patterns across banks. Nonetheless, the commenter stated 
that, if the agencies derive separate conclusions for these components, 
they could weight each component and then reduce or increase the 
overall bank performance score based on the outcome.
    Impact review metrics. The agencies also sought feedback on whether 
they should consider publishing standard metrics in performance 
evaluations, such as the percentage of a bank's activities that meet 
one or more impact criteria. Commenters expressed different views on 
incorporating performance standards into the impact review.
    Certain commenters supported developing standards or metrics for 
the impact review. For example, a commenter suggested that developing 
metrics for the impact review would provide greater consistency and 
transparency. Another commenter stated that the agencies should 
consider both the dollar volume and number of activities in an impact 
review metric to give credit to small-scale loans and investments. 
Other commenters agreed with adding metrics to the impact review, 
noting that, as currently constructed, the impact review could lead to 
the inconsistent or careless application of examiner discretion. At 
least one of the commenters that supported the inclusion of impact 
metrics expressed concern about how these metrics would be 
designed.\1182\ The commenter believes that without additional data, it 
is infeasible to develop an effective model to measure the 
responsiveness of impactful activities or to incorporate the impact 
factors into the quantitative Community Development Financing Test. 
Once additional data are collected, the commenter supports ultimately 
publishing standard metrics outlining the percentage of a bank's 
activity that meet an impact factor, as well as additional relevant 
qualitative data.
---------------------------------------------------------------------------

    \1182\ Another commenter strongly encouraged the agencies to 
commit to additional public engagement around the impact and 
responsiveness factors as community development lending and 
investment data are collected over the coming years.
---------------------------------------------------------------------------

    A few commenters provided suggestions for an impact review metric. 
Specifically, commenters suggested that the agencies could improve the 
impact review by: (1) including a metric based on the percentage of a 
bank's community development loans and investments that meet one or 
more of the specific impact factors; \1183\ (2) adding a score, rating, 
and weight to the review as part of the Community Development Financing 
Test; or (3) adding a quantitative measure of community development 
financing in persistent poverty counties and counties with low levels 
of finance and including the percentage of activities that involved 
collaboration and partnerships with public agencies and community-based 
organizations.
---------------------------------------------------------------------------

    \1183\ The commenter also stated that a system for weighting 
specific impact and responsiveness review factors and assigning 
points could be developed over time as more data become available to 
add more rigor and clarity to the impact and responsiveness review 
component.
---------------------------------------------------------------------------

    A few commenters shared views on how the agencies should count 
activities with MDIs, WDIs, LICUs, and CDFIs as part of a bank's CRA 
evaluation. For example, although not phrased as a metric for the 
impact review, a few commenters recommended that a ``multiplier'' be 
applied to activities with CDFIs and MDIs, with an additional commenter 
recommending that additional multiplier consideration be considered for 
MDIs that are CDFIs.\1184\ Certain commenters also recommended that the 
final rule tie activities with CDFIs, MDIs, WDIs, LICUs, and variations 
of these entities to banks receiving an ``Outstanding'' rating.
---------------------------------------------------------------------------

    \1184\ Certain commenters also recommended that the final rule 
tie activities with CDFIs, MDIs, WDIs, LICUs, or variations of these 
entities to banks receiving an ``Outstanding'' rating. The agencies 
note that community development activities with these entities are 
included as impact and responsiveness review factors under final 
Sec.  __.15. See the section-by-section analysis of Sec.  __.15 for 
additional information.
---------------------------------------------------------------------------

    On the other hand, certain commenters expressed reservations with 
adding metrics to the impact review. A commenter suggested that metrics 
alone do not tell the complete story of a bank's CRA efforts and 
recommended that the agencies retain performance context in some 
capacity in evaluating a bank's performance. Another commenter noted 
that the need for greater clarity and consistency should be balanced 
with examiner discretion and formal metrics could lead to unintentional 
credit allocation. The commenter noted that the risk of government 
credit allocation was a central concern of the CRA authors and plays a 
prominent role in the legislative history of the statute.
    Other commenters offered additional suggestions for how to 
encourage greater consistency and clarity in the impact

[[Page 6977]]

review. A commenter suggested that the agencies consider how the CDFI 
Fund and CDFIs conduct impact reviews and determine if they should 
replicate these reviews for CRA examinations. The commenter also 
recommended that the agencies conduct a review of examiners to 
determine how equitable and consistent they are at reviewing for 
community development impact.
Final Rule
    The agencies considered the comments on the proposed impact review 
as it applies to the Community Development Financing Test and are 
finalizing the test to include this component as proposed with 
technical revisions, including renaming the component ``the impact and 
responsiveness review'' as discussed in the section-by-section analysis 
of Sec.  __.15. As such, under the final rule, the impact and 
responsiveness review component will be a qualitative assessment 
applied by examiners and considered in conjunction with the metric and 
benchmarks component. Further, as discussed in the section-by-section 
analysis of Sec.  __.15, the agencies determined it was not appropriate 
to add a score, or to establish metrics or a weighting framework for 
this component of the Community Development Financing Test at this 
time. However, as noted in the NPR, a more significant volume of 
community development loans and investments that align with the impact 
and responsiveness review factors will positively affect conclusions.
    Under the final rule, the appropriate Federal financial supervisory 
agency will review the impact and responsiveness of the bank's 
community development loans and community development investments that 
benefit or serve a facility-based assessment area, as provided in final 
Sec.  __.15. The final rule includes the impact and responsiveness 
component as a separate paragraph to make clear that this component is 
distinct from the metrics and benchmarks component. Further, the 
agencies consider the impact and responsiveness review to be one 
component of a comprehensive evaluation, with metrics, benchmarks, and 
impact and responsiveness reviews considered holistically in developing 
a performance conclusion.
    As discussed above, one of the agencies' objectives in issuing the 
NPR was to provide greater clarity and consistency in the application 
of the regulations. The agencies believe that providing a list of 
impact and responsiveness factors in final Sec.  __.15 is a strong 
first step in that direction. As discussed in the section-by-section 
analysis of Sec.  __.15, the approach of identifying specific factors 
in Sec.  __.15(b) will result in a more standardized qualitative 
evaluation relative to current practice. In addition, this approach is 
intended to foster transparency by providing the categories the 
agencies will consistently review in considering the impact and 
responsiveness of a bank's community development activities. The final 
rule's impact and responsiveness review draws on decades of supervisory 
experience in applying the qualitative performance criteria in the 
current rule. Based on that experience, the agencies identified the 
factors that, in general, indicate that a particular loan or investment 
not only has a community development purpose as required under final 
Sec.  __.13, but is likely to be especially effective in helping to 
meet community needs associated with that community development 
purpose.
    Although the agencies considered commenters' concerns about, and 
recommendations for, clarifying the application of the impact and 
responsiveness review, the current data limitations preclude 
introducing a score, additional standards, metrics, or weights into the 
rule at this time. In the absence of data, the agencies cannot assess 
the overall extent to which banks are engaging in impactful or 
responsive community development loans and investments. Further, given 
the lack of available data, the agencies do not have insight into: 
whether it is reasonable for banks to engage in limited impactful or 
responsive community development loans or investments; whether it is 
the dollar volume or number of impactful or responsive loans and 
investments that is most relevant; or whether there are other criteria 
that the agencies should consider in evaluating the impact and 
responsiveness of a bank's community development loans and investments, 
as an assessment of the level of impact or responsiveness of a 
community development loan or investment. Under final Sec.  __.42, 
large banks will be required to collect, maintain, and report 
information related to the impact and responsiveness factors, which 
will provide the agencies with useful data going forward.\1185\
---------------------------------------------------------------------------

    \1185\ See final Sec.  __.42(a)(5)(ii)(C) and (b)(2).
---------------------------------------------------------------------------

    Nonetheless, the agencies believe that some of the suggestions 
provided by commenters would be useful to examiners in their 
consideration of the impact and responsiveness of a bank's community 
development loans and investments. To that end, the agencies will 
consider issuing guidance for examiners to help improve clarity 
regarding the application of the impact and responsiveness review 
component in the near term. The agencies anticipate that guidance might 
include examples of criteria that examiners could consider in 
evaluating the impact and responsiveness of a bank's community 
development loans and investments, including: (1) the percentage of a 
bank's community development loans and investments that meet one or 
more impact and responsiveness factors; (2) the dollar volume and 
number of community development loans that meet one or more impact and 
responsiveness factors; and (3) reasons for providing more or less 
weight to the impact and responsiveness component of the Community 
Development Financing Test. Further, the agencies note that adding 
metrics, weighting for the metrics and benchmarks and impact and 
responsiveness components, points for conclusions, or other mechanisms 
to improve clarity could be considered in a future rulemaking once data 
are collected and analyzed, which would provide an opportunity for 
additional public engagement on this topic.

Section __.24(b) and (f) Facility-Based Assessment Area Conclusions

    Under the current rule, and as discussed in greater detail in the 
section-by-section analysis of Sec.  __.28, the agencies conclude on 
banks' performance for each performance test or standard in each MSA 
and nonmetropolitan portion of each State with an assessment 
area.\1186\
---------------------------------------------------------------------------

    \1186\ See e.g., Interagency Large Institution CRA Examination 
Procedures (April 2014).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to assign a Community Development Financing 
Test conclusion in a facility-based assessment area by considering the 
Bank Assessment Area Community Development Financing Metric relative to 
the local and national benchmarks, in conjunction with the impact 
review of the bank's activities.\1187\ Based on an assessment of these 
factors, the bank would receive a conclusion of ``Outstanding,'' ``High 
Satisfactory,'' ``Low Satisfactory,'' ``Needs to Improve,'' or 
``Substantial Noncompliance'' in each facility-based assessment area.
---------------------------------------------------------------------------

    \1187\ See proposed Sec. Sec.  __.24(d) and __.28 and proposed 
appendix C, paragraph d.
---------------------------------------------------------------------------

    The agencies also considered approaches that would automatically 
combine the metric, benchmarks, and impact review to assign conclusions 
in a standardized way. However, as

[[Page 6978]]

discussed above in the section-by-section analysis of Sec.  __.24(a), 
the community development financing data that are currently available 
are not sufficient to determine an approach that includes specific 
thresholds and weights for different components. Instead, the agencies 
explained in the proposed rule that the approach for combining these 
standardized factors would initially rely on examiners' judgment. The 
agencies further explained that analysis of community development data 
collected under a new rule eventually may allow for developing 
additional quantitative procedures for developing conclusions.
Comments Received
    As explained above, the agencies received numerous comments 
suggesting that they include additional standards, thresholds, or other 
mechanisms in the Community Development Financing Test that would allow 
for greater standardization in concluding on performance under the 
Community Development Financing Test. Several commenters also provided 
feedback on the agencies' proposal to include quantitative and 
qualitative components in the proposed Community Development Financing 
Test. Certain commenters supported inclusion of both quantitative and 
qualitative components. Further, a commenter stated that it hopes that 
a metrics-based approach will not overshadow qualitative aspects of 
bank community development lending and investments.\1188\
---------------------------------------------------------------------------

    \1188\ Other comments related to the assignment of conclusions 
under the applicable performance tests are addressed in the section-
by-section analysis of Sec.  __.28.
---------------------------------------------------------------------------

Final Rule
    The agencies are finalizing the conclusion provision for facility-
based assessment area performance under the Community Development 
Financing Test as proposed with technical and clarifying revisions. The 
agencies addressed the comments related to the rigor of the Community 
Development Financing Test, including the extent to which it should be 
quantitative or qualitative in design above in the section-by-section 
analysis of Sec.  __.24(a). Further, as discussed above, the agencies 
determined that the Community Development Financing Test should remain 
a qualitative evaluation informed by standardized metrics and 
benchmarks, as well as an impact and responsiveness review with 
standardized factors, to improve consistency across banks and the 
agencies.
    Final Sec.  __.24(f)(1), therefore, provides that, pursuant to 
Sec.  __.28 and appendix C, the appropriate Federal financial 
supervisory agency assigns conclusions for a bank's Community 
Development Financing Test performance in each facility-based 
assessment area. Consistent with the other performance tests in the 
final rule, final Sec.  __.24(f) clarifies that in assigning 
conclusions under the Community Development Financing Test, the agency 
may consider performance context information as provided in Sec.  
__.21(d) to make clear that performance context remains an important 
part of examiners' evaluation of community development financing 
performance.

Section __.24(c) State Community Development Financing Evaluation

Current Approach
    As discussed above, the current rule considers community 
development loans and investments that serve a bank's assessment areas 
or the broader statewide or regional areas that include a bank's 
assessment areas. The agencies base statewide community development 
performance, in part, on consideration of community development loans 
and investments in: (1) the bank's assessment areas in the State; and 
(2) a broader statewide or regional area that includes the bank's 
assessment areas in the State and that support organizations or 
activities with a purpose, mandate, or function that includes serving 
individuals or geographies in the bank's assessment areas. For banks 
that have been responsive to the needs of their assessment areas, the 
agencies will also consider any community development loans and 
community development investments in the broader statewide or regional 
area that includes the institution's assessment areas in the State but 
that do not: (1) directly benefit an assessment area in the state; or 
(2) support organizations or activities with a purpose, mandate, or 
function that includes serving geographies or individuals located 
within the bank's assessment area.\1189\
---------------------------------------------------------------------------

    \1189\ See Q&A Sec.  __.12(h)-6.
---------------------------------------------------------------------------

The Agencies' Proposal
    To evaluate a bank's State community development financing 
performance, the agencies proposed in Sec.  __.24(c)(2) and section 15 
of appendix B to consider a weighted average of the bank's performance 
in facility-based assessment areas within a State, as well as the 
bank's performance on a statewide basis, via a statewide score. The 
statewide score would account for the totality of the bank's community 
development loans and investments in the State--combining community 
development loans and investments that are inside and outside of 
facility-based assessment areas--relative to the bank's total deposits 
across the State. The agencies believed the combination of these two 
components would emphasize facility-based assessment area performance, 
while still allowing banks the option to conduct and receive 
consideration for community development loans and investments outside 
of facility-based assessment areas in the State.
    Weighted average of facility-based assessment area performance. The 
agencies proposed averaging a bank's Community Development Financing 
Test conclusions across its facility-based assessment areas in each 
State, as one component of the bank's Community Development Financing 
Test conclusion at the State level.\1190\ The conclusion assigned to 
each facility-based assessment area would be mapped to a point value, 
consistent with the approach explained for assigning Retail Lending 
Test conclusions: ``Outstanding'' (10 points); ``High Satisfactory'' (7 
points); ``Low Satisfactory'' (6 points); ``Needs to Improve'' (3 
points); ``Substantial Noncompliance'' (0 points).\1191\ The proposed 
resulting score for each facility-based assessment area would be 
assigned a weight, calculated as the average of the percentage of 
retail loans, and the percentage of deposits associated with the 
facility-based assessment area (both measured in dollars), out of all 
of the bank's retail loans, as defined in the proposal, and deposits in 
facility-based assessment areas in the State.\1192\ Similar to the 
proposed weighting approach for assigning Retail Lending Test 
conclusions, the agencies would base deposits on collected and 
maintained deposits data for banks that collect this data, and on the 
FDIC's Summary of Deposits data for banks that do not collect deposits 
data pursuant to this rule.\1193\ Using these weights and scores, the 
agencies would calculate the weighted average of the facility-based 
assessment area scores as one

[[Page 6979]]

component to determine the State conclusion.\1194\
---------------------------------------------------------------------------

    \1190\ See proposed Sec.  __.24(c)(2)(i) and proposed appendix 
B, sections 15 and 16.
    \1191\ See the section-by-section analysis of Sec.  __.22(h) for 
discussion of the point scale.
    \1192\ See proposed appendix B, section 7.
    \1193\ See proposed appendix B, section 5.
    \1194\ See proposed Sec.  __.24(c)(2)(i) and proposed appendix 
B, sections 15 and 16.
---------------------------------------------------------------------------

    The agencies believed the proposed approach would ensure that they 
incorporated performance in all facility-based assessment areas into 
the State conclusion, proportionate to the bank's amount of business 
activity in each facility-based assessment area. The agencies further 
believed that incorporating conclusions for all facility-based 
assessment areas into the State conclusion would create a clear 
emphasis on facility-based assessment area performance, including 
smaller markets.
    The agencies proposed that examiners would also assign a statewide 
score for each State in which a bank delineates a facility-based 
assessment area that the agencies did not consider as part of a 
multistate MSA score.\1195\ Under the proposal, the statewide score 
would be assigned after considering the bank's Bank State Community 
Development Financing Metric, the State Community Development Financing 
Benchmark, and a statewide impact review.
---------------------------------------------------------------------------

    \1195\ See proposed Sec.  __.24(c)(2)(ii) and proposed appendix 
B, section 15.
---------------------------------------------------------------------------

    Bank State Community Development Financing Metric. The agencies 
proposed in Sec.  __.24(c)(2)(ii)(A) and section 5 of appendix B that 
they would calculate the Bank State Community Development Financing 
Metric using the same formula as the Bank Assessment Area Community 
Development Financing Metric and would include all of a bank's 
community development loans and investments and deposits in the State 
without distinguishing between those inside or outside of the bank's 
facility-based assessment areas.
    For example, the agencies proposed that if a bank conducted an 
annual average of $200,000 in qualifying community development loans 
and investments and had an annual average of $10 million in deposits 
associated with a State during an evaluation period, the Bank State 
Community Development Financing Metric for that evaluation period would 
be 2.0 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.104

    The inclusion of all community development loans and investments 
and deposits in the State evaluation reflected the agencies' 
expectation that a bank should conduct a volume of community 
development loans and investments commensurate with its total capacity 
in a State. Therefore, the agencies explained in the proposed rule that 
the proposed metric would provide the option for, but would not 
require, banks to conduct and receive consideration for community 
development loans and investments outside of facility-based assessment 
areas, but within the States that include those facility-based 
assessment areas. The proposed metric did not distinguish between 
community development loans and investments conducted inside and 
outside a facility-based assessment area. However, if a bank was unable 
to conduct sufficient community development loans and investments 
within facility-based assessment areas due to lack of opportunity or 
high competition, the proposed metric permitted the bank to receive 
consideration for community development loans and investments conducted 
within the State but outside of facility-based assessment areas.
    State Community Development Financing Benchmarks. Similar to the 
facility-based assessment area approach described above, the agencies 
proposed establishing benchmarks that would allow examiners to compare 
a bank's performance to other banks in comparable areas. The proposed 
benchmarks included: (1) a statewide benchmark called the State 
Community Development Financing Benchmark; \1196\ and (2) a benchmark 
that the proposed rule tailored to each bank's facility-based 
assessment areas called the State Weighted Assessment Area Community 
Development Financing Benchmark.\1197\ The agencies intended the use of 
two benchmarks to provide examiners with additional context and points 
of comparison on which to base the statewide score. For example, for a 
bank that primarily collects deposits or conducts community development 
loans and investments outside of its facility-based assessment areas in 
a State, the agencies may rely primarily on the State Community 
Development Financing Benchmark. In contrast, for a bank that collects 
deposits and conducts community development loans and investments 
primarily within its facility-based assessment areas, the agencies may 
rely more heavily on the State Weighted Assessment Area Community 
Development Financing Benchmark, which is tailored to the bank's 
facility-based assessment areas to account for the level of competition 
and available opportunities in those areas.
---------------------------------------------------------------------------

    \1196\ See proposed appendix B, section 6.
    \1197\ See proposed appendix B, sections 7 and 17.
---------------------------------------------------------------------------

    The agencies proposed that the first benchmark, the State Community 
Development Financing Benchmark,\1198\ would be defined similarly to 
the local benchmark used for the facility-based assessment area 
evaluation and it would include all community development loans and 
investments and deposits across the entire State. Under the proposal, 
the numerator would include the dollars of community development loans 
and investments by all large banks across the State, and the 
denominator would include the dollars of deposits held by all large 
banks across the State. The proposal provided that deposits in the 
State would be the sum of: (1) the annual average of deposits in 
counties in the State reported by all large banks that had assets 
greater than $10 billion over the evaluation period (as reported under 
proposed Sec.  __.42); and (2) the annual average of deposits assigned 
to branches in the State by all large banks that had assets less than 
or equal to $10 billion, according to the FDIC's Summary of Deposits 
data, over the evaluation period.\1199\
---------------------------------------------------------------------------

    \1198\ See proposed Sec.  __.24(c)(2)(ii)(B)(1) and proposed 
appendix B, section 6.
    \1199\ See proposed Sec.  __.24(c)(2)(ii)(B)(1) and proposed 
appendix B, section 6.
---------------------------------------------------------------------------

    The agencies proposed that the rule would define the second 
benchmark, the State Weighted Assessment Area Community Development 
Financing Benchmark, as the weighted average of Assessment Area 
Community Development Financing Benchmarks across all of the bank's 
facility-based

[[Page 6980]]

assessment areas in the State.\1200\ The proposal weighted each local 
benchmark based on the facility-based assessment area's percentage of 
retail loans, as defined in the proposal, and the percentage of 
deposits (both measured in dollars) within the facility-based 
assessment areas of the State, the same weighting approach as described 
for the weighted average of the bank's facility-based assessment area 
conclusions.\1201\
---------------------------------------------------------------------------

    \1200\ See proposed Sec.  __.24(c)(2)(ii)(B)(2) and proposed 
appendix B, sections 7 and 17.
    \1201\ See proposed Sec.  __.24(c)(2)(ii)(B)(2) and proposed 
appendix B, sections 7 and 17.
---------------------------------------------------------------------------

    The agencies proposed to evaluate the impact and responsiveness of 
a bank's community development loans and investments for each State at 
a statewide level, using the same impact review approach as described 
previously for facility-based assessment areas.\1202\ The agencies 
proposed that the impact review would encompass all community 
development loans and investments in a State, including those inside 
and outside of facility-based assessment areas. Pursuant to the 
proposed impact review, examiners would consider the extent to which 
the bank's community development loans and investments met the impact 
factors, based on information provided by the bank, local community 
data, community feedback, and other performance context information.
---------------------------------------------------------------------------

    \1202\ See proposed Sec.  __.24(c)(1)(ii) and proposed appendix 
B, section 15.
---------------------------------------------------------------------------

Comments Received 1203
---------------------------------------------------------------------------

    \1203\ As discussed above, commenters generally did not 
distinguish between geographic areas when discussing their views on 
the metrics, benchmarks, and impact and responsiveness review in the 
proposed Community Development Financing Test. With noted 
exceptions, these aspects of the performance test are similarly 
structured regardless of geographic area. Therefore, in considering 
the State, multistate MSA, and nationwide area evaluation, the 
agencies considered the comments on the metrics, benchmarks, and 
impact and responsiveness review discussed in the section-by-section 
analysis of final Sec.  __.16 and made conforming revisions to other 
aspects of the final rule as appropriate. This section and the 
sections that follow, therefore, address additional comments 
specific to the relevant provision of the proposed and final rule.
---------------------------------------------------------------------------

    The agencies sought feedback on the proposal to weight a bank's 
facility-based assessment area Community Development Financing Test 
performance in States, multistate MSAs, and the nationwide area by the 
average share of loans and deposits. Most commenters that provided 
feedback supported the proposed approach. However, a commenter stated 
that weighting Community Development Financing Test performance by the 
share of loans and deposits in a facility-based assessment area may 
result in larger areas disproportionately contributing to the overall 
rating. The commenter also requested that the agencies provide clearer 
guidance on how to weight performance in large metropolitan areas, 
smaller metropolitan areas, and rural counties. Another commenter 
suggested that the agencies should encourage, rather than allow, 
community development lending and investment outside of a bank's 
facility-based assessment areas by ensuring those activities receive 
equal weight in the upper-level considerations.\1204\ A commenter 
strongly encouraged the agencies to integrate an impact and 
responsiveness review into each level of the Community Development 
Financing Test.
---------------------------------------------------------------------------

    \1204\ By ``upper-level considerations'' the agencies understand 
the commenter to be referring to the State, multistate MSA, and 
nationwide area conclusions and ratings.
---------------------------------------------------------------------------

Final Rule
    The agencies considered the commenters' feedback and determined to 
finalize the State Community Development Financing Test evaluation as 
proposed, including with respect to weighting facility-based assessment 
area performance, with clarifying revisions and certain conforming 
edits. Under the final rule, Sec.  __.24(c) includes the provisions 
related to the evaluation of community development loans and 
investments in a State.
    After considering the comments, the agencies are adopting a 
methodology to calculate the weighted average of facility-based 
assessment area performance, which retains consistency in the weighting 
of facility-based assessment areas across the four performance 
tests.\1205\ The agencies based the approach in the final rule on the 
proposed approach but included conforming revisions consistent with the 
revisions discussed in the section-by-section analysis of Sec.  
__.22(h) and appendix A. The agencies considered the comments that 
expressed concerns related to the proposed weighting methodology, 
particularly as those comments relate to the revised weighting 
methodology in the final rule. The agencies continue to believe that 
promoting internal consistency with respect to the Retail Lending Test 
is appropriate and that limiting variation in weighting methodologies 
limits unnecessary complexity and ensures that the agencies consider 
community development loans and investments in the geographic areas 
where banks are operating.
---------------------------------------------------------------------------

    \1205\ See the section-by-section analysis of Sec.  __.22(h) for 
a discussion of the weighting methodology based on deposits and a 
combination of loan count and loan amount. The weighting methodology 
applies to the weighted average of facility-based assessment area 
performance conclusions in a State (final Sec.  __.24(c)(1)), and 
the State Weighted Assessment Area Community Development Financing 
Benchmark (final Sec.  __.24(c)(2)(ii)(B)).
---------------------------------------------------------------------------

    Under Sec.  __.24(c) of the final rule, the appropriate Federal 
financial supervisory agency will evaluate a bank's community 
development financing performance in a State, pursuant to final 
Sec. Sec.  __.19 and __.28(c), using two components. Final Sec.  
__.24(c) also provides that the agency will assign a conclusion for 
each State based on a weighted combination of those components. The 
agencies added a cross reference to Sec.  __.19 for clarity and to 
improve consistency with final Sec.  __.25. Under the final rule, the 
agencies clarified in final Sec.  __.28(c) the scope of State and 
multistate MSA evaluations based on where the agencies conclude on 
performance.\1206\
---------------------------------------------------------------------------

    \1206\ See the section-by-section analysis of Sec.  __.28.
---------------------------------------------------------------------------

    Component one is the weighted average of facility-based assessment 
area performance conclusions in a State.\1207\ Under this component, 
the appropriate agency considers the weighted average of a bank's 
Community Development Financing Test conclusions for its facility-based 
assessment areas within a State, pursuant to section IV of appendix B. 
This section of appendix B provides that the agency calculates 
component one of the combined performance score, as set forth in 
paragraph II.p.2.i of final appendix B, for the Community Development 
Financing Test in final Sec.  __.24 \1208\ in each State by translating 
the Community Development Financing Test conclusions for facility-based 
assessment areas into numerical performance scores consistent with the 
table below.
---------------------------------------------------------------------------

    \1207\ See final Sec.  __.24(c)(1).
    \1208\ Final appendix B, section IV, also applies to the 
Community Development Services Test in final Sec.  __.25.

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[[Page 6981]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.056

    Section IV of final appendix B provides that the appropriate 
Federal financial supervisory agency calculates the weighted average of 
facility-based assessment area performance scores for a State. To 
determine the weighted average for a State, the agency considers 
facility-based assessment areas in the State pursuant to final Sec.  
__.28(c).
    Under the final rule, each facility-based assessment area 
performance score is weighted by the average the following two ratios:
    (1) The ratio measuring the share of the bank's deposits in the 
facility-based assessment area, calculated by:
    (a) summing, over the years in the evaluation period, the bank's 
annual dollar volume of deposits \1209\ in the facility-based 
assessment area;
---------------------------------------------------------------------------

    \1209\ Under the final rule, for a bank that reports deposits 
data pursuant to final Sec.  __.42(b)(3), the bank's annual dollar 
volume of deposits in a facility-based assessment area is the total 
of annual average daily balances of deposits reported by the bank in 
counties in the facility-based assessment area for that year. 
Further, for a bank that does not report deposits data pursuant to 
final Sec.  __.42(b)(3), the bank's annual dollar volume of deposits 
in a facility-based assessment area is the total of deposits 
assigned to facilities reported by the bank in the facility-based 
assessment area in the FDIC's Summary of Deposits for that year.
---------------------------------------------------------------------------

    (b) summing, over the years in the evaluation period, the bank's 
annual dollar volume of deposits in all facility-based assessment areas 
in the State; and
    (c) dividing the result of the first calculation by the result of 
the second calculation; and
    (2) The ratio measuring the share of the bank's loans in a 
facility-based assessment area, based on the combination of loan 
dollars and loan count, as defined in Sec.  __.12, calculated by 
dividing:
    (a) the bank's closed-end home mortgage loans, small business 
loans, small farm loans, and, if a product line for the bank, 
automobile loans in the facility-based assessment area originated or 
purchased during the evaluation period; by
    (b) the bank's closed-end home mortgage loans, small business 
loans, small farm loans, and, if a product line for the bank, 
automobile loans in all facility-based assessment areas in the State 
originated or purchased during the evaluation period.\1210\
---------------------------------------------------------------------------

    \1210\ Final appendix B, section IV, also applies to the 
multistate MSA and nationwide area evaluations as provided in final 
Sec.  __.24(d) and (e).
---------------------------------------------------------------------------

    Component two of the final rule's State evaluation is State 
performance. Under component two, the appropriate Federal financial 
supervisory agency considers a bank's community development financing 
performance in a State using the State metric and benchmarks and a 
review of the impact and responsiveness of the bank's community 
development loans and investments.\1211\ Specifically, the agency will 
consider the Bank State Community Development Financing Metric, 
calculated pursuant to paragraph II.d of appendix B,\1212\ compared to 
the (1) State Community Development Financing Benchmark, calculated 
pursuant to paragraph II.e of appendix B \1213\ and (2) State Weighted 
Assessment Area Community Development Financing Benchmark, calculated 
pursuant to paragraph II.f of appendix B. In addition, the agency will 
consider the impact and responsiveness review of the bank's community 
development loans and investments within the State as part of component 
two.\1214\
---------------------------------------------------------------------------

    \1211\ For a discussion of the final impact and responsiveness 
review in the Community Development Financing Test, see the section-
by-section analysis of Sec.  __.24(b)(3), (c)(2)(iii), (d)(2)(iii), 
(e)(2)(v).
    \1212\ See final Sec.  __.24(c)(2)(i).
    \1213\ See final Sec.  __.24(c)(2)(ii)(A).
    \1214\ See final Sec.  __.24(c)(2).
---------------------------------------------------------------------------

    The agencies made conforming edits to the Bank State Community 
Development Financing Metric and State Community Development Financing 
Benchmark and related sections of final appendix B consistent with the 
changes made to the similar metric and benchmarks applicable in 
facility-based assessment areas. The agencies also clarified, for 
purposes of calculating the State metrics and benchmarks, when 
community development loans, community development investments, and 
deposits in a bank are included in the State-level metric and benchmark 
calculations by cross referencing final Sec.  __.28(c).\1215\
---------------------------------------------------------------------------

    \1215\ Whether the agencies include community development loans 
and investments in the State evaluation depends on whether the bank 
has a facility-based assessment area in the State and whether the 
State is located in a multistate MSA. For additional discussion, see 
the section-by-section analysis of Sec.  __.28(c).

---------------------------------------------------------------------------

[[Page 6982]]

    The agencies also made clarifying and conforming edits to the State 
Weighted Assessment Area Community Development Financing Benchmark to 
simplify the description, to make it easier to understand, and to 
promote consistency in the weighting methodology across performance 
tests. Under the final rule, the State Weighted Assessment Area 
Community Development Financing Benchmark is the weighted average of 
the bank's Assessment Area Community Development Financing Benchmarks 
for each facility-based assessment area within the State, calculated 
pursuant to paragraph II.f of final appendix B. The appropriate Federal 
financial supervisory agency calculates the final State Weighted 
Assessment Area Community Development Financing Benchmark by averaging 
all of the bank's Assessment Area Community Development Financing 
Benchmarks \1216\ in a State for the evaluation period, after weighting 
each pursuant to paragraph II.o of final appendix B.
---------------------------------------------------------------------------

    \1216\ See final appendix B, paragraph II.b.
---------------------------------------------------------------------------

    Under final paragraph II.o of final appendix B, for State 
evaluations, the appropriate agency calculates the weighted average of 
Assessment Area Community Development Financing Benchmarks for a bank's 
facility-based assessment areas in each State by considering the 
facility-based assessment areas in a State pursuant to final Sec.  
__.28(c).
    The agencies weight the Assessment Area Community Development 
Financing Benchmarks in the final rule by the average of the following 
two ratios:
    (1) The ratio measuring the share of the bank's deposits in the 
facility-based assessment area, calculated by:
    (a) summing, over the years in the evaluation period, the bank's 
annual dollar volume of deposits \1217\ in the facility-based 
assessment area;
---------------------------------------------------------------------------

    \1217\ As provided above in the discussion of final appendix B, 
section IV, for a bank that reports deposits data pursuant to final 
Sec.  __.42(b)(3), the bank's annual dollar volume of deposits in a 
facility-based assessment area is the total of annual average daily 
balances of deposits reported by the bank in counties in the 
facility-based assessment area for that year. For a bank that does 
not report deposits data pursuant to final Sec.  __.42(b)(3), the 
bank's annual dollar volume of deposits in a facility-based 
assessment area is the total of deposits assigned to facilities 
reported by the bank in the facility-based assessment area in the 
FDIC's Summary of Deposits for that year.
---------------------------------------------------------------------------

    (b) summing, over the years in the evaluation period, the bank's 
annual dollar volume of deposits in all facility-based assessment areas 
in the State; and
    (c) dividing the result of the calculation in (a) by the result of 
the calculation in (b); and
    (2) The ratio measuring the share of the bank's loans in a 
facility-based assessment area, based on the combination of loan 
dollars and loan count, as defined in Sec.  __.12, calculated by 
dividing:
    (a) the bank's closed-end home mortgage loans, small business 
loans, small farm loans, and, if a product line for the bank, 
automobile loans in the facility-based assessment area originated or 
purchased during the evaluation period; by
    (b) the bank's closed-end home mortgage loans, small business 
loans, small farm loans, and, if a product line for the bank, 
automobile loans in all facility-based assessment areas in the State 
originated or purchased during the evaluation period.
    The agencies are also adopting the impact and responsiveness review 
as part of component two of the State evaluation as proposed with 
clarifying and conforming revisions discussed in the section-by-section 
analysis of Sec. Sec.  __.15 and __.24(b)(3). In response to the 
commenters' questions, the agencies note that, under the proposed and 
final Community Development Financing Test, the agencies would apply 
the impact and responsiveness review to the evaluation of community 
development loans and investment for all geographic levels.\1218\ The 
agencies believe that it is appropriate to consider the impact and 
responsiveness at all geographic levels because it ensures that 
impactful or responsive community development loans and investments 
conducted outside of a bank's facility-based assessment areas are 
considered. Further, given the weighting methodology for the State, 
multistate MSA, and nationwide area performance scores, the agencies 
consider a portion of the impact and responsiveness of a community 
development loan or investment conducted in a facility-based assessment 
area in the weighted average of facility-based assessment area 
performance and a portion is considered in the State.\1219\
---------------------------------------------------------------------------

    \1218\ See final Sec.  __.24(c)(2)(iii), (d)(2)(iii), and 
(e)(2)(v).
    \1219\ Under the final rule, the same is true for the 
consideration of the impact and responsiveness review under the 
multistate evaluation in final Sec.  __.24(d) and nationwide area 
evaluation in final Sec.  __.24(e).
---------------------------------------------------------------------------

Section __.24(c) and (f) State Performance Score and Conclusion 
Assignment (and Paragraph II.p of Appendix B)

The Agencies' Proposal
    The agencies proposed to assign statewide Community Development 
Financing Test conclusions, as applicable.\1220\ Section 15 of proposed 
appendix B provided that statewide conclusions would reflect two 
components, with weights on both components tailored to reflect the 
bank's business model, which would result in a state performance score 
for the applicable State. Pursuant to the proposal, the two components 
were: (1) the bank's weighted average assessment area performance 
score; and (2) the bank's statewide score. The agencies proposed in 
section 15 of appendix B that they would assign a statewide score 
corresponding to the conclusion categories described above: 
``Outstanding'' (10 points); ``High Satisfactory'' (7 points); ``Low 
Satisfactory'' (6 points); ``Needs to Improve'' (3 points); 
``Substantial Noncompliance'' (0 points). The statewide score would 
reflect a comparison of the Bank State Community Development Financing 
Metric to the state community development financing benchmark and the 
state weighted average community development financing benchmark, as 
well as the impact review of the bank's activities.
---------------------------------------------------------------------------

    \1220\ See proposed Sec. Sec.  __.24(d) and __.28, proposed 
appendix B, section 15, and proposed appendix C, paragraph d.
---------------------------------------------------------------------------

    Under the proposal, the amount of weight that the agencies would 
apply to the facility-based assessment area performance and to the 
statewide performance would depend on the bank's percentage of deposits 
(based on collected deposits data and on the FDIC's Summary of Deposits 
data, as applicable) and retail loans, as defined in the 
proposal.\1221\
---------------------------------------------------------------------------

    \1221\ See proposed appendix B, section 15.
---------------------------------------------------------------------------

    The agencies proposed to tailor the weighting of the average 
assessment area performance and the statewide score to the individual 
bank's business model, while still preserving the option for every bank 
to be meaningfully credited for activities outside of its facility-
based assessment areas.\1222\ For a bank that does most of its retail 
lending and deposit collection within its facility-based assessment 
areas, for example, the agencies viewed those facility-based assessment 
areas as the primary community a bank serves. The

[[Page 6983]]

agencies therefore believed the average facility-based assessment area 
performance deserved a larger portion of the weight in the combined 
state performance score.
---------------------------------------------------------------------------

    \1222\ Id.
---------------------------------------------------------------------------

    To ensure that the agencies also meaningfully credited any 
community development loans and investments a bank undertakes outside 
of its facility-based assessment areas, the agencies proposed to give 
equal weight to the average assessment area performance and statewide 
score for banks whose business model is strongly branch-based.\1223\ 
Because community development loans and investments that serve 
facility-based assessment areas would contribute both to the statewide 
score as well as in the weighted average of facility-based assessment 
area conclusions, equally weighting these two components effectively 
would give greater weight to assessment area performance while still 
meaningfully considering those community development loans and 
investments that banks conduct outside of their facility-based 
assessment areas.
---------------------------------------------------------------------------

    \1223\ Id.
---------------------------------------------------------------------------

    On the other end, for banks with retail lending and deposit 
collection that occurs almost entirely outside of the bank's facility-
based assessment areas (such as primarily online lenders), the agencies 
believed those assessment areas largely do not represent the entire 
community the bank serves. The agencies, therefore, proposed to weight 
the statewide score more heavily than the weighted average assessment 
area performance score for such a bank.\1224\ The agencies also 
proposed that banks with business models in between these two ends 
would use weights that are correspondingly in between.
---------------------------------------------------------------------------

    \1224\ Id.
---------------------------------------------------------------------------

    Specifically, to determine the relative weighting as described in 
Table 45, the agencies proposed to use the simple average of: (1) the 
percentage of a bank's retail loans in a State, by dollar volume, that 
the bank made in its facility-based assessment areas in that State, and 
(2) the percentage of a bank's deposits from a State, by dollar volume, 
that the bank sourced from its facility-based assessment areas in that 
State.
    The agencies further proposed that banks that have a low percentage 
of deposits and retail loans within their facility-based assessment 
areas would have a greater emphasis placed on their statewide 
performance compared to the weighted average of their facility-based 
assessment area performance.\1225\ Conversely, the agencies would place 
more equal weight on statewide performance and the weighted average of 
facility-based assessment area performance for banks that have a high 
percentage of deposits and retail loans within their facility-based 
assessment areas. Thus, to develop the State Community Development 
Financing Test conclusion, the agencies proposed the State performance 
score to be the score that would result from averaging: (1) the bank's 
weighted average facility-based assessment area performance score; and 
(2) the bank's statewide score. The agencies would then round the State 
performance score to the nearest point value corresponding to a 
conclusion category: ``Outstanding'' (10 points); ``High Satisfactory'' 
(7 points); ``Low Satisfactory'' (6 points); ``Needs to Improve'' (3 
points); ``Substantial Noncompliance'' (0 points).
---------------------------------------------------------------------------

    \1225\ Id.
---------------------------------------------------------------------------

    The agencies believed that taking into account both the bank's 
facility-based assessment area performance and its statewide 
performance would build off of the current approach to considering 
community development loans and investments in broader statewide and 
regional areas that include a banks' assessment areas and aimed to 
achieve a balance of objectives. First, considering assessment area 
performance encourages banks to serve the communities where they have a 
physical presence and where their knowledge of local community 
development needs and opportunities is often strongest. Second, 
considering statewide performance provides banks the option to pursue 
impactful community development opportunities that may be located 
partially or entirely outside of their facility-based assessment areas, 
without requiring them to do so. Third, because facility-based 
assessment area activities are considered in the State evaluation as 
well, the proposed approach would give greater emphasis to activities 
within facility-based assessment areas than to activities outside of 
assessment areas, but the amount of weight would be tailored to each 
bank's business model in the state. As a result, the agencies believed 
the proposal would encourage banks that are primarily branch-based to 
focus on serving their facility-based assessment areas, while banks 
that have few loans and deposits in facility-based assessment areas, 
such as banks that operate primarily through online delivery channels, 
would be evaluated mostly on a statewide basis.
    Under the proposal, the percentage of deposits assigned to 
facility-based assessment areas for banks that do not collect and 
maintain deposits data would always be 100 percent because the FDIC's 
Summary of Deposits data attributes all deposits to bank branches. The 
average of the percentage of home mortgage loans, small business loans, 
and small farm loans and deposits in facility-based assessment areas 
for such a bank would, therefore, not account for the bank's depositors 
that are located outside of its facility-based assessment areas. In the 
proposal, the agencies recognized that this would generally result in a 
higher weight on the bank's assessment area performance score unless 
the bank chooses to collect and maintain these data.
Comments Received
    Certain commenters offered suggestions for determining Community 
Development Financing Test performance scores and conclusions. A 
commenter suggested that in addition to weighting facility-based 
assessment area performance, the agencies should: (1) set a threshold 
for smaller facility-based assessment areas that requires that they 
have a low satisfactory or higher rating to ensure those facility-based 
assessment areas receive sufficient attention; and (2) require banks 
with 60 percent or more of their community development loans and 
investments in facility-based assessment areas to also have a 50 
percent weight for facility-based assessment area performance. Another 
commenter similarly stated that the agencies should place more than the 
proposed weight on facility-based assessment area performance. Lastly, 
a commenter stated that if a bank fails in any of its assessment areas, 
it should receive a rating of ``Needs to Improve'' or below.
Final Rule
    The agencies are finalizing the provisions for determining the 
State performance score and corresponding conclusion as proposed with 
certain clarifying and conforming revisions.\1226\ In considering the 
importance of facility-based assessment area performance within a 
State, the agencies determined that it was not appropriate to place 
additional weight on performance in facility-based assessment areas 
relative to performance outside of facility-based assessment areas 
because, as discussed above: (1) the agencies evaluate facility-based 
assessment areas separately under final Sec.  __.24(b); (2) the 
agencies consider facility-based assessment area community development 
financing performance under component one of the State evaluation of 
the Community
---------------------------------------------------------------------------

    \1226\ See final Sec.  __.24(c) and (f), and final appendix B, 
paragraph II.p.

---------------------------------------------------------------------------

[[Page 6984]]

Development Financing Test; \1227\ and (3) community development loans 
and investments in facility-based assessment areas are included in the 
Bank State Community Development Financing Metric. In the agencies' 
view, these three levels of consideration for community development 
loans and investments in facility-based assessment areas provide 
appropriate emphasis while still allowing banks to receive 
consideration for loans and investments outside of these areas. 
Further, the agencies believe that this flexibility will incentivize 
banks to engage in community development lending and investments in 
underserved areas that may not be proximate to many bank branches. For 
a bank that focuses its community development lending and investments 
on its facility-based assessment areas, performance in facility-based 
assessment areas and in the State will be equivalent. The agencies 
believe that the proposed weighting of facility-based assessment area 
performance \1228\ and statewide performance \1229\ in determining 
State performance scores and assigning conclusions emphasizes the 
importance of banks helping to meet the credit needs of their facility-
based assessment areas while still permitting consideration of 
community development loans and investments outside of those areas. As 
discussed in the proposal, the agencies believe this approach builds 
off the current approach to considering community development loans and 
investments in the broader statewide and regional areas that include a 
banks' assessment areas and aims to achieve a balance of objectives. 
Further, this approach creates more certainty for banks regarding 
whether they will receive consideration for community development loans 
and investments outside of facility-based assessment areas.
---------------------------------------------------------------------------

    \1227\ See final Sec.  __.24(c)(1).
    \1228\ Id.
    \1229\ See final Sec.  __.24(c)(2).
---------------------------------------------------------------------------

    The final rule balances the objectives of encouraging banks to 
serve the communities where they have a physical presence and where 
their knowledge of local community development needs and opportunities 
is often strongest with the ability to pursue impactful community 
development opportunities that may be located partially or entirely 
outside of their facility-based assessment areas.\1230\ As such, the 
final rule gives greater emphasis to community development loans and 
investments within facility-based assessment areas because those loans 
and investments are included in the State performance score and tailors 
the amount of weight to each bank's business model in the State. The 
agencies believe this approach will encourage banks that are primarily 
branch-based to focus on serving their facility-based assessment areas, 
while banks that have few loans and deposits in facility-based 
assessment areas, such as banks that operate primarily through online 
delivery channels, will have greater emphasis on their statewide 
community development loans and investments.
---------------------------------------------------------------------------

    \1230\ As with the proposal, under the final rule, banks may, 
but are not required to, engage in community development lending and 
investment outside of facility-based assessment areas because loans 
and investments in those areas are included in the statewide 
evaluation.
---------------------------------------------------------------------------

    The agencies also considered the comments about ensuring that 
smaller facility-based assessment areas receive sufficient attention. 
The agencies addressed this issue in the final rule through a 
requirement that large banks with a combined total of 10 or more 
facility-based assessment areas and retail lending assessment areas in 
any State may not receive a rating of ``Satisfactory'' or 
``Outstanding'' in the respective State unless the bank received an 
overall facility-based assessment area or retail lending assessment 
area conclusion of at least ``Low Satisfactory'' in 60 percent or more 
of the total number of its facility-based assessment areas and retail 
lending assessment areas in that State.\1231\
---------------------------------------------------------------------------

    \1231\ See the section-by-section analysis of final Sec.  
__.28(b)(4)(ii) and final appendix D, paragraph g.2.ii. As discussed 
in final appendix D, these requirements also apply to conclusions 
for multistate MSAs and for the institution. See also the section-
by-section analysis of Sec.  __.51 (this requirement only applies to 
facility-based assessment areas for purposes of the first evaluation 
under this final rule).
---------------------------------------------------------------------------

    Under the final rule, the appropriate Federal financial supervisory 
agency calculates a performance score for the State Community 
Development Financing Test based on the weighted combination of the two 
components, pursuant to paragraph II.p of final appendix B.\1232\ The 
agency then assigns a conclusion corresponding with the conclusion 
category that is nearest to the performance score for a bank's 
performance under the Community Development Financing Test in each 
State pursuant to final Sec.  __.28(c) as shown in the table 
below.\1233\
---------------------------------------------------------------------------

    \1232\ As provided in final appendix B, paragraph II.p, the 
combined score also applies to the multistate MSA evaluation and the 
nationwide evaluation, with certain differences for the nationwide 
area discussed in the section-by-section analysis of final Sec.  
__.24(e).
    \1233\ See final appendix B, paragraph II.p.1.

---------------------------------------------------------------------------

[[Page 6985]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.057

    Specifically, under paragraph II.p.2 of final appendix B, the 
appropriate Federal financial supervisory agency bases the Community 
Development Financing Test combined performance score for a State on: 
(1) component one--the weighted average of the bank's performance 
scores corresponding to facility-based assessment area conclusions in 
that State; \1234\ and (2) component two--the bank score for metric and 
benchmark analyses and the impact and responsiveness review.\1235\ For 
component one, the final rule provides that the agency derives 
performance scores based on a weighted average of the performance 
scores corresponding to conclusions for facility-based assessment areas 
in each State, calculated pursuant to section IV of final appendix B. 
For component two, the final rule provides that for each State, the 
agency determines a statewide performance score corresponding to a 
conclusion category (shown in the table below) by considering the 
relevant metric and benchmarks and a review of the impact and 
responsiveness of the bank's community development loans and community 
development investments.\1236\
---------------------------------------------------------------------------

    \1234\ See final appendix B, paragraph II.p.2.i.
    \1235\ See final appendix B, paragraph II.p.2.ii.
    \1236\ See id.
---------------------------------------------------------------------------

    Using the results of components one and two, the appropriate agency 
determines a combined performance score corresponding to a conclusion 
category by taking the weighted average of two components.\1237\ The 
two components the agencies use to determine weighting are: (1) the 
percentage, calculated using the combination of loan dollars and loan 
count, of the bank's total originated and purchases closed-end home 
mortgage lending, small business lending, small farm lending, and 
automobile lending, as applicable, in its facility-based assessment 
areas out of all of the bank's originated and purchased closed-end home 
mortgage lending, small business lending, small farm lending, and 
automobile lending, as applicable, in the State during the evaluation 
period; \1238\ and (2) the percentage of the total dollar volume of 
deposits in its facility-based assessment areas out of all of the 
deposits in the bank in the State during the evaluation period.\1239\ 
The weighting is calculated as provided in the table below (see 
paragraph II.p.2.iii.B of final appendix B).
---------------------------------------------------------------------------

    \1237\ See final appendix B, paragraph II.p.2.iii.
    \1238\ See final appendix B, paragraph II.p.2.iii.A.1.
    \1239\ See final appendix B, paragraph II.p.2.iii.A.2. For 
purposes of this paragraph, ``deposits'' excludes deposits reported 
under final Sec.  __.42(b)(3)(ii).

---------------------------------------------------------------------------

[[Page 6986]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.058

    The agencies believe that a weighting of 50 percent on the average 
facility-based assessment area performance score and 50 percent on the 
statewide score is appropriate for banks whose deposits and retail 
lending occurs predominantly or entirely within their facility-based 
assessment areas. As described above, community development loans and 
investments that benefit the bank's facility-based assessment areas 
would also contribute to the statewide score, so the agencies believe 
any weighting on the statewide score of less than 50 percent would not 
provide meaningful credit for activities that occur outside the bank's 
facility-based assessment areas. For a branch-based bank that conducts 
most of its community development financing activity within its 
facility-based assessment areas, the statewide score would largely, or 
entirely, reflect the performance inside its facility-based assessment 
areas. Relatedly, the agencies also believe that a bank whose deposits 
and retail lending occurs predominantly or entirely within their 
facility-based assessment areas have the capacity to engage in 
community development financing activity there, and so a weight of less 
than 50 percent on the average facility-based assessment area 
performance score would also be inappropriate.
    Starting from that baseline of 50 percent weighting of the 
statewide score for banks that are predominantly or entirely focused on 
serving its facility-based assessment areas, the agencies believe that 
increasing the weight on the statewide score proportionately with the 
extent of the bank's retail lending and deposit taking outside of its 
facility-based assessment areas appropriately tailors the weights to 
individual banks' business models. This proportionate increase in the 
weight on the statewide score is reflected in the increasing 
percentages in the weight on component 2 column of Table 45 as the 
percentage of the bank's loans and deposits from facility-based 
assessment areas falls. To reduce the complexity of the rule, the 
agencies are categorizing the weights into five segments as shown in 
Table 45. The weight on the statewide score grows steadily as the 
percentage of the bank's retail loans and deposits inside its facility-
based assessment areas falls, until banks whose retail lending and 
deposit taking is predominantly or entirely outside its facility-based 
assessment areas receive a Community Development Financing Test State 
performance score based almost entirely on their statewide score. The 
agencies again note that the statewide score also reflects performance 
within a bank's facility-based assessment areas, in addition to 
community development financing activities in other parts of the 
applicable State.
    The State performance score and conclusion provisions include 
conforming revisions to improve consistency across the final rule, 
including the use of the combination of loan dollars and loan count in 
the weighting methodology, conforming revisions to final Sec.  
__.24(f)(1) consistent with the revisions to the facility-based 
assessment area conclusion discussion above, and other formatting and 
technical changes.
    The agencies are also finalizing the State ratings provisions in 
final Sec.  __.24(f)(2) as proposed.

Section __.24(d) Multistate MSA Community Development Financing Test 
Evaluation

Current Approach
    The agencies currently evaluate a bank's performance in a 
multistate MSA when the bank has a main office, branch, or deposit-
taking ATM in two or more States in the multistate MSA. The current 
approach to evaluating community development activities in a multistate 
MSA is consistent with the process for evaluating performance in a 
State, discussed above.
The Agencies' Proposal
    In Sec.  __.24(c)(3) of the NPR, the agencies proposed evaluating 
performance under the Community Development Financing Test in a 
multistate MSA consistent with the approach to evaluating performance 
in a State. The agencies proposed to assign Community Development 
Financing Test conclusions for multistate MSAs in which a bank has 
branches in two or more states of the multistate MSA.\1240\ The 
agencies proposed to employ the

[[Page 6987]]

same approach for assigning conclusions for States to multistate MSAs, 
with the same components as the State evaluation.\1241\ The proposed 
multistate MSA conclusion would reflect a weighted average of facility-
based assessment area conclusions within the multistate MSA, and would 
also reflect: (1) a Bank Multistate MSA Community Development Financing 
Metric; (2) a Multistate MSA Community Development Financing Benchmark; 
(3) a Multistate MSA Weighted Assessment Area Community Development 
Financing Benchmark; and (4) an impact review.
---------------------------------------------------------------------------

    \1240\ See proposed Sec. Sec.  __.24(d) and __.28, proposed 
appendix B, section 15, and proposed appendix C, paragraph d.
    \1241\ See proposed appendix B, section 16.
---------------------------------------------------------------------------

Comments Received
    The agencies did not receive comments that were specific to the 
proposed evaluation of community development loans and investments in 
multistate MSAs.
Final Rule
    The agencies are finalizing the proposed multistate MSA Community 
Development Financing Test evaluation with clarifying and conforming 
revisions consistent with the State evaluation. The agencies renumbered 
proposed Sec.  __.24(c)(3) to final Sec.  __.24(d) consistent with the 
other formatting revisions to final Sec.  __.24. Under final Sec.  
__.24(d), the appropriate Federal financial supervisory agency will 
evaluate banks' community development lending and investments in 
multistate MSAs, pursuant to final Sec. Sec.  __.19 and __.28(c), using 
the same two components as the State evaluation. Specifically, the 
agency will evaluate a bank's community development financing 
performance in a multistate MSA based on the: (1) weighted average of 
facility-based assessment area performance in the multistate MSA; 
\1242\ and (2) multistate MSA performance.\1243\
---------------------------------------------------------------------------

    \1242\ See final Sec.  __.24(d)(1).
    \1243\ See final Sec.  __.24(d)(2).
---------------------------------------------------------------------------

    Under the final rule, the appropriate agency assigns a conclusion 
for a bank's performance in each multistate MSA, as applicable, based 
on a weighted combination of these two components pursuant to final 
paragraph II.p of final appendix B and the weighting in section IV of 
appendix B of the final rule. As noted in the proposal, the multistate 
MSA Community Development Financing Test provisions are consistent with 
the State Community Development Financing Test provisions and the 
agencies made additional conforming revisions throughout final Sec.  
__.24(d) and paragraphs II.g, II.h, and II.i of final appendix B.

Section __.24(e) Nationwide Area Community Development Financing Test 
Evaluation

Current Approach
    Currently, the agencies assign institution-level ratings for the 
applicable performance tests based on a bank's performance in the 
States and multistate MSAs where the bank has assessment areas. Banks' 
community development loans and investments are considered at the 
assessment area-, State-, multistate MSA-, or institution-level 
depending on whether the loan or investment has a purpose, mandate, or 
function of serving an assessment area or the broader statewide or 
regional areas that include a bank's assessment areas.\1244\ The 
agencies also determine the relative significance of performance in the 
different States and multistate MSAs and factor that performance into 
the institution-level ratings based on: (1) the significance of the 
institution's community development loans, investments, and services 
compared to (a) the institution's overall activities; (b) the number of 
other institutions and the extent of their lending, investments, and 
services in the relevant areas; and (c) the lending, investment, and 
service opportunities in the relevant areas; and (2) demographic and 
economic conditions in the relevant areas.\1245\
---------------------------------------------------------------------------

    \1244\ See, e.g., Interagency Large Institution CRA Examination 
Procedures (April 2014) at appendix.
    \1245\ See, e.g., Interagency Large Institution CRA Examination 
Procedures (April 2014).
---------------------------------------------------------------------------

The Agencies' Proposal
    In proposed Sec. Sec.  __.24(c) and __.28, section 15 of proposed 
appendix B, and section d of proposed appendix C, the agencies proposed 
to evaluate a bank's community development lending and investments in 
the nationwide area and assign Community Development Financing Test 
conclusions for the institution-level using a similar approach to that 
for evaluating performance and assigning conclusions at the State 
level. The proposed approach would use a combination of a weighted 
average of facility-based assessment area conclusions in the nationwide 
area and a nationwide area score that reflects: (1) a Bank Nationwide 
Community Development Financing Metric; (2) a Nationwide Community 
Development Financing Benchmark; (3) a Nationwide Weighted Assessment 
Area Community Development Financing Benchmark; and (4) an impact and 
responsiveness review.
    Weighted average of facility-based assessment area performance. The 
agencies proposed, in Sec.  __.24(c)(4)(i), considering a weighted 
average of a bank's Community Development Financing Test conclusions 
across all of its facility-based assessment areas as one component of 
the bank's Community Development Financing Test institution-level 
conclusion.\1246\ As with the State evaluation approach, the agencies 
intended that this approach would emphasize facility-based assessment 
area performance by directly linking a bank's facility-based assessment 
area conclusions to the institution conclusion. Under the proposal, the 
conclusion assigned to each assessment area would be mapped to a point 
value as follows: ``Outstanding'' (10 points); ``High Satisfactory'' (7 
points); ``Low Satisfactory'' (6 points); ``Needs to Improve'' (3 
points); ``Substantial Noncompliance'' (0 points). The agencies 
proposed that this resulting score for each facility-based assessment 
area would be assigned a weight, calculated as the average of the 
percentage of retail loans and the percentage of deposits of the bank 
within the facility-based assessment area (both measured in dollars), 
out of all of the bank's retail loans and deposits in facility-based 
assessment areas (based on collected deposits data and on the FDIC's 
Summary of Deposits data, as applicable).\1247\ Using these weights and 
scores, the agencies would calculate the weighted average of the 
facility-based assessment area scores to determine the institution-
level performance score. The weighted average approach would ensure 
that performance in each facility-based assessment area is incorporated 
into the institution conclusion, with greater emphasis given to the 
areas where a bank has a greater business presence.
---------------------------------------------------------------------------

    \1246\ See proposed Sec.  __.24(c)(4)(i).
    \1247\ See proposed appendix B, section 16.
---------------------------------------------------------------------------

    Nationwide area score. The agencies proposed in Sec.  
__.24(c)(4)(ii) that examiners would assign a nationwide area score for 
the institution based on a Bank Nationwide Community Development 
Financing Metric, the nationwide benchmarks, and a nationwide impact 
review.
    Bank Nationwide Community Development Financing Metric. The 
agencies proposed that examiners would calculate the Bank Nationwide 
Community Development Financing Metric \1248\ using the same formula 
for the State metric, including all of a bank's community development 
loans

[[Page 6988]]

and investments, and deposits in the bank in the numerator and 
denominator, respectively.
---------------------------------------------------------------------------

    \1248\ See proposed Sec.  __.24(c)(4)(ii)(A).
---------------------------------------------------------------------------

    Nationwide Community Development Financing Benchmarks. In proposed 
Sec.  __.24(c)(4)(ii)(B), the agencies proposed establishing benchmarks 
that would allow examiners to compare a bank's performance to other 
banks in similar areas. The proposed benchmarks included a single 
nationwide benchmark applied to all banks called the Nationwide 
Community Development Financing Benchmark and a benchmark that was 
tailored to each bank's facility-based assessment areas called the 
Nationwide Weighted Assessment Area Community Development Financing 
Benchmark. The agencies intended the use of two benchmarks to provide 
additional context and points of comparison in order to develop the 
nationwide area score.\1249\
---------------------------------------------------------------------------

    \1249\ The agencies note that the proposal included Metropolitan 
and Nonmetropolitan Nationwide Community Development Financing 
Benchmarks applicable to the evaluation of community development 
lending and investments in facility-based assessment areas, 
described as ``national benchmarks.'' The proposed nationwide area 
Community Development Financing Test evaluation would not use these 
national benchmarks because it evaluates a bank's community 
development financing performance in all geographic areas in the 
nationwide area, irrespective of whether the banks' community 
development loans or investments are in MSAs or nonmetropolitan 
areas, and factors in facility-based assessment area performance 
through the weighted assessment area benchmarks.
---------------------------------------------------------------------------

    Under the proposal, the agencies would develop the proposed 
nationwide benchmarks in the same way as the proposed statewide 
benchmarks. The proposed Nationwide Community Development Financing 
Benchmark included all community development loans and investments 
reported by large banks in the numerator, and all deposits in those 
banks in the denominator. Under the proposal, the deposits in the 
nationwide area would be the sum of: (1) the annual average of deposits 
in counties in the nationwide area reported by all large banks with 
assets of over $10 billion over the evaluation period (as reported 
under proposed Sec.  __.42); and (2) the annual average of deposits 
assigned to branches in the nationwide area by all large banks with 
assets of $10 billion or less, according to the FDIC's Summary of 
Deposits data, over the evaluation period.
    The agencies proposed to define the Nationwide Weighted Assessment 
Area Community Development Financing Benchmark as the weighted average 
of the facility-based assessment area community development financing 
benchmarks across all of the bank's facility-based assessment areas and 
the agencies would weight the benchmark based on the facility-based 
assessment area's percentage of retail loans and percentage of deposits 
(both measured in dollars) within the facility-based assessment areas 
of the State using the same weighting approach as described for the 
weighted average of the bank's facility-based assessment area 
conclusions.\1250\
---------------------------------------------------------------------------

    \1250\ See proposed Sec.  __.24(c)(4)(ii)(B)(2).
---------------------------------------------------------------------------

    Impact review. Similar to the proposed State evaluation approach, 
the agencies proposed in Sec.  __.24(c)(4)(ii) and section 15 of 
appendix B to evaluate the impact and responsiveness of a bank's 
community development loans and investments at the institution level, 
using the same impact review approach as described above for facility-
based assessment areas and States. The agencies proposed to conduct an 
institution-level impact review in order to assess the impact and 
responsiveness of all of an institution's community development loans 
and investments, including those inside and outside of facility-based 
assessment areas. The agencies considered this to be especially 
important for the evaluation of a bank that elects to conduct community 
development loans and investments that serve areas outside of its 
facility-based assessment areas, so that the impact and responsiveness 
of those activities is considered. As described above, the agencies 
would consider the impact and responsiveness of the bank's community 
development loans and investments to community needs, and would 
consider the impact review factors, among other information.
    Nationwide area score assignment. As provided in section 15 of 
proposed appendix B, the agencies proposed to assign a nationwide area 
score that reflected the bank's overall dollar volume of community 
development loans and community development investments and overall 
impact and responsiveness of those loans and investments, corresponding 
to the conclusion categories as follows: ``Outstanding'' (10 points); 
``High Satisfactory'' (7 points); ``Low Satisfactory'' (6 points); 
``Needs to Improve'' (3 points); ``Substantial Noncompliance'' (0 
points). This nationwide area score would reflect a comparison of the 
Bank Nationwide Community Development Financing Metric to the 
nationwide and weighted assessment area benchmarks, as well as the 
impact review of the bank's community development financing activities.
Comments Received
    Other than the comments discussed above, the agencies did not 
receive comments specific to the evaluation of a bank's community 
development loans and investments in the nationwide area or conclusions 
at the institution level. However, certain comments discussed above are 
relevant to these evaluations and conclusions. Specifically, some 
commenters objected to consideration of community development lending 
and investment outside of facility-based assessment areas because they 
believe that consideration of lending and investments in broader 
geographic areas is not consistent with the CRA statute's focus on 
local communities. Further, as discussed in the section-by-section 
analysis of Sec.  __.24(a), many commenters expressed concern with the 
absence of an investment test as a separate test or a component of the 
Community Development Financing Test overall.
Final Rule
    In final Sec.  __.24(e) (renumbered proposed section Sec.  
__.24(c)(4)), the agencies are finalizing the proposed nationwide area 
evaluation of the Community Development Financing Test with certain 
revisions. Consistent with the proposal, the final rule includes two 
components for the nationwide area evaluation. The first component 
consists of the weighted average of facility-based assessment area 
performance in the nationwide area. The second component consists of an 
evaluation of all of the bank's community development lending and 
investments in the nationwide area--both inside and outside of a bank's 
facility-based assessment areas. As with the proposal, and discussed in 
greater detail below, the agencies will base consideration of a bank's 
nationwide area performance under the second component on a Bank 
Nationwide Community Development Financing Metric, the two nationwide 
community development financing benchmarks, and an impact and 
responsiveness review with conforming revisions consistent with the 
changes discussed above related to the State and multistate MSA 
Community Development Financing Test evaluations.
    The agencies continue to believe, as discussed above, that it is 
appropriate to consider community development loans and investments 
outside of banks' facility-based assessment areas. The agencies believe 
that the construction of the nationwide area evaluation puts 
appropriate emphasis on banks' lending and investment in banks' 
facility-based

[[Page 6989]]

assessment areas while also permitting banks to help meet the credit 
needs of their entire communities, particularly underserved areas with 
limited bank presence. This framework is aimed at ensuring that banks 
reinvest in the communities from which they draw deposits while also 
eliminating barriers in the current framework that have resulted in a 
mismatch in the supply and demand of community development financing 
activities in certain geographic areas.
    As discussed above in the section-by-section analysis of Sec.  
__.24(a), to respond to commenters concerns about the potential that 
banks may shift away from conducting community development investments 
in favor of community development loans, the final rule also includes a 
Bank Nationwide Community Development Investment Metric and a 
Nationwide Community Development Investment Benchmark as part of the 
nationwide area performance considerations for large banks that have 
assets greater than $10 billion. In the agencies' view, including an 
investment metric and benchmark for the nationwide area is appropriate 
because it serves as a check on the level of banks' overall community 
development investments. The agencies determined that including an 
investment metric in the evaluation of facility-based assessment areas, 
States, or multistate MSAs may impose an incentive on banks to make a 
community development investment instead of a community development 
loan solely to perform well against the metric as compared to the 
benchmark, even if that investment was not in the best interest of the 
particular community or project. By limiting consideration of the Bank 
Nationwide Community Development Investment Metric and Nationwide 
Community Development Investment Benchmark to the nationwide area 
evaluation, banks have the flexibility to engage in the most 
appropriate type of financing for each community development project 
while still giving the agencies a view into how a bank's overall 
community development investment activity compares to its peers.
    After considering commenter feedback, the agencies determined that 
the Bank Community Development Investment Metric and the Nationwide 
Community Development Investment Benchmark should exclude mortgage-
backed securities. Although mortgage-backed securities serve a purpose 
in creating liquidity and helping banks to meet the credit needs of 
their communities, these types of community development investments do 
not involve the complexities associated with certain other community 
development investments. Further, given the existing markets for 
mortgage-backed securities, banks may readily engage in these types of 
investments if appropriate for their business model. For these reasons, 
the agencies believe that the consideration of community development 
investments within the nationwide area evaluation should focus on the 
extent to which banks are making community development investments 
other than mortgage-backed securities, which may involve competitive 
challenges, significant lead times, or otherwise be more complex for a 
bank to make.
    The agencies also determined that the Bank Nationwide Community 
Development Investment Metric as compared to the Nationwide Community 
Development Investment Benchmark may only contribute positively to a 
bank's Community Development Financing Test conclusion for the 
institution.\1251\ The agencies considered that there may be 
circumstances in which banks are not competitive for, or have limited 
opportunities to make, community development investments in particular 
geographic areas; however, provided that the agencies determine that 
banks are helping to meet community development needs overall based on 
the application of the Community Development Financing Test (exclusive 
of the investment metric and benchmark comparison), banks should be 
able to receive the conclusion and rating that the agency determines is 
appropriate. Nonetheless, the agencies believe the Bank Nationwide 
Community Development Investment Metric will incentivize banks to meet 
community needs and opportunities through community development 
investments because it: (1) adds transparency regarding a bank's level 
of community development investments; and (2) provides additional 
information that the agencies can consider positively in assessing a 
bank's performance under the Community Development Financing Test that 
may provide a more nuanced perspective on the bank's performance.
---------------------------------------------------------------------------

    \1251\ See final Sec.  __.24(e)(2)(iv) and final appendix B, 
paragraph II.p.2.ii.
---------------------------------------------------------------------------

Section __.24(e)(1) Nationwide Area Evaluation--component One
    Under final Sec.  __.24(e)(1)--the weighted average of facility-
based assessment area performance in the nationwide area--the 
appropriate Federal financial supervisory agency consider the weighted 
average of the performance scores corresponding to a bank's conclusions 
for the Community Development Financing Test for its facility-based 
assessment areas within the nationwide area, calculated pursuant to 
section IV of final appendix B.
Section __.24(e)(2) Nationwide Area Evaluation--Component Two
    Under final Sec.  __.24(e)(2)--nationwide area performance--the 
appropriate Federal financial supervisory agency considers a bank's 
community development financing performance in the nationwide area 
using a community development financing metric and benchmarks that 
consider all community development loans and investments in the 
nationwide area and, in the case of banks with over $10 billion in 
assets, a metric and benchmark focused on community development 
investments in the nationwide area. Component two also includes 
consideration of the impact and responsiveness of the bank's community 
development loans and investments.
    Specifically, under the final rule, component two includes a Bank 
Nationwide Community Development Investment Metric in Sec.  
__.24(e)(2)(iii). The appropriate agency applies this metric to large 
banks that had assets greater than $10 billion. The Bank Nationwide 
Community Development Investment Metric measures the dollar volume of 
the bank's community development investments that benefit or serve all 
or part of the nationwide area, excluding mortgage-backed securities, 
compared to the deposits located in the nationwide area for the bank. 
The agency calculates this metric pursuant to paragraph II.m of final 
appendix B. The formula for calculating the Bank Nationwide Community 
Development Investment Metric is consistent with the other metrics 
included in the Community Development Financing Test.
    Under final Sec.  __.24(e)(2)(iv), the appropriate agency compares 
the Bank Nationwide Community Development Investment Metric to the 
Nationwide Community Development Investment Benchmark that measures the 
dollar volume of community development investments that benefit or 
serve all or part of the nationwide area, excluding mortgage-backed 
securities, of all large banks that had assets greater than $10 billion 
compared to deposits located in the nationwide area for all such banks. 
The agency calculates this benchmark pursuant to paragraph II.n of 
final appendix B. The formula for calculating the Nationwide Community

[[Page 6990]]

Development Investment Benchmark is consistent with the other 
benchmarks included in the Community Development Financing Test. As 
noted above, final Sec.  __.24(e)(2)(iv) provides that this comparison 
may only contribute positively to the bank's Community Development 
Financing Test conclusion for the institution.
    As noted above, in the final rule, paragraph II.p.2.ii of appendix 
B also provides that in the nationwide area, for large banks with 
assets greater than $10 billion, the agency considers whether the 
bank's performance under the Nationwide Community Development 
Investment Metric, compared to the Community Development Investment 
Benchmark, contributes positively to the bank's Community Development 
Financing Test conclusion.
    Lastly, the agencies are finalizing the impact and responsiveness 
review in final Sec.  __.24(e)(2)(v) in the nationwide area as proposed 
with conforming edits. As noted in the proposal and above, the 
nationwide area Community Development Financing Test provisions are 
generally consistent with the State and multistate MSA Community 
Development Financing Test provisions. The agencies made additional 
conforming revisions throughout final Sec.  __.24(e) and paragraphs 
II.j, II.k, II.l of final appendix B.

Section __.24(e) and (f) Nationwide Area Evaluation and Community 
Development Financing Test Performance Conclusions and Ratings

The Agencies' Proposal
    The agencies proposed that a bank's weighted average assessment 
area performance score would be averaged with its nationwide area score 
to produce an institution performance score, with weights on both 
components tailored to reflect the bank's business model.\1252\ As 
proposed for the calculation of the State score, the amount of weight 
applied to the facility-based assessment area performance and to the 
nationwide area performance would depend on the bank's percentage of 
deposits and retail loans that are within its facility-based assessment 
areas. Under the proposal, the agencies used weights equivalent to 
those proposed for calculating the combined State performance score, to 
tailor the weighting to the bank's business model while still allowing 
all banks to receive meaningful credit for activities outside their 
facility-based assessment areas.\1253\ The agencies intended the 
proposed weighting approach for the nationwide area evaluation to 
achieve the same balance as the State weighting approach by emphasizing 
facility-based assessment area performance, allowing flexibility to 
receive consideration for activities outside of facility-based 
assessment areas, and tailoring the amount of weight on facility-based 
assessment area performance to bank business model. Banks that have a 
low percentage of deposits and retail loans within their facility-based 
assessment areas would have a stronger emphasis on their nationwide 
area score than on their weighted average of facility-based assessment 
area conclusions. Conversely, banks that have a high percentage of 
deposits and retail loans within their facility-based assessment areas 
would have approximately equal weight on their nationwide area score 
and on their weighted average of facility-based assessment area 
conclusions. The agencies proposed that they would then round the 
institution performance score to the nearest point value corresponding 
to a conclusion category: ``Outstanding'' (10 points); ``High 
Satisfactory'' (7 points); ``Low Satisfactory'' (6 points); ``Needs to 
Improve'' (3 points); ``Substantial Noncompliance'' (0 points), to 
develop the Institution Community Development Financing Test 
conclusion.
---------------------------------------------------------------------------

    \1252\ See proposed appendix B, section 15.
    \1253\ See id.
---------------------------------------------------------------------------

Comments Received
    Other than the comments discussed above regarding the evaluation of 
community development loans and investments outside of banks' facility-
based assessment areas, the agencies did not receive specific comments 
on the calculation of the institution conclusion.
Final Rule
    The agencies are finalizing the institution conclusion provisions 
for the Community Development Financing Test as proposed with 
conforming revisions. Final Sec.  __.24(e) provides that the 
appropriate Federal financial supervisory agency evaluates a bank's 
community development financing performance in the nationwide area, 
pursuant to final Sec.  __.19,\1254\ using the two components discussed 
above and assign a conclusion for the institution based on the weighted 
combination of the two components discussed above and as provided in 
paragraph II.p of final appendix B and the weighting of conclusions as 
provided in section IV of final appendix B. As noted in the proposal, 
the nationwide area Community Development Financing Test provisions are 
consistent with the State and multistate MSA Community Development 
Financing Test provisions and the agencies made conforming revisions 
throughout final Sec.  __.24(e) and paragraphs II.j, II.k, II.l of 
final appendix B.
---------------------------------------------------------------------------

    \1254\ The cross-references to final Sec.  __.19 are consistent 
with similar revisions to the State evaluation in final Sec.  
__.24(c) and the multistate MSA evaluation in final Sec.  __.24(d). 
Unlike those paragraphs, final Sec.  __.24(e) does not cross-
reference final Sec.  __.28(c) because those provisions are not 
applicable to the institution conclusions.
---------------------------------------------------------------------------

    Under the final rule, Sec.  __.24(f)(1) provides that the agency 
assigns performance conclusions for the Community Development Financing 
Test for the institution pursuant to final Sec.  __.28 and final 
appendix C. Further, final Sec.  __.24(f)(2) provides that pursuant to 
final Sec.  __.28 and appendix D, the agency incorporates a bank's 
Community Development Financing Test conclusions into its institution 
ratings.

Miscellaneous Comments and Technical and Conforming Changes

Comments Received
    The agencies received several comments on miscellaneous portions of 
the Community Development Financing Test. The agencies also discuss 
various conforming changes to the Community Development Financing Test 
below.
    A commenter recommended that the agencies not only consider the 
dollar volume of community development transactions, but also the units 
or number of transactions undertaken by the bank during any given year 
or examination cycle. The commenter explained that counting the number 
of units or transactions closed by the institution in any given cycle 
can be compared year-to-year and cycle-to-cycle to inform the picture 
of a bank's community development financing performance. Similarly, a 
commenter suggested that if the Community Development Financing Test is 
retained, the agencies should require that a reasonable number of 
transactions and originations be maintained and considered under the 
performance test to limit the moral hazard of banks pursuing the 
largest loans and avoiding rural America.
    A commenter also suggested the following modifications to the 
Community Development Financing Test: (1) calculating the percentage of 
community development loans and investments that were committed to 
persistent poverty counties and counties with low levels of financing; 
and (2) reporting the percentage of community development loans and 
investments that involved collaboration and partnerships

[[Page 6991]]

with public agencies and community-based organizations.
Final Rule
    The agencies did not add to the final rule a metric measuring the 
percentage of community development loans and investments that were 
committed to persistent poverty counties and counties with low levels 
of financing. The agencies structured the Community Development Test to 
have different components that serve distinct purposes. Under the final 
Community Development Financing Test, the impact and responsiveness 
review is the mechanism for considering community development loans and 
investments in persistent poverty counties and other underserved 
geographic areas. The agencies believe that the impact and 
responsiveness review is the appropriate means of considering these 
types of loans and investments because it provides an incentive through 
enhanced consideration as opposed to a comparison across banks. Banks 
operate in different markets with different business strategies and 
community needs and opportunities. A such, where some banks may be 
positioned to engage in community development lending and investment in 
persistent poverty counties, other banks may not have similar 
opportunities. Therefore, the suggested metric likely would not provide 
useful information for the agencies' evaluation of performance under 
the Community Development Financing Test.\1255\
---------------------------------------------------------------------------

    \1255\ For the agencies to determine if such a metric could 
usefully inform evaluation of bank performance under the Community 
Development Financing Test, the agencies would need to analyze data 
on lending and investments in these areas, which are unavailable at 
this time.
---------------------------------------------------------------------------

    The agencies similarly did not add a requirement for reporting the 
percentage of community development loans and investments that involved 
collaboration and partnerships with public agencies and community-based 
organizations. The agencies do not believe that this information is 
necessary for assessing bank performance under the Community 
Development Financing Test. Further, as discussed above, the agencies 
determined not to consider the number of transactions under the 
Community Development Financing Test.\1256\
---------------------------------------------------------------------------

    \1256\ See the section-by-section analysis of Sec.  __.24(a).
---------------------------------------------------------------------------

Other Technical and Conforming Changes

    In addition to the changes discussed above, the agencies made 
several non-substantive technical and conforming changes to the final 
Community Development Financing Test in final Sec.  __.24 and final 
appendix B. The agencies' intent in making these changes, along with 
the other technical, clarifying, or conforming revisions discussed 
through this section-by-section analysis, was to be responsive to the 
overarching comments that the proposal was too complex and difficult to 
understand. First, the agencies reformatted final Sec.  __.24(a) to 
delineate the different components of the paragraph. The agencies also 
revised the terminology to be more consistent both within final Sec.  
__.24 and throughout the rule. For example, the final rule uses the 
phrase ``benefits or serves'' in all places where the proposal had used 
one of those terms or the combined phrase. These and similar types of 
changes are not intended to have a substantive effect; rather, the 
agencies intend for these changes to clarify the rule by eliminating 
unnecessary variation that could introduce ambiguity.
    Second, the agencies revised the format of the Community 
Development Financing Test by restructuring proposed Sec.  __.24(c) to 
separate the State, multistate MSA, and nationwide area evaluations 
into distinct paragraphs in final Sec.  __.24.\1257\ As discussed 
above, the agencies also streamlined the description of the metrics and 
benchmarks throughout final Sec.  __.24 and clarified the calculation 
of the metrics and benchmarks in final appendix B by describing each 
step in the calculation separately and adding sample formulas for 
clarity. The agencies made additional clarifying revisions to final 
appendix B, including: (1) reformatting and reorganizing the appendix 
to include sections with subparagraphs; and (2) adding summary 
paragraphs describing the inputs for the numerators and denominators of 
the metrics and benchmarks included in final Sec. Sec.  __.24 and 
__.26.
---------------------------------------------------------------------------

    \1257\ See final Sec.  __.24(c) (State), (d) (multistate MSA), 
and (e) (nationwide area).
---------------------------------------------------------------------------

    Third, similar to the revisions made to final appendix A to improve 
clarity and readability, the agencies reorganized final appendix B into 
four separate sections. These sections are organized by topic and the 
sections of the final rule to which they relate. The substantive 
aspects of these sections are discussed above. The sections of final 
appendix B are as follows:
     Section I--Community Development Financing Tests--
Calculation Components and Allocation of Community Development Loans 
and Community Development Investments. This section includes the inputs 
for the metrics and benchmarks numerators and denominators in final 
Sec. Sec.  __.24 and __.26 and the methods for valuing and allocating 
community development loans and investments.
     Section II--Community Development Financing Test in final 
Sec.  __.24--Calculations for Metrics, Benchmarks, and Combining 
Performance Scores. This section includes all the calculations for the 
metrics and benchmarks in the Community Development Financing Test in 
final Sec.  __.24. The section also includes methodology for 
calculating the combined score for facility-based assessment area 
conclusions, the metrics and benchmarks analyses, and the impact and 
responsiveness reviews.
     Section III--Community Development Financing Test for 
Limited Purpose Banks in final Sec.  __.26--Calculations for Metrics 
and Benchmarks. This section of final appendix B relates to the 
Community Development Financing Test for Limited Purpose Banks and is 
discussed in the section-by-section analysis of final Sec.  __.26.
     Section IV--Weighting of Conclusions. This section applies 
to the development of conclusions for a bank's performance under the 
Community Development Financing Test in final Sec.  __.24 and the 
Community Development Services Test in final Sec.  __.25. The section 
provides the methodology for weighting the performance scores 
corresponding to conclusions in each State or multistate MSA, as 
applicable, pursuant to final Sec.  __.28(c), and the nationwide area.
    In summary, the agencies are adopting final Sec.  __.24 and final 
appendix B with the revisions discussed above.

Section __.25 Community Development Services Test

Current Approach
    The agencies currently evaluate a large bank's provision of 
community development services, along with retail banking services, as 
part of the service test.\1258\ For intermediate small banks and 
wholesale and limited purpose banks, the agencies evaluate community 
development services, community development loans, and community 
development investments under a single community development 
test.\1259\ Generally, the agencies do not evaluate

[[Page 6992]]

community development services for small banks.\1260\
---------------------------------------------------------------------------

    \1258\ See current 12 CFR __.24(a).
    \1259\ See current 12 CFR __.26(c) (intermediate small banks) 
and __.25 (wholesale and limited purpose banks).
    \1260\ See current 12 CFR __.26.
---------------------------------------------------------------------------

    The current service test is largely qualitative and evaluates the 
extent to which a bank provides community development services and the 
extent to which those services are innovative or responsive to 
community needs.\1261\ Examiners may consider measures including the 
number of: (1) low- and moderate-income participants; (2) organizations 
served; (3) sessions sponsored; and (4) bank staff hours 
dedicated.\1262\ The agencies assess innovation and responsiveness by 
considering whether a community development service requires special 
expertise and effort by the bank, the impact of a particular activity 
on community needs, and the benefits received by a community.\1263\
---------------------------------------------------------------------------

    \1261\ See, e.g., current 12 CFR __.24(e).
    \1262\ See Q&A Sec.  __.24(e)--2.
    \1263\ See id.
---------------------------------------------------------------------------

    Under the current rule, the agencies consider services performed by 
a third party on the bank's behalf under the service test if the 
community development services provided enable the bank to help meet 
the credit needs of its communities.\1264\ Indirect community 
development services that enhance a bank's ability to deliver credit 
products or deposit services within its community and that can be 
quantified may be considered under the current service test if those 
services have not been considered already under the lending or 
investment test.\1265\
---------------------------------------------------------------------------

    \1264\ Q&A Sec.  __.24(e)--1.
    \1265\ Id.
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed in Sec.  __.25 to separately evaluate a large 
bank's performance of community development services under the 
Community Development Services Test. For all large banks, the agencies 
proposed to evaluate each facility-based assessment area based on (1) 
the extent to which a bank provides community development services and 
(2) the impact and responsiveness of those services pursuant to 
proposed Sec.  __.15.\1266\ In addition, the agencies proposed a 
quantitative metric (the Bank Assessment Area Community Development 
Service Hours Metric), described further below, for large banks with 
average assets of more than $10 billion.\1267\
---------------------------------------------------------------------------

    \1266\ See proposed Sec.  __.25(b).
    \1267\ See id.
---------------------------------------------------------------------------

    Under the proposal, the facility-based assessment area conclusions 
would form the basis of conclusions for each State, multistate MSA, and 
the nationwide area.\1268\ For each of these areas, conclusions would 
be based on two components: (1) a bank's weighted average of its 
community development services performance in its facility-based 
assessment areas within a State, multistate MSA, and nationwide area; 
and (2) an evaluation of its community development services outside its 
facility-based assessment areas but within the State, multistate MSA, 
and nationwide area.\1269\
---------------------------------------------------------------------------

    \1268\ See proposed Sec.  __.25(c).
    \1269\ See proposed Sec.  __.25(c) and proposed appendix B, 
section 16.
---------------------------------------------------------------------------

    Unlike the current approach,\1270\ the proposal did not provide for 
community development services consideration where a third party (other 
than an affiliate) performs those services pursuant to an agreement in 
which the bank pays for those services.\1271\ The proposal also 
included a definition of community development services in proposed 
Sec.  __.25(d), which is discussed in the section-by-section analysis 
of Sec.  __.12.
---------------------------------------------------------------------------

    \1270\ See Q&A Sec.  __.24(e)--1.
    \1271\ See proposed Sec.  __.21(c) (outlining when community 
development services performed by an affiliate may be considered).
---------------------------------------------------------------------------

Comments Received
    The agencies received many comments on proposed Sec.  __.25. A few 
commenters generally supported the proposed Community Development 
Services Test. However, many commenters believed the proposed test 
would facilitate misplaced examiner discretion and urged the agencies 
to develop guidelines to ensure consistency. Several commenters stated 
that the proposed Community Development Services Test is insufficiently 
robust, with at least one of these commenters asserting the scope of 
activities is too narrow. In addition, a few commenters expressed 
concern that the test was inappropriately focused on the number of 
volunteer hours and not the type or quality of the volunteer 
activities, and advocated for a qualitative consideration of community 
development services.
    Some commenters suggested that if the agencies do not establish a 
consolidated community development test (i.e., one performance test 
that considers community development financing and community 
development services),\1272\ the agencies should strengthen the 
Community Development Services Test by making the test more closely 
resemble the ``responsiveness'' consideration proposed in the Retail 
Services and Products Test. At least one commenter reasoned that the 
proposed Community Development Services Test has a disproportionately 
high weight for a limited number of eligible or impactful activities.
---------------------------------------------------------------------------

    \1272\ See the section-by-section analysis of final Sec.  
__.21(a) for discussion on creating a single consolidated community 
development performance test that evaluates community development 
loans, investments, and services.
---------------------------------------------------------------------------

Final Rule
    The agencies are adopting the Community Development Services Test 
with substantive, technical, clarifying, and conforming edits discussed 
below. In addition, the agencies made revisions to the proposed 
definition of ``community development services'' and moved the 
definition to final Sec.  __.12, which is discussed in the section-by-
section analysis of Sec.  __.12.
    As adopted, the Community Development Services Test remains largely 
qualitative and does not include the proposed Bank Assessment Area 
Community Development Service Hours Metric. The performance test also 
maintains the proposed consideration of the impact and responsiveness 
of a bank's community development services. The agencies believe the 
final rule provides greater consistency compared to the current rule 
and is responsive to commenter concerns about the potential for 
inconsistent application of the tests. For example, final Sec.  
__.25(b) and (c) formalize agency considerations in determining the 
extent to which a bank provides community development services (e.g., 
the total hours of community development services performed by the 
bank; the capacities in which bank employees or board members served) 
and creates a standard set of data points to facilitate the review in 
final Sec.  __.42(a)(6). In contrast to the current rule, the agencies 
added clarity by outlining types of community development services 
deemed impactful and responsive in final Sec.  __.15.\1273\
---------------------------------------------------------------------------

    \1273\ See the section-by-section analysis of final Sec.  __.15 
for additional discussion specific to the impact and responsiveness 
consideration.
---------------------------------------------------------------------------

    Further, the agencies believe, based on supervisory experience, 
that a qualitative evaluation of community development services is 
appropriate and consistent with how the agencies currently evaluate 
community development services. Community development services do not 
lend themselves easily to a metrics-based approach because, as 
described further below, the evaluation includes consideration of the 
needs and opportunities available in a particular area, as well as a 
bank's resources and business model. To limit potentially misplaced 
discretion and rating

[[Page 6993]]

inflation, the agencies intend to provide guidance and training to 
examiners on the Community Development Services Test, such as how to 
apply the impact and responsiveness review, and when to apply the 
upward adjustment in final Sec.  __.25(c)(2). In response to commenter 
feedback regarding responsiveness, the final rule requires community 
development services evaluated under the Community Development Services 
Test to support community development, as described in final Sec.  
__.13, and to be related to the provision of financial services.\1274\
---------------------------------------------------------------------------

    \1274\ See the section-by-section analysis of Sec.  __.12 for 
discussion of the definition of community development services.
---------------------------------------------------------------------------

    The agencies did not receive comments on the proposal's exclusion 
of CRA consideration for community development services performed by a 
non-affiliate third party. The agencies believe paying such a party to 
perform service hours does not qualify as ``the performance of 
volunteer services by a bank's or affiliate's board members or 
employees.'' However, this sort of activity may qualify as a community 
development investment as a ``monetary or in-kind donation.'' \1275\ 
Thus, the final rule maintains this exclusion.\1276\
---------------------------------------------------------------------------

    \1275\ See the section-by-section analysis of Sec.  __.12 for 
discussion on whether community development services performed by a 
third party may qualify as a ``monetary or in-kind donation'' within 
the definition of ``community development investment.''
    \1276\ See the section-by-section analysis of Sec.  __.21(b) for 
discussion on treatment of services performed by affiliates.
---------------------------------------------------------------------------

Section __.25(a) Community Development Services Test

The Agencies' Proposal
    The agencies proposed in Sec.  __.25(a) to evaluate a bank's record 
of helping to meet the community development services needs of the 
bank's facility-based assessment areas, States, multistate MSA, and 
nationwide area. The agencies defined community development services in 
proposed Sec.  __.25(d) and explained that the agencies would consider 
publicly available information and information provided by the bank, 
government, or community sources that demonstrates that the activity 
includes serving individuals or census tracts located within the 
facility-based assessment area, State, multistate MSA, or nationwide 
area, as applicable.
Comments Received and Final Rule
    The agencies received one comment specific to this proposed 
paragraph. This commenter suggested that the scope of community 
development services in proposed Sec.  __.25(a) should specifically 
include that ``[f]or military banks and banks serving military and 
veteran communities, these community development services may occur on 
or near military installations and worldwide.'' The agencies do not 
believe these proposed edits are warranted. As discussed in the 
section-by-section analysis of Sec.  __.16(d), military banks whose 
customers are not located within a defined geographic area may 
delineate a single facility-based assessment area consisting of the 
entire United States and its territories. For banks that elect this 
delineation pursuant to final Sec.  __.16(d) and are also subject to 
the Community Development Services Test, the agencies will evaluate 
community development services in its facility-based assessment area, 
which would include military installations within the United States and 
its territories. The agencies do not include military installations 
worldwide, consistent with the other parts of the final rule where the 
agencies only consider activities within the United States and its 
territories.
    The agencies are adopting proposed Sec.  __.25(a) with conforming, 
clarifying, and technical edits. Specifically, the agencies conformed 
the language in each introductory paragraph across the performance 
tests so that the language mirrors the statute by replacing the 
proposed references to the bank's facility-based assessment areas, 
States, multistate MSAs, and the nationwide area with ``the entire 
community.'' \1277\ In addition, the agencies eliminated the reference 
to where to find the definition of community development services 
within proposed Sec.  __.25 because all definitions are now in final 
Sec.  __.12.
---------------------------------------------------------------------------

    \1277\ See final Sec.  __.25(a)(1).
---------------------------------------------------------------------------

    Similar to the proposed approach in Sec.  __.25(a), the final rule, 
renumbered as Sec.  __.25(a)(2), provides that the agencies consider 
information provided by the bank and may consider publicly available 
information and information provided by government or community sources 
that demonstrates that a community development service benefits or 
serves a facility-based assessment area, State, multistate MSA, or the 
nationwide area. The agencies made clarifying edits to the proposed 
provision to specify that while the agencies will consider information 
provided by the bank to determine whether a particular community 
development service benefits or serves a particular area, the agencies 
may, at their option, consider publicly available information or 
information from government or community sources.

Section __.25(b) Facility-Based Assessment Area Evaluation

The Agencies' Proposal
    The agencies proposed in Sec.  __.25(b)(1) to review a bank's 
provision of community development services by considering one or more 
of the following types of information: (1) the total number of 
community development services hours performed by the bank; (2) the 
number and type of community development services activities offered; 
(3) for nonmetropolitan areas, the number of activities related to the 
provision of financial services; (4) the number and proportion of 
community development services hours completed by, respectively, 
executives and other employees of the bank; (5) the extent to which 
community development services are used, as demonstrated by information 
such as the number of low- or moderate-income participants, 
organizations served, and sessions sponsored; or (6) other evidence 
that the bank's community development services benefit low- or 
moderate-income individuals or are otherwise responsive to community 
development needs.
    For large banks with average assets greater than $10 billion, the 
agencies proposed in Sec.  __.25(b)(2) a quantitative metric--the Bank 
Assessment Area Community Development Service Hours Metric--to measure 
the average number of community development service hours per full-time 
equivalent employee. The agencies proposed calculating the metric by 
dividing a bank's aggregate hours of community development services 
activity during the evaluation period in a facility-based assessment 
area by the number of full-time equivalent employees in a facility-
based assessment area. The proposal did not include a peer benchmark in 
which to compare the Bank Assessment Area Community Development Service 
Hours Metric. However, the agencies stated in the proposed rule that 
the collection and analysis of community development service hours data 
under the proposed rule might allow for future development of peer 
benchmarks.
    The agencies also proposed to evaluate the impact and 
responsiveness of the bank's community development services in a 
facility-based assessment area pursuant to proposed Sec.  __.15.
Comments Received
    Commenters offered varying feedback on the proposed evaluation of 
community development services in facility-based assessment areas,

[[Page 6994]]

including, but not limited to, the Bank Assessment Area Community 
Development Service Hours Metric and whether the benefit associated 
with using the metric exceeded the burden of collecting and reporting 
this data point. A few commenters supported the proposed metric, 
noting, generally, that the metric's value would exceed any burden to 
the bank, or that the metric imposed limited burden to the bank. A 
commenter highlighted the metric's ability to provide meaningful 
comparison at the local level but suggested further refinement to the 
calculation so that the metric would consider the number of months in 
the evaluation period. At least a few commenters supporting the metric 
said that reporting the data would not be burdensome to banks because 
they already collect these data. Another commenter stressed that the 
collection of community development services data is fundamental to 
evaluating performance under the performance test.
    Other commenters opposed the Bank Assessment Area Community 
Development Service Hours Metric. These commenters generally believed 
the metric's benefit did not outweigh the burden of reporting the 
additional data. A commenter questioned the utility of the metric where 
the proposed community development services evaluation would include 
other non-quantitative bases and examiner discretion. Further, the 
commenter found the metric duplicative of other parts of the proposed 
Community Development Services Test, such as the consideration of the 
number of hours for all community development services performed by a 
bank as well as the proportion of community development service hours 
completed by bank executives and other bank employees. Another 
commenter believed the proposed test without the metric would be 
sufficient.
    In response to the agencies' question in the proposed rule on 
whether to apply the Bank Assessment Area Community Development Service 
Hours Metric to all large banks, including those with average assets of 
$10 billion or less, a few commenters endorsed requiring all large 
banks to report this metric, with a couple of these commenters also 
endorsing the application of the metric to intermediate small 
banks.\1278\ One commenter opposed requiring banks with assets $10 
billion or less to report the Bank Assessment Area Community 
Development Service Hours Metric, though it expressed general support 
for recording volunteer hours.
---------------------------------------------------------------------------

    \1278\ The proposed rule did not include the term ``intermediate 
small bank.''
---------------------------------------------------------------------------

    A few commenters raised concerns about operationalizing the metric, 
such as challenges related to employees self-reporting and tracking 
hours, recording the location of a community development services 
provided virtually, and defining a full-time equivalent employee. A few 
commenters supported the inclusion of executives in the definition of 
full-time equivalent employee. Other commenters suggested that the 
agencies should not discount service hours for part-time employees, or 
that the metric should exclude ``non-exempt staff'' from the definition 
of full-time equivalent employment if the final rule requires community 
development services be related to the provision of financial services. 
A couple of commenters cautioned that the increasing prevalence of 
remote working arrangements and back-office locations would make 
allocating full-time equivalent bank employees to a particular 
geographic area challenging and could lead to anomalous results.
    A few commenters responded specifically on whether the agencies 
should develop benchmarks and thresholds to compare the Bank Assessment 
Area Community Development Service Hours Metric once such data are 
available. In general, some commenters opposed the development of such 
benchmarks and thresholds because they would be too burdensome, whereas 
other commenters tended to support developing benchmarks to facilitate 
comparison across banks. One commenter believed the metric's comparison 
to a peer benchmark should greatly influence the conclusions.
    The agencies also sought feedback on whether to include an 
additional executive-only metric in which the agencies would assess 
community development service hours per executive for large banks with 
assets of over $10 billion. The agencies received only a few comments 
about this metric, each of which noted that a separate metric for 
executive service hours would not add any rigor to the performance 
test.
    A couple of commenters suggested prescribed weighting within the 
facility-based assessment area to promote consistency and rigor. For 
example, a commenter suggested assigning a 50 percent weight for the 
Bank Assessment Area Community Development Service Hours Metric and a 
50 percent weight for the qualitative factors in proposed Sec.  
__.25(b)(1). Another commenter suggested that hours spent volunteering 
as a board member or in other leadership roles for a community 
development organization should be weighted more heavily than other 
community development services because the former requires a greater 
commitment.
Final Rule
    Final Sec.  __.25(b) adopts the proposed qualitative approach to 
evaluate a large bank's community development services in a facility-
based assessment area with substantive, clarifying, and technical 
changes. As mentioned previously, the final rule does not include the 
Bank Assessment Area Community Development Service Hours Metric in the 
Community Development Services Test. Upon consideration of the 
comments, the agencies believe the metric would have increased the 
rule's complexity and burden with limited benefit to assessing 
community development services, particularly since the agencies do not 
have sufficient data to establish a peer benchmark for comparison with 
the Bank Assessment Area Community Development Service Hours Metric. 
The agencies recognize the challenges identified by commenters in 
defining a full-time equivalent employee and recognize that a bank's 
full-time equivalent employees may not be an appropriate measure or 
proxy for the expectation of the amount of community development 
services a bank should provide. A bank's decision on the number and 
types of employees (e.g., full-time, part-time, contract, seasonal) 
could be driven by many factors other than community development 
services capacity. Relatedly, the agencies asked whether the final rule 
should include a definition of ``full-time employee.'' This definition 
is no longer necessary because the final rule does not include the 
proposed Bank Assessment Area Community Development Service Hours 
Metric, which used this term.
    The final rule does not include an executive-only metric in 
response to commenter feedback that the metric would not add rigor to 
the test. Correspondingly, the agencies removed a related 
consideration--the number and proportion of community development 
services hours performed by executives and other bank employees--from 
the list of considerations when evaluating a bank's provision of 
community development services in a facility-based assessment 
area.\1279\
---------------------------------------------------------------------------

    \1279\ See proposed Sec.  __.25(b)(1)(iv). Final Sec.  __.12 
requires that all community development services be related to the 
provision of financial services. See the section-by-section analysis 
of Sec.  __.12 for discussion of the definition of community 
development services.

---------------------------------------------------------------------------

[[Page 6995]]

    The agencies streamlined and reorganized the list of considerations 
in proposed Sec.  __.25(b)(1). The final rule does not include the 
proposed consideration--the number of activities related to the 
provision of financial services in nonmetropolitan areas--because this 
concept is inherent in the definition of community development services 
in final Sec.  __.12.\1280\ Further, the agencies condensed the 
proposed considerations in Sec.  __.25(b)(1)(v) and (vi) into final 
Sec.  __.25(b)(4). Proposed Sec.  __.25(b)(1)(v)--the extent to which 
community development services are used, as demonstrated by information 
such as the number of low- and moderate-income participants, 
organizations served, and sessions sponsored, as applicable--provided 
examples of the catch-all provision in proposed Sec.  __.25(b)(1)(vi). 
Thus, final Sec.  __.25(b)(4) incorporates both concepts without an 
intended change in meaning. Final Sec.  __.25(b)(4) provides that the 
review of community development services in a facility-based assessment 
area may include ``[a]ny other evidence demonstrating that the bank's 
community development services are responsive to community development 
needs, such as the number of low- and moderate-income individuals that 
are participants, or number of organizations served.''
---------------------------------------------------------------------------

    \1280\ See proposed Sec.  __.25(b)(1)(iii).
---------------------------------------------------------------------------

    The agencies made other conforming edits to track the data 
collection and maintenance requirements in final Sec.  __.42(a)(6), 
which requires the collection and maintenance of community development 
services data regarding the capacity in which a bank employee or board 
member served.\1281\ The final rule explicitly identifies this 
consideration in Sec.  __.25(b)(2). The aligning of this provision to 
the data collection and maintenance requirements in the final rule 
results in replacing ``executive'' with ``board member.'' Bank 
executives remain included in the term ``employee,'' and the agencies 
clarified that consideration of the capacity served also applies to 
board members. In addition, proposed Sec.  __.25(b)(1)(ii) would have 
included the number and type of community development services offered. 
Consistent with the terminology in data collection and maintenance in 
the final rule,\1282\ the agencies clarified in final Sec.  __.25(b)(1) 
that the agencies may consider, as appropriate, the number of community 
development services attributable to each type of community development 
described in Sec.  __.13(b) through (l). Finally, the agencies changed 
the outline levels to clarify that the impact and responsiveness review 
in final Sec.  __.15 may be among the considerations in assigning a 
conclusion for a facility-based assessment area.\1283\
---------------------------------------------------------------------------

    \1281\ Final Sec.  __.42(a)(6)(i)(E).
    \1282\ See final Sec.  __.42(a)(6).
    \1283\ See final Sec.  __.25(b)(5).
---------------------------------------------------------------------------

    The final rule does not prescribe a specific weighting for the 
Community Development Services Test evaluation of each facility-based 
assessment area. Without the proposed Bank Assessment Area Community 
Development Service Hours Metric, the commenter suggestions for 
weighting the metric compared to other considerations in the facility-
based assessment area are no longer necessary. The agencies considered 
establishing weighting within the performance test or otherwise 
reducing examiner discretion but determined that examiner discretion is 
appropriate. For example, it is difficult to conclude, as suggested by 
a commenter, that hours volunteering as a board member for an 
organization that supports community development is always more 
impactful and responsive than hours volunteering in a non-leadership 
capacity. Instead, the agencies believe that they should base the 
impact and responsiveness of a community development service on the 
needs of a particular community. Examiner discretion in this test is 
also consistent with current practice and consistent with the final 
Community Development Financing Test and the Retail Services and 
Product Test.\1284\
---------------------------------------------------------------------------

    \1284\ See also discussion above under Community Development 
Services Test--In General.
---------------------------------------------------------------------------

Section __.25(c) State, Multistate MSA, or Nationwide Area Evaluation

Section __.25(d) Community Development Services Test Performance 
Conclusions and Ratings

The Agencies' Proposal
    The proposal provided that the facility-based assessment area 
conclusions would form the basis of conclusions at the State, 
multistate MSA, and nationwide area.\1285\ Pursuant to proposed Sec.  
__.25(c) and paragraph 16 of proposed appendix B, for each of these 
areas, the agencies would develop conclusions based on two components: 
(1) a bank's weighted average of its community development services 
performance conclusions in its facility-based assessment areas within a 
State, multistate MSA, or the nationwide area, as applicable under 
Sec.  __.18; and (2) an evaluation of a bank's community development 
services outside its facility-based assessment areas but within the 
State, multistate MSA, and nationwide area. The agencies recognized 
that the current rule includes beneficial flexibility that can also 
result in uncertainty about which community development services will 
qualify for CRA consideration. For example, under the current approach, 
if examiners determine that a bank conducted a community development 
service in a broader statewide or regional area that does not benefit 
an assessment area and that the bank has not been responsive to the 
needs of its assessment areas, the bank will not receive consideration 
for that activity.\1286\ This aspect of the current approach caused 
uncertainty for banks because they would not know if examiners had 
determined they were responsive to the needs of their assessment areas 
until the point of their CRA examination, after the bank had engaged in 
the activities considered in the examination. With the proposed rule, 
the agencies intended to achieve a balance between prioritizing 
facility-based assessment area performance, and providing certainty 
that the agencies would consider community development services in 
other areas.
---------------------------------------------------------------------------

    \1285\ See proposed Sec.  __.25(c).
    \1286\ See Q&A Sec.  __.12(h)--(6).
---------------------------------------------------------------------------

    Under proposed Sec.  __.25(c), the agencies would base weighting 
under the first component on the average of two numbers: the bank's 
share of retail loans within the facility-based assessment area 
compared to the applicable geographic area (State, multistate MSA, or 
nationwide area); and a bank's share of deposits within the facility-
based assessment area compared to the applicable geographic area.\1287\ 
Paragraph 16 of proposed appendix B provided the calculations for 
weighting conclusions in a State, for a multistate MSA, and for the 
institution, respectively. In a State, the agencies would weight a 
bank's performance test conclusion in each facility-based assessment 
area using the simple average of the percentages of, respectively, 
statewide bank deposits associated with the facility-based assessment 
area and statewide retail loans that the bank originated or purchased 
in the facility-based assessment area. The statewide percentages of 
deposits and retail loans associated with each facility-based 
assessment area would be based upon, respectively, the dollar volumes 
of deposits and loans in each facility-based assessment area compared 
with,

[[Page 6996]]

respectively, the statewide dollar totals of deposits and loans within 
facility-based assessment areas of that State. Put another way, the 
proposal provided that the agencies would weight conclusions at the 
State-level by averaging: (1) the dollar volume of deposits in a 
facility-based assessment area within the State divided by the dollar 
volume of deposits in the bank in that State; and (2) a bank's dollar 
volume of retail loans in a facility-based assessment area within the 
State divided by the dollar volume of retail loans in that State. The 
agencies would use the same approach for weighting conclusions for the 
multistate MSA and institution.
---------------------------------------------------------------------------

    \1287\ See also proposed appendix B, section 16.
---------------------------------------------------------------------------

    The second component in proposed Sec.  __.25(c)(2) provided that 
any upward adjustment of the performance score derived from the 
weighted average of the facility-based assessment area performance 
(i.e., component one) would be based on an evaluation of community 
development services performed outside the facility-based assessment 
area. That evaluation could include: the number, hours, and type of 
community development service activities; the proportion of activities 
related to the provision of financial services, as described in 
proposed Sec.  __.25(d)(3); and the impact and responsiveness of these 
activities.\1288\
---------------------------------------------------------------------------

    \1288\ See proposed Sec.  __.25(c)(2).
---------------------------------------------------------------------------

    Finally, proposed Sec.  __.25(e)(1) provided that the agencies 
assign community development services conclusions at the facility-based 
assessment area, the State, multistate MSA, and institution level, as 
provided in proposed Sec.  __.28 and appendix C. Proposed Sec.  
__.25(e)(2) provided that the agencies incorporate those conclusions 
into its State, multistate MSA, and institution ratings.
Comments Received
    A commenter expressed concern with the lack of guidelines for 
potential upward adjustments based on community development services 
performed outside of facility-based assessment areas. This commenter 
recommended establishing a minimal level of service that must be 
performed outside a facility-based assessment area to be eligible for 
an upward adjustment, and recommended prohibiting banks with a ``Needs 
to Improve'' or ``Substantial Noncompliance'' in its facility-based 
assessment areas from receiving this upward adjustment. In addition, 
this commenter said the performance of community development services 
outside of facility-based assessment areas should clearly exceed the 
performance within facility-based assessment areas as measured by hours 
per employee or impact.
Final Rule
    The agencies adopt final Sec.  __.25(c) as proposed with technical 
and conforming edits. To ensure consistency with final Sec.  __.25(b), 
the agencies replaced the considerations list in proposed Sec.  
__.25(c)(2) with a reference to the similar factors in final Sec.  
__.25(b)(1) through (5). This change adds a catch-all provision 
(described further in the section-by-section analysis of Sec.  
__.25(b)) to ensure the agencies may consider other evidence 
demonstrating that the bank's community development services outside 
facility-based assessment areas are responsive to community development 
needs. In addition, the replacement of the consideration list in 
proposed Sec.  __.25(c)(2) with final Sec.  __.25(c)(2) removes 
consideration of the proportion of community development services 
related to the provision of financial services \1289\ because the final 
rule requires all community development services to be related to the 
provision of financial services (see the section-by-section analysis of 
Sec.  __.12).
---------------------------------------------------------------------------

    \1289\ Compare proposed Sec.  __.25(c)(2)(ii), with final Sec.  
__.25(c)(2).
---------------------------------------------------------------------------

    Consistent with the proposal, the final rule permits an upward 
adjustment based on the consideration of community development services 
outside of a bank's facility-based assessment area; however, banks 
subject to final Sec.  __.25 are not required to provide such services 
outside their facility-based assessment areas.\1290\ Consideration of 
community development services in areas outside of the facility-based 
assessment area recognizes impactful community development 
opportunities that serve areas with high unmet community development 
needs, including those areas in which few banks have a facility-based 
assessment area or a concentration of loans subject to final Sec.  
__.22.
---------------------------------------------------------------------------

    \1290\ See final Sec.  __.25(c)(2).
---------------------------------------------------------------------------

    The final rule does not impose additional limitations or 
restrictions on when the upward adjustment may be applied, as suggested 
by a few commenters. In general, banks perform community development 
services in areas where employees or board members are located (i.e., 
main office and branches), which is also generally where a facility-
based assessment area must be delineated. Thus, the agencies do not 
believe additional limitations or restrictions are necessary.
    The agencies also made conforming edits to clarify that the 
agencies evaluate performance in the nationwide area but conclude at 
the institution level. The final rule removes two errant references to 
proposed Sec.  __.18, the consideration of community development 
services outside of a bank's facility-based assessment areas, in 
proposed Sec.  __.25(c) introductory text and (c)(1). The reference to 
this consideration, renumbered as final Sec.  __.19, should be limited 
to component two in final Sec.  __.25(c)(2). The weighting of the 
conclusions remains substantively comparable to the proposed weighting 
in paragraph 16 of proposed appendix B but includes clarifying edits in 
final appendix B. See the section-by-section analysis of Sec.  __.24(c) 
and (d) for additional discussion on the Weighting of Conclusions in 
section IV of final appendix B, which also applies to the final 
Community Development Financing Test.
    The agencies adopt the proposed conclusions and ratings provision 
as final Sec.  __.25(d) with technical and conforming edits. Final 
Sec.  __.25(d)(1) provides that the agencies will assign conclusions 
under this test in each facility-based assessment area, State, or 
multistate MSA, and institution, pursuant to final Sec.  __.28 and 
paragraph e of final appendix C. In addition, final Sec.  __.25(d)(1) 
includes conforming edits to clarify that the agencies may consider 
performance context as provided in final Sec.  __.21(d) when assigning 
conclusions.\1291\ Final Sec.  __.25(d)(2) provides that the agencies 
incorporate conclusions under this performance test into the State or 
multistate MSA ratings, as applicable, and its institution rating 
pursuant to final Sec.  __.28 and appendix D.
---------------------------------------------------------------------------

    \1291\ See the section-by-section analysis of Sec.  __.21(d) for 
additional discussion.
---------------------------------------------------------------------------

Section __.26 Limited Purpose Banks

Current Approach
    Under current Sec.  __.25, the agencies evaluate a wholesale or 
limited purpose bank's community development loans, community 
development investments, and community development services under one 
community development test.\1292\ The agencies give consideration to 
the number and dollar amount of community development loans, community 
development investments, and community development services,\1293\ both 
inside a bank's assessment areas or in a broader statewide or regional 
area that includes the bank's assessment areas, and outside

[[Page 6997]]

of its assessment areas if the needs of the bank's assessment areas are 
adequately addressed.\1294\ The qualitative factors include the 
innovativeness or complexity of these activities, the bank's 
responsiveness to credit and community development needs, and the 
extent to which investments are not routinely provided by private 
investors.\1295\ In addition, the evaluation under the current test 
considers performance context, including, but not limited to, a bank's 
capacity and constraints and the performance of similarly situated 
lenders.\1296\ A wholesale or limited purpose bank may provide 
examiners with any information it deems relevant to the evaluation of 
its community development lending, investment, and service 
opportunities in its assessment areas.\1297\
---------------------------------------------------------------------------

    \1292\ See current 12 CFR __.25(a).
    \1293\ See current 12 CFR __.25(c)(1).
    \1294\ See current 12 CFR __.25(e)(1) and (2).
    \1295\ See current 12 CFR __.25(c)(2) and (3).
    \1296\ See current 12 CFR __.21(b).
    \1297\ See Q&A Sec.  __.21(b)(2)-1.
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed in Sec.  __.26 to maintain a wholesale or 
limited purpose bank designation and that these banks would be 
evaluated under the proposed Community Development Financing Test for 
Wholesale or Limited Purpose Banks.\1298\
---------------------------------------------------------------------------

    \1298\ See proposed Sec.  __.26.
---------------------------------------------------------------------------

Final Rule
    As discussed in the section-by-section analysis of Sec.  __.12, the 
final rule eliminates the proposed definition of ``wholesale bank'' and 
revises the proposed definition of ``limited purpose bank'' to 
encompass banks generally considered either ``limited purpose banks'' 
or ``wholesale banks'' under the current or proposed regulations. The 
final rule replaces references to wholesale banks in the proposal with 
limited purpose banks. The final rule maintains the option for a bank 
to request designation as a limited purpose bank with evaluation 
pursuant to the Community Development Financing Test for Limited 
Purpose Banks in final Sec.  __.26. This test employs qualitative and 
quantitative factors similar to current examination procedures. In 
addition, the institution-level conclusion will consider a community 
development financing metric and certain benchmarks, as well as a 
community development investment metric and benchmark.
    The agencies received several comments on various aspects of 
proposed Sec.  __.26 from a diverse group of commenters.\1299\ These 
comments, and the final rule, are discussed in detail below.\1300\
---------------------------------------------------------------------------

    \1299\ A few commenters supported maintaining existing guidance 
for wholesale and limited purpose banks from the Interagency 
Questions and Answers. The agencies plan to review the applicability 
of existing Interagency Questions and Answers during the transition 
period.
    \1300\ See supra note 145.
---------------------------------------------------------------------------

Section __.26(a) Bank Request for Designation as a Limited Purpose Bank

Current Approach
    To receive a designation as a wholesale or limited purpose bank 
under the current rule, current Sec.  __.25(b) provides that a bank 
shall file a request in writing to the appropriate Federal financial 
supervisory agency at least three months prior to its desired 
designation. If approved, the designation remains in effect until the 
bank requests revocation of the designation or until one year after the 
appropriate agency notifies the bank that its designation has been 
revoked.\1301\
---------------------------------------------------------------------------

    \1301\ See current 12 CFR __.25(b).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed in Sec.  __.26(a) to maintain the current 
designation provision with technical edits. The proposal maintained the 
option to file a written request to be designated as a wholesale or 
limited purpose bank.\1302\ An approved designation would remain in 
effect until the bank requests revocation or until one year after the 
bank was notified that the appropriate Federal financial supervisory 
agency has revoked the designation on its own initiative.\1303\
---------------------------------------------------------------------------

    \1302\ See proposed Sec.  __.26(a).
    \1303\ See id.
---------------------------------------------------------------------------

Comments Received and Final Rule
    A few commenters asked that the agencies clarify that those banks 
designated as wholesale or limited purpose banks under the current rule 
do not need to reapply to receive such a designation under the new 
framework. The agencies confirm that banks currently designated as 
wholesale or limited purpose banks do not need to reapply under the 
final rule. As is the case under the current rule, the appropriate 
Federal financial supervisory agency may notify a bank that the 
designation has been revoked pursuant to final Sec.  __.26(a) if the 
agency determines the bank no longer qualifies for the limited purpose 
bank designation, or the bank may request revocation.\1304\ The 
agencies did not receive other comments specific to proposed Sec.  
__.26(a), and therefore adopt Sec.  __.26(a) as proposed with technical 
and conforming edits, including a nomenclature change from ``wholesale 
or limited purpose banks'' to ``limited purpose banks.'' \1305\
---------------------------------------------------------------------------

    \1304\ Banks designated as wholesale banks under the current 
regulation will automatically be considered limited purpose banks 
under the final rule unless the appropriate Federal financial 
supervisory agency notifies the bank that the designation has been 
revoked pursuant to final Sec.  __.26(a) or the bank requests 
revocation.
    \1305\ See the section-by-section analysis of Sec.  __.12 for 
additional discussion on the nomenclature change.
---------------------------------------------------------------------------

Section __.26(b) Performance Evaluation

Current Approach
    The current community development test for wholesale or limited 
purpose banks in Sec.  __.25 evaluates community development loans, 
community development investments, and community development services 
under one performance test. Wholesale or limited purpose banks have 
flexibility to satisfy their CRA obligation by engaging in any 
combination of community development lending, investments, or services, 
but are not required to engage in each activity.\1306\ Consequently, in 
theory, a wholesale or limited purpose bank could receive a 
``Satisfactory'' rating by performing only community development 
services. In practice, under the current rule, the agencies' 
supervisory experience suggests it would be unusual for a bank to 
receive a ``Satisfactory'' rating based solely or even primarily on 
community development services. Based on the agencies' supervisory 
experience, more commonly, community development loans and community 
development investments are the predominant activities that determine 
community development ratings for wholesale or limited purpose banks.
---------------------------------------------------------------------------

    \1306\ See Q&A Sec.  __.25(f)--1.
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to evaluate a wholesale or limited purpose 
bank's community development loans and community development 
investments under the Community Development Financing Test for 
Wholesale or Limited Purpose Banks in proposed Sec.  __.26.\1307\ 
Wholesale or limited purpose banks could request additional 
consideration for community development services that would qualify 
under the proposed Community Development Services Test, which the 
appropriate Federal financial supervisory agency could consider to 
adjust the bank's institution rating from

[[Page 6998]]

``Satisfactory'' to ``Outstanding.'' \1308\ Thus, under the proposal, 
wholesale or limited purpose banks would not be able to rely solely on 
community development services to obtain a ``Satisfactory'' rating.
---------------------------------------------------------------------------

    \1307\ See proposed Sec.  __.26(c).
    \1308\ See proposed Sec.  __.26(b)(2).
---------------------------------------------------------------------------

Comments Received
    A few commenters raised concerns related to the elimination of the 
ability of wholesale banks to rely on community development services to 
achieve a baseline ``Satisfactory'' rating. These commenters opined 
that this change may require wholesale banks to make significant 
changes to their business models or seek a costly strategic plan. One 
of these commenters stated that the agencies neglected to consider the 
safety and soundness implications of eliminating the ability of 
wholesale banks to rely on community development services to achieve a 
``Satisfactory'' rating. Further, this commenter argued that the 
agencies failed to provide a reasoned analysis for the policy change 
and failed to weigh wholesale banks' reliance interests on the ability 
to use community development services to achieve a ``Satisfactory'' 
rating compared to the agencies' policy objectives. In particular, this 
commenter questioned why wholesale banks would not be afforded the same 
ability as large banks to rely on community development services to 
achieve a baseline ``Satisfactory'' rating.
    Some commenters responded directly to the question in the proposed 
rule on whether wholesale or limited purpose banks should have the 
option to submit services to be reviewed on a qualitative basis at the 
institution level without having to opt into the Community Development 
Services Test, as proposed, or whether wholesale or limited purpose 
banks that wish to receive consideration for community development 
services should be required to opt into the proposed Community 
Development Services Test. A few commenters supported consideration of 
community development services without having to opt into the Community 
Development Services Test. One of these commenters supported the 
consideration of community development services for wholesale or 
limited purpose banks regardless of a bank's institution rating under 
the modified Community Development Financing Test. Another of these 
commenters suggested the agencies should clarify that the performance 
of community development services is not required for wholesale or 
limited purpose banks to receive an overall rating of ``Outstanding'' 
if that bank otherwise demonstrates outstanding community development 
financing performance.
    In contrast, a few commenters disagreed with the proposed approach 
to consider community development services if a wholesale or limited 
purpose bank requests consideration. These commenters believed that the 
agencies should evaluate community development services for all banks 
and eliminate the provision that allows requesting additional 
consideration. One of these commenters warned that the proposal would 
increase subjectivity and could reduce nationwide community development 
services.
Final Rule
    The agencies adopt in final Sec.  __.26(b)(2)(i) the proposed 
treatment of community development services for limited purpose banks. 
Under this approach, limited purpose banks have the option to submit 
community development services for consideration; however, these banks 
will not be able to rely solely or primarily on community development 
services to obtain a ``Satisfactory'' rating under the final Community 
Development Financing Test for Limited Purpose Banks. The agencies 
acknowledge commenter concerns that final Sec.  __.26 may restrict some 
flexibility available to limited purpose banks under the current rule; 
however, the agencies' supervisory experience indicates it would be 
unusual for a wholesale or limited purpose bank under the current rule 
to achieve a ``Satisfactory'' rating by relying solely or primarily on 
community development services, as opposed to community development 
lending or investments. Moreover, the treatment of community 
development services in final Sec.  __.26(b)(2)(i) achieves the 
agencies' longstanding goal of emphasizing community development loans 
and investments. Understanding that limited purpose banks are not 
subject to the Retail Lending Test, the agencies place greater emphasis 
on community development loans and investments to ensure equity across 
business models. The agencies do not believe that there is a safety and 
soundness implication related to the inability of a limited purpose 
bank to rely on community development services to achieve a 
``Satisfactory'' rating. Consistent with the proposal, the final rule 
in Sec.  __.21(f) does not require a bank to originate or purchase 
loans or investments or to provide services that are inconsistent with 
safe and sound banking practices.
    The agencies acknowledge the final rule's different treatment of 
community development services between limited purpose banks and large 
banks. The final rule provides that the agencies evaluate a large 
bank's community development services regardless of performance under 
the Community Development Financing Test in final Sec.  __.24, whereas 
the agencies consider a limited purpose bank's community development 
services if that bank requests consideration and only where the 
institution rating would otherwise be ``Satisfactory.'' The agencies do 
not believe limited purpose banks are disadvantaged by this 
distinction. The consideration of community development services for 
limited purpose banks can only positively affect the institution 
rating, but in order to prioritize community development loans and 
investments, the agencies limited the application of this consideration 
to banks that would otherwise have a ``Satisfactory'' institution 
rating. In contrast, the rule does not apply an expectation that 
limited purpose banks conduct community development services. For large 
banks, which generally have business models better structured to 
perform community development services due to larger branch networks 
and more employees, there is an expectation that they perform community 
development services, and therefore the evaluation can negatively 
affect a large bank's institution rating.
    The agencies considered the comments related to whether a bank 
should be required to opt into the Community Development Services Test 
to receive consideration for community development services. Under such 
a scenario, the agencies would evaluate a limited purpose bank pursuant 
to the Community Development Services Test, which could negatively 
affect the bank's conclusions and ratings. The agencies decline to 
require limited purpose banks seeking consideration for community 
development services to opt into the Community Development Services 
Test because the agencies want to encourage performance of community 
development services without creating the expectation that these banks 
must perform community development services. Because limited purpose 
banks generally have a smaller branch network and limited branch staff 
to perform community development services compared to large banks, the 
agencies adopt the proposed approach for community development 
services--a limited purpose bank need not opt into the Community 
Development Services

[[Page 6999]]

Test, but it may request, at its option, additional consideration for 
community development services if it would otherwise receive a 
``Satisfactory'' rating at the institution level.\1309\ The agencies 
limit the consideration to banks that would otherwise receive a 
``Satisfactory'' rating to prioritize community development loans and 
investments.
---------------------------------------------------------------------------

    \1309\ See final Sec.  __.26(b)(2)(i).
---------------------------------------------------------------------------

    The agencies confirm that submitting community development services 
for consideration is not necessary for a limited purpose bank to 
receive an ``Outstanding'' rating where that bank's community 
development financing performance under final Sec.  __.26 by itself is 
otherwise ``Outstanding.''
    In addition, the agencies clarified that a limited purpose bank may 
receive additional consideration at the institution level for providing 
low-cost education loans to low-income borrowers, regardless of the 
limited purpose's bank's overall institution rating.\1310\ The agencies 
made this revision to ensure consistency with the CRA statute, which 
provides that for all banks, regardless of bank type, the agencies 
shall consider, as a factor, such low-cost education loans.\1311\
---------------------------------------------------------------------------

    \1310\ See final Sec.  __.26(b)(2)(ii).
    \1311\ See 12 U.S.C. 2903(d).
---------------------------------------------------------------------------

Section __.26(c) Community Development Financing Test for Limited 
Purpose Banks--In General

The Agencies' Proposal
    Proposed Sec.  __.26(c) provided for the evaluation of wholesale 
and limited purpose banks based on the banks' record of helping to meet 
the community development financing needs in facility-based assessment 
areas, States, multistate MSAs, and the nationwide area through the 
banks' provision of community development loans and community 
development investments. Further, the agencies would consider 
information provided by the bank and could consider, as needed, 
publicly available information and information provided by government 
or community sources. The agencies proposed that community development 
loans and investments should be allocated pursuant to section 14 of 
proposed appendix B, which would be consistent with the allocation 
provisions under the Community Development Financing Test in proposed 
Sec.  __.24.
Comments Received and Final Rule
    The agencies did not receive comments specific to the proposed 
scope provision in Sec.  __.26(c). The agencies, therefore, adopt this 
provision with technical and conforming edits. Specifically, as with 
final Sec. Sec.  __.24 and __.25, the final rule removes the proposed 
references to the bank's facility-based assessment areas, States, and 
multistate MSAs in which the bank has facility-based assessment areas, 
as applicable, and the nationwide area, including consideration of 
performance context to conform the language to the statute and across 
the introductory paragraphs in the final performance tests. The final 
rule moves the proposed language on what documentation the agencies 
will or may consider to paragraph I.b of appendix B of the final rule, 
where the allocation discussion is more fully described. Final Sec.  
__.26(c)(2) updates the cross-reference to the allocation method in 
paragraph I.b of appendix B, which is the same allocation method as the 
Community Development Financing Test in final Sec.  __.24. See the 
section-by-section analysis of Sec.  __.24(a) for additional discussion 
of comments and the final rule related to the allocation method. 
Finally, the final rule updates headings and terminology for clarity 
and consistency.

Section __.26(d) Facility-Based Assessment Area Evaluation

Section __.26(e) State or Multistate MSA Evaluation

The Agencies' Proposal
    For each facility-based assessment area, the agencies proposed to 
evaluate a wholesale or limited purpose bank based on the total dollar 
value of a bank's community development loans and community development 
investments (i.e., community development financing activity) that serve 
the facility-based assessment area for each year and a review of the 
impact of those activities in the facility-based assessment area under 
proposed Sec.  __.15.\1312\ As discussed in more detail below, the 
facility-based assessment area conclusions would form the basis of the 
conclusion at the State, multistate MSA, and nationwide area level, 
along with review of the bank's community development financing 
activity that serves the State or multistate MSA during the evaluation 
period.\1313\
---------------------------------------------------------------------------

    \1312\ See proposed Sec.  __.26(d).
    \1313\ See proposed Sec.  __.26(e)(1) and (f)(1).
---------------------------------------------------------------------------

    For each State or multistate MSA conclusion, the agencies proposed 
to assign a conclusion based on a combination of two components: (1) a 
wholesale or limited purpose bank's community development financing 
performance in its facility-based assessment areas in the State or 
multistate MSA area; and (2) the dollar value of community development 
financing performance that serves the State or multistate MSA during 
the evaluation period, and a review of the impact of these activities 
in the State or multistate MSA under Sec.  __.15.\1314\ Unlike the 
Community Development Financing Test in proposed Sec.  __.24, the 
proposed Community Development Financing Test for Wholesale or Limited 
Purpose Banks did not include prescribed weighting for considering 
these two components, and the proposed evaluation in a facility-based 
assessment area, State, or multistate MSA did not include a metric. The 
agencies proposed the Wholesale or Limited Purpose Bank Community 
Development Financing Metric for the nationwide area only (as opposed 
to the facility-based assessment area, State, or multistate MSA) 
because of the difficulties associated with apportioning bank assets to 
specific facility-based assessment areas, States, or multistate MSAs.
---------------------------------------------------------------------------

    \1314\ See proposed Sec.  __.26(e).
---------------------------------------------------------------------------

    The agencies sought feedback on how to increase certainty in the 
evaluation of a wholesale or limited purpose bank's community 
development financing performance for a facility-based assessment area, 
including whether to apply a metric and what the denominator should be.
Comments Received
    In response to the agencies' request for feedback on whether to 
apply a metric and what the denominator should be, a few commenters 
supported establishing a metric for facility-based assessment areas. 
One of these commenters suggested the agencies use a variation of the 
OCC's procedure for allocating Tier 1 Capital across assessment areas. 
Similarly, another commenter stated that a model currently exists 
within CRA whereby a percentage of a bank's Tier 1 Capital that is 
dedicated to community development investment activity is used as a 
benchmark for performance. The commenter believed this approach would 
not be complicated. A few commenters advocated for using deposits in 
the denominator in response to this question.
    One commenter that supported including a metric for facility-based 
assessment areas also supported establishing a benchmark. This 
commenter suggested that for banks with over $10 billion in assets, the 
benchmark could be based on the share

[[Page 7000]]

of the bank's deposits it collects from a facility-based assessment 
area multiplied by the bank's institution community development 
financing benchmark. For banks with assets of $10 billion or less, the 
commenter suggested that the benchmark should be based upon the share 
of the U.S. population (or alternatively, the share of the U.S. low- 
and moderate-income population) residing in the facility-based 
assessment area, multiplied by the bank's community development 
financing benchmark.
Final Rule
    The final rule adopts Sec.  __.26(d) and (e) as proposed with 
certain technical and conforming edits, including reorganizing text, 
adding paragraph headers, and clarifying the text. The agencies 
evaluate in each facility-based assessment area a bank's dollar volume 
of community development loans and investments that benefit or serve 
the facility-based assessment area and the impact and responsiveness 
review of these loans and investments.\1315\ In each State or 
multistate MSA, the agencies evaluate and assign a conclusion based on 
the facility-based assessment area conclusion and the dollar volume of 
the limited purpose bank's community development loans and investments 
that serve the State or multistate MSA and the impact and 
responsiveness review of these loans and investments.\1316\ Also, 
consistent with the proposal, the final rule does not include a metric 
for the evaluation of the facility-based assessment area, State, or 
multistate MSA because a limited purpose bank's total assets cannot be 
easily apportioned to those areas.
---------------------------------------------------------------------------

    \1315\ See final Sec.  __.26(d).
    \1316\ See final Sec.  __.26(e).
---------------------------------------------------------------------------

    The agencies considered alternatives suggested by commenters to 
establish a metric with another denominator, such as capital or 
deposits, which would allow for the application of a metric at a level 
other than the nationwide area. However, the agencies determined that 
these alternatives were not appropriate for several reasons. First, the 
agencies do not believe capital would be an appropriate denominator to 
evaluate limited purpose banks in any area.\1317\ A bank's capital 
levels are driven by several factors that do not relate to CRA, such as 
lower risk tolerance or higher risk exposure. In this way, capital 
would not be an accurate or consistent measure of a bank's capacity to 
meet its community's needs. Second, the agencies concluded that a 
denominator of deposits is not an appropriate or useful measure because 
at least some limited purpose banks accept deposits on a limited basis 
or not at all, as discussed in detail in the section-by-section 
analysis of Sec.  __.26(f) below. Without a metric for facility-based 
assessment areas, States, or multistate MSAs, there is limited benefit 
to establishing a corresponding benchmark. Thus, the agencies are not 
establishing a metric or benchmark to evaluate community development 
financing performance in an area other than the nationwide area for 
limited purpose banks.
---------------------------------------------------------------------------

    \1317\ The agencies acknowledge that examiners, in some cases, 
may have considered capital as an informal measure of a wholesale or 
limited purpose bank's community development financing capacity, as 
was asserted by a few commenters. However, such practice was neither 
consistently applied across agencies, nor was it consistently 
applied within any agency.
---------------------------------------------------------------------------

Section __.26(f) Nationwide Area Evaluation

Nationwide Area Evaluation--In General
    Proposed Sec.  __.26(f) provided for the evaluation of community 
development financing performance of a wholesale and limited purpose 
bank in a nationwide area based on that bank's community development 
financing performance in all of its facility-based assessments areas, 
the Wholesale or Limited Purpose Bank Community Development Financing 
Metric, and a review of the impact of the bank's nationwide community 
development activities. Section 18 of proposed appendix B provided 
additional detail on how the agencies would calculate the Wholesale or 
Limited Purpose Bank Community Development Financing Metric. The 
agencies did not propose a benchmark in which to compare the Wholesale 
or Limited Purpose Bank Community Development Financing Metric. The 
agencies received numerous comments on various aspects of this proposed 
provision, which are discussed below along with the final provision.

Limited Purpose Bank Community Development Financing Metric--Numerator

The Agencies' Proposal and Comments Received
    Proposed Sec.  __.26(f) provided that the numerator of the 
Wholesale or Limited Purpose Bank Community Development Financing 
Metric measured the average total dollar value of a bank's community 
development loans and community development investments over the 
evaluation period as specified in section 18 of proposed appendix 
B.\1318\ A commenter requested clarification that the numerator would 
be measured consistent with how non-wholesale and limited purpose banks 
are measured, as set forth in paragraph 1 of proposed appendix B.\1319\
---------------------------------------------------------------------------

    \1318\ See proposed appendix B, paragraph 8.i.
    \1319\ Proposed appendix B, section 1, provided, in relevant 
part, that the annual community development financing activity for 
purposes of proposed Sec.  __.24 included: (1) the dollar amount of 
all community development loans originated and community development 
investments made in that year; (2) the dollar amount of any increase 
in an existing community development loan that is renewed or 
modified in that year; and (3) the outstanding value of community 
development loans originated or purchased and community development 
investments made in previous years that remain on the bank's balance 
sheet on the last day of each quarter of the year, averaged across 
the four quarters of the year.
---------------------------------------------------------------------------

Final Rule
    The final rule provides that the metric's numerator measures the 
dollar volume of a limited purpose bank's community development loans 
and community development investments that benefit or serve all or part 
of the nationwide area, and updates the cross-reference to paragraph 
III.a of final appendix B.\1320\ As described more fully in the 
section-by-section analysis of Sec.  __.24(a)(3) and section I of 
appendix B, the final rule more clearly describes how the agencies will 
value different forms of community development loans and community 
development investments.\1321\ In addition, the final rule confirms the 
inputs to the numerator are the same for the metrics in final 
Sec. Sec.  __.24 and __.26.\1322\
---------------------------------------------------------------------------

    \1320\ See final Sec.  __.26(f)(2)(i).
    \1321\ See final appendix B, paragraph I.a.1.i.
    \1322\ See id.
---------------------------------------------------------------------------

Limited Purpose Bank Community Development Financing Metric--
Denominator

The Agencies' Proposal and Comments Received
    The denominator of the Wholesale or Limited Purpose Bank Community 
Development Financing Metric in proposed Sec.  __.26(f) consisted of 
the bank's quarterly average total assets.\1323\ The agencies reasoned 
that the unique business models of wholesale and limited purpose banks, 
particularly the fact that at least some wholesale and limited purpose 
banks accept deposits only on a limited basis or not at all, 
necessitate a different denominator from large banks.
---------------------------------------------------------------------------

    \1323\ See proposed Sec.  __.26(f)(2) and proposed appendix B, 
section 18.
---------------------------------------------------------------------------

    A majority of those commenting on the denominator supported using 
total assets, rather than deposits, in the denominator. One of these 
commenters

[[Page 7001]]

agreed that total assets is a better measure of the capacity of 
wholesale and limited purpose banks to perform community development 
financing activities. Another commenter stated that if assets are not 
used, the absolute dollar amount of community development financing 
activity loses meaning since wholesale and limited purpose banks will 
have differing amounts of assets and thus differing capacities to 
engage in community development financing activities. A few other 
commenters stated that deposits as the denominator may not work well 
for all wholesale and limited purpose banks, particularly those that do 
not collect deposits on a large scale. Another commenter identified a 
potential discrepancy related to the denominator of the proposed 
Wholesale or Limited Purpose Bank Community Development Financing 
Metric where there is a reference to weighting by deposits in proposed 
appendix B.\1324\
---------------------------------------------------------------------------

    \1324\ Specifically, this commenter noted that proposed appendix 
B, paragraph 18.iii references proposed appendix B, paragraph 
16.iii, which provides weighting by total assets. However, proposed 
appendix B, paragraph 18.iii otherwise indicates weighting by 
deposits.
---------------------------------------------------------------------------

    A few commenters recommended the denominator be based on ``CRA-
eligible assets.'' One of these commenters explained that although they 
supported the elimination of the use of a deposits-based metric for 
wholesale and limited purpose banks, a denominator of total assets may 
result in a metric that fails to account for broad differences in 
business models. The commenters supporting use of CRA-eligible assets 
suggested excluding foreign assets, central bank placements, and short-
term extensions of credit from total assets. These commenters conveyed 
that these particular assets do not increase a bank's capacity to 
provide community development financing. One of these commenters 
remarked that it has been the agencies' supervisory practice to exclude 
certain assets like central bank placements from the denominator used 
to determine some wholesale or limited purpose banks' CRA obligations 
under the current community development test. This commenter also 
identified the exclusion of foreign deposits from the denominator of 
the Community Development Financing Metric for large banks in proposed 
Sec.  __.24 as evidence that the agencies recognize that CRA 
obligations should not be tied to a bank's foreign business activity.
    A few commenters supported deposits as the denominator for the 
metric. One of these commenters believed that deposits--in particular, 
domestic deposits--would be a more accurate measure of the capacity of 
wholesale banks, given their limited retail lending business, and that 
using deposits would be consistent with the Community Development 
Financing Metric for large retail banks.
    Without providing details, a few commenters also stated that the 
complex method proposed to calculate balances quarterly to achieve 
additional credit could be simplified and still materially represent 
CRA performance of these banks.
Final Rule
    After considering the comments, the agencies determined that 
assets, rather than deposits or another measure, represent a more 
appropriate and consistent measure of community development financing 
capacity for limited purpose banks. The agencies have determined that a 
denominator based on either deposits or ``CRA-eligible assets'' would 
not represent a useful measure of the expectation of community 
development financing volume for a limited purpose bank. Some limited 
purpose banks accept deposits on a limited basis or not at all, which 
would result in an artificially low community development financing 
expectation. Further, limiting the denominator to CRA-eligible assets 
would defeat the goals of the Limited Purpose Bank Community 
Development Financing Metric. Although the agencies recognize that not 
all bank assets would or could be used for community development (e.g., 
fixed assets or reserve requirements), the goal of the metric is to 
create a standard measure of what percentage of the bank's assets were 
loaned or invested in community development. To the extent the metric 
is not representative of a particular bank's performance, the final 
rule provides examiners with discretion in drawing conclusions from the 
metric and the metric's comparison to the benchmarks, as described 
below.
    Moreover, the agencies do not believe that foreign assets and 
short-term credit should reduce a bank's capacity to engage in 
community development loans or investments, or reduce a bank's 
expectation of the amount of such lending or investing. The agencies 
also do not believe that the exclusion of foreign deposits from the 
Community Development Financing Metric's denominator in final Sec.  
__.24 suggests that the agencies recognize that CRA obligations should 
not be tied to a bank's foreign business activity. The exclusion of 
foreign deposits from the definition of deposits in final Sec.  __.12 
should not be compared to the inclusion of foreign assets in the 
denominator of the Limited Purpose Bank Community Development Financing 
Metric. First, the metrics in final Sec.  __.24 have a denominator of 
``deposits,'' which, for the majority of banks subject to those 
metrics, has an exclusion narrower than all foreign deposits.\1325\ 
Second, the exclusion from the definition of deposits is tied to a 
category in the Call Report definition of deposits. The commenter did 
not specify what category ``foreign assets'' would represent, nor do 
the agencies believe there is an asset category in the Call Report 
comparable to foreign government deposits that would warrant a similar 
exclusion.
---------------------------------------------------------------------------

    \1325\ The denominator excludes domestically held deposits of 
foreign governments or official institutions, or domestically held 
deposits of foreign banks or other foreign financial institutions. 
See the section-by-section analysis of Sec.  __.12 (defining 
``deposits'').
---------------------------------------------------------------------------

    In regard to the assertion from a commenter that current 
supervisory practice excludes certain assets like central bank 
placements from determining wholesale or limited purpose banks' 
community development lending and investment capacity, the agencies 
acknowledge that in some cases examiners may have considered assets as 
an informal measure of a wholesale or limited purpose bank's community 
development capacity and may have excluded certain assets from the 
informal measure; however, such practice was not consistently applied 
across or within agencies. The selection of assets for the denominator 
of Limited Purpose Bank Community Development Financing Metric aims to 
provide that missing consistency across and within the agencies.
    Therefore, the agencies adopt a denominator for the Limited Purpose 
Bank Community Development Financing Metric in final Sec.  __.26(f)(2) 
based on assets, as proposed, with conforming and non-substantive 
changes. Specifically, the final rule references ``assets,'' as opposed 
to the proposal's ``total assets,'' which conforms to the new 
definition of assets in final Sec.  __.12. In addition, final Sec.  
__.26(f)(2) updates the reference for calculating the metric to the 
applicable appendix provision to paragraph III.a of final appendix B. 
As provided in the final rule, the denominator continues to be a bank's 
annual dollar volume of assets for each year in the evaluation 
period.\1326\ Annual dollar volume of assets continues to be calculated 
by

[[Page 7002]]

averaging the assets for each quarter in the calendar year.\1327\
---------------------------------------------------------------------------

    \1326\ See final Sec.  __.26(f)(2) and final appendix B, 
paragraph III.a.3.
    \1327\ See final appendix B, paragraph I.a.2.ii.
---------------------------------------------------------------------------

    In summary, the final rule includes clarifying edits to the 
numerator and denominator of the Limited Purpose Bank Community 
Development Financing Metric in final Sec.  __.26(f) as well as 
technical and conforming edits consistent with above discussions.

Limited Purpose Bank Community Development Financing Benchmarks

The Agencies' Proposal
    The proposal did not include benchmarks associated with the 
proposed Wholesale or Limited Purpose Bank Community Development 
Financing Metric; however, the agencies asked in the proposed rule 
whether a benchmark should be established to measure a wholesale or 
limited purpose bank's community development financing performance at 
the institution level. If so, the agencies also asked whether the 
proposed Wholesale or Limited Purpose Bank Community Development 
Financing Metric should be compared to the Nationwide Community 
Development Financing Benchmark applicable to all large banks or 
whether the agencies should establish a benchmark tailored to wholesale 
and limited purpose banks. The agencies explained that a tailored 
benchmark would be based on the community development financing 
activity of all wholesale and limited purpose banks compared to assets 
of all wholesale and limited purpose banks.
Comments Received
    A few commenters supported a tailored benchmark, as described by 
the agencies, in which wholesale and limited purpose banks would be 
grouped to establish a benchmark. This group of commenters believed the 
approach would ensure a more representative peer comparison and a more 
accurate evaluation of a wholesale and limited purpose bank's CRA 
performance.
    Most commenters on this topic opposed applying the nationwide 
community development financing benchmark to wholesale and limited 
purpose banks and instead favored a benchmark tailored by business 
model if the agencies include a benchmark in the final rule. Many of 
these commenters highlighted the significant differences of business 
models compared to large banks and the significant differences in 
business models among those banks approved as wholesale and limited 
purpose banks. For example, a commenter said it would be inappropriate 
to implement a benchmark that would compare community development 
financing activities of a custody bank with those of a credit card 
bank. Another commenter stated that using the nationwide metric 
applicable to all large banks would undermine the intention of the 
agencies to create a framework that recognizes differences in business 
models.
    A small number of commenters opposed the establishment of a 
benchmark of any kind in Sec.  __.26. One such commenter opined that it 
would be difficult to establish a meaningful and fair benchmark for 
wholesale or limited purpose banks because the population of these 
banks is relatively small and their business models varied.
    Prior to establishing any benchmark for wholesale and limited 
purpose banks, a couple of commenters urged the agencies to collect and 
evaluate appropriate data. In this way, these commenters suggested that 
the data would allow agencies to determine whether peer comparisons 
should be confined to other wholesale and limited purpose banks or 
whether a comparator can include all large banks.
Final Rule
    The agencies are adopting a final rule that compares the Limited 
Purpose Bank Community Development Financing Metric to two benchmarks--
the Nationwide Limited Purpose Bank Community Development Financing 
Benchmark and the Nationwide Asset-Based Community Development 
Financing Benchmark.\1328\ The Nationwide Limited Purpose Community 
Development Financing Benchmark measures the dollar volume of limited 
purpose banks' community development loans and community development 
investments reported pursuant to final Sec.  __.42(b) that benefit and 
serve all or part of the nationwide area compared to assets for those 
limited purpose banks, calculated pursuant to paragraph III.b of final 
appendix B.\1329\ Specifically, the agencies will divide: (1) the sum 
of limited purpose banks' annual dollar volume of community development 
loans and community development investments reported pursuant to final 
Sec.  __.42(b) that benefit or serve all or part of the nationwide area 
for each year in the evaluation period; by (2) the sum of the annual 
dollar volume of assets of limited purpose banks that reported 
community development loans and community development investments 
pursuant to final Sec.  __.42(b) for each year in the evaluation 
period.\1330\
---------------------------------------------------------------------------

    \1328\ See final Sec.  __.26(f)(2)(ii)(A) and (B).
    \1329\ See final Sec.  __.26(f)(2)(ii)(A).
    \1330\ See final appendix B, paragraph III.b.
---------------------------------------------------------------------------

    The Nationwide Asset-Based Community Development Financing 
Benchmark measures the dollar volume of community development loans and 
community development investments that benefit or serve all or part of 
the nationwide area of all banks that reported pursuant to final Sec.  
__.42(b) compared to assets of those banks, calculated pursuant to 
paragraph III.c of final appendix B.\1331\ Specifically, the agencies 
will divide: (1) the sum of the annual dollar volume of community 
development loans and community development investments of all banks 
that reported pursuant to final Sec.  __.42(b) that benefit or serve 
all or part of the nationwide area for each year in the evaluation 
period; by (2) the sum of the annual dollar volume of assets of all 
banks that reported community development loans and community 
development investments pursuant to final Sec.  __.42(b) for each year 
in the evaluation period.\1332\
---------------------------------------------------------------------------

    \1331\ See final Sec.  __.26(f)(2)(ii)(B).
    \1332\ See final appendix B, paragraph III.c.
---------------------------------------------------------------------------

    The agencies believe that benchmarks would be a useful tool to 
evaluate performance. The agencies also recognize the varied business 
models among limited purpose banks and agree that a single benchmark 
may not be a strong comparator or accurate representation of the amount 
of community development financing activity that should be performed by 
each bank. Thus, the agencies adopt two benchmarks, both of which will 
serve as comparators or reference tools and will be considered along 
with performance context and the impact and responsiveness review. 
These benchmarks are not intended to be thresholds that a bank must 
meet or exceed to obtain a ``Satisfactory'' or higher rating. For this 
same reason, the agencies do not believe it is necessary to postpone 
implementation of the benchmark to collect additional data.
    The agencies decline to establish a benchmark for each business 
model. Currently, the population of limited purpose banks and wholesale 
banks is limited. A further subdivision of those banks by business 
model would create categories with very few banks from which to 
construct the benchmarks, which would not create a robust comparison.

[[Page 7003]]

Limited Purpose Bank Community Development Investment Metric and 
Benchmark

The Agencies' Proposal, Comments Received, and Final Rule
    The proposed Community Development Financing Test for Wholesale 
Banks and Limited Purpose Banks did not include an investment-related 
metric or benchmark; however, a number of commenters that addressed the 
proposed Community Development Financing Test in Sec.  __.24 were 
concerned that the structure of that performance test provided 
insufficient incentive to make community development investments.\1333\ 
In response to those comments, and as described further in the section-
by-section analysis of Sec.  __.24(e), the final rule includes an 
investment metric and benchmark--the Bank Nationwide Community 
Development Investment Metric and Nationwide Community Development 
Investment Benchmark--in the final Community Development Financing 
Test.\1334\ To maintain consistency with the Community Development 
Financing Test applicable to large banks, the agencies adopt a similar 
investment metric and benchmark in the Community Development Financing 
Test for Limited Purpose Banks that is applicable to limited purpose 
banks with assets greater than $10 billion.\1335\ For limited purpose 
banks with assets greater than $10 billion as of December 31 in both of 
the prior two calendar years, the final rule provides that the agencies 
will consider the Limited Purpose Bank Community Development Investment 
Metric and the Nationwide Asset-Based Community Development Investment 
Benchmark in evaluating the nationwide area.\1336\ Further, the 
comparison of the Limited Purpose Bank Community Development Investment 
Metric to the Nationwide Asset-Based Community Development Investment 
Benchmark may only contribute positively to the bank's Community 
Development Financing Test for Limited Purpose Banks conclusion for the 
institution.\1337\ See the section-by-section analysis of final Sec.  
__.24(e) for a discussion of why the agencies limited this comparison 
to a positive contribution.
---------------------------------------------------------------------------

    \1333\ See the section-by-section analysis of Sec.  __.24(e).
    \1334\ See final Sec.  __.24(e)(2)(iii) and (iv).
    \1335\ See final Sec.  __.26(f)(2)(iii) and (iv).
    \1336\ See final Sec.  __.26(f)(2)(iii) and (iv).
    \1337\ See final Sec.  __.26(f)(2)(iv)(A).
---------------------------------------------------------------------------

    The Limited Purpose Bank Community Development Investment Metric 
measures the dollar volume of the bank's community development 
investments that benefit or serve all or part of the nationwide area, 
excluding mortgage-backed securities, compared to the bank's assets, 
calculated pursuant to paragraph III.d of final appendix B.\1338\ 
Specifically, the agencies calculate the Limited Purpose Bank Community 
Development Investment Metric by dividing: (1) the sum of the bank's 
annual dollar volume of community development investments, excluding 
mortgage-backed securities, that benefit or serve the nationwide area 
for each year in the evaluation period; by (2) the sum of the bank's 
annual dollar volume of assets for each year in the evaluation 
period.\1339\
---------------------------------------------------------------------------

    \1338\ See final Sec.  __.26(f)(2)(iii).
    \1339\ See final appendix B, paragraph III.d.
---------------------------------------------------------------------------

    The agencies compare the Limited Purpose Bank Community Development 
Investment Metric to the Nationwide Asset-Based Community Development 
Investment Benchmark, which measures the dollar volume of community 
development investments that benefit or serve all or part of the 
nationwide area, excluding mortgage-backed securities, of all banks 
that had assets greater than $10 billion, compared to assets for those 
banks, calculated pursuant to paragraph III.e of final appendix 
B.\1340\ Specifically, the agencies calculate the Nationwide Asset-
Based Community Development Investment Benchmark by dividing: (1) the 
sum of the annual dollar volume of community development investments, 
excluding mortgage-backed securities, of all banks that had assets 
greater than $10 billion, as of December 31 in both of the prior two 
calendar years, that benefit or serve all or part of the nationwide 
area for each year in the evaluation period; by (2) the sum of the 
annual dollar volume of assets of all banks that had assets greater 
than $10 billion, as of December 31 in both of the prior two calendar 
years, for each year in the evaluation period.
---------------------------------------------------------------------------

    \1340\ See id.
---------------------------------------------------------------------------

    The Nationwide Asset-Based Community Development Investment 
Benchmark includes all banks, including limited purpose banks and banks 
subject to an approved strategic plan, with assets greater than $10 
billion. Because there is a limited number of limited purpose banks 
with assets greater than $10 billion, the agencies determined it is 
necessary to include all banks with assets greater than $10 billion to 
ensure a robust benchmark.

Section __.26(g) Community Development Financing Test for Limited 
Purpose Banks Performance Conclusions and Ratings

The Agencies' Proposal
    Proposed Sec.  __.26(g) provided that the agencies assign 
conclusions for a wholesale or limited purpose bank's community 
development financing performance in each facility-based assessment 
area, State, multistate MSA, and the nationwide area, as provided in 
proposed Sec.  __.28 and appendix C. Further, the agencies proposed 
that these conclusions would be incorporated into the State, multistate 
MSA, and institution ratings. Although the proposed Community 
Development Financing Test for Wholesale or Limited Purpose Banks did 
not include a specific reference to performance context, proposed Sec.  
__.21(d) provided that the agencies may consider performance context 
information in applying the performance tests to the extent that 
performance context is not considered as part of the tests.
Comments Received and Final Rule
    A few commenters addressing the performance test, in general, 
underscored the importance of performance context. These commenters 
specified that the agencies should ensure that the final rule does not 
rely solely on the proposed Wholesale or Limited Purpose Bank Community 
Development Financing Metric, but rather should apply a broader view 
that considers the unique and varying circumstances under which 
wholesale and limited purpose banks operate.
    In response to commenter requests for additional clarity on 
performance context, the agencies clarified in final Sec.  __.26(g)(1) 
that the agencies may consider the performance context as provided in 
final Sec.  __.21(d) when assigning conclusions.\1341\ Other than the 
comments on performance context, the agencies did not receive comments 
on this paragraph. Therefore, the agencies adopt Sec.  __.26(g) as 
proposed with the additional clarifying edit that the agencies may 
consider performance context in assigning conclusions as well as 
technical and conforming edits.
---------------------------------------------------------------------------

    \1341\ See the section-by-section analysis of Sec.  __.21(d) for 
additional discussion.

---------------------------------------------------------------------------

[[Page 7004]]

Section __.27 Strategic Plan

Section __.27(a) Alternative Election

Current Approach
    Currently, the strategic plan option is available to all types of 
banks,\1342\ although it has been used mainly by nontraditional banks 
\1343\ 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 flexibility in meeting their CRA obligations 
in a manner that is responsive to community needs and opportunities and 
appropriate considering their capacities, business strategies, and 
expertise. The current CRA regulations require the agencies to assess a 
bank's record of helping to meet the credit needs of its assessment 
areas under a strategic plan if: the bank has submitted the plan for 
regulatory approval; the plan has been approved; the plan is in effect; 
and the bank has been operating under an approved plan for at least one 
year.\1344\
---------------------------------------------------------------------------

    \1342\ See current 12 CFR __.21(a)(4) and __.27(a).
    \1343\ Non-traditional banks are those that do not extend retail 
loans (small business, small farm, home mortgage loans, and consumer 
loans) as major product lines or deliver banking services 
principally from branches.
    \1344\ See current 12 CFR __.27(a)(1) through (4).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed retaining the strategic plan option as an 
alternative method for evaluation under the CRA,\1345\ and requested 
feedback on whether the option should continue to be available to all 
banks. The agencies proposed that banks electing to be evaluated under 
a plan would continue to be required to request approval for the plan 
from the appropriate Federal financial supervisory agency.\1346\ The 
agencies proposed to add clarity to the existing rule by including that 
the agencies will assess a bank's record of helping to meet the credit 
needs of its facility-based assessment areas and, as applicable, its 
retail lending assessment areas and other geographic areas served by 
the bank at the institution level under a plan.
---------------------------------------------------------------------------

    \1345\ See proposed Sec.  __.27(a).
    \1346\ See id.
---------------------------------------------------------------------------

Comments Received
    Most commenters addressing the strategic plan option agreed that a 
strategic plan option should remain available to all banks, 
particularly for branchless banks and banks with unique business 
models. A few commenters did not support the proposed strategic plan 
option. One of the commenters stated that the option should only be 
available to those banks that provide evidence that they would fail the 
``traditional'' CRA examination process through no fault of their own. 
Another commenter objected to the strategic plan option and recommended 
phasing it out entirely. This commenter argued that the strategic plan 
option adds a level of complexity to the CRA framework and noted that 
it is unclear why the option should be made available when the proposed 
plan requirements have the same assessment area requirements and 
performance test standards that would apply to any other bank. One 
other commenter recommended that the agencies either eliminate or 
significantly improve the strategic plan option in the proposal.
Final Rule
    The agencies are adopting in the final rule the proposed strategic 
plan option as an alternative method of evaluation in Sec.  __.27(a) 
with one technical change. Specifically, the final rule removes the 
requirement in proposed Sec.  __.27(a)(1) that a bank submit ``the plan 
to the [Agency] as provided for in this section,'' as 
duplicative.\1347\ The agencies believe it is unnecessary to include a 
separate requirement in final Sec.  __.27(a), given that ``Submission 
of a draft plan'' is a required element of Sec.  __.27(f) and must be 
performed prior to plan approval (see the section-by-section analysis 
of Sec.  __.27(f)). As a result of this change, proposed Sec.  
__.27(a)(2) through (4) is renumbered in the final rule as Sec.  
__.27(a)(1) through (3).
---------------------------------------------------------------------------

    \1347\ See proposed Sec.  __.27(a)(1).
---------------------------------------------------------------------------

    The agencies believe that the strategic plan option should continue 
to be available to any bank if the bank sufficiently justifies that the 
appropriate Federal financial supervisory agency should evaluate it 
under a plan rather than the performance tests that would apply in the 
absence of an approved plan. The agencies believe that it is 
appropriate to use strategic plans to evaluate banks with business 
models that are not conducive to evaluation under the performance tests 
that would apply in the absence of an approved plan. These may include, 
for example, banks that do not offer--or only nominally offer--product 
lines as defined in the rule, do not maintain traditional delivery 
systems, or only offer niche products to a targeted market.
    The agencies have considered the recommendation from a few 
commenters to eliminate the strategic plan as an option for evaluating 
a bank's performance under the CRA and have decided to retain the 
option. Even though banks that elect evaluation under a plan would be 
subject to the same performance tests that would apply in the absence 
of an approved plan, the agencies believe the strategic plan option is 
appropriate because it can afford a bank the opportunity to offer 
modifications or additions that would more meaningfully reflect a 
bank's record of helping meet the credit needs of its community, so 
long as the bank also justifies why its business model is outside the 
scope of, or is inconsistent with, one or more aspects of the otherwise 
applicable performance tests, as discussed further in the section-by-
section analysis of Sec.  __.27(d). In response to the commenter that 
believed the strategic plan option needed to be improved in order for 
it to continue to be offered, the agencies note that they made 
significant revisions to this option in the final rule to ensure that 
it is clear when the performance tests that would apply in the absence 
of an approved plan are appropriately applied and represent a 
meaningful measure of the bank's CRA performance, while allowing 
tailored modifications and additions for those few banks that maintain 
a business model that is outside the scope of, or is inconsistent with, 
one or more aspects of the performance tests.
    Lastly, the agencies do not believe a bank should need to fail or 
provide evidence that it would fail the performance tests before 
submitting a request for evaluation under an approved strategic plan. 
The agencies have been careful to adopt a set of performance tests that 
the agencies believe are tailored to provide a meaningful evaluation of 
the vast majority of banks under the CRA. However, the agencies also 
recognize that there is a population of banks that maintain unique 
business models and whose record of serving their communities would be 
more appropriately evaluated under a plan. Although it has been the 
agencies' experience that banks that do not perform satisfactorily 
under the current performance tests and standards are more likely to 
choose the strategic plan option, the agencies believe it would be 
inappropriate to establish this as a criterion for a bank to elect the 
option. The agencies believe that the incorporation of the performance 
tests in a plan pursuant to Sec.  __.27(c)(2), clearer justification 
requirements pursuant to Sec.  __.27(d)(1), and clearer justification 
elements pursuant to Sec.  __.27(d)(2), will prevent widespread 
adoption of the strategic plan option as

[[Page 7005]]

a way for banks to avoid a metrics-based evaluation approach.

Section __.27(b) Data Requirements

Current Approach and the Agencies' Proposal
    Currently, the agencies' approval of a plan does not affect the 
bank's obligation, if any, to report data as required by current Sec.  
__.42.\1348\ The agencies did not propose any substantive changes to 
current Sec.  __.27(b) pertaining to the data reporting requirements of 
a bank evaluated under an approved plan.
---------------------------------------------------------------------------

    \1348\ See current 12 CFR __.27(b).
---------------------------------------------------------------------------

Comments Received
    A few commenters addressed the agencies' proposed data requirements 
for banks evaluated under an approved plan. One commenter stated that 
the agencies' proposal effectively eliminates the strategic plan option 
by defaulting to a rigid one-size-fits-all by requiring, among other 
things, the same data collection and reporting requirements that would 
otherwise apply to the bank. Another commenter recommended adding 
language to the proposed data reporting requirements that would allow 
banks to request exemptions for data requirements through the plan 
submission process.
Final Rule
    The agencies are adopting Sec.  __.27(b) as proposed with a 
retitling to reflect a technical change. While proposed as ``data 
reporting,'' the agencies are retitling this paragraph as ``data 
requirements'' to reflect that banks that do not operate under a plan 
not only have data reporting obligations, but requirements to collect 
and maintain the data as well.
    The agencies believe that the benefits of capturing consistent data 
(regardless of whether a bank is under a strategic plan) outweigh the 
burden to banks electing the strategic plan option of collecting, 
maintaining, and reporting the data. Also, as banks under a plan are 
generally subject to the same performance tests that would apply in the 
absence of an approved plan, the availability of data remains a 
critical element of the plan evaluation process. As not all data in 
final Sec.  __.42 are required to be reported, the agencies are making 
a technical change in final Sec.  __.27(b) to add that the obligation 
to collect and maintain data required by final Sec.  __.42, in addition 
to obligation to report data, is not affected by the agency's approval 
of a plan.
    Similarly, the agencies have determined not to allow exemptions 
from the data requirements for banks evaluated pursuant to a strategic 
plan. The agencies have considered commenter feedback that the 
maintenance of data under the plan limits the flexibility of the 
strategic plan option; however, the agencies believe the data provide 
them with the necessary tools to effectively evaluate the bank's 
performance under the applicable performance tests incorporated into 
the strategic plan, as it does with respect to the performance tests 
generally. Further, the agencies do not believe there is a scenario 
under which the data under final Sec.  __.42 would not provide value to 
the plan evaluation process. Finally, the required data collection, 
maintenance, and reporting preserves the bank's ability to revert to 
evaluation under the performance tests in final Sec. Sec.  __.22 
through __.26, __.29, and __.30, as appropriate, in the event the bank 
desires to terminate the plan during the term due to a change in 
circumstances.

Section __.27(c) Plans in General

Current Approach
    Currently, plans may have a term of no more than five years and any 
multi-year plan must include annual interim measurable goals under 
which the agencies would evaluate the bank's performance.\1349\ A bank 
with more than one assessment area may prepare either a single plan for 
all of its assessment areas or multiple plans for one or more of its 
assessment areas.\1350\ Affiliated institutions may prepare a joint 
plan if the plan provides measurable goals for each institution, and 
activities may be allocated among institutions at the institutions' 
option, provided that the same activities are not considered for more 
than one institution.\1351\
---------------------------------------------------------------------------

    \1349\ See current 12 CFR __.27(c)(1).
    \1350\ See current 12 CFR __.27(c)(2).
    \1351\ See current 12 CFR __.27(c)(3).
---------------------------------------------------------------------------

The Agencies' Proposal
    Consistent with the current rule, the agencies proposed in Sec.  
__.27(c)(1) that plans have a term of no more than five years and any 
multi-year plan must include annual interim measurable goals under 
which the agencies would evaluate the bank's performance. The agencies 
also proposed in Sec.  __.27(c)(2) that a bank with more than one 
assessment area could prepare: (1) a single plan for all of its 
facility-based assessment areas and, as applicable, retail lending 
assessment areas and geographic areas outside of its facility-based 
assessment areas and retail lending assessment areas at the institution 
level, with goals for each geographic area; or (2) separate plans for 
one or more of its facility-based assessment areas and, as applicable, 
retail lending assessment areas, and geographic areas outside of its 
facility-based assessment areas and retail lending assessment areas at 
the institution level.\1352\
---------------------------------------------------------------------------

    \1352\ See proposed Sec.  __.27(c)(2)(i) and (ii).
---------------------------------------------------------------------------

    Lastly, in proposed Sec.  __.27(c)(3), the agencies specified the 
requirements for the treatment of activities of a bank's operations 
subsidiaries or operating subsidiaries, as applicable, and other 
affiliates. First, proposed Sec.  __.27(c)(3)(i) clarified that the 
activities of the bank's operations subsidiaries or operating 
subsidiaries must be included in its plan or be evaluated under the 
performance tests that would apply in the absence of an approved plan, 
unless the subsidiary is already subject to CRA requirements. Second, 
proposed Sec.  __.27(c)(3)(ii) provided that at the bank's option: 
activities of other affiliates may be included in a plan as long as 
those activities are not claimed by another institution subject to the 
CRA; affiliated banks could prepare a joint plan if the plan provides 
measurable goals for each institution; and banks may allocate affiliate 
activity among institutions, as long as the activities are not claimed 
by more than one institution subject to the CRA. Finally, proposed 
Sec.  __.27(c)(3)(iii) stated that the allocation methodology among 
affiliate institutions must reflect a reasonable basis and must not be 
designed solely to artificially enhance any bank's performance.
Comments Received
    The agencies did not receive specific comments on the term of a 
strategic plan or the requirement for interim measurable goals for 
multi-year plans. Commenters also did not provide specific feedback on 
whether banks should prepare single plans or separate plans for 
different assessment areas or include affiliate activities in their 
strategic plans.
    The agencies did, however, receive several comments on their 
proposal to require that a bank evaluated under an approved plan 
delineate retail lending assessment areas. One commenter opposed being 
required to delineate retail lending assessment areas under the 
strategic plan option altogether. Several other commenters supported 
banks having the ability to negotiate and justify whether to delineate 
retail lending assessment areas with the appropriate Federal financial 
supervisory agency. A commenter

[[Page 7006]]

supported retail lending assessment area delineations for a bank under 
a strategic plan based on concentrations of lending without a 
particular numerical threshold. Another commenter indicated that 
intermediate banks pursuing the strategic plan option should have the 
same requirement for delineating retail lending assessment areas as 
large banks. Another commenter agreed that, while there may be 
situations where it is appropriate for a strategic plan bank to be 
evaluated in facility-based assessment areas and retail lending 
assessment areas, a more flexible approach should be encouraged. 
Similarly, a commenter also requested that, to increase flexibility, 
strategic plan banks should be allowed to choose the geographies they 
serve beyond facility-based assessment areas.
Final Rule
    The agencies are finalizing proposed Sec.  __.27(c) with several 
modifications in each of the four areas covered in this paragraph, 
including substantial reorganization to provide additional 
clarity.\1353\
---------------------------------------------------------------------------

    \1353\ See supra note 145.
---------------------------------------------------------------------------

    The agencies received no comments regarding the term of plans in 
proposed Sec.  __.27(c)(1) and are finalizing this provision as 
proposed with respect to the requirement to limit the length of a plan 
term to no more than five years; however, the requirement in proposed 
Sec.  __.27(c)(1) that a multi-year plan must include annual interim 
measurable goals has been removed to reflect the fact that goals are 
not expected with respect to every evaluation component of the 
performance test, as plans may also include performance criteria and 
other measurements that correspond to unmodified performance tests and 
are not tied to specific goals. Nevertheless, the agencies continue to 
expect annual measurable goals with respect to any components that are 
established in conjunction with eligible modifications and additions to 
the performance tests as explained further in the section-by-section 
analysis of Sec.  __.27(g).
    Although no comments were directed specifically at this area, the 
agencies are also finalizing proposed Sec.  __.27(f)(1), renumbered in 
the final rule as Sec.  __.27(c)(2), pertaining to the requirement that 
a bank include the same performance tests in a plan, as required in 
Sec.  __.27(g)(1), with certain technical changes and restructuring for 
additional clarity. While originally proposed in the plan content 
section under Sec.  __.27(f), the principle that a bank's plan must 
include the same performance tests that would apply in the absence of 
an approved plan, subject to certain eligible modifications and 
additions, was moved to final Sec.  __.27(c), which discusses plans in 
general, given that it serves as a foundational tenet of the strategic 
plan option. This provision references the plan content provision as 
discussed in more detail in the section-by-section analysis of Sec.  
__.27(g), where the requirement to include a performance test, any 
adjustments, optional evaluation components, modifications, and 
additions to the performance tests allowed by the agencies are 
memorialized.
    Under the current regulation, many banks that have chosen to 
utilize the strategic plan option have done so as their banks conduct a 
significant volume of activities outside of their assessment area(s). 
As the performance tests adopted in the final rule expand the 
consideration of loans, investments, services, and products outside of 
the facility-based assessment areas, the agencies believe that many of 
the banks that are currently operating under plans may no longer need 
to utilize the strategic plan option. Even for banks that will continue 
to pursue the strategic plan option because they possess a business 
model that is outside the scope of, or is inconsistent with, one or 
more aspects of the performance tests that would apply in the absence 
of an approved plan, the agencies believe those banks should continue 
to be evaluated under the aspects of the performance tests that the 
agencies would otherwise apply to the bank.
    Importantly, proposed Sec.  __.27(f)(1) also included a requirement 
that the plan specify how many of the bank's activities were outside 
the scope of otherwise applicable performance tests and why being 
evaluated pursuant to a plan would be a more appropriate means to 
assess its record of helping to meet the credit needs of its community 
than if it were evaluated pursuant to the otherwise applicable 
performance tests. This aspect of the proposal was adopted in the final 
rule as Sec.  __.27(d) with clarifying revisions and conforming 
changes, and is explained in more detail below in the section-by-
section analysis of that section.
    The agencies are finalizing proposed Sec.  __.27(c)(2), renumbered 
in the final rule as Sec.  __.27(c)(3), pertaining to the preparation 
of a plan for banks with multiple assessment areas, with revisions to 
clarify and streamline the language in the final rule. More 
specifically, final Sec.  __.27(c)(3)(i) continues to permit banks to 
prepare a single plan or develop separate plans for its facility-based 
assessment areas, retail lending assessment areas, outside retail 
lending area, or other geographic areas (such as the State, multistate 
MSA, or the institution level overall) that would be evaluated in the 
absence of an approved plan.
    The final rule also adopts new Sec.  __.27(c)(3)(ii) to clarify 
that any of these geographic areas that are not included in the 
approved plan but would be evaluated in the absence of a plan, will be 
evaluated pursuant to the performance tests that would apply in the 
absence of an approved plan. For example, a large bank that maintains 
one facility-based assessment area and two retail lending assessment 
areas could seek and obtain approval for a strategic plan that covers 
only the facility-based assessment area. In this case, the two retail 
lending assessment areas would be evaluated pursuant to the Retail 
Lending Test without any modifications or additions. The agencies 
believe adding this provision to the final rule will provide a bank 
with multiple assessment areas clarity on how the agencies will apply 
the applicable performance tests in areas outside of the plan. This 
also addresses commenters' sentiment that the agencies adopt a more 
flexible approach by allowing a strategic plan to cover some but not 
all bank assessment areas.
    Further, in response to commenter feedback suggesting that banks 
should be able to justify the exclusion or elimination of retail 
lending assessment areas altogether, the agencies believe that banks 
that opt to be evaluated under an approved plan must be evaluated under 
the same geographic areas (facility-based assessment areas, retail 
lending assessment areas, outside retail lending area, States, and 
multistate MSAs, if applicable) the bank would be evaluated if it had 
not chosen to operate under an approved plan.
    In response to commenters' feedback that the threshold for 
establishing retail lending assessment areas should be adjusted for 
banks under a plan, the agencies believe it is more equitable to 
maintain parity in the treatment of banks, whether operating under a 
plan or not. The agencies do not believe there is a reason for treating 
banks operating under a strategic plan differently than other banks if 
they meet the requirements for delineating a retail lending assessment 
area. Retail lending assessment areas are already limited to large 
banks that meet minimum loan reporting thresholds in these areas; 
therefore, the agencies believe that in these circumstances the 
evaluation of banks' performance for these geographies would be 
valuable. It should also be noted that the threshold

[[Page 7007]]

for establishing retail lending assessment areas in general was 
modified upon consideration of commenter feedback as explained in more 
detail in the section-by-section analysis of Sec.  __.17.
    The agencies received no comments regarding proposed Sec.  
__.27(c)(3), renumbered in the final rule as Sec.  __.27(c)(4), 
pertaining to the treatment of activities of a bank's operations 
subsidiaries or operating subsidiaries and other affiliates for a bank 
evaluated under a plan, and are finalizing as proposed with several 
technical changes. Specifically, consistent with the proposal, final 
Sec.  __.27(c)(4)(i) requires activities of an operations subsidiary or 
operating subsidiary to be included in the bank's plan (unless the 
subsidiary is a bank that is independently subject to CRA). However, 
final Sec.  __.27(c)(4)(ii) provides separate provisions for other 
affiliate activities: final Sec.  __.27(c)(4)(ii)(A) clarifies that a 
bank may include loans, investments, services, and products of any 
affiliate in their plan (as long as they are not included in the CRA 
performance of any other bank); and final Sec.  __.27(c)(4)(ii)(B) 
addresses joint plans for affiliated banks. Affiliated banks may 
develop joint plans provided they specify how the applicable 
performance tests and eligible modifications and additions apply to 
each bank. The final rule also clarifies that the consideration of 
affiliate activities under a plan must be consistent with the general 
restrictions in final Sec.  __.21(b)(3), such as the bank's need to 
collect, maintain, and report data on affiliate activities, as 
applicable. Finally, the agencies are finalizing, with technical 
changes, proposed Sec.  __.27(c)(3)(iii), renumbered in the final rule 
as Sec.  __.27(c)(4)(ii)(C), pertaining to the methodology for 
allocating affiliate loans, investments, services, and products for a 
bank evaluated under a plan. The final rule requires that, with respect 
to a bank affiliate's loans, investments, services, and products 
included in a bank's plan, or a joint plan of affiliated banks: (1) the 
loans, investments, services, and products may not be included in the 
CRA performance evaluation of another bank; and (2) the allocation of 
affiliates' loans, investments, services, and products to a bank, or 
among affiliated banks, must reflect a reasonable basis for the 
allocation and may not be for the sole or primary purpose of 
inappropriately enhancing any bank's CRA evaluation.

Section __.27(d) Justification and Appropriateness of Plan Election

The Agencies' Proposal
    Proposed Sec.  __.27(f)(1), required banks that elect to be 
evaluated under a strategic plan to include the same performance tests 
and standards that would otherwise be applied under the proposed rule, 
unless the bank is substantially engaged in activities outside the 
scope of these tests. The agencies also proposed to require banks to 
specify in their draft plan why being evaluated pursuant to a plan 
would be a more appropriate means to assess its record of helping to 
meet the credit needs of its community than if it were evaluated 
pursuant to the otherwise applicable performance tests and standards.
Comments Received
    A few commenters addressed this aspect of the agencies' proposal. A 
commenter stated that the agencies' proposal effectively eliminates the 
strategic plan option by defaulting to rigid one-size-fits-all 
assessment area delineation requirements (including retail lending 
assessment areas), data collection and reporting requirements, and 
performance standards that would otherwise apply to the bank unless it 
provides an acceptable rationale for alternative consideration (such as 
being substantially engaged in activities outside the scope of these 
performance tests). Relatedly, a few commenters indicated that the 
agencies should provide additional information on the justification 
that would be required to pursue the strategic plan option.
Final Rule
    In response to commenters requesting that the agencies provide 
clarity on the justification required to pursue a strategic plan 
option, the agencies are adopting new Sec.  __.27(d), which addresses 
the requirement that the draft plan provide a justification regarding 
how the bank's activities are outside the scope of, or are inconsistent 
with, the performance tests that would apply in the absence of an 
approved plan, and why being evaluated pursuant to a plan would more 
meaningfully reflect its record of helping to meet the credit needs of 
its community than if it were evaluated in the absence of a plan. In 
the final rule, Sec.  __.27(d) more comprehensively explains how a bank 
can justify its use of the strategic plan option. More specifically, 
Sec.  __.27(d)(1) requires that the plan must include justifications 
for each of the following aspects of the plan due to the bank's 
business model if included in the bank's plan: optional evaluation 
components; eligible modifications or additions to the applicable 
performance tests; additional geographic areas; and the ratings and 
conclusions methodology (see the section-by-section analysis of Sec.  
__.27(g)).\1354\
---------------------------------------------------------------------------

    \1354\ See final Sec.  __.27(d)(1)(i) through (iv).
---------------------------------------------------------------------------

    Further, Sec.  __.27(d)(2) in the final rule clarifies that each 
justification must specify the following elements:
     Why the bank's business model is outside the scope of, or 
inconsistent with, one or more aspects of the performance tests that 
would apply in the absence of a plan. In order for a bank to eliminate 
or modify any aspect of the otherwise applicable performance tests and 
be evaluated under different standards than those banks that are not 
operating under a plan, the agencies believe it is important that the 
bank supports how their business model is inconsistent with the 
performance tests;
     Why evaluating the bank pursuant to any aspect of a plan 
in Sec.  __.27(d)(1) would be more meaningful than if it was evaluated 
in the absence of an approved plan. Beyond demonstrating how one or 
more aspects of the otherwise applicable performance tests are 
inconsistent with their business model, the agencies believe it is also 
critical to support how any optional evaluation components, eligible 
modifications or additions, additional geographic areas, and rating and 
conclusions methodologies that are laid out in the plan offer a 
superior evaluation than the performance tests that would apply in the 
absence of a plan; and
     Why the optional performance components and eligible 
modifications or additions in the plan meet the standards of Sec.  
__.27(g)(1) and (2) as applicable. This aspect of the justification 
makes it clear that the bank must provide a justification for each 
optional performance component and eligible modification or addition 
that is made part of the plan.\1355\
---------------------------------------------------------------------------

    \1355\ See final Sec.  __.27(d)(2)(i) through (iii).
---------------------------------------------------------------------------

    For example, with respect to the last element, if a plan consisted 
of modifications and additions in the form of (1) adjusted performance 
test weightings, (2) the addition of a review of open-end home mortgage 
lending under the Retail Lending Test, and (3) established goals 
related to the bank's community development financing metric under the 
Community Development Financing Test, the draft plan must include 
justifications for each of these three modifications and additions.
    In response to commenter feedback regarding the rigidity of the 
performance

[[Page 7008]]

standards and other aspects of the proposed rule in the absence of an 
acceptable rationale for alternative consideration, the agencies 
believe that the final rule benefits from a more consistent approach to 
evaluating banks with multiple performance tests that correspond to the 
size and business model of the large variety of banks found throughout 
the nation. While the strategic plan option was designed to offer 
flexibility for banks with unique business models, the agencies believe 
that a robust justification provision fosters parity and consistency in 
the CRA evaluation of banks of all sizes. Further, the agencies believe 
this provision provides greater clarity for banks and agency 
supervisory staff, and ensures that strategic plan banks are held to 
the same standards as non-strategic plan banks.

Section __.27(e) Public Participation in Initial Draft Plan Development

Current Approach
    Currently, the regulation has three public participation 
requirements for a bank to complete during the development of a plan. 
First, the bank must informally seek suggestions from the public in the 
assessment area(s) covered by the plan while developing the plan.\1356\ 
Second, once the plan is initially developed, the bank must formally 
solicit public comment on the plan for at least 30 days by publishing 
notice in at least one newspaper of general circulation in each 
assessment area covered by the plan.\1357\ Finally, during the formal 
public comment period, the bank must make copies of the plan available 
for review by the public at no cost in all bank offices in any 
assessment area covered by the plan, as well as provide copies upon 
request for a reasonable fee to cover copying and mailing, if 
applicable.\1358\
---------------------------------------------------------------------------

    \1356\ See current 12 CFR __.27(d)(1).
    \1357\ See current 12 CFR __.27(d)(2).
    \1358\ See current 12 CFR __.27(d)(3).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed in Sec.  __.27(d)(1) to continue to require a 
bank to informally seek input from members of the public in its 
facility-based assessment areas covered by the plan while developing 
the plan. The agencies also proposed in Sec.  __.27(d)(2) that, once a 
bank had developed a draft plan, the bank would be required to submit 
the initial draft plan for publication on its appropriate Federal 
financial supervisory agency's website, as well as publish the draft 
plan on their own website if the bank has a website (or if the bank 
does not maintain a website by publishing notice in at least one print 
newspaper or digital publication of general circulation in each 
facility-based assessment area covered by the plan, or for military 
banks in at least one print newspaper or digital publication of general 
circulation targeted to members of the military) for a period of at 
least 30 days. The proposal also clarified that the draft plan should 
include instructions to the public on how they could submit comments 
both electronically and at a postal address.\1359\ Proposed Sec.  
__.27(d)(3) continued to require banks to make copies of the plan 
available during the formal comment period at all offices in areas 
covered by the plan and upon request for a reasonable copying and 
mailing fee.
---------------------------------------------------------------------------

    \1359\ See id.
---------------------------------------------------------------------------

    Lastly, the agencies sought feedback regarding whether the agencies 
should announce pending plans in the same manner as they announce 
upcoming CRA examination schedules and completed CRA examinations and 
ratings.
Comments Received
    Most commenters were generally supportive of the agencies' 
proposal, with some commenters offering modifications or alternatives. 
A commenter expressed the view that a bank should be given the option 
of whether to post its plan notice and draft plan on its website or to 
publish the notice in at least one print newspaper or digital 
publication of general circulation. Other recommendations concerning 
publishing plans included suggestions that the agencies circulate plans 
over email to ensure a high level of community engagement and avoid 
incorporating any more restrictive announcements, postings, or 
requirements into the final rule for strategic plans.
    One commenter stated that banks should make an affirmative effort 
to engage community-based organizations led by people of color and 
women as well as a range of advocacy organizations working on behalf of 
communities and should document how many and which of these 
organizations they engaged. Several other commenters indicated that a 
bank should be able to give greater weight to input received on a draft 
plan from organizations serving or located in regions represented 
within the plan.
Final Rule
    The agencies are finalizing proposed Sec.  __.27(d), renumbered in 
the final rule as Sec.  __.27(e), pertaining to the public 
participation requirements, with a revision to expand the timeframe for 
formally soliciting public comment and several technical and clarifying 
changes. While the current and proposed rule allowed for a 30-day 
period for the bank to formally solicit public comments on the initial 
draft plan, the agencies believe that the public participation 
component of the plan development process is critical and that 
additional time is appropriate to ensure that members of the public 
have the time to review the initial draft plan and provide informed 
input to a bank. Consistent with the desire to increase public 
participation in the plan development process, the agencies are 
expanding the formal public comment period to 60 days.\1360\
---------------------------------------------------------------------------

    \1360\ See final Sec.  __.27(e)(1)(ii).
---------------------------------------------------------------------------

    While a few commenters advocated for more flexibility or for the 
agencies to limit any new announcement or posting requirements, the 
agencies believe the proposed modifications that add requirements to 
post initial draft plans on the appropriate Federal financial 
supervisory agency's website and bank's website, if the bank maintains 
one, are necessary as this is the most convenient and efficient way for 
most members of the public to become aware of and access initial draft 
plans. As discussed in the proposal, the expansion of the availability 
of initial draft plans online is important, as it has been the 
agencies' experience that plans rarely garner public comments when 
distributed solely through notifications in the local newspaper.
    The agencies are also adopting in the final rule a new requirement 
in Sec.  __.27(e)(1)(ii)(A) and (B), which requires banks with websites 
to publish their initial draft plans on their website and for all banks 
(including those with websites) to publish notice in at least one 
newspaper of general circulation in each facility-based assessment 
area. Although the agencies did not propose requiring banks with a 
website to also provide notice in a print newspaper, the agencies 
believe this change is consistent with the agencies' objective to 
promote transparency and enhance public participation with respect to 
draft plans and to acknowledge that notice in a newspaper is how the 
rule has made the public aware of plans for decades under the current 
regulation and there may be stakeholders that continue to rely on that 
form of notice.\1361\ The agencies believe that further distribution 
through other mechanisms, as recommended by commenters (such as through 
email),

[[Page 7009]]

would not be practical and would cause unnecessary burden without 
sufficient benefit.
---------------------------------------------------------------------------

    \1361\ See current 12 CFR __.27(d)(2).
---------------------------------------------------------------------------

    Further, while the agencies sought feedback on the advantages and 
disadvantages of announcing pending or draft plans using the same means 
the agencies use to announce upcoming examination schedules or 
completed CRA examinations and CRA ratings, the agencies received no 
comments directly addressing this issue. After weighing the benefits 
and burden of announcing initial draft plans, the agencies determined 
that announcing initial draft plans (for example, through an agency 
press release) would be impractical, as it would need to occur in real 
time in order to be useful given the 60-day comment period. As 
discussed previously, the final rule includes a requirement to publish 
initial draft plans on the bank's and appropriate agency's website, and 
community groups and other members of the public have demonstrated an 
ability to monitor the agencies' websites to access other similar 
information to participate in the CRA feedback process (such as 
announcements of pending bank applications).
    With respect to proposed Sec.  __.27(d)(1), a technical change was 
made to the language, which suggested that seeking informal suggestions 
was limited to members of the public in the bank's facility-based 
assessment areas. In final Sec.  __.27(e)(1)(i), the reference to 
facility-based assessment areas was removed to make clear that it may 
be appropriate for banks to seek informal input from other members of 
the public depending on the circumstance, such as organizations that 
serve public stakeholders nationally or in retail lending assessment 
areas. Also, the agencies do not believe that that they should dictate 
specifically how a bank should seek input or suggestions from members 
of the public. While commenters suggested that the regulation should 
state an affirmative obligation to engage with or place greater weight 
on input from certain types of organizations (such as those led by 
women or people of color, or organizations that serve the region 
covered by the plan), the agencies believe that each bank and its 
public stakeholders are unique; therefore, it would be inappropriate 
for the agencies to dictate from whom and how banks solicit and 
consider public input in conjunction with plan development.
    The final rule also clarifies the public engagement requirements 
for military banks.\1362\ In addition to the website publishing 
requirements under final Sec.  __.27(e)(1)(ii)(A), and instead of the 
newspaper publishing requirements in final Sec.  __.27(e)(1)(ii)(B), 
the final rule requires that a military bank publish notice in at least 
one print newspaper of general circulation targeted to members of the 
military, if available. Otherwise, the military bank must publish 
notice in a digital publication targeted to members of the military.
---------------------------------------------------------------------------

    \1362\ See final Sec.  __.27(e)(1)(ii)(C).
---------------------------------------------------------------------------

    Lastly, final Sec.  __.27(e)(1)(iii) provides that a bank must 
include on its website and in a newspaper notice, a means by which 
members of the public can electronically submit and mail comments to 
the bank on its initial draft plan.\1363\ Also, the agencies are 
finalizing proposed Sec.  __.27(d)(3), renumbered as Sec.  __.27(e)(2), 
with minor clarifying technical changes, with no change in meaning 
intended. Consistent with the current rule,\1364\ during the formal 
public comment solicitation period, a bank must make copies of the 
initial draft plan available for review at no cost in any facility-
based assessment area covered by the plan, and provide copies of the 
plan upon request for a reasonable fee to cover copying and mailing.
---------------------------------------------------------------------------

    \1363\ See final Sec.  __.27(e)(1)(iii).
    \1364\ See current 12 CFR __.27(d)(3).
---------------------------------------------------------------------------

Section __.27(f) Submission of a Draft Plan

Current Approach
    Currently, the regulation requires a bank to submit its plan to its 
appropriate Federal financial supervisory agency at least three months 
prior to the proposed effective date of the plan and to include a 
description of its efforts to seek suggestions from the public, any 
written comments received, and the initial draft plan (if it was 
revised in light of the comments received).\1365\
---------------------------------------------------------------------------

    \1365\ See current 12 CFR __.27(e).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to maintain the requirements in current Sec.  
__.27(e) with additional clarifications regarding some aspects of those 
requirements. Consistent with the current rule, proposed Sec.  __.27(e) 
required the same three-month submission timeframe from banks prior to 
the proposed effective date of the plan. The proposal also maintained 
the current requirement that the submission of the plan include a 
description of the bank's efforts to seek suggestions from the public 
but clarified that this must include who was contacted and how the 
information was gathered. Lastly, the proposal also expanded the 
request for any written comments to include more broadly any written or 
other input on the plan that was received by the public and the initial 
draft plan if it was revised in light of the input.
Comments Received
    The agencies received one comment addressing this aspect of the 
proposal. Specifically, a commenter indicated that the information a 
bank submits should also include a comprehensive list of the comments 
and recommendations it received and the bank's response to this input.
Final Rule
    The agencies are finalizing proposed Sec.  __.27(e), renumbered in 
the final rule as Sec.  __.27(f), with several technical changes to 
reflect the timing requirements in days and to more clearly identify 
the materials that a bank must submit to the appropriate Federal 
financial supervisory agency in conjunction with the draft plan. 
Consistent with other timing requirements in the final rule that are 
based on calendar days, the three-month timeframe for submission of the 
plan before it is proposed to become effective has been changed to a 
substantially equivalent 90 days. Also, consistent with the other 
documentation to support public participation in the proposal (e.g., 
description of efforts to seek public input, written and other public 
input received, initial draft plan before it was revised in light of 
public input), the agencies added the following to the list of items 
that must be submitted in conjunction with a draft plan, as applicable: 
proof of notice notification; any written comments or other public 
input received; an explanation of any relevant changes made to the 
initial plan in light of public input received; and an explanation for 
why any suggestions or concerns received by the public regarding the 
plan were not addressed.\1366\ These changes are responsive to the 
commenter that addressed this aspect of the proposal, as the final rule 
requires the bank to submit any written or other input received and to 
add explanations of how this input was or was not integrated into the 
plan, which will serve as the bank's response to this input. As 
discussed previously, the agencies believe public participation is 
critical to the plan development process, and the additional items 
added to accompany the plan submission allow the agencies to ensure 
that the requirements under final Sec.  __.27(e) are met, and to better

[[Page 7010]]

understand how public input was considered and integrated into the 
plan.
---------------------------------------------------------------------------

    \1366\ See final Sec.  __.27(f)(1) through (4).
---------------------------------------------------------------------------

Section __.27(g) Plan Content

Current Approach
    The current regulation requires a bank to specify measurable goals 
in its plan for helping meet the credit needs of each assessment area 
covered by the plan, particularly the needs of low- and moderate-income 
geographies (i.e., census tracts) and individuals, through lending, 
investment, and services, as appropriate.\1367\ A bank must address all 
three performance categories and, unless the bank has a wholesale or 
limited purpose designation, shall emphasize lending and lending-
related activities.\1368\ Further, the current regulation permits banks 
to submit additional information to its appropriate Federal financial 
supervisory agency on a confidential basis, provided the goal plans are 
sufficiently specific to enable the appropriate Federal financial 
supervisory agency and the public to judge the merits of the 
plan.\1369\
---------------------------------------------------------------------------

    \1367\ See current 12 CFR __.27(f)(1)(i).
    \1368\ See current 12 CFR __.27(f)(1)(ii).
    \1369\ See current 12 CFR __.27(f)(2).
---------------------------------------------------------------------------

    The current regulation also requires a bank to specify measurable 
goals in its plan that constitute ``satisfactory'' performance and to 
optionally establish goals that constitute ``outstanding'' 
performance.\1370\ If the bank submits goals for both levels of 
performance and the appropriate agency approves the plan, the agency 
will consider the bank eligible for an ``outstanding'' rating. If the 
bank does not substantially meet the plan goals, the bank also has the 
option to elect in its plan to have its performance evaluated under the 
performance test or standards that would otherwise apply in the absence 
of a plan.\1371\
---------------------------------------------------------------------------

    \1370\ See current 12 CFR __.27(f)(3).
    \1371\ See current 12 CFR __.27(f)(4).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed revisions to current Sec.  __.27(f), 
including substantive and technical changes. In proposed Sec.  
__.27(f)(1), the agencies required that a bank's draft plan include the 
same performance tests and standards that would otherwise be applied 
under the CRA regulations, unless the bank is substantially engaged in 
activities outside of the scope of the performance tests. The proposal 
required that the draft plan specify how these activities are outside 
the scope of the otherwise applicable performance tests and standards 
and why being evaluated pursuant to a plan would be a more appropriate 
means to assess the bank's record of helping to meet the credit needs 
of its community than if it were evaluated pursuant to the otherwise 
applicable performance tests and standards.
    Proposed Sec.  __.27(f)(2) required that the draft plan incorporate 
measurable goals for all geographical areas that would be included 
pursuant to the performance tests and standards that would otherwise 
apply in the absence of approved plan.
    Proposed Sec.  __.27(f)(3)(i) required a bank, pursuant to these 
tests and standards, to specify measurable goals in its draft plan for 
helping to meet the following, as applicable:
     retail lending needs of, as applicable, its facility-based 
assessment areas, retail lending assessment areas, and outside retail 
lending area that are covered by the draft plan;
     retail services and products needs of its facility-based 
assessment areas and at the institution level that are covered by the 
draft plan;
     community development financing needs of its facility-
based assessment areas, States, multistate MSAs, and nationwide areas 
that are covered by the draft plan; and
     community development services needs of its facility-based 
assessment areas and other geographic areas served by the bank that are 
covered by the draft plan.
    In a bank's draft plan, the agencies proposed that a bank must 
consider public comments and its capacity and constraints, product 
offerings, and business strategy in developing goals in these four 
performance test areas.\1372\ The proposal also required that the 
bank's draft plan include a focus on the credit needs of low- and 
moderate-income individuals, small businesses, small farms, and low- 
and moderate-income census tracts, and explain how the plan's 
measurable goals are responsive to the characteristics and credit needs 
of, as applicable, the assessment areas and geographic areas served by 
the bank, considering public comment and the bank's capacity and 
constraints, product offerings, and business strategy.\1373\
---------------------------------------------------------------------------

    \1372\ See proposed Sec.  __.27(f)(3)(ii).
    \1373\ See proposed Sec.  __.27(f)(3)(iii).
---------------------------------------------------------------------------

    In developing measurable goals related to retail lending, the 
agencies proposed that a bank incorporate measurable goals in its draft 
plan for each major product line. However, banks have the option to 
develop additional goals that cover other lending-related activities 
based on the bank's specific business strategy.\1374\ Moreover, 
proposed Sec.  __.27(f)(3)(v) provided that if the bank's plan goals 
related to retail lending do not incorporate the Retail Lending Test's 
metric-based methodology, the bank must explain why incorporation of 
the methodology is not appropriate. Further, for banks that would 
otherwise have community development loan and community development 
investment requirements, proposed Sec.  __.27(f)(3)(vi) required that a 
bank include an explanation as to why measurable goals do not 
incorporate, as applicable, the metric-based methodology in the 
Community Development Financing Test or the Community Development 
Financing Test for Wholesale or Limited Purpose Banks as described in 
proposed Sec. Sec.  __.24 and __.26, respectively, or the community 
development performance standards for intermediate banks as provided in 
proposed Sec.  __.29(b)(2).
---------------------------------------------------------------------------

    \1374\ See proposed Sec.  __.27(f)(3)(iv).
---------------------------------------------------------------------------

    The agencies proposed in Sec.  __.27(f)(4) to retain the current 
regulatory language with respect to a bank's ability to submit 
additional information regarding the plan to the agencies on a 
confidential basis. Further, the agencies proposed similar language to 
the current regulation that requires banks to specify in its plan 
measurable goals that constitute ``Satisfactory'' performance and 
provides them the option to specify goals for ``Outstanding'' 
performance. Lastly, in proposed Sec.  __.27(f)(6), the agencies 
continued to provide the option for banks to be evaluated under the 
performance tests and standards that would otherwise apply in the 
absence of a plan if the bank failed to substantially meet its plan 
goals.
Comments Received
    Many commenters agreed that flexibility, particularly with regard 
to assessment areas, performance tests and standards, and the 
establishment of goals, should be maintained. These commenters did not 
share the concern expressed by other commenters that banks could use 
the strategic plan option to avoid more stringent CRA requirements, 
noting that appropriate guardrails, such as public comment and 
regulatory approval, would be in place.
    At least one commenter believed the proposed regulatory text would 
discourage banks from selecting the strategic plan option, stating this 
could result in changing the bank's business strategy. To avoid this 
unintended consequence, this commenter recommended deleting the word 
``substantially,'' and instead include language that a different 
approach may

[[Page 7011]]

be more appropriate for a bank's business model. In addition, when 
referencing that a plan must address all performance tests and 
standards that would otherwise be applied, the commenter requested that 
the agencies retain the language under the current regulations that ``a 
different emphasis, including a focus on one or more performance 
categories, may be appropriate if responsive to the characteristics and 
credit needs of its assessment area(s), considering public comment and 
the bank's or savings association's capacity and constraints, product 
offerings, and business strategy.''
    A number of commenters expressed concern that the agencies' 
strategic plan option proposal lacks flexibility and, thereby, defeats 
the original purpose of plans. Some of these commenters recommended 
that the agencies preserve the flexible features afforded plans under 
the current CRA regulations. In particular, these commenters identified 
assessment areas, in-scope products, measurable goals, and test weights 
as current areas of flexibility. Some of these commenters made 
recommendations, including that the agencies: explicitly state in the 
final rule that not all performance tests would be required for banks 
where they are not applicable and that banks that are primarily 
consumer lenders be allowed to include consumer loans under their 
plans; provide flexibility for weighting the four main performance 
tests at the institution level for all strategic plan banks if the 
final rule does not provide that accommodation for all banks; and 
clarify whether banks may continue to use self-executing provisions 
that allow certain changes to take effect upon the occurrence of a 
particular event. Another commenter believed that the proposed changes 
to the plan would shift its focus from meeting community needs, 
including community development investments and community engagement, 
to meeting strict tests and monitoring generic benchmarks.
Final Rule
    In response to comments that advocated for greater flexibility in 
the development of plans, the agencies made significant revisions aimed 
to clarify the plan content requirements in proposed Sec.  __.27(f), 
renumbered as final Sec.  __.27(g). These revisions also ensure that 
there are guardrails to prevent banks from opting out of a ``more 
stringent'' evaluation under the applicable default performance tests, 
including to retain parity among banks not evaluated under an approved 
strategic plan and those that are. The agencies believe the revisions 
in the final rule provide stakeholders with more objective rules under 
the strategic plan option that define when the standard performance 
tests apply and when eligible additions and modifications are allowed 
and appropriate. Also, while proposed Sec.  __.27(f) consistently 
referenced ``draft plan'' when addressing plan content requirements, 
final Sec.  __.27(g) omits the term ``draft'' to clarify that these 
plan content requirements also apply to approved plans. As a draft plan 
is developed solely for the purpose of obtaining agency approval, all 
of the requirements of final Sec.  __.27(g) would apply at the draft 
stage as well.
    Proposed Sec.  __.27(f)(1) provided that ``[a] bank's draft plan 
must include the same performance tests and standards that would 
otherwise be applied under this part, unless the bank is substantially 
engaged in activities outside the scope of these tests,'' and must 
specify how these activities are outside the scope of the performance 
tests and why being evaluated under a plan would be more appropriate. 
As explained above, the concepts in proposed Sec.  __.27(f)(1) were 
restructured in the final rule and are now discussed in final Sec.  
__.27(c) and (d), which detail plans in general and the justification 
and appropriateness of plan election, respectively (see the section-by-
section analysis of Sec.  __.27(c) and (d)). As a result, final Sec.  
__.27(g) requires that the plan must meet the requirements of final 
Sec.  __.27(g), as well as those outlined in final Sec.  __.27(c) and 
(d). In response to the commenter that expressed concern that the 
proposed regulatory text would force a bank to change its business 
model, the agencies believe the revisions proposed in Sec.  __.27(f) 
provide sufficient flexibility to accommodate different business 
models. By requiring justifications for any modifications and additions 
and relating them to areas where the performance tests that would apply 
in the absence of an approved plan are outside the scope of, or are 
inconsistent with, the bank's business model, the agencies believe that 
they have provided sufficient flexibility while also providing 
guardrails to prevent a bank from inappropriately eliminating 
performance tests for which it has the capacity to deliver results.
    Final Sec.  __.27(g)(1) adopts the language that was proposed in 
Sec.  __.27(f)(3)(iii) to require the draft plan to focus on the credit 
needs its entire community, including low- and moderate-income 
individuals, families, and households; low- and moderate-income census 
tracts; and small businesses and small farms, and to describe how the 
plan is responsive to the characteristics and credit needs of its 
facility-based assessment areas, retail lending assessment areas, 
outside retail lending area, and other geographic areas served by the 
bank with a technical edit. The reference in proposed Sec.  
__.27(f)(3)(iii) explaining how the plan's measurable goals are 
responsive to these areas was revised to reflect that the bank's 
responsiveness can be demonstrated by any component of the plan, 
including those components that are not tied to measurable goals. This 
provision, in conjunction with the variety of eligible modifications 
and additions permitted under final Sec.  __.27(g)(2), is responsive to 
the commenter that expressed concern that the strategic plan option 
would shift focus from meeting credit needs to a strict adherence to 
the tests and benchmarks.
    In final Sec.  __.27(g)(1), the agencies are also clarifying that a 
bank must specify the components in the plan for helping meet various 
needs, as applicable, in the various geographical areas served by the 
bank. These needs are similar to the ones that were delineated in 
proposed Sec.  __.27(f)(3) and include those related to retail lending, 
retail banking services and retail banking products, community 
development loans, community development investments, and community 
development services. However, the language was amended from the 
proposal to reflect that the plan must specify any components of the 
draft plan that help meet these needs--not only measurable goal 
components.
    Also, upon consideration of perspectives of commenters that had 
concerns that the strategic plan option would be used to avoid more 
stringent CRA requirements and those that urged the maintenance of 
flexible criteria under the option (including giving banks the ability 
to eliminate a performance test, if not applicable), the agencies added 
more specificity to the requirements in final Sec.  __.27(g)(1)(i) 
through (iv) that detail the components that a bank must include in its 
plan depending on the size of the bank and the bank's product 
offerings. The agencies believe these provisions clarify the agencies' 
proposal and keep the bank accountable for results under the applicable 
performance tests that can be reasonably applied to the bank, while 
offering appropriate flexibility when the bank's business model is 
outside the scope of, or is inconsistent with, one or more of the 
performance tests that

[[Page 7012]]

would apply in the absence of an approved plan, which include limited 
circumstances that may justify the elimination of a performance test.
    For instance, in order to assess its efforts in helping meet retail 
lending needs, final Sec.  __.27(g)(1)(i) requires a bank that 
originates or purchases loans in a product line evaluated under the 
Retail Lending Test in final Sec.  __.22 or originates or purchases 
loans evaluated pursuant to the Small Bank Lending Test in final Sec.  
__.29(a)(2) to include the applicable test in its strategic plan. A 
large bank that offers residential mortgage loans that would be 
considered under the Retail Lending Test would need to include that 
performance test in its plan. In contrast, a bank that originates 
consumer loans, and does not originate any other loans considered under 
the Retail Lending Test, would not be required to include the Retail 
Lending Test in its plan. Also, a large bank would not need to include 
in its strategic plan the Retail Services and Products Test if it does 
not maintain any delivery systems \1375\ or the Community Development 
Services Test in a facility-based assessment area where the large bank 
has no employees.\1376\ It is important to note that all banks (other 
than small banks that have no community development requirements under 
Sec.  __.29) must include the otherwise applicable community 
development test in their plan,\1377\ as the agencies do not believe 
there are circumstances where these banks do not have the capacity to 
deliver some volume of community development investments or loans. 
Also, final Sec.  __.27(g)(1)(ii) through (iv) make it clear that any 
bank can add a component of a performance test that relates to a need 
that is not covered in the performance tests that would apply in the 
absence of an approved plan. For example, although large banks 
generally are required to include community development services, 
delivery systems, credit products or programs, and deposit products, 
any other bank may also include a component of these in its plan. 
Additionally, a small bank could add goals related to community 
development loans and community development investments to its plan. 
While these banks would not be required to perform in these areas under 
the performance tests that would apply in the absence of an approved 
plan, a bank may wish to add these components to compensate for the 
elimination or modifications of other performance test components in 
their plan.
---------------------------------------------------------------------------

    \1375\ See final Sec.  __.27(g)(1)(ii)(A).
    \1376\ See final Sec.  __.27(g)(1)(iv)(A).
    \1377\ See final Sec.  __.27(g)(1)(iii)(A) through (C).
---------------------------------------------------------------------------

    In response to commenters that urged flexibility regarding the 
development of plans and the agencies' desire to add clarity regarding 
the requirements in final Sec.  __.27(g)(1) related to the elimination 
or additions to the applicable performance tests, the agencies are 
adopting new Sec.  __.27(g)(2) to detail the eligible modifications or 
additions that may be made to the components within the performance 
tests that would apply in the absence of an approved plan if justified 
under final Sec.  __.27(d). Similar to final Sec.  __.27(g)(1), final 
Sec.  __.27(g)(2)(i) through (iv) detail the modifications and 
additions that the rule would allow in the four areas of retail 
lending, retail banking services and products, community development 
loans and investments, and community development services. For 
instance, with respect to retail lending, small banks may be able to 
support the omission of the loan-to-deposit or assessment area 
concentration performance criteria pursuant to Sec.  __.29, as well as 
add annual measurable goals for its retail lending activity.\1378\ As 
an example, a small bank that originates residential mortgage lending 
throughout the country (with a nominal concentration of loans in its 
facility-based assessment area) may be able to justify the elimination 
of the assessment area concentration performance criterion and develop 
goals that correspond to its geographic and borrower distribution in 
nationwide residential mortgage lending. For a bank otherwise evaluated 
under the Retail Lending Test, in its plan, a bank may add additional 
products outside those that are considered pursuant to final Sec.  
__.22 (e.g., closed-end home mortgage loans, small business loans, 
small farm loans, and automobile loans).\1379\ For example, this 
flexibility allows a bank to be evaluated with respect to its consumer 
loan products. As an additional example, a large bank could add open-
end home mortgage lending with accompanying goals that would be 
considered under the plan in addition to the major product lines that 
are already required pursuant to Sec.  __.22.
---------------------------------------------------------------------------

    \1378\ See final Sec.  __.27(g)(2)(i)(A)(1) and (2).
    \1379\ See final Sec.  __.27(g)(2)(i)(B)(1).
---------------------------------------------------------------------------

    When adding measurable goals related to additional products or sub-
products, final Sec.  __.27(g)(2)(i)(B)(2) permits the bank to apply 
different product weights that allow for averaging together the 
performance across the added products in combination with the other 
standard major product lines required to be evaluated under the Retail 
Lending Test or including those loan products in the numerator of the 
Bank Volume Metric. For example, if a bank justifies the addition of 
open-end home mortgage loans under the Retail Lending Test in its plan 
to be evaluated in conjunction with its product lines, the bank could 
treat the open-end home mortgage loans as an additional product line 
and calculate a weighted average based on a combination of loan dollars 
and loan count across all major product lines consistent with section 
VII of final appendix A.
    Under the plan option, final Sec.  __.27(g)(2)(i)(B)(3) also allows 
the bank to use alternative weighting when combining the borrower and 
geographic distribution analyses. Under the Retail Lending Test, these 
two measures each account for 50 percent of the recommended conclusion 
unless there are no low- and moderate-income census tracts; however, 
under a plan, a bank may adjust these weightings for a specific product 
line if it can justify why the standard weighting does not represent 
the most appropriate evaluation of these criteria. For example, an 
intermediate bank may be able to support lowering the weight of the 
geographic distribution measure (and therefore increase the weighting 
of the borrower distribution measure) related to performance in a 
facility-based assessment area that is comprised of 60 census tracts 
and only one census tract is considered low- or moderate-income. In 
this circumstance, it may be appropriate to adjust weighting to account 
for the lack of economic diversity in the geographic areas that make up 
the bank's assessment area.
    Additional modifications and additions are allowed for retail 
banking services and retail banking products pursuant to final Sec.  
__.27(g)(2)(ii) if a bank can provide sufficient justification. First, 
a large bank may add a measurable goal for any component of the Retail 
Services and Product Test.\1380\ For example, a bank may establish a 
goal to maintain branches in low- and moderate-income census tracts 
within its sole facility-based assessment area that mirror or exceed 
the corresponding percentages of households in those tracts. Second, a 
large bank may remove a component of the Retail Services and Products 
Test in limited circumstances. For example, if the bank does not offer 
any remote service facilities, the bank could remove that component 
from the test.\1381\ Third, pursuant to final

[[Page 7013]]

Sec.  __.27(g)(2)(ii)(C), large banks may assign specific weights to 
the applicable components of the test to reach a conclusion. In final 
Sec.  __.23, there are no defined weightings to consider in formulating 
conclusions or ratings for the Retail Services and Products Test; 
however, a bank may establish weightings that clarify how the existing 
and modified components are combined to arrive at conclusions or 
ratings under the plan. Finally, as only large banks must comply with 
the Retail Services and Products Test, final Sec.  __.27(g)(2)(ii)(D) 
clarifies that banks other than large banks may include retail banking 
services and retail banking products components and accompanying 
measurable goals in their plans at their option. For instance, an 
intermediate bank could establish a goal for delivering Bank On-
certified accounts to consumers in its facility-based assessment area 
to compensate for modifications it made with respect to the Retail 
Lending Test.
---------------------------------------------------------------------------

    \1380\ See final Sec.  __.27(g)(2)(ii)(A).
    \1381\ See final Sec.  __.27(g)(2)(ii)(B).
---------------------------------------------------------------------------

    Additional modifications and additions are allowed for community 
development loans and community development investments pursuant to 
final Sec.  __.27(g)(2)(iii). First, a bank ``may specify annual 
measurable goals for community development loans, community development 
investments, or both.'' \1382\ This provision requires that any 
measurable goals in this area must be based on a percentage or ratio of 
the bank's community development loans and community development 
investments, presented either on a combined or separate basis, relative 
to the bank's capacity (typically reflected as deposits or assets), 
accounting for the community development needs and opportunities in an 
applicable geographic area. For instance, while the final rule does not 
establish specific thresholds to evaluate a bank's community 
development financing metric relative to comparable benchmarks for the 
Community Development Financing Test, a large bank could set an annual 
goal in the form of a target percentage (based on the benchmark or some 
other reasonable measure). For instance, a large bank could establish 
an annual goal of 1.25 percent for its Bank Assessment Area Community 
Development Financing Metric, which would mean the bank's community 
development loans and community development investments were 1.25 
percent of the bank's deposits in that assessment area. Alternatively, 
the bank could establish an annual goal for this metric as a percentage 
of the corresponding benchmark, such as 125 percent of the Assessment 
Area Community Development Financing Benchmark. A bank could also 
establish measurable goals for all or just a particular type of a 
bank's community development loans or community development 
investments. As another example, a large bank could establish annual 
measurable goals based on the dollar volume of its purchase or 
maintenance of LIHTC investments relative to the bank's deposits. Other 
modifications in this area include using assets (in lieu of deposits) 
as an alternative denominator \1383\ or additional benchmarks \1384\ to 
evaluate a community development financing metric. For example, if a 
large bank can justify why the deposits figure used in calculating the 
metric does not adequately capture the bank's capacity to make 
investments and loans in its facility-based assessment areas, the bank 
could propose to use a metric that is calculated using the bank's 
assets. Lastly, as the small bank performance evaluation does not 
include any criteria related to a community development financing 
requirement, final Sec.  __.27(g)(2)(iii)(D) clarifies that small banks 
may include a community development loan or community development 
investment component and accompanying measurable goals in their plans.
---------------------------------------------------------------------------

    \1382\ See final Sec.  __.27(g)(2)(iii)(A).
    \1383\ See final Sec.  __.27(g)(2)(iii)(B).
    \1384\ See final Sec.  __.27(g)(2)(iii)(C).
---------------------------------------------------------------------------

    With respect to community development services, final Sec.  
__.27(g)(2)(iv)(A) allows a bank to specify annual measurable goals for 
these activities. While any reasonable measure can be used if 
justified, this section provides examples of goals that could include 
the number of activities or the number of activity hours against some 
measure of bank capacity, such as full-time equivalent employees. Also, 
since only large banks are subject to the Community Development 
Services Test, final Sec.  __.27(g)(2)(iv)(B) clarifies that banks 
other than large banks may, at their option, include a community 
development services component and accompanying goals in their plan.
    As many of the performance tests assign weights to various 
components of the tests (including the geographical areas, products, 
and criteria), the final rule contains language to outline the 
circumstances under which adjustments to weighting are allowed with 
justification under final Sec.  __.27(d). As discussed previously, 
weighting of products and borrower and geographic analyses under to the 
Retail Lending Test are addressed in final Sec.  __.27(g)(2)(i)(B)(2) 
and (3), respectively.
    With respect to geographical weighting, final Sec.  __.27(g)(2)(v) 
allows a bank to specify alternative weights for averaging test 
performance across assessment areas or other geographical areas with 
justification based on the bank's level of activity and capacity in 
specific geographic areas. For example, while facility-based assessment 
area weighting is typically calculated as an average of loans and 
deposits, an intermediate bank may propose an alternative weighting for 
its facility-based assessment areas if there are anomalies in the 
geographical distribution of its deposits (as calculated by the FDIC's 
Summary of Deposits data). For instance, a bank with a large warehouse 
lending operation may maintain all of its associated escrow deposits, 
which represent the majority of its deposits, in one branch. If, as a 
result, the assessment area that corresponds to this branch receives 
disproportionate weight in assessing the bank's lending performance, 
the bank may be able to justify an alternative weighting methodology in 
its plan.
    With respect to combining the various applicable performance tests 
to develop ratings in States and multistate MSAs, as applicable, and 
for the institution under the plan, final Sec.  __.27(g)(2)(vi)(A) 
allows a bank to request an alternative weighting method. This 
alternative weighting provision would also apply to combined assessment 
area conclusions developed for the purposes of determining whether a 
large bank met the 60 percent standard specified in final Sec.  
__.28(b)(4)(ii)(B). In making these clarifications, the agencies have 
considered commenter feedback advocating for flexibility under the 
strategic plan option. Similar to the current rule,\1385\ the 
alternative test weighting method must emphasize retail lending, 
community development financing, or both, as well as be responsive to 
the characteristics and credit needs of a bank's assessment area(s), 
public comments, and the bank's capacity and constraints, product 
offerings, and business strategy. Under the final rule, however, if an 
alternative test weighting methodology is requested, a bank must 
compensate for decreasing the weight under one performance test by 
committing to enhance its efforts to help meet the credit needs of its 
community under another performance test.\1386\ For example, if a large 
bank that conducted limited retail lending activity submitted

[[Page 7014]]

a draft plan that reduced the weight of the Retail Lending Test from 40 
percent to 20 percent with a corresponding increase in the weight of 
the Community Development Financing Test to 60 percent, the agencies 
would expect the plan to include enhancements for its performance under 
the Community Development Financing Test taking this increased 
performance test weight into consideration. The bank should explain its 
rationale for why its performance under a test with an increased weight 
meets the required standard. In an example involving increased weight 
for the Community Development Financing Test, as noted above, the bank 
could describe its performance relative to relevant benchmarks provided 
under that performance test (such as by setting ``Satisfactory'' goals 
for the community development financing metric that exceeded the 
benchmark by a specific percentage).
---------------------------------------------------------------------------

    \1385\ See current 12 CFR __.27(f)(1)(ii).
    \1386\ See final Sec.  __.27(g)(2)(vi)(B).
---------------------------------------------------------------------------

    The agencies received differing views on the geographic coverage of 
plans in proposed Sec.  __.27(f)(2), feedback which was also discussed 
in regard to final Sec.  __.27(c)(3)(ii). As discussed previously, all 
of these comments related to the proposal for banks to include retail 
lending assessment areas in their plan if these areas would otherwise 
be required in the absence of an approved plan. While a few commenters 
favored allowing banks to justify or negotiate away the requirement to 
include retail lending assessment areas, the other commenters that 
addressed this issue supported the inclusion of these areas. After 
considering these comments, the agencies are finalizing proposed Sec.  
__.27(f)(2), renumbered as Sec.  __.27(g)(3), pertaining to the 
requirement that a bank may not eliminate the evaluation of its 
performance in any geographic area that would be included in its 
performance evaluation in the absence of an approved plan (including 
retail lending assessment areas and the outside retail lending area). 
In addition, several technical changes and expanded language are 
included to explain that performance evaluation components and goals 
may be added to the plan for additional geographic areas and to address 
how retail lending assessment area designations that change subsequent 
to the approval of the plan will be handled. As the requirement for 
designating a retail lending assessment area is limited to a subset of 
large banks that are not exempted under final Sec.  __.17(a)(2), which 
addresses whether a bank has more than 80 percent of its lending inside 
of its facility-based assessment areas, and that also meets the 
specified lending thresholds for closed-end home mortgage loans or 
small business loans,\1387\ the agencies believe that it is appropriate 
for these banks to be evaluated in these areas in their plans. This 
also maintains parity among large banks, whether they are evaluated 
under a strategic plan or not. As discussed previously, final Sec.  
__.27(c)(3)(i) requires that a bank's plan incorporate each assessment 
area (including both facility-based and retail lending) and other 
geographic areas (such as an outside retail lending area, States, 
multistate MSAs, or nationwide) that would otherwise be evaluated in 
the absence of an approved plan. This language was modified from 
proposed Sec.  __.27(f)(2) in that it removes the reference to 
requiring measurable goals, consistent with the fact that a bank's 
performance under a plan may be evaluated exclusively on a performance 
component that is not guided by a goal.
---------------------------------------------------------------------------

    \1387\ See final Sec.  __.17.
---------------------------------------------------------------------------

    In the proposal, the agencies sought feedback on whether 
intermediate banks electing to be evaluated under a plan should be 
allowed to delineate retail lending assessment areas, whether small 
banks electing to be evaluated under a plan should be allowed to 
delineate retail lending assessment areas and outside retail lending 
areas, and what criteria should apply to small and intermediate banks 
delineating such assessment areas under a plan. The agencies did not 
receive any comments in response; however, the agencies believe this 
issue should be addressed in the final rule. The final rule adopts new 
Sec.  __.27(g)(3)(i), which clarifies that evaluation components and 
accompanying goals may be added to a plan at the bank's option. For 
example, a small bank may opt to incorporate retail lending goals for 
areas outside of its facility-based assessment areas. If additional 
performance evaluation components with accompanying goals are included 
with the plan, a bank must specify the geographic areas where those 
components and goals apply.\1388\
---------------------------------------------------------------------------

    \1388\ See final Sec.  __.27(g)(3)(iii).
---------------------------------------------------------------------------

    With respect to retail lending assessment areas that are identified 
in a plan but are no longer required due to the large bank not meeting 
the associated lending thresholds under final Sec.  __.17, the agencies 
will not review performance in that area for any applicable year in 
which the threshold is not met.\1389\ Conversely, if a retail lending 
assessment area is not required at the time of plan approval, but would 
otherwise be established during the term of an approved plan due to a 
bank's increased lending meeting the thresholds, the bank would not be 
required to amend an existing plan to establish those geographies as a 
new retail lending assessment area.
---------------------------------------------------------------------------

    \1389\ See final Sec.  __.27(g)(3)(ii).
---------------------------------------------------------------------------

    The agencies have also considered commenter feedback recommending 
that the agencies clarify whether banks may continue to use self-
executing provisions that allow certain changes to take effect upon the 
occurrence of a particular event. While it is noted that the concept of 
a ``self-executing provision'' is not discussed in the current, 
proposed, or final rule, the agencies do not believe that a specific 
clarification with respect to such provisions would be necessary 
because the standards in Sec.  __.27 are sufficiently flexible to 
permit them assuming the other requirements are met (including that an 
adequate justification is supported and the self-executing provision is 
consistent with the eligible modifications and additions). As an 
example, a bank may establish in its plan that any new facility-based 
assessment areas delineated during the plan term would be subject to 
performance tests that would otherwise apply in the absence of a plan.
    The agencies did not receive comments regarding the submission of 
confidential information with the draft plan and are adopting proposed 
Sec.  __.27(f)(4), renumbered in the final rule as Sec.  __.27(g)(4), 
as proposed. Additionally, no comments were received regarding proposed 
Sec.  __.27(f)(5), renumbered in the final rule as Sec.  __.27(g)(5), 
related to the requirement that a bank specify measurable goals that 
constitute ``Satisfactory'' performance with the option to specify 
goals that constitute ``Outstanding'' performance (if the bank wants to 
be eligible for an ``Outstanding'' rating). The agencies are finalizing 
this section as proposed, with a technical change to reflect that this 
only applies to modified or additional performance evaluation 
components with accompanying goals, as not all performance test 
components will have goals associated with them.
    The agencies are not finalizing proposed Sec.  __.27(f)(6), which 
would have allowed a bank to elect in its draft plan evaluation of the 
bank's performance under the performance tests that would otherwise 
apply in the absence of an approved plan if the bank failed to meet 
substantially its plan goals for a ``Satisfactory'' rating. While no 
comments were received on this

[[Page 7015]]

provision, given that the final rule requires the inclusion of any 
applicable performance tests under the strategic plan option (provided 
a bank cannot provide a justification for not including one of the test 
as provided in final Sec.  __.27(g)(1)), the agencies do not believe 
there is a need for this provision, as the bank's poor performance 
under the plan would likely mirror its performance under the 
performance tests that would apply in the absence of a plan. A plan is 
approved by the agency under the premise that the plan represents a 
more meaningful reflection of a bank's record of helping to meet the 
credit needs of its community than if it were evaluated in the absence 
of an approved plan. If a bank no longer considers the plan to be a 
more meaningful reflection of the bank's record, the agencies believe 
the bank should terminate its plan and revert to an evaluation under 
the performance tests that would apply in the absence of a plan.
    Lastly, although not included in the proposed plan content section, 
the agencies are adopting new final Sec.  __.27(g)(6) to clarify that 
the bank must specify a conclusions and ratings methodology in its 
plan. This addition is necessary given the agencies' shift from a 
purely goals-based performance evaluation to one that is flexible and 
recognizes that plans accommodate the performance tests under final 
Sec.  __.21. As plans must include the performance tests required under 
Sec.  __.27(g)(1) (which may not have goals associated with the 
evaluation components) in combination with eligible modifications and 
additions to those tests with accompanying goals, the plans need to 
specify how the appropriate Federal financial supervisory agency will 
combine these components to arrive at conclusions at each applicable 
geographic area level and ratings in each State or multistate MSA, as 
applicable, and at the institution level.
    Pursuant to final Sec.  __.27(g)(6), a bank must specify in its 
plan how all of the plan elements covered in Sec.  __.27(g)(1) through 
(5) will be considered in conjunction with any other applicable 
performance tests not included in the approved plan. For example, if an 
intermediate bank that opted into the strategic plan option were to add 
evaluation components that relate to the opening of Bank On deposit 
accounts for low- and moderate-income individuals and the maintenance 
of delivery systems in targeted census tracts, the plan would need to 
establish annual measurable goals related to each component consistent 
with Sec.  __.27(g)(5), and could also provide adjusted performance 
test weighting that accounts for the retail banking services and retail 
banking products components. For instance, if justified under final 
Sec.  __.27(d), the plan could establish a 45 percent weight under the 
Retail Lending Test, a 45 percent weight under the Intermediate Bank 
Community Development Test (or, alternatively, the Community 
Development Financing Test as provided in Sec.  __.24), and 10 percent 
weight on the retail banking services and retail banking products 
components.
    Final Sec.  __.27(g)(6) clarifies that conclusions and ratings are 
assigned pursuant to the general conclusions and ratings requirements 
in Sec.  __.28 and that more specific guidance regarding assigning 
conclusions and ratings is detailed, respectively, in paragraph g of 
final appendix C \1390\ and in paragraphs f and g of final appendix 
D.\1391\ Final Sec.  __.27(g)(6)(i) further clarifies that performance 
context information as provided in Sec.  __.21(d) may also be 
considered in assigning conclusions under the plan.
---------------------------------------------------------------------------

    \1390\ See final Sec.  __.27(g)(6)(i).
    \1391\ See final Sec.  __.27(g)(6)(ii).
---------------------------------------------------------------------------

    A new paragraph g was added to final appendix C to clarify that the 
appropriate agency will assign conclusions in each of these applicable 
geographical areas. This became necessary as the proposal contemplated 
a strictly goal-based structure to formulating ratings for banks under 
the strategic plan option and did not include a discussion of this 
performance evaluation method in appendix C, which addresses 
performance test conclusions. However, as plans must include the 
performance tests that would apply in the absence of an approved plan 
pursuant to final Sec.  __.27(c)(2)(i), conclusions for each facility-
based assessment area, retail lending assessment area, outside retail 
lending area, State, and multistate MSA, as applicable, and the 
institution will be formulated under the respective performance tests. 
In assigning the conclusions under the performance tests and any 
optional evaluation components, the appropriate agency will consider 
the annual measurable goals (for ``Satisfactory'' performance and, if 
identified in the plan, for ``Outstanding'' performance) and the 
conclusion methodology required under final Sec.  __.27(g)(6).\1392\
---------------------------------------------------------------------------

    \1392\ See final appendix C, paragraph g.
---------------------------------------------------------------------------

    Paragraph g of final appendix C explains further that, for elements 
of the plan that correspond to the otherwise applicable performance 
tests, the plan should include a conclusions methodology that is 
generally consistent with paragraphs b through f of appendix C. For 
example, if a large bank included the Community Development Financing 
Test in its plan without any modifications or additions, the 
conclusions for that performance test must be formulated using the same 
methodology detailed in paragraph d of final appendix C. However, if 
that same bank's plan included an eligible modification under the 
Community Development Services Test (e.g., establishing annual 
measurable goals for community development service hours relative to 
the number of full-time employees), the plan must include a conclusions 
methodology that accounts for those goals and generally aligns with the 
methodology detailed in paragraph e of final appendix C. For instance, 
a bank could establish a range of goals that align with the five 
conclusion categories (and corresponding performance scores) for each 
facility-based assessment area that would be used to assign the 
conclusion in lieu of the qualitative evaluation that is performed in 
each of these areas under the Community Development Services Test. 
Under this methodology, the goal thresholds could inform conclusions 
under the performance test corresponding with the conclusion category 
nearest to the performance score as follows: ``Outstanding'' (10 
points); ``High Satisfactory'' (7 points); ``Low Satisfactory'' (6 
points); ``Needs to Improve'' (3 points); or ``Substantial 
Noncompliance'' (0 points).
    With respect to the formulation of ratings, the agencies proposed 
to approve ``Satisfactory'' goals and, if identified in the plan, 
``Outstanding'' goals, and would determine if the bank met these goals 
to assess a bank's performance under the plan.\1393\ Consistent with 
the removal of a strictly goals-based plan evaluation structure, 
paragraph f of appendix D was revised significantly and finalized to 
state that the agency evaluates the bank's performance under an 
approved plan consistent with the ratings methodology specified in the 
plan pursuant to final Sec.  __.27(g)(6). Similar to the banks rated 
under any of the other evaluation methods, ratings are a product of 
performance test conclusions discussed under final appendix C with an 
adjustment for any optional evaluation components that a bank chooses 
to add to an approved plan.
---------------------------------------------------------------------------

    \1393\ See proposed appendix D, paragraph f.
---------------------------------------------------------------------------

    Lastly, paragraph f of final appendix D clarifies that the 
appropriate agency assigns a rating under the plan rating

[[Page 7016]]

methodology using one of the following categories: ``Outstanding,'' 
``Satisfactory,'' ``Needs to Improve,'' or ``Substantial 
Noncompliance.''

Section __.27(h) Draft Plan Evaluation

Current Approach
    Current Sec.  __.27(g) require the agencies to act upon a plan 
within 60 calendar days after receipt of a complete plan and the 
following materials required under current Sec.  __.27(e): a 
description of the bank's informal efforts to seek suggestions from the 
public; any written public comments received; and, if the plan was 
revised in light of these comments, the initial plan as released for 
public comment.\1394\ If the appropriate Federal financial supervisory 
agency fails to act within this time period and does not extend it for 
good cause, the plan is deemed approved. The appropriate agency 
evaluates the plan goals in consideration of the results of the public 
participation process.\1395\
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    \1394\ See current 12 CFR __.27(g)(1).
    \1395\ See current 12 CFR __.27(g)(2).
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    The agency evaluates a plan's measurable goals based on: the extent 
and breadth of lending or lending-related activities; the amount and 
innovativeness, complexity, and responsiveness of the bank's community 
development investments; and the availability and effectiveness of the 
bank's systems for delivering retail banking services and the extent 
and innovativeness of the bank's community development services.\1396\
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    \1396\ See current 12 CFR __.27(g)(3).
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The Agencies' Proposal
    The agencies proposed in Sec.  __.27(g)(1) to extend the time 
period for acting on a complete plan and the accompanying material 
required under current Sec.  __.27(e) to 90 calendar days, and 
preserved the automatic approval of plans that are not acted upon 
within that time frame unless extended by the agencies for good cause. 
In proposed Sec.  __.27(g)(2), the agencies clarified that they would 
consider the following when evaluating the bank's draft plan's goals: 
public involvement in formulating the plan (including specific 
information regarding the members of the public and organizations the 
bank contacted; how the bank collected information relevant to the 
draft plan; the nature of the public input, and whether the bank 
revised the draft plan in light of public input); written public 
comments; and any bank responses to these comments.
    Proposed Sec.  __.27(g)(3) outlined the criteria that the agencies 
would use to evaluate the draft plan's measurable goals. The agencies 
clarified the evaluation would include the appropriateness of these 
goals and information provided in proposed Sec.  __.27(e) and (f) and 
would be based on the bank's capacity, product offerings, and business 
strategy. Similar to the current regulation, the criteria included the 
following, as appropriate: the extent and breadth of retail lending or 
retail lending-related activities to address credit needs; the dollar 
amount and qualitative aspects of the bank's community development 
loans and community development investments in light of the 
corresponding needs; the availability of bank retail products and the 
effectiveness of the bank's systems for delivering retail banking 
services; and the number, hours, and type of community development 
services performed by the bank and the extent to which these services 
are impactful.
    Lastly, while the proposal required the posting of draft plans on 
the appropriate Federal financial supervisory agency's and bank's 
websites, the agencies asked for feedback on whether the approved plans 
should also be posted on those websites.
Comments Received and Final Rule
    The only comment on this section related to a commenter that 
requested banks be permitted to post approved plans on the bank's 
website at the bank's option. The agencies are finalizing proposed 
Sec.  __.27(g), renumbered as Sec.  __.27(h), largely as proposed with 
revisions as explained in more detail below, including a revision to 
the paragraph's header from Plan approval to Draft plan evaluation to 
more broadly capture the areas covered by final Sec.  __.27(h).
    The agencies are adopting the timing requirements in proposed Sec.  
__.27(g)(1), renumbered in the final rule as Sec.  __.27(h)(1), for 
submitting a plan to the agencies with one modification. Consistent 
with the proposal, the final rule establishes a 90 calendar-day 
timeframe for the agencies to review a complete draft plan and other 
required materials once received from the bank. However, rather than 
establishing an automatic approval for plans that are not acted upon 
within the 90-day period, the final rule requires the appropriate 
Federal financial supervisory agency to communicate to the bank the 
rationale for the delay and an expected timeframe for a decision on the 
draft plan. This revision in the final rule (removing the automatic 
approval) acknowledges both the importance of the agencies making an 
affirmative decision on the plan and that some plans may require more 
than the 90-day timeframe to evaluate. Under the current and proposed 
regulation, the agencies maintained the ability to extend the 
evaluation time period for good cause; however, it has been the 
agencies' experience that extensions were rarely, if ever, needed once 
a complete plan was received. The agencies will strive to provide a 
decision on all plans within the 90-day timeframe; however, removal of 
the automatic approval will ensure that the agencies will complete the 
evaluation of each plan, while requiring communication of the rationale 
and expected timeframe for any delays on plan approval decisioning 
beyond the typical timeframe.
    The agencies did not receive any comments related to the 
consideration of public participation in the evaluation of the plan and 
are finalizing Sec.  __.27(g)(2), renumbered in the final rule as Sec.  
__.27(h)(2), as proposed with several technical changes and the 
addition of a new provision. More specifically, final Sec.  
__.27(h)(2)(i) removes the language ``the nature of the public input'' 
and ``whether the bank revised the draft plan in light of public 
input,'' as specific examples of public participation information the 
agencies would consider in evaluating the plan. The agencies considered 
this language duplicative as these considerations are already addressed 
more broadly in final Sec.  __.27(h)(2)(ii) and (iii). Further, final 
Sec.  __.27(h)(2)(ii) and (iii) reflect the agencies' commitment to 
public input such that all forms of public input (and the bank's 
corresponding responses) that are available during the plan development 
and evaluation process will be considered--not just written comments. 
Finally, although not proposed, the agencies are adopting new final 
Sec.  __.27(h)(2)(iv) to clarify that the agencies will consider 
whether to solicit additional public input or require the bank to 
provide any additional response to public input already received. As 
stated previously, the agencies believe that the public participation 
process is a critical element of the plan evaluation process; 
therefore, they believe it is appropriate to solicit additional public 
comment or bank responses if they find the public participation 
obligation has not been fully satisfied prior to the submission of the 
draft plan.
    The agencies did not receive any comments related to the specific 
criteria for evaluating the plan and are finalizing proposed Sec.  
__.27(g)(3), renumbered as Sec.  __.27(h)(3), with several technical 
changes and additions to conform to previously discussed

[[Page 7017]]

revisions to the structure of the strategic plan option. First, the 
language in the proposal related to evaluating a draft plan's 
measurable goals and the appropriateness of those goals has been 
removed to acknowledge the fact that a plan, while it may include goals 
related to its eligible modifications and additions, must also 
generally include the performance tests that would apply in the absence 
of a plan, which are not all goals-based. In lieu of the references to 
goals, the agencies revised the final rule to add two additional 
criteria that the agencies must consider in the evaluation of a plan: 
the extent to which the plan meets the standards in Sec.  __.27 \1397\ 
and the extent to which the plan has provided a justification under 
Sec.  __.27(d).\1398\ Rather than restating all of the plan criteria 
that are established in the various provisions of Sec.  __.27, the 
agencies believe it is more effective and efficient to make a reference 
to the entire section to make it clear that all of the standards 
introduced in the section are considered under the approval criteria. 
Also, consistent with the agencies' desire to limit the strategic plan 
option only to those banks where the applicable performance tests would 
not provide a meaningful evaluation of the bank and to create parity 
with other banks that do not avail themselves of the option, the 
agencies have clarified in the final rule that the justification under 
Sec.  __.27(d) will be an evaluation criterion.
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    \1397\ See final Sec.  __.27(h)(3)(i)(A).
    \1398\ See final Sec.  __.27(h)(3)(i)(B).
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    The remaining four plan evaluation criteria \1399\ proposed in 
Sec.  __.27(g)(3)(i) through (iv), renumbered in the final rule as 
Sec.  __.27(h)(3)(ii), are finalized with clarifying edits. These 
criteria are differentiated from the criteria outlined in final Sec.  
__.27(h)(3)(i) in that they are evaluated, as applicable, depending on 
the performance tests that would apply in the absence of a plan and 
whether the bank has added an optional evaluation component. Each of 
these criteria are considered in conjunction with relevant performance 
context information pursuant to Sec.  __.21(d) and relate to the 
performance test areas: retail lending; retail banking services and 
retail banking products; community development loans and community 
development investments; and community development services. In the 
final rule, the agencies added an updated reference to the applicable 
performance tests at the conclusion of each of the corresponding 
provisions. For example, the retail lending criterion \1400\ provides a 
reference to the two sections, Sec. Sec.  __.22 and__.29, that detail 
the evaluation standards for retail lending for small, intermediate, 
and large banks.
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    \1399\ See final Sec.  __.27(h)(3)(ii)(A) through (D).
    \1400\ See final Sec.  __.27(h)(3)(ii)(A).
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    While the proposal did not include a provision that specifically 
addressed the plan decision-making process, the agencies are adopting 
new Sec.  __.27(h)(4) to better clarify the circumstances under which 
the agencies will approve or deny a draft plan that has been submitted 
by a bank. Simply, final Sec.  __.27(h)(4)(i) confirms that the 
appropriate Federal financial supervisory agency may approve a plan 
after considering the criteria in final Sec.  __.27(h)(3) and if it 
determines that an adequate justification for the plan and each aspect 
of the plan in Sec.  __.27(d) has been provided. The paragraph also 
details the circumstances under which the appropriate agency may deny a 
request for a plan or part of a plan.\1401\ These circumstances 
include: the agency making a determination that there is a lack of an 
adequate justification pursuant to Sec.  __.27(d); the evaluation under 
the plan would not provide a more meaningful reflection of the bank's 
record of helping to meet the credit needs of its community; the plan 
does not demonstrate responsiveness to public comment or otherwise 
fails to meet the requirements of Sec.  __.27; or the bank does not 
provide information requested by the agency that is necessary to make 
an informed decision on the draft plan.
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    \1401\ See final Sec.  __.27(h)(4)(ii)(A) through (E).
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    The agencies received limited feedback on whether an approved plan 
should be published on a bank's and the appropriate agency's websites; 
however, the agencies are adopting new final Sec.  __.27(h)(5) which 
requires the appropriate agency to publish approved plans on its 
website. The agencies believe that most stakeholders find it more 
convenient to access information online and further believe posting 
this information on the appropriate agency's websites will further the 
agencies' goal of increasing public participation in, and awareness of, 
the strategic plan process. While the only commenter suggested that 
publishing the approved plan on the bank's website should be optional, 
pursuant to Sec.  __.43(b)(4) of the final rule, the approved plan must 
be included in the bank's public file. As explained in more detail in 
the section-by-section analysis of Sec.  __.43 (content and 
availability of the public file), the agencies are finalizing revisions 
that require banks that maintain a website to include all information 
in the public file on the bank's website.\1402\ Therefore, as part of a 
bank's requirement to maintain its public file on the bank's website, 
if the bank maintains one, a bank will be required to post an approved 
strategic plan on the bank's website if the bank maintains one.
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    \1402\ See final Sec.  __.43(c)(1).
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Section __.27(i) Plan Amendment

Current Approach
    Current Sec.  __.27(h) provides that during the term of a plan, a 
bank may request the appropriate Federal financial supervisory agency 
to approve an amendment to the plan on the grounds that there has been 
a material change in circumstance since the plan was previously 
approved. Any amendment to a plan must be developed in accordance with 
the public participation requirements in current Sec.  __.27.
The Agencies' Proposal
    The agencies proposed to revise the CRA regulations to be more 
transparent about when plan amendments would be required. In proposed 
Sec.  __.27(h), the agencies provided that during the term of a plan, a 
bank must amend its plan goals if a material change in circumstances:
     impedes its ability to substantially meet approved plan 
goals, such as financial constraints caused by significant events that 
impact the local or national economy; or
     significantly increases its financial capacity and 
ability, such as through a merger or consolidation, to engage in retail 
lending, retail services and products, community development financing, 
or community development services.\1403\
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    \1403\ See proposed Sec.  __.27(h)(1).
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    The agencies also proposed that a bank that requests an amendment 
to a plan in the absence of a material change in circumstances must 
provide an explanation regarding why it is necessary and appropriate to 
amend its plan goals.\1404\ Lastly, the agencies proposed that any 
amendment to a plan must be developed in accordance with the public 
participation requirements in Sec.  __.27(e).\1405\
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    \1404\ See proposed Sec.  __.27(h)(2).
    \1405\ See proposed Sec.  __.27(h)(3).
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Comments Received and Final Rule
    No comments were received with respect to the circumstances under 
which plan amendments are required, although a commenter requested that 
the agencies clarify whether banks would be required to delineate 
retail

[[Page 7018]]

lending assessment areas before a pre-existing plan's expiration.
    The agencies are finalizing proposed Sec.  __.27(h)(1), renumbered 
as Sec.  __.27(i)(1), with retitling of this provision and one 
technical change. More specifically, this provision was retitled 
Mandatory plan amendment to clarify that these are the circumstances 
under which an amendment is required and to differentiate it from the 
bank's discretion to optionally amend its plan pursuant to final Sec.  
__.27(i)(2). Also, the proposal required a plan amendment if a material 
change in circumstance impeded the bank's ability to substantially meet 
approved goals; \1406\ however, as goals are not a required element of 
each component of the plan in the final rule, the language was changed 
to reflect circumstances that impede the bank's ability to perform at a 
satisfactory level under the plan. This change acknowledges that a plan 
may need to be amended for circumstances that not only adversely impact 
a bank's ability to meet any goals associated with an approved plan, 
but also could impede its ability to perform satisfactorily under the 
performance tests, which are not always goals based. The agencies 
believe plan amendments are necessary if either of the conditions in 
final Sec.  __.27(i)(1)(i) or (ii) exist.
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    \1406\ See proposed Sec.  __.27(h)(1)(i).
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    The only commenter regarding this provision inquired as to whether 
a bank would be required to delineate a retail lending assessment area 
under the strategic plan option created during the term of a pre-
existing approved plan. While not contemplated in the proposal or 
specifically addressed in the final rule, an amendment may be necessary 
when a facility-based assessment area changes (for example, when a bank 
adds a new assessment area that encompasses a branch it opens in a new 
MSA in which it previously did not have a presence). When facility-
based assessment areas are added or changed significantly during the 
term of an approved plan, an amendment would be necessary unless the 
existing plan already appropriately addresses how new facility-based 
assessment areas are to be evaluated during the term of the plan. With 
respect to the commenter's question regarding the addition of new 
retail lending assessment areas that are established after plan 
approval, but during the term of the plan, final Sec.  __.27(i) does 
not require the bank to amend its plan to evaluate any new retail 
lending assessment areas, as discussed previously in the section-by-
section analysis of Sec.  __.27(g)(3). Therefore, in the absence of a 
discussion of the treatment of new retail lending assessment areas in 
the approved plan, the agencies would not evaluate a large bank's 
performance in these areas pursuant to Sec.  __.22(a). This approach 
allows for certainty in the evaluation of the plan and would be less 
burdensome, as it would not necessitate amendments to the plan if the 
retail lending assessment areas were to fluctuate on an annual basis. 
An approved plan would already include the overall evaluation framework 
for examiners to consider at the time of the evaluation--including the 
applicable performance tests, optional evaluation components, and any 
eligible modifications and additions. Lastly, any of the bank's lending 
outside of facility-based assessment areas or active retail lending 
assessment areas that are included in the approved plan could still be 
captured in the bank's outside retail lending area, as applicable.
    The agencies did not receive any comments regarding the elective 
revision of a plan in proposed Sec.  __.27(h)(2) and are adopting it as 
proposed, renumbered as Sec.  __.27(i)(2), with retitling and a 
technical change. Consistent with the language used throughout the 
paragraph, the heading of this provision was changed from Elective 
revision of plan to Elective plan amendment. Additionally, proposed 
Sec.  __.27(h)(2)(ii), which required a bank to provide an explanation 
for any elective plan amendment, was moved to a newly created Sec.  
__.27(i)(3) to more broadly establish the requirements for all 
amendments--whether mandatory or elective. The agencies believe that 
this new provision will provide greater clarity regarding bank 
requirements with respect to all plan amendments. In addition to 
providing an explanation for why an elective plan amendment is 
necessary and appropriate, the final rule also requires a bank to 
explain any material circumstances that necessitated an amendment 
pursuant to final Sec.  __.27(i)(1)(i) or (ii). The final rule also 
adopts new Sec.  __.27(i)(3)(ii) to clarify that any amendment, whether 
mandatory or elective, must comply with all relevant requirements of 
the section.
    Lastly, the agencies are not finalizing Sec.  __.27(h)(3), 
pertaining to the public participation considerations with respect to a 
plan revision because this provision was unnecessary given the 
inclusion of new final Sec.  __.27(i)(3)(ii). Because plan amendments 
must comply with all relevant requirements of this section, this would 
include the public participation provisions. Therefore, proposed Sec.  
__.27(h)(3) is not needed under the final rule. The agencies 
acknowledge that some plan amendments are very limited and do not 
benefit materially from a full public participation process as required 
by final Sec.  __.27(e). Also, consistent with stakeholder feedback in 
the proposal, some stakeholders suggested minor changes through an 
amendment should only require approval by the appropriate agency, while 
a major change would require public comment in addition to approval. To 
address these comments, new Sec.  __.27(i)(3)(ii) allows the agencies 
to use their discretion to waive a requirement of the strategic plan 
provisions, such as the public participation requirements under final 
Sec.  __.27(e). As a result, prior to submitting a plan amendment for 
approval, banks should contact their appropriate Federal financial 
supervisory agency to seek guidance on whether the bank must complete 
the public participation requirements of the final rule in advance of 
the submission.

Section __.27(j) Performance Evaluation Under a Plan

Current Approach
    Under the current CRA regulation, the agencies approve a bank's 
measurable goals and assess a bank's performance under paragraph (e) of 
current appendix A,\1407\ which prescribes that the agencies approve 
``satisfactory'' measurable goals that adequately help meet the credit 
needs of the bank's assessment area(s). If the plan identifies separate 
measurable goals that substantially exceed the levels approved as 
``satisfactory,'' the agencies will approve those goals as 
``outstanding.'' The agencies assess the bank's performance based on 
whether it substantially achieves these goals. Alternatively, if the 
bank fails to substantially meet the goals for a satisfactory rating, 
the appropriate agency will rate the bank as either ``needs to 
improve'' or ``substantial noncompliance,'' depending on the extent to 
which it falls short of its plan goals, unless the bank has elected to 
be evaluated otherwise as provided in Sec.  __.27(f)(4).
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    \1407\ See current 12 CFR __.27(i).
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The Agencies' Proposal
    The agencies proposed to approve the goals and assess performance 
under a plan as provided in proposed appendix D.\1408\ Further, in 
determining whether a bank has substantially met its plan goals, the 
agencies proposed to consider the number of unmet goals; the degree to 
which the goals were not met; the

[[Page 7019]]

importance of those unmet goals to the plan as a whole; and any 
circumstances beyond the control of the bank.\1409\ Paragraph f of 
proposed appendix D provided guidance substantially similar to that 
identified in paragraph (e) of appendix A in the current regulation, as 
detailed above.
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    \1408\ See proposed Sec.  __.27(k)(1).
    \1409\ See proposed Sec.  __.27(h)(2).
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    The agencies also requested comment on whether they should continue 
to evaluate strategic plan banks based on whether they have 
``substantially met'' their plan goals and, if so, what criteria should 
be applied.
Comments Received
    A few commenters addressed the agencies' request for feedback 
regarding whether the ``substantially met'' standard used to assess 
performance under a plan should be maintained and, if so, how it should 
be defined. A commenter stated that the standard for measuring plan 
goals should be rigorous and applied to each goal with a 95 percent 
attainment standard. Furthermore, if attainment is not achieved on 67 
percent of its goals, the commenter stated that the bank should fail 
its exam and be required to submit an improvement plan. Another 
commenter recommended incorporating a rating system that emulates the 
default CRA ratings framework. Both of these commenters suggested that 
an improvement plan should be required if the bank did not 
substantially meet its stated goals. A few commenters indicated the 
standard was adequate and that there should be no prescribed evaluation 
weights for strategic plans.
Final Rule
    Under the final rule, the header for proposed Sec.  __.27(i), 
renumbered as Sec.  __.27(j), was revised from Plan assessment to 
Performance evaluation under a plan to better clarify that this 
paragraph covers the evaluation of the bank under an approved plan 
rather than an assessment of the plan itself.
    Based on the comments received and the aforementioned changes in 
plan requirements, particularly a departure from required goals for all 
components of the plan, the agencies are finalizing proposed Sec.  
__.27(i)(1), renumbered as Sec.  __.27(j)(1), with revisions to 
correspond with the general restructuring of this section. First, the 
language in final Sec.  __.27(j)(1) is changed to reflect that a bank's 
performance is no longer based exclusively on approved goals and is now 
based on the applicable performance tests, any optional evaluation 
components, and the eligible modifications and additions to the 
applicable performance tests set forth in the bank's plan. As discussed 
previously, goals may still be a component of a plan but will now be 
considered in conjunction with performance tests.
    The agencies are also finalizing proposed Sec.  __.27(i)(2), 
renumbered in the final rule as Sec.  __.27(j)(2), with several 
modifications. First, the agencies removed the reference to the 
``substantially met'' language when referring to the evaluation of plan 
goals. Since the strategic plan option under the final rule is no 
longer exclusively based on measurable goals, a determination on 
whether a bank ``substantially met'' its plan goals is not necessarily 
the primary consideration when a bank's performance is assessed under 
an approved plan. Further, since goals are not required for each plan 
evaluation component and each plan will rely on the achievement of 
goals to a different degree (including the potential that no goals are 
added to a plan), the establishment of a required attainment standard 
(such as 95 percent of plan goals), as suggested by a few commenters, 
would not be appropriate. As a result, final Sec.  __.27(j)(2) was 
revised to indicate that the agencies will consider the factors listed 
in this provision to the extent that the bank has established goals and 
does not meet its satisfactory goals in one or more of them. The 
agencies finalized three of the four consideration factors that were 
proposed in Sec.  __.27(i)(2). More specifically, when determining the 
effect of unmet goals on a bank's CRA performance, the final rule 
includes consideration of the degree to which the goals were not met; 
the importance of those unmet goals to the plan as a whole; and any 
circumstances beyond the control of the bank.\1410\ The proposal to 
include ``number of unmet goals'' was removed as a consideration 
factor, consistent with the previously discussed restructuring of the 
strategic plan option away from the exclusive use of goals to evaluate 
a bank's performance under the plan.
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    \1410\ See final Sec.  __.27(j)(2)(i) through (iii).
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    The agencies decline to adopt the commenters' suggestion that an 
improvement plan be required if the bank did not substantially meet its 
stated goals. Since final Sec.  __.43(b)(5) (content and availability 
of the public file) requires that a bank that received a less than 
``Satisfactory'' rating during its most recent examination must include 
in its public file a description of its current efforts to improve its 
performance in helping to meet the credit needs of its entire 
community, the agencies believe this provision covers the suggested 
``improvement plan'' made by commenters.
    Similar to the proposal,\1411\ final Sec.  __.27(j)(3) provides 
guidance for assessing and rating the performance of a bank evaluated 
under a plan in appendix D. In addition to the general rating 
information in paragraph a of final appendix D that applies to all 
banks (including those evaluated under an approved plan), the 
information for assessing ratings specific to the strategic plan option 
is maintained in paragraph f of final appendix D. As discussed 
previously, the paragraph provides that the appropriate Federal 
financial supervisory agency evaluates a bank's performance under a 
plan consistent with the rating methodology specified in the plan 
pursuant to final Sec.  __.27(g)(6). Finally, to the extent it meets 
the size requirements therein, a bank evaluated under the strategic 
plan option is subject to the minimum performance test conclusion 
requirements in paragraph g of final appendix D that would apply to the 
bank in the absence of an approved plan.
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    \1411\ See proposed Sec.  __.27(i)(1).
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Section __.28 Assigned Conclusions and Ratings

    Consistent with the CRA statute, the current CRA regulations 
provide that the agencies assign a bank an institution rating of 
``Outstanding,'' ``Satisfactory,'' ``Needs to Improve,'' or 
``Substantial Noncompliance'' in connection with a CRA 
examination.\1412\ The agencies also assign ratings for a bank's 
performance in each State in which the bank maintains one or more 
branches or other facilities that accept deposits and in each 
multistate MSA in which the bank maintains branches or other facilities 
that accept deposits in two or more states within the multistate 
MSA.\1413\ Prior to reaching these overall ratings, the agencies assign 
performance test ratings at the State, multistate MSA, and institution 
level for each applicable performance test (i.e., lending, investment, 
and service tests; community development test; small bank performance 
standards). With one exception, the current rating scale used for 
performance test ratings mirrors that

[[Page 7020]]

of the four statutory institution-level ratings. For large banks, 
however, the agencies bifurcate the ``Satisfactory'' rating for each of 
the three performance tests into ``High Satisfactory'' and ``Low 
Satisfactory.'' \1414\ In addition, the agencies separately summarize 
conclusions regarding the institution's performance in each MSA and the 
nonmetropolitan portion of each State.\1415\
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    \1412\ 12 U.S.C. 2906(b)(2), implemented by current 12 CFR 
__.28(a). The narrative descriptions of the ratings for performance 
under each evaluation method are in appendix A to the current CRA 
regulations. See also Q&A appendix A to part __--Ratings.
    \1413\ 12 U.S.C. 2906(d). If the agencies assign a bank a rating 
for a multistate MSA, any rating assigned for a State does not take 
into account the bank's performance in the multistate MSA.
    \1414\ See Q&A Sec.  __.28(a)--3; current appendix A, paragraph 
(b); Interagency Large Institution CRA Examination Procedures.
    \1415\ See Interagency Large Institution CRA Examination 
Procedures; Interagency Intermediate Small Institution CRA 
Examination Procedures; Interagency Small Institution CRA 
Examination Procedures.
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    Current examination procedures allow for assessment areas to be 
reviewed pursuant to either a full-scope or a limited-scope review. 
Full-scope reviews employ both quantitative and qualitative factors, 
while limited-scope reviews are primarily quantitative and generally 
carry less weight in determining the overall State, multistate MSA, or 
institution rating.\1416\ The agencies primarily base a bank's 
component ratings on the bank's performance in each assessment area 
examined using full-scope examination procedures. For large banks, 
performance conclusions in assessment areas not examined using the 
full-scope procedures are expressed as ``exceeds,'' ``is consistent 
with,'' or ``is below'' the institution's performance in the relevant 
MSA or nonmetropolitan portion of the State, in the State, or overall, 
as applicable.\1417\ For small banks and intermediate small banks, 
examiners consider facts and data related to the institution's 
activities to ensure that performance conclusions in assessment areas 
not examined using the full-scope procedures are ``not inconsistent 
with'' the conclusions based on the assessment areas that received 
full-scope reviews.\1418\
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    \1416\ See id.
    \1417\ Interagency Large Institution CRA Examination Procedures.
    \1418\ Interagency Small Institution CRA Examination Procedures; 
Interagency Intermediate Small Institution CRA Examination 
Procedures.
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    Under the current approach, the agencies use a fact-specific review 
to determine whether an overall institution CRA rating should be 
downgraded due to evidence of discriminatory or other illegal credit 
practices including, but not limited to, evidence of violations of laws 
listed in current Sec.  __.28(c)(1).\1419\
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    \1419\ See current 12 CFR __.28(c).
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    Proposed Sec.  __.28 described how conclusions and ratings would be 
assigned under the proposed CRA framework using a consistent, 
quantifiable approach. The proposal distinguished between 
``conclusions''--which generally referred to the bank's performance on 
a particular performance test for each assessment area; each State and 
multistate MSA, as applicable; and the institution--and ``ratings''--
which generally referred to a bank's overall CRA performance across 
performance tests for each State and multistate MSA, as applicable, and 
the institution. Generally, under the proposed framework, the agencies 
would develop conclusions for a bank's performance on each applicable 
performance test for: each assessment area; each State and multistate 
MSA, as applicable; and the institution. Subject to test-specific 
variations as described in the section-by-section analysis of 
Sec. Sec.  __.22 through __.26, __.29, and __.30, the agencies 
generally proposed to assign both a conclusion (e.g., ``Low 
Satisfactory'') and a performance score (e.g., 5.7) based on a bank's 
performance under a particular performance test. To determine an 
intermediate bank or large bank rating for the State, multistate MSA, 
or the institution, the agencies proposed to aggregate a bank's 
performance scores for each applicable performance test, with specific 
weights assigned to the performance score of each performance test. 
Unlike under the current approach, the proposed CRA framework did not 
provide for limited-scope reviews.
    Numerous commenters weighed in on the provisions related to 
assigned conclusions and ratings in proposed Sec.  __.28.
    Final Sec.  __.28 generally adopts the proposed framework for 
assigned conclusions and ratings discussed above, with revisions 
discussed in the more detailed section-by-section analysis below.

Section __.28(a) Conclusions

    Under the current CRA regulations, the agencies assign performance 
test ratings for the performance tests that apply to the bank at the 
institution level. The agencies also assign performance test ratings at 
the State and multistate MSA level and summarize conclusions regarding 
a bank's performance in each MSA and the nonmetropolitan portion of 
each State with an assessment area.\1420\
---------------------------------------------------------------------------

    \1420\ See 12 U.S.C. 2906(b), (d).
---------------------------------------------------------------------------

    Under final Sec.  __.28(a), ``conclusions'' generally refer to bank 
performance on a particular performance test for a specific geographic 
area (e.g., assessment areas, States, and multistate MSAs, as 
applicable) and the institution overall. The agencies assign 
conclusions and associated test performance scores for the performance 
of a bank in each State and multistate MSA, as applicable, and for the 
institution based on a weighted average of assessment area conclusions, 
as well as consideration of additional performance test-specific 
factors at each level.\1421\ These performance scores are mapped to 
conclusion categories to provide performance test conclusions for 
specific geographic areas and the institution overall. As explained 
below, the agencies are finalizing Sec.  __.28(a) with edits to specify 
how the agencies will assign conclusions for banks operating under a 
strategic plan, the geographic areas where the agencies will assign 
conclusions, consistent with the statute, and other clarifying edits.
---------------------------------------------------------------------------

    \1421\ See the section-by-section analyses of Sec. Sec.  __.22 
through __.26, __.29, and __.30 for detailed discussion of how the 
agencies develop conclusions and performance scores for each 
performance test. The section-by-section analyses of Sec. Sec.  
__.15 and __.21, respectively, also discuss the impact and 
responsive review for community development loans, investments, and 
services and the agencies' consideration of performance context.
---------------------------------------------------------------------------

The Agencies' Proposal
    Proposed Sec.  __.28(a)(1) provided that, other than for a small 
bank evaluated under the small bank performance standards in proposed 
Sec.  __.29(a), the agencies would assign one of five conclusions for a 
bank's performance under the respective performance tests that apply to 
the bank: ``Outstanding''; ``High Satisfactory''; ``Low Satisfactory''; 
``Needs to Improve''; or ``Substantial Noncompliance.'' Under proposed 
Sec.  __.28(a)(2), for small banks evaluated under the small bank 
performance standards in proposed Sec.  __.29(a), the agencies would 
assign lending evaluation conclusions of ``Outstanding,'' 
``Satisfactory,'' ``Needs to Improve,'' or ``Substantial 
Noncompliance'' based on the bank's lending performance in each 
facility-based assessment area. Proposed appendix C, as well as 
proposed appendix E for small banks and intermediate banks, specified 
how the agencies would develop conclusions for each performance test 
that applies to a bank, as discussed in the section-by-section analysis 
of Sec. Sec.  __.22 through __.26, above, and __.29 and __.30, below.
Comments Received
    The agencies received a few comments regarding proposed Sec.  
__.28(a), all of which related to the proposed bifurcation of the 
``Satisfactory'' conclusion category into ``High Satisfactory'' and 
``Low

[[Page 7021]]

Satisfactory'' conclusions. A few commenters expressly supported the 
proposal to assign conclusions of ``High Satisfactory'' and ``Low 
Satisfactory.'' In contrast, another commenter stated that the agencies 
did not articulate a sufficient justification for bifurcating the 
``Satisfactory'' conclusion category into ``High Satisfactory'' and 
``Low Satisfactory.'' This commenter stated that a single 
``Satisfactory'' category is sufficient for community bank examinations 
and reporting purposes; therefore, if ``High Satisfactory'' and ``Low 
Satisfactory'' conclusions are retained, they should only apply to the 
very largest banks. Alternatively, a few commenters suggested assigning 
conclusions of ``High Satisfactory'' or ``Satisfactory'' within the 
``Satisfactory'' range because ``Low Satisfactory'' has a negative 
connotation and will unnecessarily subject banks with ``Low 
Satisfactory'' conclusions to criticism and a misperception about their 
satisfactory performance in serving the needs of their customers and 
communities.
Final Rule
    In final Sec.  __.28(a), the agencies are adopting the proposal 
with clarifying revisions, including to the structure of proposed Sec.  
__.28(a). Specifically, final Sec.  __.28(a)(1) addresses State, 
multistate MSA, and institution test conclusions and performance 
scores. The agencies are adopting final Sec.  __.28(a)(1)(i), 
renumbered from proposed Sec.  __.28(a)(1), with clarifying revisions. 
Specifically, final Sec.  __.28(a)(1)(i) provides that, in general, for 
each of the applicable performance tests pursuant to final Sec. Sec.  
__.22 through __.26 and __.30, the agencies assign conclusions and 
associated test performance scores of ``Outstanding,'' ``High 
Satisfactory,'' ``Low Satisfactory,'' ``Needs to Improve,'' or 
``Substantial Noncompliance'' for the performance of a bank in each 
State and multistate MSA, as applicable pursuant to Sec.  __.28(c), and 
for the institution.\1422\ As reflected in paragraph b of final 
appendix C, this includes a small bank that opts to be evaluated under 
the Retail Lending Test in Sec.  __.22. Final Sec.  __.28(a)(1)(ii), 
consistent with proposed Sec.  __.28(a)(2), provides that the agencies 
assign conclusions of ``Outstanding,'' ``Satisfactory,'' ``Needs to 
Improve,'' or ``Substantial Noncompliance'' for the performance of a 
small bank evaluated under the Small Bank Lending Test in final Sec.  
__.29(a)(2) in each State and multistate MSA, as applicable pursuant to 
Sec.  __.28(c), and for the institution. The agencies are also adopting 
new Sec.  __.28(a)(1)(iii) in the final rule, which provides that the 
agencies assign conclusions for the performance of a bank operating 
under a strategic plan pursuant to Sec.  __.27 in each State and 
multistate MSA, as applicable pursuant to Sec.  __.28(c), and for the 
institution in accordance with the methodology of the bank's strategic 
plan and final appendix C. See the section-by-section analysis of Sec.  
__.27 for additional information.
---------------------------------------------------------------------------

    \1422\ Refer to the section-by-section analysis of Sec.  __.21 
for additional discussion of the performance score scale.
---------------------------------------------------------------------------

    After consideration of the comments, the agencies are finalizing 
the proposed bifurcation of the ``Satisfactory'' conclusion category 
into ``High Satisfactory'' and ``Low Satisfactory'' conclusions for all 
banks except small banks evaluated under the Small Bank Lending Test in 
final Sec.  __.29(a)(2). The proposed ``High Satisfactory'' and ``Low 
Satisfactory'' conclusions will allow the agencies to better 
differentiate between performance on the higher end or on the lower end 
of the ``Satisfactory'' range, as compared to developing conclusions 
with only four categories, including a single ``Satisfactory'' 
category. Further, applying the same conclusion categories to all 
banks, except small banks evaluated under final Sec.  __.29(a)(2), will 
allow the agencies to apply a quantifiable method of assigning 
conclusions and ratings consistently and uniformly (i.e., assigning a 
``High Satisfactory'' conclusion a performance score of ``7'' and a 
``Low Satisfactory'' conclusion of performance score of ``6'' and 
weighting conclusions as prescribed) to these banks.
    The agencies did not adopt commenter suggestions to rename the 
``Low Satisfactory'' conclusion category as ``Satisfactory'' because 
the agencies believe that the bifurcated ``Satisfactory'' conclusion 
category is well understood to reflect performance within a 
satisfactory range, and because changing this long-standing terminology 
could cause confusion.
    The agencies are also adopting final Sec.  __.28(a)(2), a new 
provision, to clarify that, pursuant to 12 U.S.C. 2906, the agencies 
will provide conclusions separately for metropolitan areas in which a 
bank maintains one or more domestic branch offices (defined in the 
statute to mean any branch office or other facility of a regulated 
financial institution that accepts deposits, located in any State 
\1423\) and for the nonmetropolitan area of a State if a bank maintains 
one or more domestic branch offices in such nonmetropolitan area. The 
agencies added this provision to provide a cross-reference to this 
statutory requirement in the final rule.
---------------------------------------------------------------------------

    \1423\ See 12 U.S.C. 2906(e)(1).
---------------------------------------------------------------------------

Section __.28(b) Ratings

    Similar to the current CRA regulations, final Sec.  __.28(b) 
describes how the agencies will assign ratings for each State and 
multistate MSA, as applicable, and for the institution using the four 
rating categories established by statute. As proposed, however, the 
agencies have updated the ratings framework to assign performance 
scores to each applicable performance test that are combined using a 
prescribed weighting methodology to assign ratings, and that are 
subject to adjustment based on additional considerations, 
discriminatory or other illegal credit practices, and past performance, 
as applicable.
    Many commenters provided comments on the current rating framework 
and identified issues they perceived with the current approach. 
Specifically, many commenters stated that there is ratings inflation 
under the current CRA framework, noting that 98 percent of banks 
receive at least a ``Satisfactory'' rating, with 90 percent of banks 
receiving a ``Satisfactory'' rating, specifically. A few of these 
commenters noted that it was implausible that such a large number of 
banks were performing in the same manner, with a commenter stating that 
this was impossible given that racism and discriminatory lending 
persist. A few commenters suggested that the agencies should address 
these concerns by incorporating additional quantitative tools into the 
performance tests, improving examination rigor, or increasing 
objectivity in performance measures. In contrast, a commenter disagreed 
with the idea that CRA is flawed because of the high percentage of 
banks that receive at least a ``Satisfactory'' rating, emphasizing that 
the ratings reflect that most banks are community banks that treat 
their customers and communities fairly and do not discriminate.
    Many commenters also conveyed that the rating system under the 
current regulations does not effectively capture distinctions in 
performance. These commenters appeared to believe that more distinction 
would result in more banks being identified as significantly lagging 
behind their peers, which would motivate them to increase their 
reinvestment activity and improve their ratings.
    As described below, the agencies are finalizing Sec.  __.28(b) as 
proposed with

[[Page 7022]]

revisions, including adjusting the weights assigned to the performance 
tests for large banks and more fully explaining the ratings framework 
in Sec.  __.28(b).
Section __.28(b)(1) and (2) in General, State, Multistate MSA, and 
Institution Ratings and Overall Performance Scores
    Consistent with the CRA statute, the agencies currently assign 
ratings for each State and multistate MSA, as applicable, and for the 
institution. As described below, the agencies proposed in Sec.  
__.28(b)(1) and (2) that they generally will assign ratings based on an 
overall performance score for the State, multistate MSA, and 
institution derived by combining the bank's performance scores on 
applicable performance tests. The agencies are generally finalizing the 
general ratings framework in Sec.  __.28(b)(1) and (2) as proposed, 
with revisions discussed below.
The Agencies' Proposal
    Proposed Sec.  __.28(b)(1) provided that the agencies would assign 
ratings for a bank's overall performance at the State, multistate MSA, 
and institution level of ``Outstanding,'' ``Satisfactory,'' ``Needs to 
Improve,'' or ``Substantial Noncompliance.'' Other than for a small 
bank evaluated under the small bank performance standards in Sec.  
__.29(a), a wholesale or limited purpose bank evaluated under the 
Community Development Financing Test for Wholesale or Limited Purpose 
Banks in Sec.  __.26, and a bank evaluated based on a strategic plan 
under Sec.  __.27, the agencies proposed in Sec.  __.28(b)(2) to assign 
a rating based on the bank's overall performance at the State, 
multistate MSA, and institution levels, respectively, and a related 
performance score, derived as provided in proposed appendix D. As 
provided in appendix D, the agencies proposed to aggregate a bank's 
performance scores for each applicable performance test, with specific 
weights assigned to the performance score of each performance test, to 
derive the bank's rating. The same weighting approach would be used to 
develop ratings for each State and multistate MSA and for the 
institution. As described in proposed appendix D, the agencies would 
assign a rating corresponding with the rating category that is nearest 
to the aggregated performance score, as follows: a performance score of 
less than 1.5 would result in a rating of ``Substantial 
Noncompliance''; a performance score of 1.5 or more but less than 4.5 
would result in a rating of ``Needs to Improve''; a performance score 
of 4.5 or more but less than 8.5 would result in a rating of 
``Satisfactory''; and a performance score of 8.5 or more would result 
in a rating of ``Outstanding.'' The agencies also specified in proposed 
Sec.  __.28(b)(2) that the bank's rating could be adjusted based on 
evidence of discriminatory or other illegal practices in accordance 
with Sec.  __.28(d).
Comments Received
    A few commenters remarked at a high level on the clarity, 
complexity, and challenges of the proposed rating system. Specifically, 
a commenter expressed that the proposal provided a more transparent and 
consistent approach to determining a bank's overall CRA rating. Another 
commenter stated, however, that the proposed rating system appeared to 
be overly complicated, and a ``Satisfactory'' rating may be 
unachievable for some banks. This commenter recommended further testing 
of the proposal prior to implementation due to the number of unknowns.
    A commenter requested that the agencies improve the proposal by 
enabling banks to calculate and determine a presumptive rating prior to 
an examination for all bank sizes and models. In contrast, another 
commenter asked the agencies to carefully consider the overall 
structure of the scoring and weighting of various activities under CRA 
before finalizing a dramatic change, expressing concern that the 
transparency and predictability that both community groups and banks 
have requested might have the unintended consequence of starting a race 
to the bottom.
    A few commenters asserted that the CRA ratings framework should 
better reflect distinctions in performance. One commenter asserted that 
the proposal did not describe the proposal's impact on CRA ratings 
except to hint that banks may continue to receive the same ratings. 
Another commenter conveyed that allowing the vast majority of banks to 
continue to pass their CRA examinations will not result in banks 
engaging in serious efforts to positively impact communities of color 
and low- and moderate-income neighborhoods. A few commenters suggested 
a five-tier overall rating system, for example, by differentiating 
between ``Low Satisfactory'' and ``High Satisfactory'' overall ratings, 
to better distinguish performance. These commenters suggested that 
doing so would distinguish between merely adequate activity, reasonably 
good activity, and truly superior banking efforts, and would motivate 
banks to be more responsive to COVID-19 recovery needs. Another 
commenter recommended a point system that would show more distinctions. 
A few commenters recommended that the agencies assign a conclusion and 
performance score for each performance test at the assessment area 
level and provide performance scores at the overall rating level to 
accurately depict distinctions in performance.
    A few commenters also suggested that the CRA ratings framework 
should better incentivize high ratings. One commenter stated that the 
agencies have made it more difficult to achieve ``Satisfactory'' and 
``Outstanding'' ratings, which could lead to reduced incentives to 
strive for such ratings and, consequently, undermine the goals of CRA. 
Another commenter expressed that the overly simplistic formula proposed 
for rating banks means that more complicated affordable housing deals--
those that help seniors, disabled persons, and rural communities--will 
not happen. A commenter stated that, under the proposal, more 
incentives are needed to motivate banks to achieve an ``Outstanding'' 
rating, which would help distinguish their performance against peers. 
Another commenter remarked that when all banks essentially receive the 
same rating, the motivation to improve dissipates. Another commenter 
specified that the proposal should provide some financial motivation 
for an ``Outstanding'' rating (e.g., reduced taxes, reduced deposit 
insurance assessments, reduced borrowing rates from the Federal Reserve 
discount window) because being downgraded from an ``Outstanding'' to a 
``Satisfactory'' is not much of a disincentive as 90 percent of banks 
receive ``Satisfactory'' ratings.
    Many commenters offered ideas on how findings regarding race and 
ethnicity should appropriately be factored into a bank's rating. One 
commenter generally indicated that, regarding racial and ethnic 
equality, the CRA examination process should incorporate both 
incentives for positive activities and deterrents and penalties for 
harmful practices. More specifically, another commenter stated that 
material decreases in performance by race argue for a ``Needs to 
Improve'' rating and material increases in performance should be a 
factor in earning an ``Outstanding'' rating.
    Another commenter suggested providing for a presumptive 
``Satisfactory'' rating for U.S. Department of the Treasury-certified 
CDFIs, given the existing annual certification requirements in place 
for these institutions.

[[Page 7023]]

Final Rule
    The agencies are adopting final Sec.  __.28(b)(1) and (2) largely 
as proposed, but with some revisions for clarity discussed below. Final 
Sec.  __.28(b)(1) provides that the agencies assign a rating for a 
bank's overall CRA performance of ``Outstanding,'' ``Satisfactory,'' 
``Needs to Improve,'' or ``Substantial Noncompliance'' in each State 
and multistate MSA, as applicable pursuant to Sec.  __.28(c), and for 
the institution. These ratings reflect the bank's record of helping to 
meet the credit needs of its entire community, including low- and 
moderate-income neighborhoods, consistent with the safe and sound 
operation of the bank.
    The agencies carefully considered comments that both suggested the 
proposed CRA rating framework was overly complicated and overly 
simplistic and, ultimately, believe that the proposed rating system 
appropriately balances the need for a clear and objective rating system 
with the need to effectively capture and distinguish between bank 
performances. Further, the agencies believe that the final rule 
provides for a quantifiable, consistent approach to assigning 
conclusions and ratings. The agencies also considered comments that 
suggested that the CRA ratings framework should be transparent and 
objective and should recognize distinctions in performance.
    Final Sec.  __.28(b)(2) addresses ratings and overall performance 
scores. Under the finalized ratings approach, the agencies will 
generally assign ratings for each State and multistate MSA, as 
applicable pursuant to Sec.  __.28(c), and for the institution using 
performance scores associated with a bank's assigned conclusions. For 
large banks and intermediate banks, the agencies will use established 
weights, as discussed further in the section-by-section analysis of 
Sec.  __.28(b)(3), to aggregate performance scores associated with the 
assigned conclusions for each performance test and, in turn, calculate 
a performance score associated with the bank's assigned rating. For 
large banks, intermediate banks, small banks that opt into the Retail 
Lending Test, and limited purpose banks, final Sec.  __.28(b)(2)(i) 
specifies that the agencies will calculate and disclose the bank's 
overall performance score for each State and multistate MSA, as 
applicable, and the institution overall. Final Sec.  __.28(b)(2)(i) 
further provides that the agencies will use the overall performance 
score to assign a rating for the bank's overall performance in each 
State and multistate MSA, as applicable, and for the institution, 
subject to adjustments based on evidence of discriminatory or other 
illegal credit practices pursuant to final Sec.  __.28(d) and 
consideration of past performance pursuant to Sec.  __.28(e). The 
agencies added final Sec.  __.28(b)(2)(ii) to clarify that a bank's 
overall performance scores are based on the bank's performance score 
for each applicable performance test and derived as provided in Sec.  
__.28(b)(3), as applicable and as discussed below, and in final 
appendix D. The agencies also anticipate disclosing the performance 
scores associated with the bank's assigned conclusions for each 
performance test. The agencies expect that this will provide banks and 
the public with meaningful information about each bank's CRA 
performance. The agencies believe this approach is responsive to 
several comments that suggested the agencies assign and provide 
performance scores or develop a points system to depict distinctions in 
performance. The agencies acknowledge that banks will not be able to 
calculate and determine a presumptive rating prior to a CRA 
examination. The agencies decline to adopt this suggestion because such 
an approach would hamper the agencies' ability to evaluate qualitative 
components of a bank's CRA performance.
    In response to commenter suggestions to build more distinctions in 
performance into the CRA rating framework, the agencies note that 12 
U.S.C. 2906(b)(2) prescribes the four-tier ratings framework under the 
current approach and the final rule. The agencies believe, however, 
that publishing performance scores associated with the bank's assigned 
conclusions and ratings will provide meaningful information about 
distinctions in bank performance because performance scores may be more 
nuanced than assigned conclusions and ratings. For example, if a large 
bank's overall performance score for the institution, derived based on 
the bank's performance score for each applicable test, is an 8.1, the 
agencies would assign the bank an institution rating of 
``Satisfactory,'' subject to Sec.  __.28(d), but the performance score 
would indicate that that the bank's performance is on the higher end of 
the ``Satisfactory'' range.
    The agencies also believe that the final CRA framework adequately 
incentivizes banks to strive to achieve an ``Outstanding'' rating by 
disclosing performance scores, conclusions, ratings, and other 
information about a bank's CRA performance to the public. For example, 
a bank may indicate to its community that the agencies have evaluated 
its CRA performance as ``Outstanding,'' as applicable. The agencies 
note that providing financial incentives under other statutes and 
regulations for banks that achieve ``Outstanding'' CRA ratings (e.g., 
reduced taxes, reduced deposit insurance assessments, reduced borrowing 
rates from the Federal Reserve discount window), as suggested by one 
commenter, is outside the scope of this rulemaking and, at least in 
some cases, would not be within the agencies' statutory authority.
    The agencies decline to make additional revisions to the CRA 
ratings framework to address how findings regarding race and ethnicity 
should be factored into a bank's rating. For more information and 
discussion regarding the agencies' consideration of comments 
recommending adoption of additional race- and ethnicity-related 
provisions in this final rule, see section III.C of this SUPPLEMENTARY 
INFORMATION.
    Although the agencies recognize that CDFIs play an important role 
in promoting community development and helping to meet the credit needs 
of low- or moderate-income individuals and communities, the agencies do 
not think it would be appropriate to create a presumption that a U.S. 
Department of the Treasury-certified CDFI subject to CRA would receive 
a ``Satisfactory'' rating. The CRA and the U.S. Treasury Department's 
CDFI Fund advance similar objectives but have distinct requirements. 
Moreover, the agencies are required by statute to assess a bank's 
record of meeting the credit needs of its entire community,\1424\ 
including low- and moderate-income neighborhoods, and the agencies 
believe it would not be appropriate for the agencies to rely on the 
Treasury Department's certification to fulfill their statutory 
obligation.
---------------------------------------------------------------------------

    \1424\ See 12 U.S.C. 2903(a).
---------------------------------------------------------------------------

    For these reasons, the agencies are adopting final Sec.  
__.28(b)(1) and (2) with clarifying revisions from the proposal. The 
agencies added a sentence in final Sec.  __.28(b)(1) that states that 
the ratings assigned reflect the bank's record of helping to meet the 
credit needs of its entire community, including low- and moderate-
income neighborhoods, consistent with the safe and sound operation of 
the bank, which reflects statutory requirements. The agencies proposed 
a similar statement in Sec.  __.21 and believe it is appropriate to 
include this statement in Sec.  __.28 as well, to reinforce the 
statutory foundation for bank ratings. The agencies also reworded Sec.  
__.28(b)(1)

[[Page 7024]]

for clarity. As discussed above, the agencies also made revisions to 
proposed Sec.  __.28(b)(2) in the final rule, including restructuring 
Sec.  __.28(b)(2) to include paragraphs (b)(2)(i) and (ii) to clarify 
that the agencies will disclose a bank's overall performance score in 
each State and multistate MSA, as applicable, and for the institution, 
and will use the overall performance scores as the basis for the bank's 
ratings, subject to Sec.  __.28(d) and (e). Final Sec.  __.28(b)(2)(i) 
also clarifies the banks for which the agencies will calculate and 
disclose performance scores, with one change from the proposal. The 
agencies believe it is appropriate to calculate and disclose a limited 
purpose bank's overall performance score for each State and multistate 
MSA, as applicable, and the institution, which will be based on the 
bank's performance score on the Community Development Financing Test 
for Limited Purpose Banks.
Section __.28(b)(3) Weighting of Performance Scores
    Under current large bank CRA examination procedures, examiners use 
a rating scale in the Interagency Questions and Answers to convert 
ratings assigned for each performance test into point values; examiners 
then add those point values together to determine the overall 
institution rating.\1425\ The agencies do not publish, however, the 
points assigned to each performance test and the overall points that 
correspond to the bank's overall rating in its performance evaluation. 
With the exception of this rating scale for large banks, 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 current 
regulations. For example, exceptionally strong performance in some 
aspects of a particular rating profile may compensate for weak 
performance in others.\1426\
---------------------------------------------------------------------------

    \1425\ See Q&A Sec.  __.28(a)--3; current appendix A, paragraph 
(b); see also Interagency Large Institution CRA Examination 
Procedures.
    \1426\ See Q&A Appendix A to part __--1.
---------------------------------------------------------------------------

    For large banks, paragraph b of proposed appendix D provided that 
the agencies would determine a large bank's State, multistate MSA, and 
institution ratings by combining the bank's performance scores across 
all four performance tests applicable to large banks. Similarly, for 
intermediate banks, paragraph c of proposed appendix D provided that to 
determine an intermediate bank's State, multistate MSA, and institution 
ratings, the agencies would combine an intermediate bank's performance 
scores for its State, multistate MSA, and institution performance under 
the Retail Lending Test and the intermediate bank community development 
evaluation or, if the bank opts in, the Community Development Financing 
Test. For both large banks and intermediate banks, the agencies 
proposed to consistently weight the respective performance tests 
applicable to each bank when assigning ratings for each State and 
multistate MSA, as applicable, and the institution.
Section __.28(b)(3)(i) Large Bank Performance Test Weights
    Under the current rating scale for large banks, although there is 
some variation based on the points assigned for each performance test 
rating, the lending test generally accounts for 50 percent and the 
investment test and service test each generally account for 25 percent 
of a large bank's rating.\1427\ In paragraph b of proposed appendix D, 
the agencies proposed to weight the performance score for each 
performance test applicable to a large bank by multiplying it by a 
percentage established for the performance test. The agencies have 
generally retained this approach in final Sec.  __.28(b)(3)(i) and have 
described the approach in more detail in paragraph b of final appendix 
D. As described below, the agencies are adopting in the final rule 
weights, with revisions relative to the proposal, for the Retail 
Lending Test, the Retail Services and Products Test, and the Community 
Development Financing Test, as well as revisions to streamline 
paragraph b of appendix D. The agencies are finalizing the proposed 
weight for the Community Development Services Test.
---------------------------------------------------------------------------

    \1427\ See id.
---------------------------------------------------------------------------

The Agencies' Proposal and Comments Received
    For large banks, the agencies proposed to weight performance scores 
for each test as follows: Retail Lending Test at 45 percent; Community 
Development Financing Test at 30 percent; Retail Services and Products 
Test at 15 percent; and Community Development Services Test at 10 
percent.\1428\
---------------------------------------------------------------------------

    \1428\ See proposed appendix D, paragraph b.
---------------------------------------------------------------------------

    The agencies received many comments on the proposed weighting of 
the large bank performance tests from a broad range of commenter types. 
Most of these commenters discussed the proposed weighting of retail 
activities, reflected in the Retail Lending Test and Retail Services 
and Products Test conclusions, compared to the weighting of community 
development activities, reflected in the Community Development 
Financing Test and Community Development Services Test conclusions. 
Generally, these commenters expressed concerns that community 
development activities were weighted too lightly and that the proposed 
weighting would disincentivize community development activities. Many 
commenters suggested that retail activities and community development 
activities be weighted equally, while some commenters provided specific 
suggestions for the weighting of the large bank performance tests. 
Finally, a few commenters suggested that the agencies incorporate 
flexibility into the weighting framework.
    A commenter expressed support for the proposed weighting for large 
banks, stating that the proposed weighting places appropriate emphasis 
on the most important aspects of a bank's CRA activities.
    Weighting of community development activities compared to retail 
activities. Most commenters who commented on the proposed weighting of 
the performance tests conveyed concerns that the proposed weighting of 
the large bank performance tests overweighted a bank's retail 
activities compared to its community development activities. These 
commenters asserted that the proposed weighting would disincentivize 
and could lessen impactful community development activities. A 
commenter expressed that the proposed unequal weighting could lead 
banks to focus more on their retail activities, which also tend to be 
less expensive and a larger part of their business models. A few 
commenters stated that the proposed weights would not provide an 
adequate incentive for banks to meet the community development needs of 
rural and high-need areas. Moreover, one commenter asserted that there 
was a lack of an empirical basis for assigning community development 
activities a lower weight.
    Most commenters on the proposed weighting of the large bank 
performance tests remarked that, due to the heavy weighting of retail 
activities, it would be extremely difficult or impossible to attain an 
``Outstanding'' rating without an ``Outstanding'' performance 
conclusion on the Retail Lending Test. The majority of these commenters 
stated that, due to such weighting, the difficulty of achieving an 
``Outstanding'' rating would disincentivize banks to pursue this 
standard. For example, a commenter explained that the proposed

[[Page 7025]]

weighting for the Retail Lending Test was too high because, for CRA to 
be effective in providing incentives for institutions to stretch, all 
banks should have a reasonable opportunity to achieve an 
``Outstanding'' rating.
    Some commenters expressed concerns that the proposed weighting 
would disincentivize banks from seeking an ``Outstanding'' conclusion 
for their community development performance, which a commenter stated 
would be counter to the intent of the original legislation and decades 
of established practice and investment. One of these commenters 
expressed concern that the proposed approach may render the Community 
Development Financing Test immaterial to a bank's ultimate rating and 
create a race to the bottom when coupled with peer-based performance 
evaluations.
    Many commenters noted that, under the proposal, banks could receive 
a ``Satisfactory'' rating even if they performed poorly on the 
Community Development Financing Test, including receiving a ``Needs to 
Improve'' conclusion. A few commenters stated that this aspect of the 
proposal places low value on community development activities and risks 
banks deprioritizing community development, running counter to the 
intent of the CRA statute. Lastly, a commenter believed that the 
proposed weighting, which would allow a bank to receive an overall 
``Satisfactory'' rating even if it received a ``Needs to Improve'' 
conclusion on the Community Development Financing Test as long as it 
received ``Low Satisfactory'' conclusion on the Retail Lending Test, 
sets an incredibly low bar that most banks would clear and could 
disincentivize banks from pursuing community development activities.
    Some commenters expressed concerns about the impact the proposed 
weighting would have on certain community development activities, 
particularly that the proposed weighting would reduce community 
development equity financing, including participation in the LIHTC and 
NMTC programs, and would negatively impact affordable housing. 
Additionally, one commenter suggested that the proposed weighting would 
significantly diminish the community finance ecosystem and the CDFI 
industry. Another commenter expressed concern that the proposed 
weighting of the Community Development Financing Test would risk 
reducing the amount of long-term, patient capital flowing to essential 
projects in the form of community development investments.
    Some commenters remarked on the potential negative effect of the 
proposed weighting on bank risk profiles and certain business models. A 
few commenters stated that the high weight placed on the Retail Lending 
Test would disadvantage business models that do not focus on retail 
lending in particular geographies or overall. Other commenters noted 
that the high weight for the Retail Lending Test would encourage 
excessive risk-taking to meet CRA standards and adversely impact safety 
and soundness. One commenter suggested that a commercial bank could 
feel pressured by the weighting to compete with credit unions for 
certain personal products, creating more risk in its portfolio. Another 
commenter stated that the proposal failed to adequately consider that 
many banks are not structured to offer large retail loans due to the 
specific needs of their markets. This commenter asserted that a bank 
with a business model of small-dollar retail lending with an 
innovative, complex, and responsible community development lending and 
investment strategy would not be positioned to earn an ``Outstanding'' 
rating. Another commenter stated that proposed weight of the Retail 
Lending Test would be detrimental to its overall CRA rating and would 
essentially take staff away from helping low- and moderate-income 
individuals in its community.
    Suggestions to adjust the proposed weighting of the performance 
tests for large banks. Many commenters suggested weighting retail and 
community development activities equally, with one commenter explaining 
that this would ensure that resources are more effectively directed to 
underserved communities. A community development organization stated 
that the Community Development Financing Test should carry the same, if 
not more, weight relative to any other performance test, including the 
Retail Lending Test. Another community development organization 
likewise supported a stronger role for community development lending 
and investment over retail lending.
    A number of commenters proposed specific alternatives to achieve 
the equal weighting of retail and community development activities. To 
achieve equal weight, a few commenters suggested weighting the Retail 
Lending Test and the Community Development Financing Test each at 40 
percent and the Retail Services and Products Test and the Community 
Development Services Test each at 10 percent. A few other commenters 
suggested weighting the Retail Lending Test and the Community 
Development Financing Test each at 35 percent and the Retail Services 
and Products Test and the Community Development Services Test each at 
15 percent. Another commenter suggested that the Community Development 
Financing Test should be increased to 45 percent, with 25 percent for 
community development lending and 20 percent for community development 
investments, and the weight assigned to the Community Development 
Services Test should be reduced to five percent as many community 
development services are eligible to be considered under the Retail 
Services and Products Test. Another commenter suggested that the 
agencies weight the Retail Lending Test at 35 percent, the Retail 
Services and Products Test at 15 percent, the Community Development 
Financing Test at either 40 percent or 45 percent, and the Community 
Development Services Test at either 10 percent or 5 percent, with the 
Community Development Services Test receiving the higher weight if 
grants are included in that performance test.
    A few commenters recommended weighting alternatives that did not 
provide retail and community development activities equal weight, but 
which generally increased the weight afforded to community development 
activities. Specifically, one commenter suggested weighting the Retail 
Lending Test and the Community Development Financing Test each at 40 
percent, the Retail Services and Products Test at 15 percent, and the 
Community Development Services Test at five percent. A commenter 
recommended weighting community development activities at 60 percent 
for all banks. Another commenter suggested that the agencies give 
community development activities a 75 percent weight and retail 
activities a 25 percent weight, as CRA community development activities 
have been attributed to reducing the depth of the nation's poverty 
levels.
    A few commenters had additional comments regarding the weighting of 
community development services. Several commenters stated that the 
Community Development Services Test is weighted too heavily at 10 
percent. One commenter suggested that the Community Development 
Services Test should be weighted at 5 percent. In contrast, a few 
commenters suggested that the proposed weight for the Community 
Development Services Test should be raised as it is too light to 
encourage effective development of community development services. 
These commenters suggested weights between 15 percent and 30 percent, 
although one commenter noted that increasing the weighting of community 
development services could result in

[[Page 7026]]

less importance associated with community development lending and 
investments. A commenter remarked that the weighting of the Community 
Development Services Test at 10 percent provided large banks with 
little incentive to strive for an ``Outstanding'' over a 
``Satisfactory'' performance conclusion.
    A few commenters expressed concern regarding the weighting of 
retail services and products relative to their importance in assisting 
communities. A commenter expressed concern that combining all of these 
critical components of CRA--meaningful access to branches, accounts, 
and responsive credit products--would give them insufficient 
consideration in a performance test representing only 15 percent of a 
bank's CRA rating. One commenter recommended that the rating system 
emphasize lending, branches, fair lending performance, and responsible 
loan products for working class families. Another commenter believed 
that the proposed rating system would devalue the importance of 
maintaining branches in low- and moderate-income neighborhoods.
    Weighting suggestions based on different performance test 
frameworks. Commenters also suggested weighting based on changes to the 
four-test framework. For example, a commenter suggested combining the 
retail performance tests into one performance test and the community 
development performance tests into one performance test and then giving 
these combined tests equal weight. A few commenters suggested combining 
the community development performance tests into one performance test 
and weighting the combined performance test at 45 percent or 50 
percent. Another commenter suggested eliminating the Community 
Development Services Test and weighting the Community Development 
Financing Test at 50 percent. Alternatively, a CDFI proposed a five-
test weighting scheme with the Retail Lending Test weighted at 35 
percent, the Retail Services and Products Test at 15 percent, a 
Community Development Lending Test at 20 percent, a Community 
Development Investment Test at 20 percent, and the Community 
Development Services Test at 10 percent (with grants included under the 
Community Development Services Test). A few other commenters suggested 
establishing a Community Development Test weighted at 50 percent, with 
weighted subtests within the Community Development Test for 
investments, lending, and services.
    Comments regarding weighting flexibility. A few commenters 
recommended incorporating flexibility in the weighting framework for 
large banks. A commenter suggested that applying the same weighting to 
the four large bank tests regardless of how important retail banking is 
to the bank being evaluated could lead to a disproportionate emphasis 
on retail loans for banks that focus on other business lines and 
primarily serve low- and moderate-income people through their community 
development activities, so the agencies should allow flexibility to 
accommodate banks with different business models. This commenter 
suggested, at a minimum, permitting weighting flexibility in strategic 
plans. Other commenters supported weighting flexibility to allow for 
other factors such as the availability of funding and variations in 
market demand and opportunities. A commenter suggested that examiners 
should have leeway to consider performance context in weighting.
Final Rule
    The agencies have considered the many comments that expressed 
concerns about the proposed weighting of the large bank performance 
tests and made suggestions to revise the weighting to ensure that 
community development activities receive appropriate weight. After 
careful consideration of these comments and further reflection on the 
proposal, the agencies are adopting modified weighting for the 
performance tests for large banks in final Sec.  __.28(b)(3)(i) and 
paragraph b of final appendix D, which will result in equal weighting 
for community development activities and retail activities.
    Specifically, in calculating ratings for large banks at the State, 
multistate MSA, and institution level, the agencies will weigh the 
performance scores for the applicable performance tests for large banks 
as follows:\1429\ the Retail Lending Test at 40 percent; the Community 
Development Financing Test at 40 percent; the Retail Services and 
Products Test at 10 percent; and the Community Development Services 
Test at 10 percent. In order to increase the weight of the Community 
Development Financing Test by 10 percent (from 30 percent to 40 
percent), the agencies will reduce by 5 percent the weights for both 
the Retail Lending Test (from 45 percent to 40 percent) and the Retail 
Service and Products Test (from 15 percent to 10 percent). The agencies 
considered a number of weighting alternatives, including those 
suggested by commenters, and determined that the weighting for large 
bank performance test scores adopted in the final rule most 
appropriately balances the many considerations involved in establishing 
these weights. As discussed below, this change will also mean that 
retail activities and community development activities will be equally 
weighted for both intermediate banks and large banks under the 
respective weighting for applicable performance tests.
---------------------------------------------------------------------------

    \1429\ Refer to the section-by-section analysis of Sec. Sec.  
__.22 through __.25 for discussion of how the agencies derive the 
performance score for each performance test applicable to a large 
bank. Generally, performance scores are presented as unrounded or 
rounded numbers, depending on the applicable performance test, on 
the 10-point scale described in the section-by-section analysis of 
Sec.  __.21.
---------------------------------------------------------------------------

    The agencies expect that increasing the weights of the community 
development tests so that the combined weight of the Community 
Development Financing Test and the Community Development Services Test 
accounts for half of a large bank's ratings, and the Community 
Development Financing Test, in particular, accounts for 40 percent of a 
large bank's ratings, will address many concerns expressed by 
commenters. Specifically, the increased weight will more strongly 
incentivize community development loans and investments, including 
certain community development activities that commenters identified as 
particularly impactful. The agencies also believe that the weighting 
under the final rule will encourage banks to pursue ``Outstanding'' 
ratings based on ``Outstanding'' performance on either the Community 
Development Financing Test or the Retail Lending Test, or both, as 
appropriate based on the bank's capacity and business model. Similarly, 
the finalized weighting will make it more difficult for a bank to 
obtain an ``Outstanding'' or ``Satisfactory'' rating with a ``Needs to 
Improve'' conclusion on the Community Development Financing Test. 
Further, the increased weight placed on community development lending 
and investment recognizes that not all community credit needs can be 
met through retail lending. For example, affordable housing is a 
widespread community need that banks generally may not be able to 
address through retail lending.
    After extensive consideration of the comments, the agencies also 
believe that the corresponding reduction in the assigned weight for the 
Retail Lending Test from 45 percent to 40 percent is appropriate. The 
agencies note that, although the lending test generally receives 50 
percent weight under the current CRA rating framework, the final

[[Page 7027]]

Retail Lending Test does not have the same scope as the current lending 
test. For example, community development lending, which is currently 
considered under the large bank lending test, will be considered with 
community development investments under the Community Development 
Financing Test. Under the final rule, multifamily lending also will be 
exclusively evaluated under the Community Development Financing Test. 
Further, as discussed in the section-by-section analysis of Sec.  
__.28(b)(4) below, the final rule retains the requirement that a bank 
receive a minimum performance test conclusion of a ``Low Satisfactory'' 
on the Retail Lending Test for a State, multistate MSA, or institution, 
to receive a ``Satisfactory'' rating for, respectively, the State, 
multistate MSA, or the institution. Between the final weighting and 
this requirement, the agencies believe the final rule contains 
appropriate safeguards to ensure that a bank must meet the retail 
credit needs of its community to receive an ``Outstanding'' or 
``Satisfactory'' rating.
    As noted above, the final rule reduces the weight assigned to the 
Retail Services and Products Test from 15 percent to 10 percent. After 
considering all comments on the weighting of the large bank performance 
tests, including those regarding the weighting of retail services and 
products, the agencies believe this change best facilitates an increase 
in the weight of the Community Development Financing Test, as discussed 
above. Further, the final rule adopts the proposal to weight the 
Community Development Services Test at 10 percent. Therefore, the final 
rule will weight a bank's retail and community development activities 
equally with respect to retail and community development lending and 
investment and retail and community development services. The agencies 
believe this balance in the weighting will appropriately encourage CRA 
activities of all kinds and will provide flexibility for banks. The 
combined 20 percent weighting of the Retail Services and Products Test 
and the Community Development Services Test will remain similar to the 
effect of the current service test on a large bank's rating under the 
current rating scale, which is generally 25 percent of a large bank's 
rating.
    The agencies believe that equally weighting both the Retail Lending 
Test and the Community Development Financing Test at 40 percent and 
both the Retail Services and Products Test and the Community 
Development Services Test at 10 percent recognizes the historical focus 
of CRA on retail and community development lending and investment and 
is consistent with the statutory purpose of CRA to encourage banks to 
help meet the credit needs of their local communities.\1430\ The 
agencies also believe the 10 percent weight assigned to both the Retail 
Services and Products Test and Community Development Services Test will 
ensure these performance tests have sufficient weight in the 
calculation of the bank's overall rating to be meaningful.
---------------------------------------------------------------------------

    \1430\ See 12 U.S.C. 2901(b).
---------------------------------------------------------------------------

    For the reasons described in the section-by-section analysis of 
final Sec.  __.21, the agencies have determined to finalize the general 
framework of four performance tests for large banks as proposed. Thus, 
suggested weighting schemes based on a different performance test 
framework, such as those involving the combination, elimination, or 
addition of performance tests, would not align with the final rule.
    The agencies have determined to assign a fixed weight for each of 
the performance tests applicable to a large bank. For large banks, the 
agencies believe the benefits of weighting flexibility for banks with 
different communities, business models, and capacity are outweighed by 
an interest in ensuring an objective, quantifiable, and consistent 
method to assign large bank ratings. The agencies note that the 
performance tests for large banks have elements tailored to a bank's 
size and business model and allow for flexibility in considering and 
weighting components, as appropriate. As discussed in the section-by-
section analysis of final Sec.  __.21, the agencies will also consider 
performance context under final Sec.  __.21(d) in assigning the 
conclusions and associated performance scores that factor into a bank's 
assigned ratings. Finally, as discussed in the section-by-section 
analysis of final Sec.  __.27, the final rule permits weighting 
flexibility for banks evaluated under an approved strategic plan 
pursuant to final Sec.  __.27.
    In addition to the revisions discussed above, the agencies added 
final Sec.  __.28(b)(3)(i) to address the weighting of performance 
scores for large bank ratings in final Sec.  __.28. The agencies also 
made revisions to streamline paragraph b of final appendix D compared 
to the proposal.
Section __.28(b)(3)(ii) Intermediate Bank Performance Test Weights
    Under the current ratings approach for intermediate small banks, 
the agencies have not established a rating scale to aggregate an 
intermediate small bank's performance under the lending test and the 
community development test. Current practice with respect to 
intermediate small banks, however, typically gives equal weight to 
retail lending and community development activities.\1431\
---------------------------------------------------------------------------

    \1431\ Under the current approach, an intermediate small bank's 
performance on the lending test and the community development test 
are generally treated equally. For example, an intermediate small 
bank may not receive an assigned overall rating of ``Satisfactory'' 
unless it receives a rating of at least ``Satisfactory'' on both the 
lending test and the community development test. An intermediate 
small bank that receives an ``Outstanding'' rating on one test and 
at least ``Satisfactory'' on the other test may receive an assigned 
overall rating of ``Outstanding.'' See current appendix A, paragraph 
(d)(3); Interagency Intermediate Small Institution CRA Examination 
Procedures.
---------------------------------------------------------------------------

    In paragraph c of proposed appendix D, similar to the proposal with 
respect to large banks, the agencies proposed to weight the performance 
score, presented on a 10-point scale as described in the section-by-
section analysis of Sec.  __.21, for each performance test applicable 
to an intermediate bank by multiplying it by a percentage established 
for the performance test. As described below, the agencies generally 
adopted this approach in final Sec.  __.28(b)(3)(ii) and as described 
in more detail in paragraph c of final appendix D. The agencies also 
made revisions to streamline paragraph c of final appendix D compared 
to the proposal.
The Agencies' Proposal and Comments Received
    For intermediate banks, the agencies proposed to weight the Retail 
Lending Test at 50 percent and the intermediate bank community 
development evaluation, or, for intermediate banks that opt in, the 
Community Development Financing Test, at 50 percent.\1432\ The agencies 
sought feedback on whether it would be more appropriate to weight 
retail lending activity at 60 percent and community development 
activity at 40 percent in developing the overall rating for an 
intermediate bank to maintain the CRA's focus on meeting community 
credit needs through home mortgage loans, small business loans, and 
small farm loans.
---------------------------------------------------------------------------

    \1432\ See proposed appendix D, paragraph c.
---------------------------------------------------------------------------

    As discussed above in the section-by-section analysis of Sec.  
__.28(b)(3)(i), many commenters addressed the appropriate weighting of 
a bank's community development activities relative to its retail 
activities. Many commenters specifically recommended that a bank's 
community development activities and retail activities should be 
equally weighted. Although many of

[[Page 7028]]

these comments were specific to the agencies' proposed weighting for 
the large bank performance tests, other commenters did not specify 
whether their comments applied to large banks or intermediate banks.
    A few commenters specifically addressed the proposed weighting for 
intermediate banks. The commenters supported equal weighting for the 
Retail Lending Test and the intermediate bank community development 
evaluation based on the idea that community development services are 
assessed in the intermediate bank community development evaluation. One 
of the commenters stated that if community development services are 
optional for intermediate banks, however, the Retail Lending Test 
weight should be increased to 55 or 60 percent to encourage more 
lending.
Final Rule
    In final Sec.  __.28(b)(3)(ii) and paragraph c of final appendix D, 
after considering the comments and alternatives to the proposed 
weighting for intermediate bank performance scores, the agencies are 
finalizing as proposed the weights for both the Retail Lending Test and 
the renamed Intermediate Bank Community Development Test (i.e., 
referred to as the ``intermediate bank community development 
evaluation'' in the proposal) or, for intermediate banks that opt in, 
the Community Development Financing Test.
    As discussed above with respect to large banks, the agencies 
believe that equally weighting a bank's retail lending and community 
development lending appropriately emphasizes retail lending and 
community development lending and investments as key parts of a bank's 
CRA activities. As discussed above, equal weighting is generally 
consistent with the agencies' current approach to intermediate small 
banks. Because the final rule also generally adopts equal weighting for 
the retail and community development activities of large banks, 
adopting equal weighting for an intermediate bank's retail and 
community development activities will establish a consistent standard 
for banks evaluated under multiple performance tests and subject to 
weighting of performance scores.
    The agencies also considered the impact of the additional 
consideration for other activities, including community development 
services, on the weighting of the performance tests applicable to 
intermediate banks. As discussed further in the section-by-section 
analysis of final Sec.  __.30, however, the agencies believe that the 
flexibility intermediate banks have to decide which community 
development approach better fits their bank will allow banks that 
currently participate heavily in community development services to 
continue to be evaluated for these services under the Intermediate Bank 
Community Development Test, or to have these community development 
services given additional consideration if they opt into the Community 
Development Financing Test. As such, the agencies did not increase the 
Retail Lending Test weight based on commenter input.
    In addition to the revisions discussed above, the agencies added 
final Sec.  __.28(b)(3)(ii) to address the weighting of performance 
scores for intermediate banks ratings in final Sec.  __.28. The 
agencies also made revisions to streamline paragraph c of final 
appendix D.
Section __.28(b)(4) Minimum Conclusion Requirements
    In addition to the weighting approach above, final Sec.  
__.28(b)(4) establishes requirements, as proposed in paragraph g of 
appendix D, for minimum performance test conclusions for a large bank 
or an intermediate bank to be eligible for an ``Outstanding'' or 
``Satisfactory'' rating. The agencies intended these requirements to be 
additional safeguards, in addition to the rating developed by 
aggregating and weighting a bank's performance test scores, to ensure 
that a bank receiving an ``Outstanding'' or ``Satisfactory'' rating is 
meeting the credit needs of its community.
    Under the current approach, the agencies assign ratings for large 
banks assessed under the lending, investment, and service tests in 
accordance with several principles. First, a large bank that receives 
an ``Outstanding'' rating on the lending test receives an assigned 
rating of at least ``Satisfactory.'' \1433\ Second, a large bank that 
receives an ``Outstanding'' rating on both the service test and the 
investment test and at least a ``High Satisfactory'' rating on the 
lending test receives an assigned rating of ``Outstanding.'' \1434\ 
Finally, a large bank cannot receive an assigned rating of 
``Satisfactory'' or higher unless it receives at least a ``Low 
Satisfactory'' rating on the lending test.\1435\ The current rating 
scale for large banks reflects these principles.
---------------------------------------------------------------------------

    \1433\ Current 12 CFR __.28(b)(1).
    \1434\ Current 12 CFR __.28(b)(2).
    \1435\ Current 12 CFR __.28(b)(3).
---------------------------------------------------------------------------

    In addition, under the current approach, an intermediate small bank 
may not receive an overall ``Satisfactory'' rating unless it receives 
at least a ``Satisfactory'' on both the lending test and the community 
development test.\1436\ An intermediate small bank that receives an 
``Outstanding'' on one test and at least ``Satisfactory'' on the other 
test may receive an overall rating of ``Outstanding.'' \1437\
---------------------------------------------------------------------------

    \1436\ See current appendix A, paragraph (d)(3)(i).
    \1437\ See current appendix A, paragraph (d)(3)(ii)(A).
---------------------------------------------------------------------------

Section __.28(b)(4)(i) Retail Lending Test Minimum Conclusion
    Consistent with a current approach, final Sec.  __.28(b)(4)(i) 
adopts the requirement, proposed in paragraph g.1 of appendix D, that 
an intermediate bank or a large bank must receive at least a ``Low 
Satisfactory'' Retail Lending Test conclusion to be eligible for an 
``Outstanding'' or ``Satisfactory'' rating for a State, multistate MSA, 
or the institution overall.
The Agencies' Proposal and Comments Received
    The agencies proposed in paragraph g.1 of appendix D to retain the 
current requirement that an intermediate bank or a large bank must 
receive at least a ``Low Satisfactory'' Retail Lending Test conclusion 
at, respectively, the State, multistate MSA, or institution level to 
receive an overall State, multistate MSA, or institution rating of 
``Outstanding'' or ``Satisfactory.'' \1438\ A commenter specifically 
supported this part of the proposal with respect to intermediate banks.
---------------------------------------------------------------------------

    \1438\ See proposed appendix D, paragraph g.1. The agencies did 
not, however, propose to retain, for intermediate banks, the current 
requirement that intermediate small banks must receive a 
``Satisfactory'' rating on both the Retail Lending Test and 
intermediate bank community development evaluation.
---------------------------------------------------------------------------

    The agencies did not propose minimum conclusion requirements for 
other performance tests, such as the current requirement that an 
intermediate small bank must receive a ``Satisfactory'' on both the 
current lending test and the current community development test to 
receive an overall ``Satisfactory'' rating. The agencies also did not 
propose specific minimum conclusion requirements for a bank to receive 
an ``Outstanding'' rating. Some commenters suggested, however, that the 
agencies impose minimum conclusion requirements for other performance 
tests for a bank to receive an ``Outstanding'' rating.
    Community development test minimum conclusions. Some commenters 
recommended that the agencies should also require at least a ``Low 
Satisfactory'' on the community

[[Page 7029]]

development performance tests in order to receive an overall 
``Satisfactory'' rating. Further, a few commenters suggested that a 
bank should not receive a higher overall rating than the conclusion it 
receives on the community development tests. Some commenters 
specifically recommended that no bank should receive a ``Satisfactory'' 
rating unless it receives at least a ``Low Satisfactory'' conclusion on 
the Community Development Financing Test. A commenter specifically 
opposed eliminating, for intermediate banks, the current requirement 
that intermediate small banks receive a ``Satisfactory'' on the 
community development performance test to earn a ``Satisfactory'' 
rating, stating this would have the perverse outcome of reducing 
overall levels of community developing financing.
    Other requirements for a ``Satisfactory'' rating. Some commenters 
suggested that the agencies consider failing a bank overall if the bank 
receives a ``Needs to Improve'' on any of the performance tests. A 
group of commenters suggested that a passing score for a bank should be 
based on high scores for each component of its CRA examinations. 
Another commenter believed that all of a bank's CRA ``activity areas'' 
and sub-activity areas should be evaluated separately, with a high 
minimum threshold of activity, calculated as a percentage of deposits, 
in each area, and that no CRA activity area should be abandoned or 
allowed to underperform.
    More generally, a commenter proposed that no bank should pass its 
CRA examination if it fails to serve communities with branches, and 
affordable and accessible products. Additionally, a few commenters 
expressed that banks should not pass their CRA examinations if they are 
not lending to minorities or if HMDA data show that they have otherwise 
failed to serve the entire community.
    Requirements related to an ``Outstanding'' rating. A few commenters 
suggested allowing a bank to achieve an overall rating of 
``Outstanding'' by receiving an ``Outstanding'' conclusion for its 
community development activities and at least a ``High Satisfactory'' 
conclusion for its retail activities. A commenter recommended not 
precluding banks with a ``High Satisfactory'' conclusion on either the 
Retail Lending Test or the Community Development Financing Test from an 
overall ``Outstanding'' rating. Another commenter suggested that a 
large bank that receives a ``High Satisfactory'' conclusion on the 
Retail Lending Test and ``Outstanding'' conclusions for the other three 
performance tests should receive an ``Outstanding'' rating overall. 
Another commenter suggested that a large bank that receives an 
``Outstanding'' conclusion on the Community Development Financing Test 
or on the Retail Lending Test should receive an overall ``Outstanding'' 
rating if it received at least a ``High Satisfactory'' conclusion on 
the other performance tests. A few other commenters stated that no bank 
should receive an ``Outstanding'' rating without demonstrating improved 
measures of direct responses to the needs of low- and moderate-income 
populations with disabilities within and across assessment areas.
Final Rule
    The agencies are adopting paragraph g.1 of final appendix D as 
proposed. Consistent with the agencies' determination to include more 
detail about how bank ratings will be assigned in Sec.  __.28, as 
discussed above, the final rule also adopts in Sec.  __.28(b)(4)(i) the 
requirement that an intermediate bank or a large bank must receive at 
least a ``Low Satisfactory'' Retail Lending Test conclusion for the 
State, multistate MSA, or institution to be eligible for an 
``Outstanding'' or ``Satisfactory'' rating for, respectively, that 
State, multistate MSA, or institution.
    The commenter that specifically addressed the minimum performance 
conclusion requirement for the Retail Lending Test expressed support 
for the agencies' proposal. The agencies also continue to believe this 
minimum performance conclusion requirement emphasizes the importance of 
retail loans to low- and moderate-income communities. Finalizing this 
requirement will ensure that banks are required to meet the retail 
lending credit needs of their communities to receive an ``Outstanding'' 
or ``Satisfactory'' rating for each State, multistate MSA, or the 
institution.
    As proposed, the final rule does not establish minimum performance 
conclusion requirements for performance tests other than the Retail 
Lending Test. Generally, the agencies believe that the final rule's 
consistent and objective weighting for the performance tests under 
Sec.  __.28(b)(3) will result in banks being assigned the appropriate 
rating category. For example, the agencies expect more nuanced 
performance scores for each performance test and the overall CRA 
ratings as a result of the methodology for weighting bank performance 
across applicable geographic areas.
    With respect to commenter suggestions that the agencies impose a 
similar minimum performance conclusion requirement for the Community 
Development Financing Test as that established for the Retail Lending 
Test, the agencies considered and decided not to adopt this suggestion. 
In the final rule, as discussed above in the section-by-section 
analysis of final Sec.  __.28(b)(3), the agencies revised the proposed 
weighting of the performance tests for large banks to equally weight 
the Community Development Financing Test and the Retail Lending Test. 
The agencies believe this change sufficiently addresses commenter 
concerns that the proposal did not sufficiently emphasize community 
development loans and investments, and do not believe that adding an 
additional requirement outside of the weighting framework is necessary.
    Also as proposed, the final rule does not adopt the current 
requirement that an intermediate bank must receive a ``Satisfactory'' 
rating on both the Retail Lending Test and either the Intermediate Bank 
Community Development Test or, if the bank opts in, the Community 
Development Financing Test, to receive an ``Outstanding'' or 
``Satisfactory'' rating. The agencies continue to believe eliminating 
this requirement for intermediate banks allows intermediate banks to 
meet community development credit needs consistent with their more 
limited capacity.
    The agencies decline to adopt revisions based on commenter 
suggestions that the agencies should consider failing a bank overall if 
the bank receives a ``Needs to Improve'' on any of the performance 
tests. The agencies generally want to encourage banks to compensate for 
weaker performance in one area with stronger performance in another, 
and the commenter's approach may discourage a bank that receives a 
``Needs to Improve'' conclusion on one performance test from striving 
for higher conclusions on other performance tests. The agencies believe 
this is consistent with the statutory purpose of CRA to encourage banks 
to help meet the credit needs of their communities.\1439\ The agencies 
intend that the weighting of performance scores for applicable 
performance tests for large banks and intermediate banks, subject to 
the minimum performance requirement for the Retail Lending Test 
reflects a bank's

[[Page 7030]]

overall performance in a State or multistate MSA or for the 
institution.
---------------------------------------------------------------------------

    \1439\ See 12 U.S.C. 2901(b).
---------------------------------------------------------------------------

    With respect to comments suggesting requirements for 
``Outstanding'' ratings, the agencies believe that the established 
weighting for performance test scores will appropriately identify when 
a bank demonstrates ``Outstanding'' performance. The agencies also 
believe that the weighting for ratings under the final rule, which 
will, in general, equally weight a bank's retail activities and 
community development activities, addresses the commenter concerns that 
led to some of these suggestions. For example, a large bank will 
generally need to receive an ``Outstanding'' performance conclusion on 
one or more performance tests, including either or both of the ``Retail 
Lending Test'' or Community Development Financing Test, to receive an 
``Outstanding'' rating.
Section __.28(b)(4)(ii) Minimum of ``Low Satisfactory'' Overall 
Facility-Based Assessment Area And Retail Lending Assessment Area 
Conclusion
    Final Sec.  __.28(b)(4)(ii) adopts the requirement, modified from 
that proposed in paragraph g.2. of appendix D, that a large bank with a 
combined total of 10 or more facility-based assessment areas and retail 
lending assessment areas in any State or multistate MSA, as applicable, 
or for the institution, as applicable, may not receive a rating of 
``Satisfactory'' or ``Outstanding'' in that State or multistate MSA, as 
applicable, or for the institution, unless the bank receives an overall 
conclusion of at least ``Low Satisfactory'' in 60 percent or more of 
the total number of its facility-based assessment areas and retail 
lending assessment areas in that State or multistate MSA, as 
applicable, or for the institution. The current regulations do not 
include a similar requirement. The final rule adopts paragraph g.2. of 
proposed appendix D, with clarifying revisions and one modification to 
phase in this requirement as described below, and also includes this 
requirement in new final Sec.  __.28(b)(4)(ii).
The Agencies' Proposal
    In paragraph g.2 of proposed appendix D, the agencies provided that 
a large bank with 10 or more facility-based assessment areas and retail 
lending assessment areas combined in a State, in a multistate MSA, or 
nationwide would not be eligible to receive a ``Satisfactory'' or 
higher rating for, respectively, the State, multistate MSA, or 
institution unless the bank achieved at least an overall ``Low 
Satisfactory'' conclusion in at least 60 percent of its facility-based 
assessment areas and retail lending assessment areas.\1440\ For 
purposes of this requirement, the overall conclusion in a facility-
based assessment area would be based on the performance scores for the 
conclusions that the large bank received on each performance test in 
that assessment area.\1441\ For each facility-based assessment area, 
the agencies proposed to develop a facility-based assessment area 
performance score, for purposes of this requirement only, by 
calculating a weighted average of the performance scores for each 
performance test using the same test-specific weights as the agencies 
would use to calculate ratings.\1442\ If the weighted average of the 
performance scores for each test was 4.5 or greater, the large bank 
would be considered to have an overall conclusion of at least ``Low 
Satisfactory'' in the facility-based assessment area.\1443\ For each 
retail lending assessment area, for purposes of this requirement only, 
the bank's overall conclusion would be equivalent to its Retail Lending 
Test conclusion.\1444\
---------------------------------------------------------------------------

    \1440\ See proposed appendix D, paragraph g.2.i.
    \1441\ See proposed appendix D, paragraph g.2.ii.B.
    \1442\ See proposed appendix D, paragraph g.2.ii.C.
    \1443\ See proposed appendix D, paragraph g.2.ii.D.
    \1444\ See proposed appendix D, paragraph g.2.ii.A.
---------------------------------------------------------------------------

    The agencies requested feedback on whether the proposed requirement 
that a large bank with 10 or more facility-based assessment areas and 
retail lending assessment areas would receive at most a ``Needs to 
Improve'' rating unless the bank achieved at least an overall ``Low 
Satisfactory'' conclusion in at least 60 percent of its facility-based 
assessment areas and retail lending assessment areas should apply to 
facility-based assessment areas and retail lending assessment areas or 
only to facility-based assessment areas. Additionally, the agencies 
sought feedback about: whether 10 facility-based assessment areas and 
retail lending assessment areas was the right threshold to trigger this 
requirement; and whether 60 percent of facility-based assessment areas 
and retail lending assessment areas was the right threshold to satisfy 
this requirement. Finally, the agencies requested feedback on the 
impact that this requirement would have on branch closures.
Comments Received
    Most commenters expressed concern about the proposed 60 percent 
threshold. Many commenters suggested that the 60 percent threshold 
would not effectively incentivize CRA activities in rural areas or 
smaller urban areas, noting that because smaller areas could represent 
a minority of assessment areas a bank could pass the 60 percent 
threshold by focusing on the larger areas.
    Some commenters stated that no bank should be allowed to pass its 
CRA examination if it fails nearly 40 percent of its assessment areas 
or to pass in an assessment area where it fails one of the performance 
tests, especially in cases where there is displacement financing or 
branch closures in already underserved low- and moderate-income and 
minority communities. Similarly, some commenters expressed that banks 
should be required to serve all areas, and not just 60 percent of 
areas, where they take deposits and lend. Moreover, a commenter did not 
support assigning a percentage threshold to the number of assessment 
areas required for passing and, along with another commenter, suggested 
that if a bank failed in any assessment area, it should be deemed not 
to be serving the needs of its community in a satisfactory manner.
    A few commenters proposed increasing the 60-percent threshold, with 
at least one commenter suggesting each of 67 percent, 70 percent, 75 
percent, and 90 percent as an appropriate threshold. One commenter 
explained that a higher threshold would encourage banks to meet the 
credit needs of a larger share of their customers and communities.
    Commenters also proposed alternative ways to implement the 60-
percent threshold. Many commenters suggested requiring the threshold be 
met for different types of assessment areas (e.g., large metropolitan, 
small metropolitan, and rural assessment areas; or metropolitan and 
nonmetropolitan assessment areas). One of these commenters indicated 
that this should be in addition to increasing the threshold to 70 
percent for all assessment areas. A few commenters recommended that a 
lender with 10 or more rural assessment areas should be required to 
earn a ``Satisfactory'' conclusion in the majority of its rural 
assessment areas in order to achieve an overall rating of 
``Outstanding'' or ``Satisfactory.''
    A few commenters encouraged having a ``Satisfactory'' rating 
threshold that is weighted across different types of assessment areas 
to help all communities experience the intended effect of the CRA, with 
one commenter suggesting that the weights assigned to each assessment 
area be reversed according to the assessment area size. The latter 
commenter also suggested a combination of requiring that the threshold 
be met for different types of assessment areas and incorporating 
weighting. This commenter suggested

[[Page 7031]]

that the proposed unweighted 60 percent threshold would impose a 
``cliff'' that could encourage banks to stop activities in certain 
areas or avoid expansion to new areas to be eligible for a 
``Satisfactory'' rating, which may affect competition. The commenter 
also suggested that according to its analysis, a simplified version of 
the Retail Lending Test without the 60 percent requirement could 
produce the same aggregate outcome with less potentially adverse 
incentives.
    Regarding the agencies' request for feedback on the 10 facility-
based assessment area and retail lending assessment area threshold, one 
commenter suggested lowering the threshold from 10 to five assessment 
areas, because the proposed threshold implies that a bank can fail in 
four assessment areas before receiving a ``Needs to Improve'' rating. A 
few commenters stated that this threshold should be fewer than 10 
assessment areas without suggesting a specific number.
    A few other commenters suggested a broader implementation of this 
requirement. Specifically, a commenter suggested expanding the group of 
banks subject to this requirement from large banks to all banks. 
Another commenter suggested that the requirement should also apply to 
be eligible for an ``Outstanding'' rating, such that a bank with 10 or 
more assessment areas would need a conclusion of Outstanding in at 
least 60 percent of its assessment areas to achieve an overall 
conclusion of Outstanding.
    Some other commenters supported the 60 percent threshold only for 
facility-based assessment areas. For example, one commenter suggested 
not including retail lending assessment areas because it is much harder 
for banks to meet low- and moderate-income credit needs where they do 
not have a local branch presence and to compete with banks that have 
branches.
    A few commenters opposed the requirement generally. A commenter 
explained that banks should strive to serve all of their markets, but 
that there is variation in a bank's ability to serve any given 
assessment area. This commenter explained that branch presence, tenure 
in the community, and economic conditions all impact CRA performance 
and cautioned that the 60 percent requirement could cause banks to 
close branches in their weaker markets, causing the loss of competitive 
financial services in areas where they are needed but are in decline. 
Another commenter suggested that the prospect of negative publicity 
from poor performance in a significant number of assessment areas would 
already provide banks sufficient incentive to perform satisfactorily in 
as many of their assessment areas as possible.
Final Rule
    The final rule adopts the 60 percent requirement proposed in 
paragraph g.2 of appendix D with one modification, a phased 
implementation of the requirement, as well as clarifying revisions. 
Specifically, under final Sec.  __.51(e) and as discussed in the 
section-by-section analysis of Sec.  __.51(e), in a large bank's first 
examination under the final rule, the requirement will only apply where 
a bank has 10 or more facility-based assessment areas in any State or 
multistate MSA, or for the institution, as applicable. Therefore, final 
Sec.  __.28(b)(4)(ii)(B) and paragraph g.2.i of final appendix D, 
provide that the requirement applies except as provided in final Sec.  
__.51(e).
    After careful consideration of commenters' suggestions, the 
agencies are finalizing the 60 percent threshold. The agencies proposed 
this requirement to ensure that large banks receiving a 
``Satisfactory'' rating meet the credit needs of their entire community 
and not just densely populated markets with high levels of lending and 
deposits that will factor heavily into the calculation of a bank's 
ratings based on how assessment area conclusions will be weighted to 
develop a bank's performance test conclusions, which, in turn, will be 
used to develop a bank's ratings. The agencies note that the 
requirement that a large bank receive at least a ``Low Satisfactory'' 
in 60 percent of facility-based assessment areas and retail lending 
assessment areas will apply in addition to calculating the bank's 
rating as described in final Sec.  __.28(b)(2) and (3). Therefore, to 
receive an ``Outstanding'' or ``Satisfactory'' rating, a bank will need 
to satisfy the 60 percent threshold in addition to earning an 
``Outstanding'' or ``Satisfactory'' rating based on the weighting of 
performance test conclusions.
    The agencies believe that the 60 percent threshold ensures that 
large banks receiving an ``Outstanding'' or ``Satisfactory'' rating are 
meeting the credit needs of their entire community while acknowledging 
limitations that may impact bank performance, such as business model, 
capacity, opportunities to lend, and changes in a bank's assessment 
areas. The agencies note that, under the final rule, the agencies will 
examine a bank's performance under the applicable performance tests in 
the same manner in all facility-based assessment areas and retail 
lending assessment areas, which is a change from the current approach 
that permits limited-scope reviews. The agencies believe that a higher 
threshold--such as 67 percent, 70 percent, 75 percent, 90 percent, or 
all assessment areas, as suggested by commenters--may establish a 
requirement that would be too onerous for some banks to meet consistent 
with safety and soundness requirements. Further, the agencies are also 
sensitive to the concerns expressed by a commenter that a threshold 
that establishes too onerous of a requirement could lead banks to close 
branches in certain facility-based assessment areas or reduce lending 
in certain facility-based assessment areas or retail lending assessment 
areas.
    The agencies have considered commenter suggestions to require banks 
to meet the 60 percent threshold for different types of assessment 
areas (such as large metropolitan, small metropolitan, and rural 
assessment areas, or metropolitan and nonmetropolitan assessment areas) 
or adopt weights for assessment areas associated with this requirement. 
The agencies have concerns, however, that these suggestions would be 
overly complex and difficult to implement. Some suggested types of 
facility-based assessment areas and retail lending assessment areas--
for example, rural assessment areas--do not have clear and consistent 
definitions. Further, the agencies note that the 60 percent requirement 
to receive a ``Satisfactory'' rating is intended to be an additional 
guardrail supplementing the final rule approach to developing bank 
conclusions under the applicable performance tests. This approach 
generally includes consideration of a weighted average of the bank's 
facility-based assessment area performance, and calculates a bank's 
rating by weighting the bank's performance scores on applicable 
performance tests. For these reasons, the agencies are not adopting 
these suggestions in the final rule.
    The agencies believe that analysis provided by one commenter on the 
impact of the 60 percent threshold omits important aspects of the 
Retail Lending Test calculations and therefore does not align with the 
final rule in fundamental respects. For example, the analysis described 
by the commenter did not consider CRA small business and small farm 
lending data and was applied to individual counties instead of 
facility-based assessment areas. In addition, the analysis applied the 
60 percent threshold to Retail Lending Test conclusions, in contrast to 
the proposed and final rule approach, which applies

[[Page 7032]]

this threshold to overall conclusions of facility-based assessment 
areas and retail lending assessment areas. Applying the 60 percent 
threshold to Retail Lending Test conclusions represents a significant 
departure from the proposed and final rule approach, because for 
facility-based assessment areas, overall conclusions reflect a bank's 
conclusions on all four performance tests, not only the Retail Lending 
Test.
    Finally, the agencies acknowledge comments that described 
variations in a bank's ability to serve any given facility-based 
assessment area or retail lending assessment area. The agencies 
determined, however, that the 60 percent threshold provides sufficient 
flexibility to account for challenges regarding a bank's performance.
    The agencies are also finalizing the proposed threshold for the 
number of combined facility-based assessment areas and retail lending 
assessment areas in a State, a multistate MSA, or nationwide at 10 
facility-based assessment areas and retail lending assessment areas. 
Based on the agencies' supervisory experience, the agencies believe 
this threshold balances the need for a guardrail for banks with a 
larger footprint with the agencies' intent to provide flexibility to 
smaller institutions. The agencies are finalizing the same threshold 
for States, multistate MSAs, and nationwide to reduce complexity and so 
that this requirement will apply at more levels as a bank's footprint 
increases. For example, in its second examination under the final rule, 
a bank with 10 combined facility-based assessment areas and retail 
lending assessment areas nationwide in two or more states or multistate 
MSAs will only be subject to this requirement for its institution 
rating. A bank with 10 combined facility-based and retail lending 
assessment areas in each of several States or multistate MSAs will be 
subject to this requirement for each applicable State rating, 
multistate MSA rating and for its institution rating. The agencies also 
have opted not to apply this requirement to intermediate banks or small 
banks. In the agencies' experience, it is unlikely that many 
intermediate banks or small banks would have 10 or more facility-based 
assessment areas and retail lending assessment areas in any State, 
multistate MSA, or nationwide. The agencies also decline to adopt a 
requirement that a bank obtain an ``Outstanding'' conclusion in 60 
percent of its facility-based assessment areas and retail lending 
assessment areas to receive an ``Outstanding'' rating. The agencies 
believe this would add complexity, and the weighting of performance 
test conclusions will provide sufficient guardrails related to 
eligibility for ``Outstanding'' ratings.

Section __.28(c) Conclusions and Ratings for States and Multistate MSAs

    Section __.28(c) addresses when, consistent with statutory 
requirements, the agencies will evaluate and assign conclusions and 
ratings for a bank's CRA performance in a State or multistate MSA. The 
CRA statute requires that the agencies separately evaluate a bank's CRA 
performance for each State where the bank maintains a branch office or 
other facility that accepts deposits.\1445\ If a bank maintains a 
branch office or other facility that accepts deposits in two or more 
States of a multistate metropolitan area (i.e., a multistate MSA), the 
agencies must instead evaluate a bank's CRA performance for the 
multistate MSA.\1446\ If the agencies evaluate a bank's CRA performance 
for a multistate MSA, the statute also requires that the agencies 
adjust their evaluation of a bank's CRA performance in any State 
accordingly.\1447\ The agencies' current approach to conclusions and 
ratings reflects these statutory requirements.
---------------------------------------------------------------------------

    \1445\ See 12 U.S.C. 2906(d)(1).
    \1446\ See 12 U.S.C. 2906(d)(2).
    \1447\ Id.
---------------------------------------------------------------------------

The Agencies' Proposal
    Proposed Sec.  __.28(c) provided that the agencies would evaluate a 
bank's performance in any State in which the bank maintains one or more 
facility-based assessment areas and in any multistate MSA in which the 
bank maintains a branch in two or more States within the multistate 
MSA. In assigning conclusions and ratings for a State, the agencies 
would not consider a bank's activities in that State that are evaluated 
for a multistate MSA.
Final Rule
    The agencies did not receive any comments on proposed Sec.  
__.28(c). The agencies are adopting final Sec.  __.28(c) with 
modifications from the proposal, however, to clarify how the agencies 
will assign conclusions and ratings for geographic areas consistent 
with statutory requirements. In final Sec.  __.28(c)(1)(i) and (c)(2), 
the agencies revised the proposed provision to clarify that the 
agencies will evaluate a bank and assign both conclusions and ratings 
for each State and multistate MSA, as applicable.
    The agencies made several additional revisions to proposed Sec.  
__.28(c)(1) related to State conclusions and ratings in the final rule. 
First, the agencies are adopting final Sec.  __.28(c)(1)(i) with 
revisions to the proposal to provide that, except as provided in Sec.  
__.28(c)(1)(ii) regarding States with multistate MSAs for which the 
agencies assign conclusions and ratings to the multistate MSA (i.e., 
rated multistate MSA), the agencies assign conclusions and ratings for 
any State in which the bank maintains a main office, branch, or 
deposit-taking remote service facility. The agencies believe this 
language better reflects the statute--which refers to each State in 
which a bank maintains one or more domestic branches, defined to 
include any branch or other facility of a bank that accepts deposits 
\1448\--than referring to a facility-based assessment area, as 
proposed. Final Sec.  __.28(c)(1)(i) also aligns with final Sec.  
__.16, regarding facility-based assessment areas.
---------------------------------------------------------------------------

    \1448\ See 12 U.S.C. 2906(d)(1)(B), (e)(1).
---------------------------------------------------------------------------

    Second, the agencies are adopting final Sec.  __.28(c)(1)(ii) with 
revisions to the proposal to clarify that the agencies will evaluate 
and assign conclusions or ratings for a State only if a bank maintains 
a main office, branch, or deposit-taking remote service facility 
outside the portion of the State comprising any rated multistate MSA. 
Similar to the proposal, final Sec.  __.28(c)(1)(ii) further states 
that the agencies will not consider activities to be in the State if 
those activities take place in the portion of the State comprising any 
multistate MSA. This reflects statutory requirements.\1449\ The 
agencies note that in calculating metrics, benchmarks, and weighting 
performance scores in a State for any bank, the agencies will only 
include activities considered to be in that State pursuant to Sec.  
__.28(c)(1) for purposes of the agencies' evaluation of that bank.
---------------------------------------------------------------------------

    \1449\ See 12 U.S.C. 2906(d)(2) (requiring that, if an agency 
evaluates a bank's performance in a multistate metropolitan area, 
the agency must adjust the scope of its evaluation of a bank's 
performance in a State accordingly).
---------------------------------------------------------------------------

    Third, the agencies are adopting final Sec.  __.28(c)(1)(iii), a 
new provision, to clarify the agencies' consideration of a bank's 
performance for States with multistate MSAs for which the agencies do 
not assign conclusions and ratings to the multistate MSA (i.e., non-
rated multistate MSA).\1450\ Specifically, final Sec.  __.28(c)(1)(iii) 
provides that, if a bank's facility-based assessment area comprises a 
geographic area spanning two or more States within a non-rated

[[Page 7033]]

multistate MSA, the agencies will consider activities in the entire 
facility-based assessment area to be in the State in which the bank 
maintains--within the multistate MSA--a main office, branch, or 
deposit-taking remote service facility. Consider, for example, a 
particular bank with a branch located in a multistate MSA. In this 
example, although the bank's branch is located in a county in one State 
within the multistate MSA, the bank delineates a facility-based 
assessment area in the multistate MSA that includes, consistent with 
final Sec.  __.16(b)(2), a county in a second State within the 
multistate MSA where the bank originated or purchased a substantial 
portion of its loans but does not have a branch or other facility that 
accepts deposits. Under this example, for purposes of evaluating the 
bank and assigning conclusions and ratings--including calculating 
metrics, benchmarks, and weighting performance scores--the agencies 
would consider activities in the bank's entire facility-based 
assessment area within the multistate MSA to be in the one State where 
the bank has a branch. Final Sec.  __.28(c)(1)(iii) also clarifies 
that, in evaluating a bank and assigning conclusions and ratings for a 
State, the agencies will not consider activities to be in a State if 
those activities take place in any facility-based assessment area 
considered to be in another State.
---------------------------------------------------------------------------

    \1450\ Consistent with 12 U.S.C. 2906(d)(2) and pursuant to 
final Sec.  __.28(c)(2), discussed below, the agencies evaluate a 
bank's performance in a multistate MSA if the bank maintains a main 
office, a branch, or a deposit-taking remote service facility in two 
or more States within that multistate MSA.
---------------------------------------------------------------------------

    Fourth, the agencies are adopting final Sec.  __.28(c)(1)(iv), a 
new provision, to clarify the agencies' consideration of a bank's 
performance in retail lending assessment areas that span multiple 
States in a multistate MSA (i.e., multistate retail lending assessment 
areas). Specifically, pursuant to final Sec.  __.28(c)(1)(iv), the 
agencies will not consider activities that take place in a multistate 
retail lending assessment area to be in any State for purposes of 
assigning Retail Lending Test conclusions to a bank pursuant to final 
Sec.  __.22 and final appendix A. The agencies note that, if a 
multistate retail lending assessment area is in a rated multistate MSA, 
the agencies will consider activities in the multistate retail lending 
assessment area for purposes of assigning a bank's Retail Lending Test 
conclusions and ratings for the multistate MSA. To the extent a 
multistate retail lending assessment area is not in a rated multistate 
MSA, however, activities in that multistate retail lending assessment 
area would be considered only in the bank's conclusions and ratings for 
the institution.
    The agencies also made revisions to proposed Sec.  __.28(c)(2) 
related to multistate MSA conclusions and ratings in the final rule. 
Final Sec.  __.28(c)(2) specifies that the agencies will evaluate a 
bank and assign conclusions and ratings in any multistate MSA in which 
the bank maintains a main office, a branch, or a deposit-taking remote 
service facility in two or more States within that multistate MSA. The 
agencies believe this language better reflects the statutory 
requirement--which refers to each State in which a bank maintains one 
or more domestic branches, defined to include any branch or other 
facility of a bank that accepts deposits \1451\--than referring to a 
facility-based assessment area, as proposed. Final Sec.  __.28(c)(2) 
also aligns with final Sec.  __.16, regarding facility-based assessment 
areas.
---------------------------------------------------------------------------

    \1451\ See 12 U.S.C. 2906(d)(1)(B), (e)(1).
---------------------------------------------------------------------------

Section __.28(d) Effect of Evidence of Discriminatory or Other Illegal 
Credit Practices

Current Approach
    Current Sec.  __.28(c) generally provides that the agencies' 
evaluation of a bank's CRA performance is adversely affected by 
evidence of discriminatory or other illegal credit practices in any 
geography by the bank or in any assessment area by any affiliate whose 
loans have been considered as part of the bank's lending performance. 
In connection with any type of lending activity evaluated under the 
current lending test, evidence of discriminatory or other credit 
practices that violate an applicable law, rule, or regulation includes, 
but is not limited to, violations of certain enumerated laws.\1452\ 
Current Sec.  __.28(c)(2) provides certain factors the agencies 
consider in determining the effect of discriminatory or other illegal 
credit practices on a bank's assigned rating, including: the nature, 
extent, and strength of the evidence of the practices; policies and 
procedures the bank has in place to prevent the practices; corrective 
action; and any other relevant information.
---------------------------------------------------------------------------

    \1452\ In guidance, the agencies have stated that violations of 
other provisions of the consumer protection laws generally will not 
adversely affect an institution's CRA rating but may warrant the 
inclusion of comments in an institution's performance evaluation. 
See Q&A Sec.  __.28(c)-1.
---------------------------------------------------------------------------

The Agencies' Proposal and Final Rule
    Similar to the approach under the current regulations, the agencies 
proposed in Sec.  __.28(d)--and are now finalizing with certain 
modifications from the proposal described below--that a bank's CRA 
performance would be adversely affected by evidence of discriminatory 
or other illegal practices. Although, under the proposal, evidence of 
any discriminatory or other illegal practices would have adversely 
affected a bank's CRA performance, the final rule, like the current 
regulations, limits consideration to credit practices. Similar to the 
current approach and the proposal, the agencies will consider certain 
factors under the final rule in determining the effect of evidence of 
discriminatory or other illegal credit practices on a bank's assigned 
rating. The section-by-section analysis below describes the agencies' 
proposal, including proposed changes from the current approach, and 
final Sec.  __.28(d) in detail.
Section __.28(d)(1) Scope
The Agencies' Proposal
    Proposed Sec.  __.28(d)(1) expanded consideration of evidence of 
discriminatory or other illegal practices to include practices beyond 
credit practices. Specifically, proposed Sec.  __.28(d)(1) provided 
that the agencies' evaluation of a bank's CRA performance would be 
adversely affected by evidence of any discriminatory or other illegal 
practices. As proposed, evidence of discriminatory or other illegal 
practices could be related to deposit products or other bank products 
and services. Unlike current Sec.  __.28(c)(1), which limits the 
agencies consideration of discriminatory or other illegal practices to 
those in connection with any type of lending activity evaluated under 
the current lending test, consideration of discriminatory or other 
illegal practices under proposed Sec.  __.28(d)(1) would no longer be 
limited to certain credit products. Proposed Sec.  __.28(d)(1) also 
provided for downgrades of a bank's State or multistate MSA rating, in 
addition to downgrades of the institution rating, based on 
discriminatory or other illegal practices.
    Proposed Sec.  __.28(d)(1)(i) provided that evidence of 
discriminatory or other illegal practices in any geographic area by a 
bank, including its operations subsidiaries or operating subsidiaries, 
could result in a downgrade to the bank's CRA rating. Proposed Sec.  
__.28(d)(1)(ii) further provided that evidence of discriminatory or 
other illegal practices in any facility-based assessment area, retail 
lending assessment area, or outside retail lending area by any 
affiliate whose retail loans are considered as part of the bank's 
lending performance could result in a downgrade to the bank's CRA 
rating.

[[Page 7034]]

Comments Received
    Many commenters expressed strong support for downgrading banks that 
engage in discriminatory or other illegal practices. Some of these 
commenters suggested that the agencies severely punish banks under CRA 
if they are found to have violated civil rights, fair lending, or fair 
housing laws. Relatedly, one commenter stated that ``Outstanding'' or 
``Satisfactory'' ratings should meaningfully demonstrate a bank's 
commitment to treating its customers fairly in a manner consistent with 
the law.
    Some commenters expressly supported expanded consideration of 
evidence of discriminatory or other illegal practices to include 
practices beyond credit practices. For example, a commenter stated that 
the agencies' proposal represented an effective way to hold banks 
accountable for discrimination and other illegal practices. Another 
commenter noted that this expansion could help ensure there is no 
unintended discrimination in loan servicing. Commenters cautioned, 
however, that this expansion would only be as helpful as the agencies' 
willingness and capacity to diligently identify discrimination and then 
downgrade banks.
    In contrast, some commenters raised concerns regarding the expanded 
consideration of evidence of discriminatory or other illegal practices 
to include practices beyond credit practices and supported limits on 
the type of practices that could lead to CRA rating downgrades. A few 
commenters asserted that broadening discriminatory or other illegal 
practices to include more than just illegal credit practices was 
inconsistent with the CRA statute. A few commenters also expressed 
concern that expanding discriminatory or other illegal practices could 
include issues unrelated to Congress's intent in enacting CRA, such as 
anti-money laundering and safety and soundness issues. One commenter 
stated that because discriminatory and other illegal practices are 
comprehensively addressed by other examinations (e.g., safety and 
soundness, fair lending, consumer reporting, and consumer debt 
collection), CRA downgrades are not necessary to remediate prior 
violations or prevent future discriminatory or other illegal practices. 
A commenter suggested that expanding the types of violations that could 
lead to a downgrade could disincentivize banks from seeking an 
``Outstanding'' rating by expanding CRA activities out of fear of 
adverse rating impacts from tangential or technical issues. A few 
commenters also suggested that expansion of practices considered could 
lead to an increase in adverse ratings and harm consumers and 
communities, noting that projects to provide new products or services 
that respond to customer needs, LIHTC or NMTC projects, and opening 
branches could be negatively impacted if a bank receives a rating below 
``Satisfactory.''
    Some commenters supported retaining the current standard or 
adopting other limitations on when discriminatory or other illegal 
practices could be considered. Some commenters recommended restricting 
downgrades to products and services considered in CRA evaluations, with 
a few commenters also suggesting that only violations directly related 
to the treatment of consumers should be considered. Another commenter 
proposed limiting downgrades to illegal practices that have a nexus to 
the provision of financial products and services. A few commenters 
stated that the proposal would create uncertainty as to what types of 
practices would result in a rating downgrade and requested that the 
agencies provide more clarity and guidance on the types of practices 
that could lead to a downgrade.
    A few commenters suggested that the agencies apply all downgrades 
to a bank's institution rating, rather than to State or multistate MSA 
ratings. Relatedly, a commenter stated that a bank that has been found 
to engage in discriminatory practices in one geographic area is likely 
to have engaged in similar practices elsewhere and has exposed that it 
lacks the internal controls to prevent illegal activity. Another 
commenter suggested that the agencies could instead increase 
transparency by providing greater detail on the geographic scope of any 
violation in a bank's performance evaluation and by providing guidance 
on the specific impact of downgrades applied to State or multistate MSA 
rating on the institution rating.
    One commenter stated that the agencies should automatically include 
any discriminatory or other illegal practices by an operations 
subsidiary or operating subsidiary, or affiliate.
Final Rule
    In final Sec.  __.28(d)(1), the agencies are adopting the proposed 
provision regarding consideration of evidence of discriminatory or 
other illegal practices without the proposed expansion from the current 
approach to include practices beyond credit practices. Specifically, 
under final Sec.  __.28(d)(1), for each State and multistate MSA, as 
applicable, and the institution, the evaluation of a bank's CRA 
performance is adversely affected by evidence of discriminatory or 
other illegal credit practices, as provided in final Sec.  __.28(d)(2). 
As discussed further below, final Sec.  __.28(d)(2) provides that 
discriminatory or other illegal credit practices consist of violations 
of specified laws, including any other violation of a law, rule, or 
regulation consistent with the types of violations listed, as 
determined by the agencies. Final Sec.  __.28(d)(1) further provides 
that the agencies will consider evidence of discriminatory or other 
illegal credit practices by: (1) the bank, including by an operations 
subsidiary or operating subsidiary of the bank, without limitation; and 
(2) any other affiliate related to any activities considered in the 
evaluation of the bank.
    After considering many comments that supported proposed Sec.  
__.28(d)(1) and many that raised concerns, the agencies believe that 
final Sec.  __.28(d)(1) appropriately modifies the proposed regulatory 
text regarding discriminatory or other illegal practices that may lead 
to a CRA rating downgrade. As reflected in the agencies' CRA 
regulations and supervisory practices, the agencies have long 
considered that a bank's CRA rating should reflect whether it has 
engaged in discrimination or otherwise treated consumers in a manner 
inconsistent with laws, rules, or regulations. The agencies carefully 
considered, however, comments that raised concerns that discriminatory 
or other illegal practices, without further qualification, would be too 
broad and would potentially allow consideration of violations of laws, 
rules, regulations generally unrelated to CRA, such as anti-money 
laundering and safety and soundness issues. In response to these 
comments and after further consideration, the agencies revised Sec.  
__.28(d)(1) to state that the evaluation of a bank's performance under 
the rule is adversely affected by evidence of discriminatory or other 
illegal credit practices as provided in Sec.  __.28(d)(2). The agencies 
believe that maintaining a limitation, also reflected in the current 
regulations, to consider only discriminatory or other illegal practices 
related to credit practices is responsive to commenters' concerns.
    The final rule also reflects a modification in the scope of 
evidence of discriminatory or other illegal credit practices the 
agencies will consider in a bank's CRA evaluation, compared to the 
proposal, to specify that the evidence of discriminatory or illegal 
credit practices the agencies will consider are those

[[Page 7035]]

practices provided in final Sec.  __.28(d)(2) (discussed further in the 
section-by-section analysis of final Sec.  __.28(d)(2)). Unlike the 
current approach, which provides that evidence of discriminatory or 
other credit practices are those in connection with any type of lending 
activity described the current lending test,\1453\ final Sec.  
__.28(d)(1) does not limit the types of credit practices that may be 
considered as evidence of discriminatory or illegal credit practices.
---------------------------------------------------------------------------

    \1453\ See current 12 CFR __.28(c)(1).
---------------------------------------------------------------------------

    Some commenters suggested alternative limitations on the 
discriminatory or other illegal practices that could be considered in a 
bank's CRA evaluation. The agencies carefully considered these 
alternatives and believe that the revisions in the final rule will 
generally serve the same objectives as many of the commenters' 
suggestions.
    Regarding commenter sentiment that rating downgrades should only be 
applied to a bank's institution rating, the agencies determined to 
finalize this part of Sec.  __.28(d)(1) as proposed. Although the 
agencies agree that issues may be widespread and that the agencies can 
improve transparency by providing additional information about the 
geographic area where discriminatory or other illegal practices 
occurred, the agencies believe that allowing for downgrades to a bank's 
State, multistate MSA, or institution rating will provide greater 
clarity and transparency about the geographic area in which relevant 
violations occurred and flexibility for the agencies to consider the 
geographic scope of those violations. With respect to whether evidence 
of discriminatory or other illegal credit practices will impact a 
bank's State, multistate MSA, or institution rating, the agencies 
intend to consider the adverse effect of evidence of discriminatory or 
other illegal credit practices at each rating level based on the 
geographic scope of relevant violations and the factors in final Sec.  
__.28(d)(3), as discussed below.
    The agencies are also adopting final Sec.  __.28(d)(1) with 
modifications from the proposal related to the circumstances in which 
the agencies will consider evidence of discriminatory or other illegal 
credit practices by a bank, including by an operations subsidiary or 
operating subsidiary of the bank, or any other affiliate. Specifically, 
the agencies removed language that would have provided that the 
agencies would consider evidence of discriminatory or other illegal 
credit practices by the bank, including by an operations subsidiary or 
operating subsidiary of the bank, ``in any census tract'' as 
unnecessary. For other affiliates--although under the proposal the 
agencies would have considered evidence of discriminatory or other 
illegal activities in any facility-based assessment area, retail 
lending assessment area, or outside retail lending area by any 
affiliate whose retail loans are considered as part of the bank's 
lending performance--the agencies believe it is appropriate to remove 
references to the geographic areas where an affiliate's discriminatory 
or other illegal credit practices may be considered and not to limit 
such consideration to an affiliate whose retail loans are considered as 
part of the bank's lending performance. Under the final rule, and as 
provided in Sec.  __.21(b)(3), the agencies may consider an affiliate's 
activities in any geographic area at the bank's option, pursuant to the 
applicable performance test. In addition, the agencies believe, given 
the scope of the agencies' consideration of evidence of discriminatory 
or other illegal credit practices and the affiliate activities that may 
be included in a bank's CRA evaluation, it is appropriate to consider 
evidence of discriminatory or other illegal credit practices by any 
affiliate related to any activities considered in the evaluation of the 
bank. Finally, the agencies do not think it would be appropriate to 
consider evidence of discriminatory or other illegal credit practices 
by a bank affiliate that are wholly unrelated to activities considered 
in the bank's performance evaluation, and thus did not make revisions 
in the final rule based on this commenter's suggestion.
    Therefore, the agencies are finalizing Sec.  __.28(d)(1) with the 
modifications from the proposal addressed above.
Section __.28(d)(2) Discriminatory or Other Illegal Credit Practices
The Agencies' Proposal
    Proposed Sec.  __.28(d)(2) provided a non-exhaustive list of 
examples of evidence of discriminatory or other illegal practices that 
violate an applicable law, rule, or regulation. Similar to the current 
approach, proposed Sec.  __.28(d)(2) included the following among the 
list of examples: discrimination against applicants on a prohibited 
basis in violation, for example, of ECOA or the Fair Housing Act; 
violations of the Home Ownership and Equity Protection Act; violations 
of section 5 of the Federal Trade Commission Act; violations of section 
8 of the Real Estate Settlement Procedures Act; and violations of the 
Truth in Lending Act (TILA) provisions regarding a consumer's right of 
rescission. For added clarity, the agencies also proposed to add the 
following to the list of examples: violations of the prohibition 
against unfair, deceptive, or abusive acts or practices in 12 U.S.C. 
5531; violations of the Military Lending Act; and violations of the 
Servicemembers Civil Relief Act.\1454\
---------------------------------------------------------------------------

    \1454\ See proposed Sec.  __.28(d)(2)(iv) and (vii) through 
(viii).
---------------------------------------------------------------------------

Comments Received
    Some commenters addressed violations of specific laws, rules, or 
regulations listed in proposed Sec.  __.28(d)(2), generally to express 
support for their inclusion on the list. A few commenters specifically 
supported the proposal to continue to allow rating downgrades for fair 
lending violations. Some commenters supported the proposed addition of 
violations of the prohibition against unfair, deceptive, or abusive 
acts or practices in 12 U.S.C. 5531, with one of these commenters 
stating that this would be a check against unfair and abusive practices 
like predatory lending, unfair loan fees, and mark-ups that often harm 
low- and moderate-income individuals and communities. A few commenters 
supported the proposed addition of the Military Lending Act to the 
list.
    Some commenters also recommended that the agencies add violations 
of other laws, rules, or regulations to the list of discriminatory or 
other illegal practices. Specifically, some commenters recommended that 
the agencies add the Americans with Disabilities Act (ADA) \1455\ to 
the list. Another commenter also provided other examples of illegal 
practices, such as violations of consumer and civil rights laws 
governing deposit products and HMDA. Some commenters asserted that the 
agencies should consider evidence of discrimination obtained by State 
and local agencies. Another commenter conveyed that the agencies should 
factor successful discrimination lawsuits and other punitive legal 
measures into a bank's CRA rating.
---------------------------------------------------------------------------

    \1455\ 42 U.S.C. 12101 et seq.
---------------------------------------------------------------------------

    Suggestions regarding specific bank practices. Some commenters 
discussed specific bank practices that they thought should be 
considered discriminatory or other illegal practices. For example, some 
commenters expressed support for downgrading banks for conduct harmful 
to consumers, including fee gouging; charging high fees; offering high-
cost or

[[Page 7036]]

predatory products, investments, or services; or having unreasonably 
high delinquency rates. Some of these commenters stated that the 
agencies should consider products that banks offer in partnership with 
nonbanks and whether loans exceeded State usury caps and borrowers' 
abilities to repay. One commenter encouraged expanding the 
discriminatory practices that result in a rating downgrade to include 
bank activities that have high rates of defaults and delinquencies. 
Similarly, another commenter suggested that evidence of illegal 
practices should include banks offering unsuitable credit to consumers 
or banks earning a disproportionately high share of their revenues from 
overdraft and insufficient funds fees. Another commenter recommended 
that an agency's finding that a bank's consumer credit card lending is 
not fair, affordable, and sustainable should result in a ratings 
downgrade, depending on the extent of the harm to consumers. A few 
commenters emphasized that the agencies should scrutinize banks' 
multifamily lending programs, including those conducted in partnership 
with third-party nonbank institutions, for illegal practices. A 
commenter recommended downgrading ratings where there is demonstrable 
evidence that lenders have invested or renewed investments in which 
property owners were engaging in tenant harassment of which lenders 
have notice. One commenter urged the agencies to assign a ``Substantial 
Noncompliance'' rating to any bank that lends its charter to fintech 
companies to enable them to circumvent State usury laws. Another 
commenter stated that given the rise in mobile and online banking, 
specific standards should be developed to regulate digital banking to 
avoid discriminatory or predatory practices.
    A few commenters also provided examples of the type of conduct they 
believed should be considered discriminatory or other illegal 
practices, such as: a pattern or practice of discriminating and failing 
to serve communities equitably, regardless of whether these disparate 
negative impacts are the result of intentional or unintentional bias; 
misleading customers in order to sell products; discriminating against 
certain categories of borrowers in the price or availability of home 
mortgage lending; or illegally foreclosing on homeowners. Relatedly, 
another commenter proposed that the agencies consider ways to address 
discriminatory practices against low- and moderate-income and LGBTQ+ 
communities.
Final Rule
    In final Sec.  __.28(d)(2), the agencies are adopting the proposal 
with several revisions, as described below, in addition to making 
conforming changes to refer to ``discriminatory or other illegal credit 
practices,'' as discussed above. First, the final rule provides that 
discriminatory or other illegal credit practices consist of the listed 
violations of laws, rules, or regulations. This is a change from the 
proposal, which would have provided a non-exhaustive list of examples 
of discriminatory or other illegal practices. Second, the final rule 
adopts new Sec.  __.28(d)(2)(ix), which adds to the list of 
discriminatory or other illegal credit practices any other violation of 
a law, rule, or regulation consistent with the types of violations in 
Sec.  __.28(d)(2)(i) through (viii) as determined by the appropriate 
Federal financial supervisory agency. Finally, the final rule adopts 
revisions to the discriminatory or other illegal credit practices 
included in the current list to cover any discrimination on a 
prohibited basis in violation, for example, of ECOA or the Fair Housing 
Act and any violation of TILA.
    The agencies believe that the first and second revisions, taken 
together, clarify the agencies' intent regarding the types of evidence 
of violations of laws, rules, or regulations, that they consider 
evidence of discriminatory or other illegal credit practices. As 
discussed above, although the list of violations of laws, rules, and 
regulations in current Sec.  __.28(d)(1) is a non-exhaustive list, the 
agencies have generally stated that, under the current rule, evidence 
of violations of other provisions generally will not adversely affect 
an institution's CRA rating.\1456\ From time to time, the agencies have 
considered evidence of discriminatory or other illegal credit practices 
beyond the listed violations of laws, rules, or regulations where those 
practices are sufficiently similar in nature to items on the list. The 
agencies intend that revisions to the list in final Sec.  __.28(d)(2) 
will codify this practice, so that the agencies will consider evidence 
of the listed violations of laws, including their implementing rules or 
regulations, and other violations of laws, rules, or regulations 
consistent with the types of violations listed.
---------------------------------------------------------------------------

    \1456\ See Q&A Sec.  __.28(c)-1.
---------------------------------------------------------------------------

    The final rule also adopts the proposal to add the following to the 
listed discriminatory or other illegal practices: violations of the 
prohibition against unfair, deceptive, or abusive acts or practices in 
12 U.S.C. 5531; violations of the Military Lending Act (10 U.S.C. 987); 
and violations of the Servicemembers Civil Relief Act (50 U.S.C. 3901 
et seq.). The final rule adopts two other minor revisions to the 
proposed list of discriminatory or other illegal practices. First, 
final Sec.  __.28(d)(2)(i) would apply to any discrimination on a 
prohibited basis in violation, for example, of ECOA or the Fair Housing 
Act. This is a clarifying change. Second, final Sec.  __.28(d)(2)(vi) 
would include any violations of TILA. This change, to include 
violations of TILA beyond those involving consumer's right of 
rescission, is appropriate so as to incorporate TILA amendments to 
include additional substantive provisions since the agencies adopted 
current Sec.  __.28(c)(1)(v). The agencies also made technical 
revisions to the listed laws to add citations to the United States 
Code, as applicable.
    The agencies note that their consideration of discriminatory or 
other illegal credit practices listed in Sec.  __.28(d)(2) will include 
consideration of information received from other Federal agencies and, 
as applicable, State agencies, with responsibility for enforcing 
compliance with relevant laws and regulations, including the U.S. 
Department of Justice, HUD, and the CFPB. The final rule does not limit 
the sources for evidence of discriminatory or other illegal credit 
practices that can be considered by examiners in a CRA evaluation. 
Moreover, the agencies note that, pursuant to Sec.  __.28(d)(1), a 
bank's CRA performance is adversely affected by ``evidence of'' 
discriminatory or other illegal credit practices, which consist of the 
practices listed in Sec.  __.28(d)(2). The agencies believe that 
``evidence of'' discriminatory or other illegal credit practices, 
consistent with the current approach, provides flexibility and 
acknowledges that other agencies may use different terms or act on 
information in different ways. The agencies may consider, for example, 
information that leads to a settlement of claims and a consent order 
under ECOA or the Fair Housing Act as evidence of discriminatory or 
other illegal credit practices.
    The agencies have decided not to add violations of certain laws, 
rules, or regulations suggested by commenters, specifically violations 
of ADA or HMDA, to the list in Sec.  __.28(d)(2). With regard to the 
ADA, the agencies believe that although some violations of ADA could 
involve credit practices that affect consumers, small businesses, and 
small farms and be considered by the agencies, the explicit inclusion 
in the

[[Page 7037]]

list may have the effect of including practices unrelated to a bank's 
CRA performance, such as conduct related to a bank's role as an 
employer. HMDA includes many technical requirements, and the agencies 
believe there are other ways of addressing HMDA violations, such as not 
considering inaccurate HMDA data submitted by a bank in its CRA 
examination.
    Finally, regarding commenter suggestions that various specific 
types of acts or practices be considered discriminatory or other 
illegal practices that would adversely affect a bank's CRA performance 
evaluation, the agencies note that whether specific acts or practices 
violate applicable laws, rules or regulations requires analysis based 
on the individual facts and circumstances and the requirements of each 
law, rule, or regulation. Therefore, the agencies decline to state 
whether specific acts or practices would violate listed laws, rules, or 
regulations.
Section __.28(d)(3) Agency Considerations
The Agency's Proposal
    The agencies proposed in Sec.  __.28(d)(3) updated considerations 
in determining the effect of evidence of discriminatory and other 
illegal practices on a bank's assigned CRA ratings: the root cause of 
any violations of law; the severity of any consumer harm resulting from 
the violations; the duration of time over which the violations 
occurred; and the pervasiveness of the violations. In addition, the 
agencies proposed in Sec.  __.28(d)(3) that examiners would also 
consider the degree to which the bank, a subsidiary, or an affiliate, 
as applicable, has established an effective compliance management 
system across the institution to self-identify risks and to take the 
necessary actions to reduce the risk of noncompliance and consumer 
harm. Accordingly, a range of consumer compliance violations would be 
considered during a CRA examination, although some might not lead to a 
CRA rating downgrade.
Comments Received
    A few commenters expressly suggested requiring downgrades if 
consumer financial protection violations are cited. For example, a 
commenter stated that any evidence of illegal and abusive lending found 
during fair lending examinations must be penalized via lower ratings. 
Some commenters suggested that the proposal provides too much 
discretion to examiners, and the agencies should automatically issue a 
failing rating when a bank is found to have engaged in discriminatory 
practices. For example, commenters suggested that a bank be 
automatically downgraded to ``Needs to Improve'' if it is found to have 
violated any civil rights, equal protection, or consumer protection 
laws--even if it settles without admitting guilt or if the violations 
are dated--or if the agencies determine that there is reason to believe 
that the bank engaged in a pattern or practice of discrimination, 
regardless of the bank's asset size or amount of restitution. A 
commenter asserted that the agencies' proposal to consider the severity 
of consumer harm resulting from relevant violations and the duration of 
time over which the violations occurred would serve to reduce the 
adverse impact of a bank's illicit behavior on its CRA rating.
    A few commenters requested that the agencies provide more clarity 
and guidance regarding the scope and severity of a violation that would 
warrant a downgrade and the discretion that examiners would have to 
determine whether a violation has occurred. Further, a few commenters 
suggested the agencies codify OCC Policies and Procedures Manual (PPM) 
5000-43, as amended by OCC Bulletin 2018-23, which requires, as a 
prerequisite to any downgrade predicated on evidence of discriminatory 
or other illegal credit practices by a bank: (1) a logical nexus 
between the bank's assigned rating and the practices; and (2) full 
consideration of remedial actions taken by the bank.
Final Rule
    The agencies are adopting proposed Sec.  __.28(d)(3) with revisions 
to expand the agencies' consideration of the severity and risk of harm 
to consumers to include harm to ``communities, individuals, small 
businesses, and small farms.'' The agencies believe that this change 
better aligns the agencies' considerations in final Sec.  __.28(d)(3) 
with bank activities considered under CRA. As discussed above, the 
agencies are also adopting Sec.  __.28(d)(3) with a conforming change, 
compared to the proposal, to refer to ``discriminatory or other illegal 
credit practices.''
    The agencies have considered commenter sentiment that the agencies 
should automatically downgrade a rating or assign a rating of ``Needs 
to Improve'' for evidence of discriminatory or other illegal practices. 
As provided in final Sec.  __.28(d)(1), evidence of discriminatory or 
other illegal credit practices will adversely impact the agencies' 
evaluation of a bank's CRA performance, but evidence of discriminatory 
or other illegal credit practices will not always lead to a ratings 
downgrade. The agencies believe that automatically downgrading a bank's 
rating would be inappropriate based on the range of potential 
discriminatory or other illegal credit practices listed in final Sec.  
__.28(d)(2). Instead, consistent with the current approach, the 
agencies believe that it is important to consider the factors listed in 
final Sec.  __.28(d)(3) in determining how evidence of discriminatory 
or other illegal credit practices may impact a bank's CRA performance.
    The agencies believe that final Sec.  __.28(d)(3) sufficiently 
describes the factors to be considered in assessing the effect of 
discriminatory or other illegal credit practices. The agencies may 
consider providing additional guidance in the future, as needed and 
appropriate. In the final rule, the agencies are also reformatting 
final Sec.  __.28(d)(3) to number the factors the agencies will 
consider as Sec.  __.28(d)(3)(i) through (vi).

Ratings Downgrades for Other Harms

Comments Received
    Many commenters suggested that the final rule should provide for 
the possibility of downgrades based on harms other than discriminatory 
or other illegal practices described in Sec.  __.28(d), such as 
financing displacement, activities that harm the environment, or harm 
that disproportionately impacts minority communities. Some of these 
commenters also suggested that the agencies should consider additional 
conduct as discrimination because of the impact on low- and moderate-
income and minority communities. Some commenters also asserted that 
findings of discrimination, including disparate impact related to 
displacement financing, fee gouging, or climate degradation, should 
always result in automatic CRA rating downgrades.
    Displacement. Several commenters suggested downgrading banks for 
financing that causes displacement. Some commenters suggested that 
displacement financing should be considered discrimination because it 
often has a disparate impact on minority communities and that such 
action should trigger rating downgrades and subject banks to potential 
enforcement actions.
    Environmental harm. Some commenters suggested that disproportionate 
impacts that contribute to climate change and impair access to credit 
for communities should be considered in CRA examinations. Further, some 
commenters suggested

[[Page 7038]]

that the agencies should consider downgrades for financing that funds 
activities or industries that are harmful to the climate. One commenter 
suggested the agencies should consider lower performance conclusions or 
ratings if a bank is financing fossil fuel facilities in low- and 
moderate-income or minority communities while not financing renewable 
or clean energy projects. Some commenters suggested that banks be 
downgraded for the financing of pollution-causing activities (e.g., the 
building of gas pipelines) that can threaten tribal rights when these 
activities occur without informed consent. Some commenters proposed 
that climate harm be considered discrimination because it 
disproportionately impacts minority communities and that such action 
should subject banks to CRA rating downgrades. A few commenters 
suggested that financing of harmful projects like landfills and fossil 
fuel facilities in low- and moderate-income and minority communities 
must be penalized by lowering Community Development Financing Test 
performance conclusions.
    Conduct that disproportionately impacts minority communities. 
Several commenters recommended downgrades for harm that 
disproportionately impacts minority communities, such as branch 
closures, harmful landlord practices, and higher-cost products. One of 
these commenters suggested that the agencies should require action 
plans to correct and mitigate such harms. Another commenter conveyed 
that banks that prioritize larger businesses, bypass minority or 
immigrant communities, or rely only on credit card loans should be 
downgraded. A commenter asserted that the agencies should include an 
affirmative statement in their CRA regulations regarding banks' 
obligations to fairly serve all races and ethnicities. One commenter 
indicated that the agencies should assess whether banks make loans to 
minority individuals and that this assessment should impact CRA 
ratings, while another commenter suggested that home mortgage lending 
and small business lending data disaggregated by race, ethnicity, 
gender, and community should impact CRA ratings.
Final Rule
    The agencies have considered these commenters and are not adopting 
additional provisions to provide for ratings downgrades. The agencies 
believe that Sec.  __.28(d) provides an appropriate mechanism to 
consider the types of harm raised by commenters when they involve 
evidence of discriminatory or other illegal credit practices. For 
example, the agencies believe that some conduct that commenters have 
identified that may disproportionately impact minority or low- or 
moderate-income communities is addressed by other legal frameworks 
applicable to banks and included in the listed laws, rules, and 
regulations in Sec.  __.28(d)(2), such as fair lending laws and 
consumer protection laws.
    The agencies also believe that the final rule addresses some of the 
concerns raised by commenters through other means. As discussed in the 
section-by-section analysis of Sec.  __.13(e) through (j) (regarding 
place-based community development categories), the final rule includes 
protections to ensure that banks do not receive consideration for 
place-based community development activities that involve forced or 
involuntary relocation of low- or moderate-income individuals. Further, 
as discussed in the section-by-section analysis of Sec.  __.13(i) 
(regarding disaster preparedness and weather resiliency), the final 
rule provides community development consideration for disaster 
preparedness and weather resiliency activities that assist individuals 
and communities to prepare for, adapt to, and withstand natural 
disasters or weather-related risks or disasters. The agencies also 
believe that some of the conduct that commenters have identified as 
conduct that may disproportionately impact minority communities may be 
considered under other provisions of the final rule. For example, the 
agencies will consider a bank's record of opening and closing branches 
under the Retail Services and Products Test, as applicable. For more 
information and discussion regarding the agencies' consideration of 
comments recommending adoption of additional race- and ethnicity-
related provisions in this final rule, see section III.C of this 
SUPPLEMENTARY INFORMATION.

Section __.28(e) Consideration of Past Performance

The Agencies' Proposal
    Proposed Sec.  __.28(e) provided that the agencies would consider 
past performance when assigning ratings. Specifically, if a bank's 
prior rating was ``Needs to Improve,'' the agencies may determine that 
a ``Substantial Noncompliance'' rating is appropriate where the bank 
failed to improve its performance since the previous evaluation period, 
with no acceptable basis for such failure.
Comments Received
    The agencies received one comment on proposed Sec.  __.28(e). The 
commenter stated that a downgrade from ``Needs to Improve'' to 
``Substantial Noncompliance'' should be made by examiners only with 
full consideration of performance context and should not be automatic.
Final Rule
    A downgrade from ``Needs to Improve'' to ``Substantial 
Noncompliance'' pursuant to Sec.  __.28(e) would not be automatic. Of 
note, proposed Sec.  __.28(e) specifies that the agencies would 
consider whether the bank has an acceptable basis for its failure to 
improve its performance. Therefore, the agencies believe that proposed 
Sec.  __.28(e) adequately addresses the commenter's suggestion. 
Accordingly, the agencies are finalizing Sec.  __.28(e) as proposed.

Section __.29 Small Bank Performance Evaluation

Section __.29(a) Small Bank Performance Evaluation

Current Approach
    The current category of small banks that are not intermediate banks 
includes those banks with assets of less than $376 million as of 
December 31 of the prior two calendar years.\1457\ Pursuant to the 
current CRA regulations, a small bank that is not an intermediate small 
bank is evaluated under the lending test of the small bank performance 
standards, unless the bank elects to be assessed under the lending, 
investment, and service tests and collects and reports the data 
required for large and other banks.\1458\ Specifically, the agencies 
evaluate a small bank's lending performance pursuant to the following 
criteria: (1) the bank's loan-to-deposit ratio, adjusted for seasonal 
variation, and, as appropriate, other lending-related activities, such 
as loan originations for sale to the secondary markets, community 
development loans, or community development investments; (2) the 
percentage of loans

[[Page 7039]]

and, as appropriate, other lending-related activities located in the 
bank's assessment areas; (3) the bank's record of lending to and, as 
appropriate, engaging in other lending-related activities for borrowers 
of different income levels and businesses and farms of different sizes; 
(4) the geographic distribution of the bank's loans; and (5) the bank's 
record of taking action, if warranted, in response to written 
complaints about its performance in helping to meet credit needs in its 
assessment areas.\1459\
---------------------------------------------------------------------------

    \1457\ The agencies publish annual adjustments to these dollar 
figures based on the year to-year change in the average of the CPI-
W, not seasonally adjusted, for each 12-month period ending in 
November, with rounding to the nearest million. See current 12 CFR 
228.12(u)(2) and 345.12(u)(2); 70 FR 44256 (Aug. 2, 2005). The 
agencies update this threshold annually based on the year-to-year 
change in the average of the Consumer Price Index for Urban Wage 
Earners and Clerical Workers, not seasonally adjusted. See current 
12 CFR __.12(u).
    \1458\ See current 12 CFR __.21(a)(3). The small bank may also 
make an alternative election to be evaluated under the community 
development test for wholesale or limited purpose banks or operate 
under an approved strategic plan. See id.
    \1459\ See current 12 CFR __.26(b)(1) through (5).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to revise current Sec.  __.26(b), renumbered 
in the proposal as Sec.  __.29(a), to maintain the criteria required to 
evaluate a small bank's lending performance. Specifically, in Sec.  
__.29(a), the agencies proposed to continue evaluating small banks 
under the current small bank lending test. As discussed further in the 
section-by-section analysis of Sec.  __.12, the agencies defined 
``small bank'' in proposed Sec.  __.12 as a bank with average assets of 
less than $600 million in either of the prior two calendar years. The 
proposal also provided that a small bank could opt into the proposed 
Retail Lending Test described above in the section-by-section analysis 
of final Sec.  __.22.\1460\ In proposed Sec.  __.29(a)(2), the agencies 
described how small banks could request consideration for additional 
CRA activities to elevate a small bank rating from ``Satisfactory'' to 
``Outstanding.'' In Sec.  __.29(a)(3), the agencies outlined their 
proposed approach to small bank performance ratings. The agencies also 
requested feedback on other ways to tailor the evaluation for small 
banks and, when determining a small bank's institution rating, whether 
additional consideration should be provided to small banks that conduct 
activities that would be considered under the Retail Services and 
Products Test, Community Development Financing Test, or Community 
Development Services Test.
---------------------------------------------------------------------------

    \1460\ See the section-by-section analysis of Sec.  __.22.
---------------------------------------------------------------------------

Comments Received
    The agencies received a range of comments addressing the proposed 
performance standards for small banks. Several of these commenters 
supported the agencies' proposal to evaluate small banks under the 
current small bank lending test, with an option for the bank to choose 
an evaluation under the proposed Retail Lending Test. A commenter 
applauded the agencies' decision not to require any new data collection 
and reporting requirements. Another commenter stated that the ability 
to opt into certain performance tests is critical for small banks and 
urged the agencies to retain this provision. In this regard, a 
commenter stated that many community banks and their communities may 
benefit most from being allowed to opt into the proposed Retail Lending 
Test rather than being evaluated under the small bank lending 
evaluation; however, this commenter viewed the agencies' proposal as 
complex and questioned whether these banks would have enough resources 
and time to adequately consider the benefits of being evaluated under 
the new performance test. This commenter also expressed concern that 
the proposal may effectively encourage banks to maintain their status 
quo examination approach, which the commenter believed would be a 
suboptimal outcome if the community would have benefitted most from a 
bank being evaluated under the new performance test.
    The agencies received a few comments in response to the agencies' 
request for feedback on other ways to tailor the evaluation for small 
banks. These commenters provided several recommendations, including, 
among other things, that the agencies: use community affairs 
departments to coach small banks; make the Retail Services and Products 
Test and the Retail Lending Test, with certain adjustments, such as 
implementation after a two-to-three year transition period among 
others, mandatory for small banks; ensure in the regulations that 
supervisory constraints imposed on small banks, including CDFIs and 
MDIs, do not adversely affect their ability to meet community credit 
needs in difficult times; outline a transition plan with a specified 
future date or exam cycle in which to require small banks to be 
evaluated under the Community Development Financing Test and the Retail 
Lending Test; and apply the more rigorous Retail Lending Test when 
community needs indicate it is warranted while considering, as part of 
performance context, how the bank's business model might affect 
performance under the performance test.
Final Rule
    The agencies are adopting proposed Sec.  __.29(a) introductory text 
and (a)(1) with one technical change. Unlike the proposal, which 
referred to the ``small bank performance standards'' to differentiate 
from the current CRA regulation's ``small bank lending test,'' the 
final rule refers to the default standards for small banks as the 
``Small Bank Lending Test.'' The agencies determined that, because the 
test in the current CRA regulations and in the final rule are so 
similar, it is appropriate to refer to them by the same name.
    The agencies carefully considered all comments received and 
appreciate the recommendations made. The agencies believe that, while 
requiring the metrics-based approach in the Retail Lending Test for 
small banks may provide additional transparency regarding performance 
standards, it is appropriate to continue to evaluate small banks under 
the current framework to provide regulatory flexibility given their 
more limited capacity and resources. Consistent with the current rule, 
the agencies will use data that small banks maintain in their own 
format or report under other regulations. In addition, the agencies 
anticipate that, for small banks that do not opt into the Retail 
Lending Test, the final rule includes minimal, if any, regulatory 
changes to small banks' current CRA evaluations.
    The agencies are sensitive to commenters' concerns about small 
banks' limited resources and time to adequately consider the benefits 
of being evaluated under the new Retail Lending Test. However, given 
that small banks have the option to be evaluated under the approach 
that best suits the bank's needs, whether it be an evaluation under the 
Small Bank Lending Test (formerly, the ``small bank lending test'') or, 
if the bank chooses, an evaluation under the Retail Lending Test, the 
agencies believe a small bank will have sufficient time to consider the 
benefits of being evaluated under the Retail Lending Test and can 
choose to be evaluated under this performance test if the bank 
determines that it is in its interest to do so. Permitting this option 
will ensure that small banks have available a metrics-based approach to 
increase the clarity, consistency, and transparency regarding how their 
retail lending is evaluated. The agencies believe this is consistent 
with the objective to tailor the evaluation approach according to a 
bank's size and business model.
    Regarding other ways in which to tailor small bank evaluations, 
given the limited resources and capacity of small banks the agencies 
believe that, as finalized, the evaluation approach for small banks 
strikes the appropriate balance between effectively evaluating CRA 
activity for small banks and the agencies' intention to minimize the 
impact of changing regulatory

[[Page 7040]]

requirements. For this reason, the agencies do not believe that 
requiring an evaluation under the Retail Services and Products Test, or 
the Retail Lending Test, even with certain adjustments, is necessary 
for small banks. Continuing to evaluate small banks under the current 
framework maintains a strong emphasis on retail lending performance 
while minimizing changes for these smaller banks. The agencies believe 
the decision on whether to request additional consideration for 
activities that qualify under the Retail Services and Products Test in 
Sec.  __.23, or be evaluated under the Retail Lending Test in Sec.  
__.22, is better determined by the individual bank.
    The agencies agree with commenters that additional consideration 
for activities that qualify under the Retail Services and Products Test 
may be appropriate for a small bank rating adjustment from 
``Satisfactory'' to ``Outstanding.'' As explained in the section-by-
section analysis of Sec.  __.29(b), the agencies have made revisions to 
proposed Sec.  __.29(a)(2), renumbered in the final rule as Sec.  
__.29(b), to allow banks to seek additional consideration for certain 
activities regardless of whether the small bank is evaluated under the 
Small Bank Lending Test or the bank opts into the Retail Lending Test.
    Regarding commenters' suggestion that the agencies use their 
community affairs departments to coach or train small banks, the 
agencies note that they already provide significant outreach to banks 
and the communities they serve and will continue to do so, regardless 
of the bank's size. The agencies' community affairs programs provide, 
among other things, information and technical assistance to banks to 
assist them in responding to the credit and banking needs of the 
communities they serve, including low- and moderate-income individuals 
and communities. The agencies continue to encourage all banks to reach 
out to the community affairs department of the bank's regulator as well 
as supervisory staff for CRA guidance and other assistance to support 
efforts to develop strategies that are responsive to the credit, 
service, and investment needs of the banks' communities.
    The agencies also note that because they are making no substantive 
changes to the Small Bank Lending Test criteria, the agencies do not 
believe that the evaluation framework for small banks will impose any 
additional supervisory constraints on small banks, including but not 
limited to those that are also CDFIs or MDIs, that will affect these 
banks' ability to meet the credit needs of their communities during 
difficult times, such as market downturns or changes in the business 
cycle.

Section __.29(b) Additional Consideration

Current Approach and the Agencies' Proposal
    As provided in current appendix A, small banks, that are not 
intermediate small banks, evaluated under the existing small bank 
performance standards and that meet the standards for a 
``Satisfactory'' rating may warrant consideration for an overall rating 
of ``Outstanding.'' \1461\ In assessing whether a bank's performance is 
``Outstanding,'' the agencies consider the extent to which the bank 
exceeds each of the performance standards for a ``Satisfactory'' rating 
and its performance in making community development investments and in 
providing branches and other services and delivery systems that enhance 
credit availability in its assessment areas.\1462\
---------------------------------------------------------------------------

    \1461\ See current 12 CFR __.29(d) and current appendix A.
    \1462\ See current appendix A, paragraph (d)(3)(ii)(B).
---------------------------------------------------------------------------

    In proposed Sec.  __.29(a)(2), the agencies proposed to revise the 
ratings approach to memorialize current interagency guidance that the 
agencies may adjust a small bank's rating from ``Satisfactory'' to 
``Outstanding'' at the institution level, where a small bank requests 
and receives consideration for its performance in making community 
development investments and services and in providing branches and 
other services and delivery systems that enhance credit availability in 
the bank's assessment areas. The agencies requested feedback on whether 
additional consideration should be provided to small banks that conduct 
activities that would be considered under the Retail Services and 
Products Test, Community Development Financing Test, or Community 
Development Services Test when determining the bank's overall 
institution rating.
Comments Received
    The majority of commenters that addressed the agencies' request for 
feedback regarding whether additional consideration should be provided 
for activities that could be considered under the proposal's Retail 
Services and Products Test, the Community Development Financing Test, 
or the Community Development Services Test when determining a small 
bank's overall institution rating were generally supportive. For 
example, a commenter believed that providing such additional 
consideration could encourage additional activities that serve low- and 
moderate-income individuals and communities. Some commenters supported 
such additional consideration as a way to increase a small bank's CRA 
rating from a ``Satisfactory'' to an ``Outstanding.'' A commenter 
suggested that the agencies should encourage small banks to increase 
their community impacts as practice before becoming a larger bank. 
Another commenter stated that, if the agencies provide additional 
consideration for small banks, they should initially collect any data 
on activities conducted that fall under any of the relevant performance 
tests in a format provided by the bank to limit burden.
Final Rule
    After consideration of these comments, the agencies are finalizing 
the revisions in proposed Sec.  __.29(a)(2), with certain modifications 
related to the consideration of additional activities. Specifically, 
the agencies are renumbering proposed Sec.  __.29(a)(2) as Sec.  
__.29(b)(1) and are adopting an additional provision in Sec.  
__.29(b)(2). In Sec.  __.29(b)(1), for small banks evaluated under the 
Small Bank Lending Test, the final rule provides that in addition to 
requesting and receiving additional consideration for the activities 
described in proposed Sec.  __.29(a)(2), a small bank may also request 
additional consideration for the following activities without regard to 
whether these activities are in one or more of the bank's facility-
based assessment areas: making community development investments; 
providing community development services; and providing branches and 
other services, digital delivery systems and other delivery systems, 
and deposit products responsive to the needs of low- or moderate-income 
individuals, families, or households, small businesses, and small 
farms. The agencies note that credit products responsive to the needs 
of low- and moderate-income individuals, families, or households, small 
businesses, and small farms are considered under the Small Bank Lending 
Test, and not separately as an additional consideration activity. The 
agencies believe that these changes provide additional clarity and 
specificity for small banks on the types and location of activities 
that may qualify for additional consideration. The final rule maintains 
the proposal's requirements that the bank's rating may

[[Page 7041]]

be adjusted from ``Satisfactory'' to ``Outstanding'' at the institution 
level.
    The final rule also adopts an additional provision in Sec.  
__.29(b)(2) to provide that, for small banks that opt to be evaluated 
under the Retail Lending Test, where a small bank requests and receives 
additional consideration for activities that qualify under the Retail 
Services and Products Test in Sec.  __.23, the Community Development 
Financing Test in Sec.  __.24, or the Community Development Services 
Test in Sec.  __.25, the bank's rating may be adjusted from 
``Satisfactory'' to ``Outstanding'' at the institution level. The 
agencies believe that, in comparison to the proposal, the specific 
references to the remaining three large bank performance tests provides 
additional certainty and clarity for small banks that opt into the 
Retail Lending Test.
    As in the proposal, and consistent with the current regulations, 
the agencies will not consider these additional activities to adjust a 
``Needs to Improve'' rating to a ``Satisfactory'' or to an 
``Outstanding'' rating so as to maintain a strong emphasis on retail 
lending performance. The agencies continue to believe that additional 
activities should not compensate for, or otherwise minimize poor retail 
lending performance. The agencies note that in the final rule, as in 
the current regulations, a small bank can continue to achieve any 
rating, including ``Outstanding,'' based on its retail lending 
performance alone and would not be required to be evaluated on other 
activities.
    The agencies have also added new final Sec.  __.29(b)(3) to clarify 
that notwithstanding the requirement that a small bank have a 
``Satisfactory'' or ``Outstanding'' rating for the consideration of 
additional activities under paragraphs (b)(1) and (2) of the section, 
small banks may receive consideration for activities with MDIs, WDIs, 
and LICUs, and for low-cost education loans without regard to the small 
bank's rating. The agencies added this additional consideration to 
provide clarity about how these activities and loans may be considered 
in compliance with the requirements of the CRA.
    The agencies considered comments suggesting that the agencies 
should collect data on activities eligible for additional 
consideration. On balance, the agencies believe that additional 
consideration for such activities without a requirement to collect any 
additional data or opt into any additional performance test beyond the 
current small bank lending test may encourage additional activities for 
low- and moderate-income individuals and communities and may encourage 
small banks to increase their community impacts without increasing 
regulatory burden. The agencies will, however, review appropriate 
information related to the activities for which a small bank is 
requesting additional consideration in a format of the bank's choosing.
Section __.29(c)(1) Small Bank Performance Conclusions
Section __.29(c)(2) Small Bank Performance Ratings
Current Approach
    Current Sec.  __.26(d) and current appendix A provide that the 
agencies assign one of four ratings based on the performance of a bank 
evaluated under the small bank performance standards: ``Outstanding,'' 
``Satisfactory,'' ``Needs to Improve,'' or ``Substantial 
Noncompliance.'' \1463\ The agencies rate a small bank's lending 
performance as ``Satisfactory'' if, in general, the bank demonstrates a 
reasonable loan-to-deposit ratio; a majority of loans are in its 
assessment area; a distribution of loans to, and for, individuals of 
different income levels and businesses and farms of different sizes 
that is reasonable given the demographics of the bank's assessment 
areas; a record of taking appropriate action in response to written 
complaints, if any, about the bank's performance in helping to meet the 
credit needs of its assessment areas; and a reasonable geographic 
distribution of loans given the bank's assessment areas.\1464\ Small 
banks may be eligible for an ``Outstanding'' lending test rating if the 
bank meets each of the standards for a ``Satisfactory'' rating 
described above, and exceeds some or all of those standards.\1465\ A 
small bank may also receive a lending test rating of ``Needs to 
Improve'' or ``Substantial Noncompliance'' depending on the degree to 
which its performance has failed to meet the standard for a 
``Satisfactory'' rating.\1466\
---------------------------------------------------------------------------

    \1463\ See current appendix A, paragraph (d)(1).
    \1464\ See id. at paragraphs (d)(1)(i)(A) through (E).
    \1465\ See id. at paragraph (d)(1)(ii).
    \1466\ See id. at paragraph (d)(1)(iii).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to revise Sec.  __.26(d), renumbered in the 
proposal as Sec.  __.29(a)(3), and to replace current appendix A with 
proposed appendix E. Although current appendix A addresses performance 
ratings for all banks, appendix E proposed to address small bank 
conclusions and ratings as well as intermediate bank community 
development evaluation conclusions to provide consistency with other 
performance tests. Proposed appendix E provided that, unless a small 
bank opts to be evaluated under the Retail Lending Test, the agencies 
assign conclusions of ``Outstanding,'' ``Satisfactory,'' ``Needs to 
Improve,'' or ``Substantial Noncompliance'' based on the small bank's 
performance under Sec.  __.29 in each facility-based assessment area to 
arrive at the bank's overall rating assigned by the agencies. Proposed 
appendix E also provided that, unless a small bank opts to be evaluated 
under the Retail Lending Test, consistent with current appendix A, the 
agencies would evaluate a small bank's performance under the applicable 
performance criteria in the regulations and assign a rating of 
``Outstanding,'' ``Satisfactory,'' ``Needs to Improve,'' or 
``Substantial Noncompliance'' for the bank's performance. Under the 
proposal, a small bank that meets each of the standards for a 
``Satisfactory'' rating under the lending evaluation and exceeds some 
or all of those standards would warrant consideration for an overall 
rating of ``Outstanding.'' In assessing whether a bank's performance is 
``Outstanding,'' the agencies proposed that they would consider the 
extent to which the bank exceeds each of the performance standards for 
a ``Satisfactory'' rating and its performance in making community 
development investments and services and its performance in providing 
branches and other services and delivery systems that enhance credit 
availability in its facility-based assessment areas. A small bank would 
also have received an overall bank rating of ``Needs to Improve'' or 
``Substantial Noncompliance'' depending on the degree to which its 
performance failed to meet the standards for a ``Satisfactory'' rating.
    With respect to a small bank that opted to be evaluated under the 
Retail Lending Test, the agencies proposed to evaluate the small bank 
as provided for intermediate banks in proposed appendix D, with the 
exception that no small bank would be evaluated on its retail lending 
outside of its assessment areas, regardless of the amount of such 
lending.
    In appendix D, the agencies also proposed that a small bank 
evaluated under the Retail Lending Test may request additional 
consideration for its community development investments and services 
and its performance in providing branches and other services and 
delivery systems that enhance credit availability in its facility-based 
assessment areas.

[[Page 7042]]

Final Rule
    The agencies received no comments specifically related to the 
revisions in proposed Sec.  __.29(a)(3), renumbered in the final rule 
as Sec.  __.29(c)(1) and (2), pertaining to a small bank's conclusions 
and ratings. Accordingly, the agencies are finalizing these provisions 
as proposed. The agencies are also making certain revisions for clarity 
and to conform to other changes made in Sec.  __.29. Specifically, 
final Sec.  __.29(c)(1) clarifies that, except for a small bank that 
opts to be evaluated under the Retail Lending Test, the agencies assign 
conclusions in connection with a small bank evaluated pursuant to Sec.  
__.29 as provided in appendix E. Final appendix E provides that the 
agencies assign conclusions of ``Outstanding,'' ``Satisfactory,'' 
``Needs to Improve,'' or ``Substantial Noncompliance'' for a small 
bank's test performance in each facility-based assessment area, in each 
State or multistate MSA, as applicable, and for the institution as 
provided in Sec.  __.29. For a small bank that opts to be evaluated 
under the Retail Lending Test, the agencies will assign conclusions 
regarding the small bank's Retail Lending Test performance as provided 
in final appendix C.
    Final Sec.  __.29(c)(2) provides that the agencies rate the 
performance of a small bank evaluated under the Small Bank Lending 
Test, as provided in appendix E. If the small bank opts to be evaluated 
under the Retail Lending Test, the agencies rate the performance of the 
small bank as provided by appendix D. In turn, final appendix D 
provides that the agencies determine a small bank's rating for each 
State or multistate MSA pursuant to Sec.  __.28(c), and for the 
institution based on the performance score for the bank's Retail 
Lending Test conclusions for the State, multistate MSA, or institution, 
respectively. In addition, the final rule removes the proposal's 
exception that no small bank would be evaluated on its retail lending 
outside of its assessment areas. As described in more detail in the 
section-by-section analysis of Sec.  __.22, to be consistent with 
intermediate banks, the agencies will treat the outside retail lending 
of a small bank the same as intermediate banks.

Section __.30 Intermediate Bank Performance Evaluation

Section __.30(a)(1) Intermediate Bank Performance Evaluation

Section __.30(a)(2) Intermediate Bank Community Development Test

Current Approach
    Currently, the agencies define intermediate small banks as having 
assets of at least $376 million as of December 31 of both of the prior 
two calendar years and less than $1.503 billion as of December 31 of 
either of the prior two calendar years.\1467\ The agencies evaluate 
intermediate small banks under the small bank performance standards as 
provided in current Sec.  __.26(a)(2). Specifically, intermediate small 
banks are currently evaluated under two performance tests: (1) the 
small bank lending test in current Sec.  __.26(b),\1468\ described 
above in the section-by-section analysis of Sec.  __.29(a); and (2) the 
community development test in current Sec.  __.26(c) that applies 
exclusively to intermediate small banks. The test evaluates the 
intermediate small bank's community development performance pursuant to 
the following criteria: (1) the number and amount of a bank's community 
development loans; (2) the number and amount of community development 
investments; (3) the extent to which the bank provides community 
development services; and (4) the bank's responsiveness through such 
activities to community development lending, investment, and services 
needs.\1469\ An intermediate small bank may allocate its resources 
among community development lending, investment, and services in 
amounts that the bank reasonably determines are the most responsive to 
community development needs and opportunities.\1470\ However, an 
intermediate small bank may not simply ignore one or more of these 
categories of community development.\1471\ Neither the current 
regulations nor the guidance prescribe a required threshold for each 
category; instead, appropriate levels of each community development 
category depend on the capacity and business strategy of the bank, 
community needs, and the number and types of opportunities available 
for community development within the bank's assessment areas.\1472\
---------------------------------------------------------------------------

    \1467\ See current 12 CFR __.12(u). As noted above, the agencies 
update this threshold annually based on the year-to-year change in 
the average of the Consumer Price Index for Urban Wage Earners and 
Clerical Workers, not seasonally adjusted.
    \1468\ See also current 12 CFR __.21(a)(3).
    \1469\ See current 12 CFR __.26(c)(1) through (4).
    \1470\ See Q&A Sec.  __.26(c)--1.
    \1471\ See id.
    \1472\ See id.
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to revise current Sec.  __.26(a)(2), 
renumbered in the proposal as Sec.  __.29(b), with respect to 
evaluating intermediate small banks. First, the agencies proposed to 
create a new ``intermediate bank'' category to replace the 
``intermediate small bank'' category. The agencies proposed to define 
intermediate banks in proposed Sec.  __.12 to include banks with 
average assets of at least $600 million as of December 31 of both of 
the prior two calendar years and less than $2 billion as of December 31 
of either of the prior two calendar years.\1473\ Second, in Sec.  
__.29(b)(1), the agencies proposed to continue evaluating an 
intermediate bank under two performance tests. Specifically, the 
agencies proposed to evaluate intermediate banks under: (1) the 
proposed Retail Lending Test; and (2) the current community development 
test, unless the bank opts to be evaluated under the proposed Community 
Development Financing Test in proposed Sec.  __.24.\1474\
---------------------------------------------------------------------------

    \1473\ See the section-by-section analysis of Sec.  __.12 for a 
discussion of the ``intermediate bank'' definition.
    \1474\ See the section-by-section analysis of Sec.  __.24.
---------------------------------------------------------------------------

    In proposed Sec.  __.29(b)(1), the agencies indicated that 
intermediate banks would be evaluated under the Retail Lending Test, in 
a manner tailored to intermediate banks (as further described in the 
section-by-section analysis of Sec.  __.22). The agencies did not 
propose any new data collection, maintenance, or reporting requirements 
for intermediate banks under the Retail Lending Test.\1475\ Consistent 
with the current regulations, the agencies proposed to use data that 
intermediate banks maintain in a format of their choosing or report 
under other regulatory requirements.
---------------------------------------------------------------------------

    \1475\ For a discussion of proposed retail lending data 
requirements, see the section-by-section analysis of Sec.  __.42.
---------------------------------------------------------------------------

    In proposed Sec.  __.29(b)(1), the agencies also provided that the 
community development activities of intermediate banks be evaluated 
using the intermediate bank community development evaluation, unless 
the intermediate bank chose to be evaluated under the Community 
Development Financing Test in proposed Sec.  __.24.\1476\ As discussed 
in more detail in the section-by-section analysis

[[Page 7043]]

of Sec.  __.42(a)(5), the agencies proposed that an intermediate bank 
that opts to be evaluated under the Community Development Financing 
Test must collect and maintain the same data required of large banks, 
but in the format used by the bank in the normal course of business.
---------------------------------------------------------------------------

    \1476\ See the section-by-section analysis of Sec.  __.24.
---------------------------------------------------------------------------

    The agencies requested feedback on ways to further tailor the 
Retail Lending Test for intermediate banks. The agencies also requested 
comment on whether all banks, including intermediate banks, should have 
the option to have their community development activities outside of 
facility-based assessment areas considered. In addition, the agencies 
requested feedback on whether intermediate banks should continue to 
have the flexibility to have small business, small farm, and home 
mortgage loans considered as community development loans, provided that 
those loans have a primary purpose of community development pursuant to 
proposed Sec.  __.13 and the bank is not required to report those 
loans. Relatedly, the agencies also requested feedback on whether an 
intermediate bank should have the ability to have its small business or 
small farm loans considered under the Retail Lending Test or, if they 
have a primary purpose of community development pursuant to proposed 
Sec.  __.13, under the applicable community development evaluation, 
regardless of the reporting status of these loans.
Comments Received
    The agencies received a range of comments addressing the proposed 
performance standards for intermediate banks from a wide variety of 
commenters. Of the commenters that addressed the agencies' proposal to 
evaluate intermediate banks under the Retail Lending Test, a few 
supported this approach, while a majority recommended that the agencies 
apply the Retail Lending Test to large banks only and continue to 
evaluate intermediate banks, or give these banks the option to be 
evaluated, under the lending test applicable to intermediate small 
banks under the current CRA regulations. Some of these commenters 
explained that significant implementation costs for intermediate banks 
justified making the Retail Lending Test optional. A commenter stated 
that the ability to opt into certain performance tests is critical for 
intermediate banks (as well as small banks) and urged the agencies to 
retain this provision. Another commenter stated that many community 
banks and their communities may benefit most from being allowed to opt 
into the proposed Retail Lending Test; however, this commenter viewed 
the agencies' proposal as complex and questioned whether these banks 
would have enough resources and time to adequately consider the 
benefits of being evaluated under the new performance test. This 
commenter also expressed concern that the proposal may effectively 
encourage intermediate banks (and small banks) to maintain their status 
quo examination approach, which the commenter believed would be a 
suboptimal outcome if the community would have benefitted most from a 
bank being evaluated under the new performance test.
    Most commenters addressing the agencies' proposals for intermediate 
banks commented on the proposed requirement to evaluate these banks 
under the intermediate bank community development test. These 
commenters expressed a range of views. For example, several of these 
commenters suggested that the Community Development Financing Test 
should not be optional but, instead, be required for intermediate banks 
to create consistency among banks and examiners and to provide other 
interested parties with a common understanding with respect to CRA 
community development requirements. Other commenters, however, 
supported providing intermediate banks with the flexibility to opt into 
the Community Development Financing Test. As the Community Development 
Financing Test does not include a review of community development 
services, a few commenters expressed corresponding concerns, with one 
commenter indicating that the overall level of intermediate banks' 
community development services would decrease and another commenter 
stating that intermediate banks should all be evaluated regarding 
community development services activities even if they opt into being 
evaluated under the Community Development Financing Test. Another 
commenter suggested that the agencies should provide intermediate banks 
with a formal option for electing to be evaluated under the Retail 
Services and Products Test.
    Regarding the agencies' request for feedback on ways to further 
tailor the Retail Lending Test for intermediate banks, several 
commenters provided recommendations. A commenter stated that 
performance context should weigh more than positioning amongst peers in 
an intermediate bank's evaluation. Several other commenters supported 
tailoring that reduces Retail Lending Test data reporting requirements. 
For example, one commenter applauded the agencies' decision to not 
require any new data collection and reporting requirements. Other 
commenters also recommended that, to the extent data reporting is 
required, the agencies ought to use data already submitted by these 
banks. A few other commenters expressed a contrary view, stating that 
tailoring the Retail Lending Test with respect to data reporting 
requirements would lead to data gaps and inconsistencies in assessing 
activities and difficulties in comparing data across the agencies' 
supervised banks. One of these commenters asserted that all 
intermediate banks should be mandatory Retail Lending Test data 
reporters, citing minimal burden and public benefit. Another commenter 
recommended an alternative approach requiring that intermediate banks 
provide Retail Lending Test data that they already collect on 
activities across all assessment areas and for the agencies to, in 
turn, conduct qualitative assessments in accordance with each relevant 
performance test. According to this commenter, this approach would also 
provide the agencies with data that could be used to assess what 
systems and procedures would be needed to allow intermediate banks to 
report data in accordance with the corresponding proposed large bank 
requirements. Another commenter recommended that all Retail Lending 
Test requirements applicable to large banks be applied to intermediate 
banks, and noted that, although this would be more rigorous for 
intermediate banks it would also be more predictable and add 
transparency. A few commenters indicated that only large banks should 
be subject to the Retail Lending Test.
    Several commenters responded to the agencies' request for feedback 
on questions about counting retail loans under the applicable community 
development test for intermediate banks. Most of these commenters 
expressed support for intermediate banks having flexibility to have 
small business, small farm, and home mortgage loans considered as 
community development loans regardless of a loan's reporting status. A 
few of these commenters also suggested that intermediate banks needed 
to be provided with targeted performance standards to help decide 
whether a loan should be evaluated under the Retail Lending Test or 
under either the intermediate bank community development test or, at 
the bank's option, the Community Development Financing Test. However, 
another

[[Page 7044]]

commenter did not support providing community development consideration 
for retail loans on the basis that retail lending and community 
development lending serve different purposes, and recommended that if 
an intermediate bank wants credit for retail lending it should 
voluntarily report that lending for consideration under the Retail 
Lending Test.
    As noted above, the agencies requested comment on whether all 
banks, including intermediate banks, should have the option to have 
their community development activities outside of facility-based 
assessment areas considered. A few commenters addressing this question 
supported giving all banks the option to receive such consideration, 
regardless of their size or whether they elect to be evaluated under a 
strategic plan. A commenter indicated that small lenders are often in 
the best position to engage in community development activities in 
underserved areas, but are not required to do so; accordingly, it would 
be beneficial to give them the option to engage in such activities 
outside of their facility-based assessment areas, including through the 
incentive of possibly receiving an ``Outstanding'' rating.
Final Rule
    For the reasons stated below, the agencies are finalizing proposed 
Sec.  __.29(b)(1), renumbered as Sec.  __.30(a)(1) in the final rule, 
pertaining to the evaluation of an intermediate bank's retail lending 
performance under the Retail Lending Test, and its community 
development activities under the intermediate bank community 
development evaluation (in proposed Sec.  __.29(b)(2), renumbered as 
Sec.  __.30(a)(2)(i))--renamed in the final rule as Intermediate Bank 
Community Development Test--unless an intermediate bank opts to be 
evaluated under the Community Development Financing Test. The agencies 
are also making technical changes to improve the clarity and 
organization of this paragraph. Specifically, the agencies are 
clarifying the criterion in proposed Sec.  __.29(b)(2)(iv), renumbered 
as Sec.  __.30(a)(2)(i)(D), that the agencies' evaluation of the 
responsiveness of the bank's activities is informed by information 
provided by the bank and may be informed by the impact and 
responsiveness review factors described in Sec.  __.15(b). The agencies 
believe that providing some of the specific factors they will consider 
when evaluating the degree of responsiveness of intermediate bank's 
community development loans, investments, and services improves the 
ability of stakeholders to assess the qualitative impact of the 
activities. The agencies also note that renumbering of this section 
serves to separate the performance standards for small banks in Sec.  
__.29 from the performance standards for intermediate banks in new 
Sec.  __.30. The agencies believe that this revision improves 
organizational clarity and readability.
    With respect to the Retail Lending Test, the agencies believe 
applying this performance test to intermediate banks is appropriate 
because evaluating an intermediate bank under the Retail Lending Test, 
rather than the Small Bank Lending Test in Sec.  __.29, provides 
intermediate banks (and the public) with increased clarity, 
consistency, and transparency on applicable supervisory expectations, 
and standards for evaluating their retail lending performance. In 
addition, as the asset size of intermediate banks increased to between 
$600 million and less than $2 billion in assets,\1477\ the agencies 
believe that banks in this asset-size category should have sufficient 
resources and capacity to adjust to the Retail Lending Test, 
particularly as no new data reporting and no delineation of retail 
lending assessment areas are required. In addition, as described 
further in the section-by-section analysis of Sec.  __.22, intermediate 
banks are treated differently related to the retail lending volume 
screen and the outside retail lending assessment area. This approach 
also supports an easier potential transition to the large bank category 
later, as these intermediate banks will be familiar with certain Retail 
Lending Test requirements applicable to large banks and would need to 
adjust to a smaller set of additional requirements.
---------------------------------------------------------------------------

    \1477\ See the section-by-section analysis of Sec.  __.12.
---------------------------------------------------------------------------

    The agencies considered comments that a tailored approach to the 
Retail Lending Test for intermediate banks might lead to corresponding 
data gaps, inconsistencies in assessing activities, and difficulties in 
comparing data across banks. Under the final rule, the agencies have 
sought to achieve a balance between ensuring a standardized evaluation 
approach that is informed by metrics, and limiting additional 
complexity and burden, in particular for small and intermediate banks, 
as discussed in the section-by-section analysis of Sec.  __.42. In 
light of these objectives, the agencies believe it is appropriate to 
tailor data collection and reporting requirements for intermediate 
banks, recognizing that any data requirements for these banks would 
create additional burden. Additionally, for those banks that do not 
have data collection and maintenance requirements, the agencies may use 
bank data collected in the ordinary course of business, or may use 
sampling techniques to compute metrics for the bank.
    With respect to an intermediate bank's community development 
evaluation, the agencies believe that retaining the flexibility for 
these banks to be evaluated under the Intermediate Bank Community 
Development Test or, at the bank's option, to be evaluated under the 
Community Development Financing Test, recognizes these banks' more 
limited capacity compared to larger banks. The agencies believe 
tailoring the evaluation for intermediate banks is necessary to 
appropriately reflect their resources and capacity relative to large 
banks, and the focus of their business models, which is generally on 
their facility-based assessment areas. Moreover, although the agencies 
recognize commenter concerns that requiring intermediate banks to be 
evaluated under the Community Development Financing Test may promote 
greater consistency among banks and examiners, the agencies are not 
persuaded that the additional Community Development Financing Test data 
collection, maintenance, and reporting burden would in all cases 
outweigh the additional benefits. In addition, the agencies believe 
that providing intermediate banks with flexibility to opt into the 
Community Development Financing Test best supports the agencies' 
objective of tailoring the evaluation to best fit an intermediate 
bank's size, business model, and business strategy. Of note, both the 
Intermediate Bank Community Development Test and the Community 
Development Financing Test are intended to consider and evaluate 
intermediate bank community development loans and community development 
investments. In addition, the agencies note that the Intermediate Bank 
Community Development Test includes community development services, 
while community development services are considered at the bank's 
option for intermediate banks evaluated under the Community Development 
Financing Test. So, too, the results of the agencies' evaluation of an 
intermediate bank's community development activities, evaluated under 
in either performance test, will be presented in the public portion of 
the bank's CRA performance evaluation. This, in turn, will assist 
stakeholders to

[[Page 7045]]

understand how these community development activities are assessed and 
regulated.
    The agencies also believe that the flexibility of permitting 
intermediate banks to opt to have their retail services and products 
considered in order to potentially elevate an overall rating from a 
``Satisfactory'' to an ``Outstanding'' makes it unnecessary to 
incorporate a formal intermediate bank opt-in to the Retail Services 
and Products Test.
    The agencies acknowledge the importance of performance context in 
the CRA evaluation of any bank. However, the agencies do not believe 
that it is appropriate to weight an intermediate bank's performance 
context considerations more than its actual retail lending and 
community development activities given the CRA's strong emphasis on 
retail lending and community development performance in order to meet 
community needs. Examiners will continue to consider a bank's capacity, 
business model, business strategy, and other performance context 
factors when evaluating the overall performance of intermediate and 
other banks, as discussed in the section-by-section analysis of Sec.  
__.21.
    Upon consideration of the comments, the agencies have decided to 
permit an intermediate bank to receive consideration for retail loans 
that have a community development purpose under both the Retail Lending 
Test (under which the number of such loans will be considered) and 
under either the Intermediate Bank Community Development Test or, at 
the bank's option, the Community Development Financing Test (under 
which the dollar amount of such loans will be considered). To 
accomplish this, the agencies are removing the provision in proposed 
Sec.  __.22(a)(5) that made the consideration of retail loans for 
intermediate banks exclusive to the Retail Lending Test. The agencies 
believe that it is appropriate to consider a retail loan as a community 
development loan if the retail loan meets the definition of a community 
development loan pursuant to final Sec. Sec.  __.12 and __.13, given 
the different considerations applicable to these loans pursuant to the 
relevant performance tests. For example, closed-end home mortgage loans 
considered under the Retail Lending Test are excluded from community 
development consideration unless these loans are one-to-four family 
home mortgage loans for rental housing with affordable rents in 
nonmetropolitan census tracts. The agencies also believe that the 
decision regarding which retail loans to request consideration for as a 
community development loan should be left to the bank using the 
criteria provided in Sec.  __.13 to determine whether a retail loan has 
a community development purpose as described in that section.
Section __.30(a)(2)(ii) Consideration of Community Development 
Activities Outside Facility-Based Assessment Areas
    The agencies are persuaded by commenters' recommendations that all 
banks' community development activities, including those of an 
intermediate bank, be considered without regard to whether the activity 
is conducted in the bank's facility-based assessment areas. 
Accordingly, the agencies are revising final Sec.  __.19 to provide 
that all banks, including intermediate banks, may receive consideration 
for community development loans, investments, or services provided 
outside of their facility-based assessment areas. The agencies believe 
providing consideration for community development activities outside a 
bank's facility-based assessment areas adds certainty and will 
contribute to higher levels of community development activities. The 
agencies also believe consideration for these outside activities will 
encourage activities in areas with high community development needs, 
such as underserved areas, while not increasing burden since banks 
would not be required to serve these areas if not otherwise required to 
do so. This provision includes intermediate banks that opt to be 
evaluated under the Community Development Financing Test in final Sec.  
__.24.
    The agencies are also adopting an additional provision in Sec.  
__.30(a)(2)(ii) to provide that community development activities of an 
intermediate bank evaluated under either the Intermediate Bank 
Community Development Test or, at the bank's option, the Community 
Development Financing Test, are considered regardless of whether the 
activity is conducted in one or more of the bank's facility-based 
assessment areas. The extent of the consideration given to community 
development activities outside of an intermediate bank's facility-based 
assessment areas will depend on the adequacy of the bank's 
responsiveness to the needs and opportunities for community development 
activities within the bank's facility-based assessment areas and 
applicable performance context information. The agencies believe that 
providing consideration for community development activities outside of 
a bank's facility-based assessment areas introduces additional 
certainty that will incentivize higher levels of community development 
activities. The agencies also believe that consideration for these 
outside activities will encourage activities in areas with high 
community development needs, such as underserved areas, while not 
increasing regulatory burden as banks would not be required to serve 
these areas. Further, the agencies believe that these activities would 
not supplant facility-based assessment area community development 
activities but could instead provide banks with the flexibility to 
engage in outside activities, particularly when there are limited 
opportunities for such community development activities in a bank's 
facility-based assessment area.

Section __.30(b) Additional Consideration

Current Approach and the Agencies' Proposal
    As explained in the section-by-section analysis of Sec.  
__.30(a)(1) and (2), an intermediate small bank is currently subject to 
the small bank lending test and a community development test, which 
includes consideration of community development lending, investments, 
and services. The agencies proposed in Sec.  __.29(b)(3) that if an 
intermediate bank opts to be evaluated under the Community Development 
Financing Test the bank would have the option to request additional 
consideration for activities that qualify under the Retail Services and 
Products Test and the Community Development Services Test for possible 
adjustment of an overall rating of ``Satisfactory'' to ``Outstanding.'' 
The agencies did not propose to provide additional consideration for 
retail services and products and community development services for 
intermediate banks evaluated under the intermediate bank community 
development evaluation in proposed Sec.  __.29(b)(2), because, as 
explained in the proposal, the agencies believed this section already 
incorporated those activities in the status quo intermediate bank 
community development evaluation.
Final Rule
    The agencies received no specific comments related to the provision 
for additional consideration of an intermediate bank's activities that 
qualify under other performance tests. Accordingly, the agencies are 
finalizing proposed Sec.  __.29(b)(3), renumbered as Sec.  __.30(b), 
with a few revisions for

[[Page 7046]]

clarity. Specifically, the agencies are clarifying their intent that, 
if an intermediate bank requests and receives consideration for 
additional activities, the agencies may adjust the bank's rating from a 
``Satisfactory'' to an ``Outstanding,'' regardless of whether the bank 
is evaluated under the Intermediate Bank Community Development Test or 
the Community Development Financing Test.
    In the preamble to the proposed rule, the agencies explained that 
additional consideration for retail services and products and community 
development services would not be appropriate for an intermediate bank 
that is evaluated under the intermediate bank community development 
evaluation because proposed Sec.  __.29(b)(2) already incorporated 
those activities. However, the agencies note that proposed Sec.  
__.29(b)(2) did not address additional consideration for certain retail 
services and products included under the Retail Services and Products 
Test, even though the agencies intended to provide such consideration. 
Accordingly, the agencies are finalizing Sec.  __.30(b)(1) to make 
clear that an intermediate bank evaluated under the Intermediate Bank 
Community Development Test may also request and receive additional 
consideration for activities that qualify under the Retail Services and 
Products Test, provided the bank achieves an overall institution rating 
of at least ``Satisfactory.'' It is not necessary to provide these 
intermediate banks with additional consideration for community 
development services because the Intermediate Bank Community 
Development Test already incorporates an evaluation of community 
development services.
    The final rule also revises proposed Sec.  __.29(b)(3), renumbered 
as Sec.  __.30(b)(2), to clarify that an intermediate bank that opts to 
be evaluated under the Community Development Financing Test must 
achieve an overall institution level rating of at least 
``Satisfactory'' to request and receive additional consideration for 
activities that qualify under the Retail Services and Products Test, 
the Community Development Services Test, or both.
    Similar to the requirements for small banks, the agencies will 
consider these activities to potentially elevate a bank's overall 
institution rating from ``Satisfactory'' to ``Outstanding, but would 
not elevate a ``Needs to Improve'' rating to a ``Satisfactory'' or an 
``Outstanding'' rating. Additionally, an intermediate bank could 
likewise continue to achieve any rating, including an ``Outstanding'' 
rating, based on its retail lending and community development 
performance alone, and would not be required to be evaluated on other 
activities eligible for additional consideration.
    The agencies have also added new final Sec.  __.30(b)(3) to clarify 
that notwithstanding the requirement that an intermediate bank must 
achieve a ``Satisfactory'' or ``Outstanding'' rating for the 
consideration of additional activities under paragraphs (b)(1) and (2) 
of the section, intermediate banks may receive additional consideration 
for low-cost education loans without regard to the intermediate bank's 
overall institution rating. The agencies added this additional 
consideration to provide clarity about how low-cost education loans may 
be considered in compliance with the requirements of the CRA.\1478\
---------------------------------------------------------------------------

    \1478\ See 12 U.S.C. 2903(d).
---------------------------------------------------------------------------

Section __.30(c) Intermediate Bank Performance Conclusions and Ratings

Current Approach
    Current Sec.  __.26(d) provides that the agencies assign the 
performance of a bank evaluated under the small bank performance 
standards one of four ratings, as set forth in current appendix A: 
``Outstanding,'' ``Satisfactory,'' ``Needs to Improve,'' or 
``Substantial Noncompliance.'' \1479\
---------------------------------------------------------------------------

    \1479\ Current appendix A, paragraph (d)(1).
---------------------------------------------------------------------------

    Under current appendix A, the agencies assign intermediate small 
banks evaluated under the small bank lending test conclusions of 
``Outstanding,'' ``Satisfactory,'' ``Needs to Improve,'' or 
``Substantial Noncompliance'' based on the bank's lending performance. 
The agencies rate an intermediate small bank's lending performance as 
``Satisfactory'' if, in general, the bank demonstrates a reasonable 
loan-to-deposit ratio; a majority of loans are in its assessment areas; 
a distribution of loans to, and for individuals of, different income 
levels and businesses and farms of different sizes that is reasonable 
given the demographics of the bank's assessment areas; a record of 
taking appropriate action, in response to written complaints, if any, 
about the bank's performance in helping to meet the credit needs of its 
assessment areas; and a reasonable geographic distribution of loans 
given the bank's assessment areas. An intermediate small bank that 
meets each of the standards for a ``Satisfactory'' rating under the 
lending test and exceeds some or all of those standards may warrant 
consideration for a lending test rating of ``Outstanding.''
    Under the current intermediate small bank community development 
test, the agencies rate the bank's community development performance 
``Satisfactory'' if the bank demonstrates adequate responsiveness to 
the community development needs of its assessment areas through 
community development loans, community development investments, and 
community development services. The adequacy of the bank's response 
will depend on its capacity for such community development activities, 
its assessment areas' need for such community development activities, 
and the availability of such opportunities for community development in 
the bank's assessment areas. The agencies rate an intermediate small 
bank's community development performance ``Outstanding'' if the bank 
demonstrates excellent responsiveness to community development needs in 
its assessment areas through community development loans, community 
development investments, and community development services, as 
appropriate, considering the bank's capacity and the need and 
availability of such opportunities for community development in the 
bank's assessment areas.
    The agencies may assign an intermediate small bank a community 
development test rating of ``Needs to Improve'' or ``Substantial 
Noncompliance'' depending on the degree to which its performance has 
failed to meet the standards for a ``Satisfactory'' rating.
    Pursuant to current appendix A, an intermediate small bank may not 
receive an assigned overall rating of ``Satisfactory'' unless it 
receives a rating of at least ``Satisfactory'' on both the lending test 
and the community development test.\1480\ An intermediate small bank 
that receives an ``Outstanding'' rating on one test and at least 
``Satisfactory'' on the other test may receive an assigned overall 
rating of ``Outstanding.'' \1481\
---------------------------------------------------------------------------

    \1480\ Id.
    \1481\ See current appendix A, paragraph (d)(3)(ii)(A).
---------------------------------------------------------------------------

The Agencies' Proposal
    For intermediate banks, the agencies proposed to revise current 12 
CFR __.26(d) (Small bank performance rating), renumbered in the 
proposal as proposed Sec.  __.29(b)(4) (Intermediate bank performance 
ratings), to provide that the agencies would rate the performance of an 
intermediate bank as provided in proposed appendices D (Ratings) and E 
(Small Bank Conclusions and Ratings and Intermediate Bank Community

[[Page 7047]]

Development Evaluation Conclusions). In proposed appendix E, the 
agencies proposed to rate an intermediate bank's performance as 
described in appendix D.\1482\ Pursuant to proposed appendix D, for 
intermediate banks evaluated under the Retail Lending Test and the 
Community Development Financing Test, the agencies proposed to combine 
an intermediate bank's raw performance scores for its State or 
multistate MSA performance under the Retail Lending Test and the 
Community Development Financing Test to determine the bank's rating at 
the State or multistate MSA level and for the institution.\1483\ The 
agencies proposed to weight the performance scores equally: Retail 
Lending Test (50 percent) and Community Development Financing Test (50 
percent). The agencies proposed to multiply each of these weights by 
the bank's corresponding performance score on the respective 
performance test, and then add the resulting values together to develop 
a State, multistate MSA, or institution performance score. For this 
calculation, the performance score for the Retail Lending Test and the 
Community Development Test alike corresponds to the conclusion 
assigned, as follows: ``Outstanding'' (10 points); ``High 
Satisfactory'' (7 points); ``Low Satisfactory'' (6 points); ``Needs to 
Improve'' (3 points); ``Substantial Noncompliance'' (0 points). The 
agencies would then assign a rating corresponding to the rating 
category that is nearest to the State, multistate MSA, or institution 
performance score, as provided in proposed appendix D.
---------------------------------------------------------------------------

    \1482\ See proposed appendix E, paragraph b.2.
    \1483\ See proposed appendix D, paragraph c.
---------------------------------------------------------------------------

    Proposed appendix D further provided that the agencies may adjust 
an intermediate bank's institution rating from ``Satisfactory'' to 
``Outstanding'' where the bank requests and receives sufficient 
additional consideration for activities that qualify under the Retail 
Services and Products Test, the Community Development Services Test, or 
both.
    Pursuant to proposed appendix E, for intermediate banks evaluated 
under the Retail Lending Test and the intermediate bank community 
development performance evaluation, the agencies proposed to assign 
conclusions for an intermediate bank's community development 
performance of ``Outstanding,'' ``High Satisfactory,'' ``Low 
Satisfactory,'' ``Needs to Improve,'' or ``Substantial Noncompliance.'' 
The agencies proposed to assign an intermediate bank's community 
development performance a ``Low Satisfactory'' conclusion if the bank 
demonstrated adequate responsiveness, and a ``High Satisfactory'' 
conclusion if the bank demonstrated good responsiveness, to the 
community development needs of its facility-based assessment areas 
through community development loans, community development investments, 
and community development services. The agencies proposed that their 
determination of the adequacy of the bank's response would depend on 
the bank's capacity for such community development activities, its 
facility-based assessment areas' need for such community development 
activities, and the availability of such opportunities for community 
development in the bank's facility-based assessment areas. The agencies 
proposed to consider an intermediate bank's retail banking services and 
products activities as community development services if they provide 
benefit to low- and moderate-income individuals.
    Additionally, the agencies proposed to assign an intermediate 
bank's community development performance an ``Outstanding'' conclusion 
if the bank demonstrated excellent responsiveness to community 
development needs in its facility-based assessment areas through 
community development loans, community development investments, and 
community development services, as appropriate, considering the bank's 
capacity and the need and availability of such opportunities for 
community development in the bank's facility-based assessment areas. 
The agencies proposed to assign an intermediate bank's community 
development performance a ``Needs to Improve'' or ``Substantial 
Noncompliance'' conclusion depending on the degree to which the bank's 
performance had failed to meet the standards for a ``Satisfactory'' 
conclusion.
Comments Received
    The agencies received a few comments specifically related to an 
intermediate bank's conclusions and ratings. Related to the equal 50 
percent weighting between the Retail Lending Test and the intermediate 
bank community development evaluation, these commenters supported equal 
weighting under the assumption that community development services are 
part of the intermediate bank community development evaluation. One of 
the commenters stated that if community development services are 
optional, the Retail Lending Test weight should be increased to 55 or 
60 percent to leverage more lending.
    The agencies also received comments on what should constitute an 
overall passing score (i.e., an overall ``Satisfactory'') for a bank's 
CRA performance. A commenter agreed with the proposal that intermediate 
banks must have at least a ``Low Satisfactory'' on the Retail Lending 
Test to pass overall, but opposed eliminating the requirement that 
banks have a ``Satisfactory'' rating on the community development test 
to have ``Satisfactory'' rating overall, stating that there is no 
justification for removing this requirement.
Final Rule
    The agencies are finalizing proposed Sec.  __.29(b)(4), renumbered 
in the final rule as Sec.  __.30(c)(1) and (2), pertaining to an 
intermediate bank's performance conclusions and ratings, with revisions 
to provide separate provisions for conclusions and ratings. 
Specifically, the agencies are finalizing Sec.  __.30(c)(1), which 
provides that the agencies assign a conclusion for the performance of 
an intermediate bank evaluated pursuant to final Sec.  __.30 as 
provided in final appendices C and E. The agencies are also finalizing 
Sec.  __.30(c)(2), which provides that the agencies rate the 
performance of an intermediate bank evaluated pursuant to final Sec.  
__.30 as provided in final appendix D.
    The agencies are also finalizing as proposed the respective weights 
of the Retail Lending Test at 50 percent and either the Intermediate 
Bank Community Development Test or, at the bank's option, the Community 
Development Financing Test, also at 50 percent. The agencies note that 
they considered various weighting combinations to apply to a two 
performance-test analysis; however, the agencies have ultimately 
determined that the weights as finalized are appropriate, and did not 
increase the Retail Lending Test weight. The agencies continue to 
believe that the weight for each test, as finalized, reflects the CRA's 
emphasis on retail lending and the importance of community development 
activities in meeting community credit needs. In comparison to 
alternatives where a greater emphasis is placed on one of the two 
applicable performance tests, the agencies determined that an equal 
weighting on both tests best recognizes bank performance for both 
retail lending and community development and avoids diminution of one 
type of performance in favor of the other. The agencies also note that 
the weighting of the performance tests in the final rule is consistent 
with the current practice for

[[Page 7048]]

intermediate small banks, which gives equal weight to retail lending 
and community development activities.
    For the final rule, the agencies also considered the impact of the 
additional consideration of other activities, including community 
development services, on the weight of the performance tests. The 
agencies continue to believe that the flexibility intermediate banks 
have to decide which community development performance test better fits 
their bank will allow banks that currently participate heavily in 
community development services to continue to have these services 
evaluated under the Intermediate Bank Community Development Test or to 
have these community development services given additional 
consideration under the Community Development Financing Test. In 
addition, the agencies also believe that maintaining consistency in the 
evaluation framework outweighs additional adjustments based on which 
community development performance test applies to the intermediate 
bank.
    The agencies are also finalizing as proposed the requirement that 
an intermediate bank receive at least a ``Low Satisfactory'' on the 
Retail Lending Test for the bank to receive an overall ``Satisfactory'' 
rating. As the agencies explained in the proposal, this requirement 
serves to prevent a bank from receiving a ``Satisfactory'' or higher 
rating at the State or multistate MSA level or for the institution if 
it fails to meet its community's credit needs for retail loans. 
Consistent with current practice, the agencies are finalizing this 
requirement to emphasize the importance of retail loans to low- and 
moderate-income individuals, and in low- and moderate-income 
communities.
    Finally, the agencies believe that removal of the requirement that 
an intermediate bank receive a ``Satisfactory'' on both applicable 
performance tests in order to receive an overall ``Satisfactory'' CRA 
rating will allow intermediate banks to best determine how to meet 
community credit needs consistent with their more limited capacities. 
Moreover, the agencies believe this aspect of the final rule provides 
parity between intermediate and large banks, as this requirement is 
only applicable to intermediate small banks in the current rule, which 
holds these banks to a higher standard of performance than their larger 
counterparts.

Section __.31 Effect of CRA Performance on Applications

Current Approach
    Under the current CRA regulations, the agencies take into account a 
bank's CRA performance when considering certain applications, including 
but not limited to: the establishment of a domestic branch; a merger, 
consolidation, acquisition of assets, or assumption of liabilities; the 
relocation of a main office or branch; a deposit insurance request; and 
transactions subject to the Bank Merger Act, the Bank Holding Company 
Act, or the Home Owners' Loan Act.\1484\ In considering these 
applications, the agencies also take into account any views expressed 
by interested parties that are submitted in accordance with the 
applicable comment procedures.\1485\
---------------------------------------------------------------------------

    \1484\ See current 12 CFR 25.29(a) (OCC), 228.29(a) (Board), and 
345.29(a) (FDIC). The agencies' respective CRA regulations include 
provisions that relate directly to each of their specific 
authorities with regard to banking applications.
    \1485\ See current 12 CFR 25.29(c) (OCC), 228.29(b) (Board), and 
345.29(c) (FDIC).
---------------------------------------------------------------------------

    A bank's record of CRA performance may be the basis for denying or 
conditioning approval of an application.\1486\ In reviewing 
applications in which CRA performance is a relevant factor, information 
from a bank's CRA examination is a particularly important, and often 
controlling, factor in the consideration of a bank's record.\1487\ The 
agencies' consideration of CRA performance on applications implements 
the statutory requirement that the agencies take into account 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 bank, in evaluating applications for a deposit 
facility by such bank.\1488\
---------------------------------------------------------------------------

    \1486\ See current 12 CFR 25.29(d) (OCC), 228.29(c) (Board), and 
345.29(d) (FDIC).
    \1487\ See Q&A Sec.  __.29(a)-1.
    \1488\ See 12 U.S.C. 2903(a); see also 12 U.S.C. 2902(3).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to renumber current Sec.  __.29 to proposed 
Sec.  __.31 but did not propose any substantive changes to current 
Sec.  __.29.\1489\ The agencies sought feedback on the sufficiency of 
the agencies' current policies for considering CRA performance in 
connection with applications and whether any changes could make the 
process more effective.
---------------------------------------------------------------------------

    \1489\ Each agency proposed, and is finalizing, final Sec.  
__.31 as part of its agency-specific amendments.
---------------------------------------------------------------------------

Comments Received
    The agencies received comments related to proposed Sec.  __.31 from 
a variety of stakeholders. Some commenters provided input specifically 
on the effect of a bank's CRA rating on an application. One commenter 
stated that current policies related to the effect of CRA performance 
on applications are sufficient, with other commenters suggesting 
changes. Some of these commenters stated that an ``Outstanding'' CRA 
rating must not be considered evidence that a merging bank has 
satisfied the public benefits legal requirement \1490\ because the CRA 
rating is retrospective and does not consider the resulting bank, 
whereas another commenter suggested that the agencies deem a bank with 
an ``Outstanding'' CRA rating to have satisfied the convenience and 
needs standard for purposes of the application's processing to 
incentivize banks to achieve an ``Outstanding'' rating. Further, a 
commenter stated that banks with a poor CRA rating should be prevented 
from merging and another commenter suggested banks rated 
``Outstanding'' should be reviewed more closely when purchasing banks 
rated less than ``Outstanding.'' In a similar vein, a commenter 
supported efforts to hold banks accountable if they fail CRA 
examinations or wish to acquire a bank with a better CRA rating. Other 
commenters specifically called for greater public and regulatory 
scrutiny of applications by banks with a ``Low Satisfactory'' CRA 
rating and for a requirement that these banks submit a plan to improve 
their CRA rating. One commenter urged the agencies to state how a 
``Needs to Improve'' CRA rating would affect applications.
---------------------------------------------------------------------------

    \1490\ The agencies believe that the commenter is likely 
referring to the convenience and needs standard under the Bank 
Merger Act. See 12 U.S.C 1828(c)(5); see also 12 CFR 
5.33(e)(1)(ii)(C).
---------------------------------------------------------------------------

    Many commenters that provided input on proposed Sec.  __.31 also 
discussed the agencies' processes and standards for reviewing merger 
applications. Many of these commenters stated that the agencies must 
scrutinize mergers more closely to ensure that community credit needs, 
convenience and needs, and public benefits standards are met. 
Specifically, many of these commenters supported holding more frequent 
public meetings or soliciting more public comments when considering 
merger applications or suggested that public meetings should be held as 
a matter of course for all mergers; for all large bank merger 
applications; or whenever there are public comments, a request for a 
public

[[Page 7049]]

meeting, or for any applicants with less than an ``Outstanding'' CRA 
rating. Some commenters stated there should be at least 90 days in 
which to comment on a merger. In addition, some commenters stated that 
the agencies' review of mergers should include review of consumer 
complaints, community comments, and CFPB and other agency 
investigations. Many commenters suggested that the agencies should deny 
mergers unless an applicant demonstrates how a merger will benefit the 
community. Other commenters raised specific concerns about application 
delays associated with public comments, which they stated can result in 
significant increased costs and talent retention concerns.
    The agencies also received several comments relating to CBAs and 
community benefit plans (CBPs). Most commenters supported considering 
or otherwise encouraging CBAs or CBPs to be part of merger application 
reviews or endorsed requiring applicants to submit a CBA or CBP as part 
of the merger application process. Some commenters requested that the 
agencies monitor and enforce compliance with CBAs and CBPs.
Final Rule
    The agencies are adopting final Sec.  __.31 as proposed with one 
technical edit. Consistent with Federal Register drafting guidelines, 
the Agencies have replaced the word ``shall'' with the word ``must.'' 
\1491\
---------------------------------------------------------------------------

    \1491\ See National Archives, Office of the Federal Register, 
``Principals of Clear Writing,'' https://www.archives.gov/federal-register/write/legal-docs/clear-writing.html.
---------------------------------------------------------------------------

    The agencies believe that the current rule as well as final Sec.  
__.31 appropriately implement the statutory requirement that the 
agencies take a bank's CRA record into account in evaluating 
applications. As noted above, the current rule as well as final Sec.  
__.31 provide that a bank's record of performance under the CRA 
examination may be the basis for denying or conditioning approval of an 
application. Further, a bank's CRA performance is often a controlling 
factor in the consideration of a bank's record when reviewing 
applications in which CRA performance is a relevant factor.\1492\ The 
agencies also note that current regulations generally provide expedited 
application review for banks rated at least ``Satisfactory.'' \1493\
---------------------------------------------------------------------------

    \1492\ Q&A Sec.  __.29(a)-(1). See, e.g., 12 CFR 5.39(i)(5) 
(OCC), 208.75 (Board), and 362.18(b) (FDIC).
    \1493\ See 12 CFR parts 5 (OCC), 208 and 225 (Board), and 303 
(FDIC).
---------------------------------------------------------------------------

    The agencies note that CRA examinations are a retrospective 
evaluation of a bank's record of meeting the credit needs of its 
community, while a convenience and needs assessment under the Bank 
Merger Act is prospective and, as such, considers how the combined 
institution will serve the needs of its communities following 
consummation of the proposed transaction. Further, the agencies review 
a bank's CRA record comprehensively and believe that each application 
should be reviewed according to its specific facts and circumstances. 
In some cases, the CRA examination might not be recent, or a specific 
issue raised in the application process might not be reflected in the 
CRA rating (although it might be generally relevant to a CRA 
evaluation), such as a bank's progress in addressing weaknesses noted 
by examiners or implementing commitments previously made to the 
reviewing agency. In addition, pursuant to final Sec.  __.31(c), the 
agencies review public comments received on the application. Therefore, 
agency discretion is necessary during the application process with 
respect to taking into account a bank's CRA performance.
    The agencies appreciate the feedback on the Bank Merger Act 
application process and CBAs and CBPs, but note that these comments are 
outside the scope of this rulemaking.\1494\
---------------------------------------------------------------------------

    \1494\ Id. The comments on bank mergers are more applicable to 
the agencies' merger regulations and related processes. See 12 CFR 
parts 5 (OCC), 208 and 225 (Board), and 303 (FDIC).
---------------------------------------------------------------------------

Section __.42 Data Collection, Reporting, and Disclosure

Current Approach--Generally
Current Data Collection and Reporting Requirements
    Current Data Used for Deposits. The current CRA regulations do 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's Summary of Deposits 
are used for performance context for banks of any size. Deposits data 
by depositor location are not currently collected or reported.
    Current Small Bank and Intermediate Small Bank Data Standards for 
Retail Lending. The current CRA regulations do not require small banks 
and intermediate small banks 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.\1495\ Examiners generally use 
information for a bank's major loan products gathered from individual 
loan files or maintained on the bank's internal operating systems, 
including data reported pursuant to HMDA, if applicable.
---------------------------------------------------------------------------

    \1495\ See current 12 CFR __.42(f).
---------------------------------------------------------------------------

    Current Large Bank Data Standards for Retail Lending and Community 
Development Financing. Under the current CRA regulations, large banks 
collect and report certain lending data for home mortgages, small 
business loans, small farm loans, and community development loans, 
pursuant to either HMDA or the CRA regulation.\1496\ CRA data reporting 
requirements are based on bank size, not type of exam.\1497\ If a bank, 
such as a wholesale or limited purpose bank, does not engage in lending 
of a particular type, current regulations do not require reporting such 
data. Examiners use this lending data and other supplemental data to 
evaluate CRA performance. A bank may use the software provided by the 
FFIEC for data collection and reporting or develop its own programs. 
Retail lending data collection and reporting requirements differ based 
on the product line.
---------------------------------------------------------------------------

    \1496\ See current 12 CFR __.42.
    \1497\ See Q&A Sec.  __.42-1.
---------------------------------------------------------------------------

    For large banks that do not report HMDA data, examiners use home 
mortgage information maintained on the bank's internal operating 
systems or from individual loan files. The data elements for home 
mortgage loans used for CRA evaluations include loan amount at 
origination, location, and borrower income. For small business loans 
and small farm loans, the CRA regulations require 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.\1498\ Large banks report 
aggregate small business and small farm data at the census tract 
level.\1499\
---------------------------------------------------------------------------

    \1498\ See current 12 CFR __.42(a).
    \1499\ See current 12 CFR __.42(b)(1).
---------------------------------------------------------------------------

    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, it must collect and maintain this 
information based on the category of consumer loan and include it in 
its public file.\1500\
---------------------------------------------------------------------------

    \1500\ See current 12 CFR __.42(c)(1).
---------------------------------------------------------------------------

    The current CRA regulations also require large banks to report the 
aggregate number and dollar amount of their community development loans

[[Page 7050]]

originated or purchased during the evaluation period, but not 
information for individual community development loans.\1501\ A bank 
must, however, provide examiners with sufficient information to 
demonstrate its community development performance.\1502\ The CRA 
regulations do not currently require the reporting or collection of 
community development loans that remain on the bank's books or the 
collection and reporting of any information about 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 through 
reported data. Consequently, examiners supplement reported community 
development loan data with additional information provided by a 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.
---------------------------------------------------------------------------

    \1501\ See current 12 CFR __.42(b)(2).
    \1502\ See Q&A Sec.  __.12(h)-8, which states, in relevant part, 
``Financial institutions that want examiners to consider certain 
activities should be prepared to demonstrate the activities' 
qualifications.''
---------------------------------------------------------------------------

    Data Currently Used for CRA Retail Services and Community 
Development Services Analyses. There are no specific data collection or 
reporting requirements in the current CRA regulations for retail 
services or community development services. A bank must, however, 
provide examiners with sufficient information to demonstrate its 
performance in these areas, as applicable. A bank's CRA public file is 
required to include a list of bank branches, with addresses and census 
tracts; \1503\ a list of branches opened or closed; \1504\ 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.\1505\
---------------------------------------------------------------------------

    \1503\ See current 12 CFR __.43(a)(3).
    \1504\ See current 12 CFR __.43(a)(4).
    \1505\ See current 12 CFR __.43(a)(5).
---------------------------------------------------------------------------

    Banks have the option of including information regarding the 
availability of alternative systems for delivering services.\1506\ 
Banks may also provide information on community development services, 
such as the number of activities, bank staff hours dedicated, or the 
number of financial education sessions offered.
---------------------------------------------------------------------------

    \1506\ See id.
---------------------------------------------------------------------------

The Agencies' Proposal--Generally
    As discussed in more detail in the section-by-section analysis of 
Sec.  __.42, the agencies proposed data collection and reporting 
requirements to increase the clarity, consistency, and transparency of 
the evaluation process through the use of standard metrics and 
benchmarks. The agencies also recognized the importance of using 
existing data sources where possible and tailoring data requirements 
based on bank size where appropriate. The agencies proposed that all 
large banks, defined in proposed Sec.  __.12 as banks with assets of at 
least $2 billion in both of the prior two calendar years, would be 
subject to certain data requirements. Specifically, the agencies 
largely retained the existing large bank data collection and reporting 
requirements for small business and small farm lending in proposed 
Sec.  __.42(a)(1) and (b)(1), although the agencies proposed replacing 
these data with CFPB's section 1071 data once those data became 
available. The agencies also proposed that large banks collect and 
maintain data for branches and remote service facilities under proposed 
Sec.  __.42(a)(4)(i) and collect and report community development 
financing data under proposed Sec.  __.42(a)(5) and (b)(3). The 
proposal also provided updated standards for all large banks to report 
the delineation of their assessment areas under proposed Sec.  
__.42(f).
    The agencies also proposed new data requirements that would only 
apply to large banks with assets of over $10 billion. Specifically, the 
proposed rule required additional data collection and reporting for 
these large banks for automobile lending under proposed Sec.  
__.42(a)(2) and (b)(2); data collection for retail services and 
products under proposed Sec.  __.42(a)(4)(ii) (digital and other 
delivery systems) and under proposed Sec.  __.42(a)(4)(iii) (responsive 
deposit products); data collection and reporting for community 
development services under proposed Sec.  __.42(a)(6) and (b)(4); and 
data collection and reporting of deposits data under proposed Sec.  
__.42(a)(7) and (b)(5).
    Under the proposal, banks operating under an approved wholesale or 
limited purpose bank designation would not be required to collect or 
report deposits data or report retail services or community development 
services information. Intermediate banks, as defined in proposed Sec.  
__.12, would not be required to collect or report any additional data 
compared to current requirements, unless they opt into the proposed 
Community Development Financing Test. In addition, small banks, as 
defined in proposed Sec.  __.12, would not be required to collect or 
report any data beyond current requirements.
Comments Received
    The agencies received numerous comments that generally addressed 
the agencies' proposed data collection, reporting, and disclosure 
requirements. Many of these commenters expressed concern regarding the 
expected burden and utility of the data proposed to be collected and 
reported, but many also noted that the proposed rule's data 
requirements would improve the agencies' and the public's understanding 
of how banks serve their communities.
    Several commenters suggested that banks should be able to use data 
that they currently submit to government agencies in lieu of data that 
the agencies would require them to collect, maintain, and report for 
CRA purposes. These comments included the request that CDFI banks be 
permitted to submit CDFI Fund Annual Certification and Data Collection 
Report Forms in lieu of their CRA data requirements.
    A few commenters addressed the agencies' request for feedback on 
what data collection and reporting challenges, if any, exist for credit 
cards that could adversely affect the accuracy of metrics and 
benchmarks for credit card lending. For example, a few commenters 
disputed the proposal's suggestion that banks may not currently retain 
or have the capability to capture credit card borrower income at 
origination or subsequently. These commenters asserted that banks 
generally collect borrower income information on consumer credit card 
applications or at the time a credit card is issued, and suggested that 
the benefits of a metrics-based approach to evaluating consumer credit 
card lending (including more competition and better rates for low- and 
moderate-income consumers) would outweigh the modest cost of requiring 
banks to report this data. However, another commenter stated that the 
operational nature of credit card lending would not easily support the 
need for data collection and reporting; this commenter agreed that 
borrower income information is typically collected as part of the 
underwriting process, but noted that banks make underwriting decisions 
primarily based on an applicant's creditworthiness as revealed through 
credit bureaus, and borrower income information is not usually 
validated by banks. Another commenter identified difficulties in 
obtaining information that the

[[Page 7051]]

commenter views as necessary for evaluating the responsiveness of a 
consumer credit card loan, such as how and why a consumer is using a 
credit card loan (as opposed to another loan product), whether the 
credit card loan terms are responsive to the consumer's needs, and how 
equitable the terms are for low- and moderate-income and BIPOC 
consumers compared to other consumers.
Final Rule
    The agencies are finalizing the data collection and reporting 
requirements for large banks with several modifications to the data 
collection requirements. The data collection and reporting requirements 
in the final rule are necessary for the construction of the various 
metrics and benchmarks used in the Retail Lending Test, the Retail 
Services and Products Test, the Community Development Financing Test, 
and the Community Development Services Test, as well as various 
weighting calculations, all of which are at the core of the effort to 
modernize the CRA regulations. Additionally, the specific data 
collection and reporting requirements are an important component of the 
effort to increase consistency and transparency in the new rule--having 
consistently defined data for bank activities enables more consistent 
treatment of those activities in the examination process. The agencies 
are tailoring data collection and reporting requirements with regard to 
bank size and other characteristics with the intention of creating 
minimal additional burden.
    Regarding commenter suggestions that data already reported to 
government agencies be used in lieu of data required for CRA purposes, 
the agencies believe that the data requirements specified in the final 
rule are critical components to developing metrics and benchmarks. As 
such, the agencies believe that having different data requirements for 
a subset of institutions could create confusion and could impact the 
consistency of metrics and completeness of benchmarks.
    The agencies have considered the comments related to credit card 
lending. However, the agencies have determined to not evaluate consumer 
credit card lending in the Retail Lending Test, which is addressed in 
the section-by-section analysis of Sec.  __.22. Therefore, collection 
and maintenance of consumer credit card lending data will not be 
required.

Section __.42(a)(1) Information Required To Be Collected and 
Maintained--Small Business and Small Farm Loan Data

Section __.42(b)(1) Information Required To Be Reported--Small Business 
and Small Farm Loan Data

Current Approach
    The CRA regulations in current Sec.  __.42(a) require a bank, 
except a small bank, to collect, and maintain in prescribed machine 
readable form until the completion of the bank's next CRA examination, 
the following data for each small business or small farm loan 
originated or purchased by the bank: (1) a unique number or alpha-
numeric symbol that can be used to identify the relevant loan file; (2) 
the loan amount at origination; (3) the loan location; and (4) an 
indicator whether the loan was to a business or farm with gross annual 
revenues of $1 million or less.\1507\
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    \1507\ See current 12 CFR __.42(a)(1) through (4).
---------------------------------------------------------------------------

    The regulations in current Sec.  __.42(b) also require that a bank, 
except a small bank or a bank that was a small bank during the prior 
calendar year, report annually by March 1 in machine readable form, to 
the appropriate agency, small business and small farm loan data. The 
current regulations require the bank to report for each geography in 
which the bank originated or purchased a small business or small farm 
loan, the aggregate number and amount of loans: (1) with an amount at 
origination of $100,000 or less; (2) with an amount at origination of 
more than $100,000 but less than or equal to $250,000; (3) with an 
amount at origination of more than $250,000; and (4) to businesses and 
farms with gross annual revenues of $1 million or less (using the 
revenues that the bank considered in making its credit decision).
The Agencies' Proposal
    The agencies proposed to expand the data requirements in current 
Sec.  __.42(a)(1) by expanding the collection and maintenance of the 
following data related to small business loan and small farm loan 
originations and purchases by the bank: (1) a unique number or alpha-
numeric symbol that can be used to identify the relevant loan file; (2) 
an indicator for the loan type as reported on the bank's Call Report; 
(3) the date of the loan origination or purchase; (4) loan amount at 
origination or purchase; (5) the loan location (State, county, census 
tract); (6) an indicator for whether the loan was originated or 
purchased; and (7) an indicator for whether the loan was to a business 
or farm with gross annual revenues of $1 million or less.
    The agencies also proposed to revise current Sec.  __.42(b)(1) to 
require that all large banks report by April 1 on an annual basis the 
aggregate number and amount of small business loans and small farm 
loans for the prior calendar year for each census tract in which the 
bank originated or purchased a small business or small farm loan by 
loan amounts in the categories of $100,000 or less, more than $100,000 
but less than or equal to $250,000, and more than $250,000. This 
proposed provision also required large banks to report the aggregate 
number and amount of small business and small farm loans to businesses 
and farms with gross annual revenues of $1 million or less (using the 
revenues that the bank considered in making its credit decision). The 
proposed gross annual revenue data would allow the agencies to conduct 
a borrower distribution analysis that shows the level of lending to 
small businesses of different revenue sizes.
    The agencies also requested feedback on whether banks should be 
required to collect and report an indicator on loans made to businesses 
or farms with gross annual revenues of $250,000 or less or whether 
another gross annual revenue threshold should be collected that better 
represents lending to the smallest businesses or farms during the 
interim period before the CFPB Section 1071 Final Rule comes into 
effect.
Comments Received
    Several commenters addressed the agencies' proposed alignment of 
the CRA definitions of ``small business'' and ``small farm'' to the 
CFPB's section 1071 definition of ``small business.'' A few of these 
commenters addressed the impact this alignment would have on purchases 
of small business and small farm loans. More specifically, a commenter 
sought clarification about how banks could count purchases of small 
business and small farm loans in the CRA evaluation when the CFPB's 
definition would only include originations. This commenter requested 
that the agencies consider including purchased loans even if not 
accounted for in a bank's CFPB's section 1071 data reporting 
requirements. Another commenter expressed concern that such alignment 
would penalize banks that rely heavily on purchases of indirect small 
business loans from dealers, such as commercial automobile loans. This 
commenter urged the agencies to wait until the CFPB's Section 1071 
Proposed Rule is finalized to determine its implications on a bank's 
CRA performance before implementing portions of the final rule

[[Page 7052]]

that would require such data. A few other commenters addressed the 
alignment of the CRA definitions of ``small business'' and ``small 
farm'' to the CFPB's section 1071 definition of ``small business,'' 
with mixed views. A commenter supported the agencies' proposed 
alignment of the definitions and the resulting increase in reported 
business loans stating it would be beneficial by providing a more 
comprehensive picture of credit supply in communities. This commenter 
also recommended including in the CRA evaluation small business loans 
that are supported by personal guarantees secured by liens on 
residential property. This commenter noted that currently these loans 
are not reported under either HMDA or CRA, resulting in a significant 
underreporting of small business loan volume. By contrast, multiple 
other commenters did not support the agencies' proposal because it 
would mean that every loan made by a community bank would be a small 
business loan or small farm loan, subject to reporting. These 
commenters argued that doing so would impose significant new data 
collection and reporting requirements on community banks that opt-in to 
the Retail Lending Test. Several commenters further emphasized the 
importance of reconciling the differences between the CRA definitions 
and the CFPB's section 1071 definition, with one commenter noting that 
aligning the CRA definitions of ``small business'' and ``small farm'' 
to the CFPB's Section 1071 Final Rule would be confusing for banks that 
would still be required to report small business loans for purposes of 
the Call Report. This commenter recommended that the agencies retain 
the current definition so that it aligns with the Call Report 
definition. Another commenter stated that because businesses may be 
serving multiple locations, identifying a single location for purposes 
of geocoding small business loans may not be feasible (same as with 
community development loans).
    Commenters that addressed the agencies request for feedback on 
whether banks should collect and report an indicator on loans made to 
businesses or farms with gross annual revenues of $250,000 or less or 
whether another gross annual revenue threshold should be collected that 
better represents lending to the smallest businesses or farms during 
the interim period before the CFPB's Section 1071 Final Rule comes into 
effect, expressed mixed views. A few of the commenters supported no 
additional indicators during the transition, while a few other 
commenters supported the indicator in the interim. The commenters that 
supported establishing the gross annual revenue amount at $250,000 or 
less also supported adding a second indicator for businesses with 
revenues of $100,000 and less. A few other commenters made other 
recommendations. For example, a commenter suggested that banks should 
collect an indicator for loans made to a business or farm that 
identifies the size of the business or farm using the ``small 
business'' definition from section 8(d) of the Small Business Act or 
section 3(p) of the Small Business Act (``qualified HUBZone small 
business concern'') rather than gross annual revenues of $250,000. 
Another commenter recommended that banks should report indicators for 
the smallest of businesses with gross annual revenues of $500,000 and 
that providing indicators for businesses of various sizes should be 
encouraged if that is similar or the same as to how the CFPB's Section 
1071 Final Rule is structured. Finally, a commenter asked the agencies 
to clarify that in the case of a small business loan, a bank could rely 
on gross annual revenue information provided by third-party sources if 
the banks does not (and is not otherwise required to) collect that 
information directly from the borrower.
Final Rule
    The agencies are adopting Sec.  __.42(a)(1) (collection and 
maintenance) and Sec.  __.42(b)(1) (reporting) largely as proposed, 
with some revisions upon consideration to comments.
    Specifically, the agencies are revising the data collection and 
maintenance requirements for small business and small farm loans by 
revising proposed Sec.  __.42(a)(1)(vii) to indicate whether a loan was 
to a business or farm with gross annual revenues of $250,000 or less, 
rather than $1 million or less as proposed. The agencies are also 
adopting new Sec.  __.42(a)(1)(viii) through (x) to indicate, 
respectively, whether a loan was to a business or farm with gross 
annual revenues greater than $250,000 but less than or equal to $1 
million; whether the loan was to a business or farm with gross annual 
revenues greater than $1 million; and whether the loan was to a 
business or farm for which gross annual revenues are not known by the 
bank. As a result of the changes made to the small business and small 
farm loan data collection and maintenance, the agencies are also making 
conforming changes to the information required to be reported for these 
data by adopting new Sec.  __.42(b)(1)(v) through (vii). Finally, the 
agencies are requiring that a large bank must collect and maintain 
these data until the completion of the bank's next CRA examination in 
which the data are evaluated.
    The agencies believe incorporating the new indicators to the data 
collection and reporting of small business and small farm lending will 
facilitate and add efficiency to the distribution analysis under the 
Retail Lending Test. Specifically, the new indicators will allow the 
agencies to calculate metrics and market benchmarks used to evaluate a 
bank's distribution of lending to small businesses and small farms in 
different gross annual revenues categories ($250,000 or less, and 
between $250,000 and $1 million) prior to the agencies' use of section 
1071 data. As discussed in the section-by-section analysis of final 
Sec.  __.22(e), the agencies believe that evaluating a bank's 
distribution of lending to small businesses and small farms of 
different sizes, based on gross annual revenues, will support a more 
comprehensive evaluation. The agencies determined that the additional 
indicators in the final rule would not be especially burdensome, 
because large banks already collect and maintain small business and 
small farm data that includes similar data points, such as indicating 
whether a loan is made to a business or farm with gross annual revenues 
of $1 million or less. Furthermore, once banks must comply with 
reporting small business loan data under the section 1071, they will be 
required to collect and maintain gross annual revenues information for 
small business and small farm borrowers, which is consistent with the 
new indicators in the final rule approach. In light of these 
considerations, the agencies determined that these new required 
indicators for large banks are appropriate and will result in more 
comprehensive evaluations of retail lending performance.
    Regarding required data fields for the loan amount at origination 
or purchase, loan location, and whether the loan was either originated 
or purchased by the bank, the agencies determined that these data 
points are substantively consistent with current data collection 
procedures for large banks, and will allow the agencies to calculate 
the various metrics, benchmarks, and other quantitative components of 
the Retail Lending Test evaluation.
    For small and intermediate banks, consistent with the current 
evaluation approach and the agencies' proposal, the final rule does not 
require data collection, maintenance, or reporting of small business 
loan or small farm loan data. For banks that do not collect and

[[Page 7053]]

maintain these data in electronic form, the agencies may evaluate the 
banks' distribution of lending to low- and moderate-income census 
tracts, small businesses, and small farms, using the bank's own data, 
or using sampling of a bank's own records, as under current examination 
procedures. The agencies believe it is appropriate to maintain the 
current approach for small and intermediate bank data requirements in 
order to limit additional burden and complexity for these banks, in 
recognition that they may have lower capacity to adjust to regulatory 
changes.
    The agencies have determined not to add an indicator for loans made 
to small businesses or small farms with revenues of $100,000 or less. 
The agencies determined that an indicator for $250,000 gross annual 
revenue threshold rather than the $100,000 gross annual revenue 
threshold was appropriate primarily to achieve consistency between the 
categories of small businesses and small farms in the Retail Lending 
Test and the impact and responsiveness review factors used in 
evaluating community development activities, which considers activities 
supporting small businesses or small farms with gross annual revenues 
of $250,000 or less.
    Similarly, the agencies have determined not to add an indicator for 
loans made to a business or farm using the Small Business Act's 
definition of ``small business.'' The multiple approaches that the 
Small Business Act uses to define small businesses would add 
unnecessary complexity and would add burden to banks by requiring them 
to collect additional data to that required under the CFPB's section 
1071 process, in order to determine whether businesses or farms qualify 
as small businesses. Rather, the agencies have determined that using 
the gross annual revenue criteria defined in the CFPB's Section 1071 
Final Rule as the basis for identifying small businesses and small 
farms for purposes of CRA is appropriate. This approach supports the 
CRA final rule's goals of consistency and transparency.
    In response to comments regarding the alignment of the agencies' 
CRA definitions of ``small business'' and ``small farm'' to the section 
1071 definition of ``small business'' and the impact on purchases of 
small business and small farm loans, the final rule would allow banks 
to include purchases of small business and small farm loans in the 
numerator of their relevant retail lending metrics, at the bank's 
option, once the transition to section 1071 data occurs.\1508\ However, 
because purchases would not be included in the CFPB's section 1071 
data, banks electing to include such loans in their relevant retail 
lending metrics would need to collect and maintain these data. The bank 
would provide the collected data to the examiner to incorporate into 
the metric and the subsequent distribution analysis. These data would 
not be reported and would not be included in any aggregate data used 
for the creation of benchmarks. Allowing banks, at their option, to 
include these purchases of small business and small farm loans would 
maintain consistency in the Retail Lending Test regarding treatment of 
closed-end home mortgage loans and small business and small farm loans.
---------------------------------------------------------------------------

    \1508\ The transition amendments included in this final rule 
will permit the agencies to transition the CRA data collection, 
maintenance, and reporting requirements for small business loans and 
small farm loans to section 1071 data. This is consistent with the 
agencies' intent articulated in the preamble to the proposal and 
elsewhere in this final rule to transition to 1071 data for small 
business loan and small loan data under the CRA regulations. The 
agencies will provide notice of the effective date of this amendment 
in the Federal Register once section 1071 data are available.
---------------------------------------------------------------------------

    The agencies are sensitive to commenters' concerns regarding the 
potential burden imposed on community banks created by the agencies' 
alignment of the definitions of ``small business'' and ``small farms'' 
to the CFPB's definition of ``small business'' and the potential 
confusion created for banks that will be required to report small 
business loans for purposes of CRA using the Call Report definition 
during the transition period. While some banks may have to collect and 
report data for both regulations for a limited amount of time, the 
agencies note that once the agencies transition to using section 1071 
data, under the CRA final rule, small business and small farm loans 
will only be reported in accordance with the definition and reporting 
requirement of the CFPB's Section 1071 Final Rule. After the transition 
to the section 1071 data takes effect, there is no additional data 
reporting burden created by the CRA final rule with regard to small 
business and small farm lending data. In addition, the agencies 
acknowledge commenter sentiment that aligning the CRA definitions of 
``small business'' and ``small farm'' to the CFPB's section 1071 rule 
would be confusing for banks. The agencies note that banks will be 
required to report data using both the CFPB's section 1071 definition 
and Call Report definition regardless of whether the CRA regulation 
aligns to either of them. The agencies believe that the CFPB's section 
1071 definition is a more appropriate definition of small businesses 
and small farms for the purposes of identifying small business lending 
and small farm lending. The Call Report and current CRA definitions 
define these loans on the basis of the size of the loan, rather than on 
the basis of characteristics of the borrower (such as the gross annual 
revenue of the business). As such, ``small business loans'' included in 
the Call Reports and in CRA evaluations may be made to companies and 
farms that could reasonably be considered large businesses and large 
farms (which sought loans small enough to be reported on the Call 
Report and the CRA evaluations). Given that the CFPB's section 1071 
definition and reporting requirement exists as a result of the CFPB's 
Section 1071 Final Rule, and the Call Report definition exists as a 
result of the existing Call Report reporting requirements, the CRA 
final rule does not create any additional burden as a result of which 
definition it uses between those two.
    The agencies have determined not to adopt the commenter's 
recommendation that the agencies retain the current definition so that 
it aligns with the Call Report definition. The definition used by the 
CFPB's section 1071 process is preferable because it is better targeted 
towards loans to small businesses and small farms and provides data 
regarding a broader set of small business and small farm lenders.
    The agencies are also clarifying that the data reported through the 
CFPB's section 1071 process will be used as the foundation of small 
business and small farm data collection. The CFPB's Section 1071 Final 
Rule requires that if a financial institution is unable to collect or 
determine the gross annual revenue of the applicant through applicant-
provided data, the financial institution is required to report that the 
gross annual revenue is ``not provided by applicant and otherwise 
undetermined.'' \1509\
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    \1509\ 88 FR 35150, 35553 (May 31, 2023).
---------------------------------------------------------------------------

    Finally, the agencies acknowledge commenter sentiments that there 
are situations in which identifying a single location for the purposes 
of geocoding small business loans can be difficult, such as when a 
small business has multiple locations. The agencies have addressed this 
situation in the current data reporting guide.\1510\ A small business 
or small farm loan is located in the geography where the main business 
facility or farm is located or where the

[[Page 7054]]

loan proceeds otherwise will be applied, as indicated by the 
borrower.\1511\
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    \1510\ See FFIEC, ``A Guide to CRA Data Collection and 
Reporting'' (2015), https://www.ffiec.gov/cra/pdf/2015_CRA_Guide.pdf.
    \1511\ See id.
---------------------------------------------------------------------------

Section __.42(a)(2) Information Required To Be Collected and 
Maintained--Consumer Loans Data--Automobile Loans

    Under the CRA current regulations, banks are not required to 
collect, maintain, or report data for consumer loans under current 
Sec.  __.42(c)(1). Current Sec.  __.42(c)(1) provides that a bank may 
collect and maintain data for consumer loans originated or purchased by 
the bank for consideration under the lending test. A bank may maintain 
data for one or more of the following categories of consumer loans: 
motor vehicle, credit card, other secured, and other unsecured. If the 
bank maintains data for loans in a certain category, it must maintain 
the data for all loans originated or purchased within that category, 
and must collect and maintain the data in machine readable form as 
prescribed by the appropriate agency. The data must be maintained 
separately for each category of loans including for each loan: (1) a 
unique number or alpha-numeric symbol that can be used to identify the 
relevant loan file; (2) the loan amount at origination or purchase; (3) 
the loan location; and (4) the gross annual income of the borrower that 
the bank considered in making its credit decision. The data collected 
and maintained are not reported but provided to examiners at the time 
of the bank's CRA examination.
The Agencies' Proposal
    The agencies proposed in Sec.  __.42(a)(2) that automobile loans 
would be the only consumer loan category with data collection and 
reporting requirements. Specifically, the agencies proposed that banks 
with assets of over $10 billion in both of the prior two calendar years 
would be required to collect and maintain, until the completion of the 
bank's next CRA examination, the following data for automobile loans 
originated or purchased by the bank during the evaluation period: (1) a 
unique number or alpha-numeric symbol that can be used to identify the 
relevant loan file; (2) the date of loan origination or purchase; (3) 
the loan amount at origination or purchase; (4) the loan location 
(State, county, census tract); (5) an indicator for whether the loan 
was originated or purchased by the bank; and (6) the borrower's annual 
income the bank relied on when making its credit decision.
    Proposed Sec.  __.42(b)(2) required a bank with average assets of 
over $10 billion in both of the prior two calendar years to report 
annually by April 1 to the appropriate agency, the aggregate number and 
amount of automobile loans for each census tract in which the bank 
originated or purchased an automobile loan and the number and amount of 
those loans made to low- and moderate-income borrowers. The proposal 
required that these banks report the data in machine readable form, as 
prescribed by the agencies. The agencies did not propose to make 
reported automobile lending data publicly available.
Comments Received
    A few commenters addressed the agencies' proposal to require 
automobile lending data, generally. A commenter asked for clarification 
on whether the data would be submitted in aggregate form as it would be 
required for community development loans, or whether it would be 
required in CRA Loan Application Register format. Other commenters 
recommended that the agencies reconsider the requirement to collect 
automobile lending data. A commenter stated that if consumer data is 
wanted, then general information should be required to be reported, but 
drilling down to a particular consumer product is too extensive and 
burdensome. Another commenter supported the agencies' proposal to 
require new automobile lending data collection and reporting by banks 
with assets of over $10 billion; the commenter further suggested that 
the data would allow for better analysis of automobile lending patterns 
compared to existing data sources, such as credit reporting agency 
data. This commenter also supported optional data collection for small 
banks and intermediate banks that elect evaluation under the Retail 
Lending Test given suggested data collection and reporting burden banks 
might face with respect to automobile lending data requirements. 
Another commenter argued that the statutory authority for this data 
collection was thin, and that dropping automobile lending from the 
Retail Lending Test would eliminate the need for this data collection.
    The agencies solicited specific feedback on whether the final rule 
should also include automobile loan data requirements for large banks 
with assets of $10 billion or less. Most commenters were in favor of 
expanding this requirement to all large banks, rather than only make 
this a requirement for banks with assets of over $10 billion. One of 
these commenters stated that expanding the requirement to banks with 
$10 billion or less in assets would better support a fair lending 
analysis and ensure that banks are providing consumers with fair and 
affordable automobile loans. Another commenter recommended expanding 
the automobile lending data requirements to all large banks and all 
wholesale and limited purpose banks with assets over $10 billion. Many 
commenters noted that including automobile loan data only from banks 
with assets above $10 billion would create an incomplete and misleading 
impression of the automobile lending market.
    Several commenters recommended an expansion in the data collected 
to include consumer lending more broadly, with a commenter suggesting 
that banks with assets of $10 billion or less should have the option to 
collect, maintain, and report these data. A few commenters did not 
support expansion of automobile loan data collection to large banks 
with assets of $10 billion or less, with one commenter noting the 
associated burden and cost. The other commenter did not support 
additional reporting of automobile lending for any large bank.
    The agencies also sought specific feedback on whether they should 
streamline any of the proposed data fields for collecting and reporting 
automobile data. A few of the commenters addressing this question felt 
that the proposed data fields were minimal, and they could not identify 
how it could be further streamlined, while a few suggested further 
streamlining or using as few fields as possible. Another commenter 
asked the agencies to investigate the use of market sources for 
automobile lending data and that data collected should include the full 
cost of the loan to the consumer.
    The agencies did not propose to publish automobile lending data for 
individual banks in the form of a data set because the agencies were 
mindful of having appropriate limits on the use of collected and 
reported automobile lending data. However, the agencies sought feedback 
on whether it would be useful to consider publishing county-level 
automobile lending data in the form of a data set. Most of the 
commenters addressing this question urged the agencies to make all the 
data publicly available. Some commenters expressed the view that the 
availability of these data would hold banks accountable for their 
lending to underserved communities and minorities. In addition, two 
commenters wanted the county-level data to include information on 
whether the borrower lived in low- or moderate-income

[[Page 7055]]

census tracts or was a low- or moderate-income individual. A commenter 
wanted the data to be provided at the lowest geographic level (ideally, 
census tracts). Another commenter favored the release of the county-
level data because it would be helpful in self-evaluation of CRA 
performance.
Final Rule
    The agencies have considered the comments received and are adopting 
Sec.  __.42(a)(2) pertaining to the collection and maintenance of 
automobile lending data, with significant modifications narrowing the 
number of banks that would be subject to this requirement. 
Specifically, the agencies are revising proposed Sec.  __.42(a)(2), 
renumbered in the final rule as Sec.  __.42(a)(2)(i) to require the 
collection and maintenance of automobile loan data, as detailed below, 
for a large bank for which automobile loans are a product line (i.e., 
if the bank is a majority automobile lender or opts to have its 
automobile loans evaluated pursuant to Sec.  __.22). The agencies are 
also adopting new Sec.  __.42(a)(2)(ii) which provides that a bank, 
other than a large bank, for which automobile loans are a product line 
may collect and maintain the automobile loan data required of large 
banks as detailed below.
    The data collection and maintenance requirement is a change from 
the proposal, which would have required automobile lending data for all 
large banks with assets of over $10 billion. This change limits the 
required collection of automobile loan data to only those large banks 
for which automobile lending is the majority of their retail lending or 
which opt to have their automobile loans evaluated pursuant to Sec.  
__.22. Not adding a data collection requirement for smaller banks is 
consistent with the agencies' goal of requiring no new data collection 
and reporting for small and intermediate banks. The agencies continue 
to believe it is important for large banks for which automobile lending 
is a product line to collect and maintain data for automobile loans 
because these data will help enable the agencies to calculate the 
bank's distribution metrics under the Retail Lending Test. For example, 
the agencies would use loan location and borrower income information to 
calculate borrower distribution metrics, and would use loan amount 
information to calculate the Bank Volume Metric and various weights 
used to develop Retail Lending Test conclusions. The agencies would use 
information regarding whether a loan was purchased or originated in 
conjunction with the final Sec.  __.22(g)(1) additional factor. The 
agencies would also use loan location and loan count data as the basis 
for weighting component geographic areas for the construction of 
weighted average benchmarks for a bank's outside retail lending area.
    The agencies note that they considered various options regarding 
whether and how to collect automobile lending data. This included using 
third-party sources for automobile lending data. In order to evaluate 
automobile lending, the agencies believe it is appropriate to require 
the collection of automobile lending data from large banks for which 
automobile loans are a product line, due to the unavailability of these 
data from any source other than the banks themselves.
    The agencies are finalizing the data to be collected and maintained 
in proposed Sec.  __.42(a)(2)(i) through (vi), renumbered in final as 
Sec.  __.42(a)(2)(iii)(A) through (F) for each automobile loan 
originated or purchased by the bank until the completion of the bank's 
next CRA examination in which the data are evaluated. The agencies 
believe the data fields, as finalized, are sufficient for purposes of 
the evaluation of automobile lending in the Retail Lending Test.
    The agencies have considered commenter feedback that suggests 
requiring additional data, such as the full cost of the loan to the 
consumer. The agencies have determined to not add this data point among 
the set of data collected for the Retail Lending Test. The agencies 
note that under current CRA and the final rule, the retail lending 
evaluation focuses on distributional analyses of lending to low- and 
moderate-income census tracts and low- and moderate-income borrowers 
(and small businesses and small farms).
    In response to comments, the agencies believe that focusing the 
collection and maintenance of automobile lending data on large banks 
for which the majority of their retail lending is automobile lending, 
or which opt to have their automobile loans evaluated pursuant to Sec.  
__.22, strikes an appropriate balance between minimizing burden, 
tailoring requirements for banks of different sizes and business 
models, and enabling an appropriate evaluation of banks' retail 
lending. In the final rule, data collection and maintenance of 
automobile lending remains optional for intermediate banks, and small 
banks that opt to be evaluated under the Retail Lending Test, for which 
automobile loans are a product line.
    The agencies considered the comments regarding requiring automobile 
loan data for large banks with assets of $10 billion or less. After 
weighing the costs and benefits from requiring data from a broader 
range of banks, as explained above, the agencies decided to tailor the 
data collection requirement according to bank size and whether 
automobile lending constituted the majority of a bank's lending. The 
agencies will evaluate automobile lending for all banks evaluated under 
the Retail Lending Test for which automobile lending is the majority of 
their lending or which opt to have their automobile loans evaluated 
pursuant to Sec.  __.22. Large banks (not just large banks with assets 
above $10 billion) meeting these criteria will be required to collect 
and maintain these data. This will provide a more complete evaluation 
of automobile lending by banks, while still limiting the data burden 
for smaller banks and for banks for which automobile lending is not the 
majority of their lending. In response to the commenter that suggested 
expanding this data requirement to banks with assets of $10 billion or 
less to better support a fair lending analysis, the agencies note that 
fair lending analyses are not part of the CRA evaluation process.
    In response to commenters suggesting an expansion of data 
collection to include all consumer lending products, the agencies have 
determined not to add this recommendation to the regulation. While 
consumer lending products are important in fulfilling credit needs of 
low- and moderate-income borrowers, the agencies continue to believe 
that consumer loans span multiple product categories that are 
heterogeneous in meeting low- and moderate-income credit needs and are 
difficult to evaluate on a consistent quantitative basis. Therefore, in 
the final rule, the agencies will consider the qualitative aspects of 
all other consumer loans, apart from automobile loans, under the Retail 
Services and Products Test without data collection and maintenance 
requirements specified in Sec.  __.42, as explained in more detail in 
the section-by-section analysis of Sec.  __.23.
    Regarding the agencies' statutory authority to collect automobile 
lending data, the agencies believe that the CRA's provision, which 
requires the agencies to ``assess the institution'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'' \1512\ is sufficiently broad to cover the evaluation 
of a bank's automobile

[[Page 7056]]

lending in the Retail Lending Test and, therefore, believe collection 
of these data will serve the purposes of the CRA.
---------------------------------------------------------------------------

    \1512\ 12 U.S.C. 2903(a)(1).
---------------------------------------------------------------------------

    Finally, the final rule does not adopt the reporting requirement 
for automobile lending in proposed Sec.  __.42(b)(2). The agencies also 
explored the availability of market sources for data on banks' 
automobile lending to use, as suggested by a commenter, and were unable 
to find any reliable source appropriate for the applications needed for 
the Retail Lending Test. In response to comments received, inadequacy 
of available data, and the agencies' further analysis, the agencies 
have determined not to establish market benchmarks for automobile 
lending, as discussed further in the section-by-section analysis of 
Sec.  __.22.
    The agencies have also considered comments received regarding the 
publication of automobile loan data. As explained above, the final rule 
does not adopt a reporting requirement for automobile lending data. As 
such, any consideration of public disclosure of these data has 
effectively been removed.

Section __.42(a)(3) Information Required To Be Collected and 
Maintained--Home Mortgage Loan Data

Current Approach
    The CRA regulations in current Sec.  __.42(b)(3) require a bank, 
except for a small bank or a bank that was a small bank during the 
prior calendar year, to report annually by March 1 to the Board, FDIC, 
or OCC, as applicable, and in machine readable form as prescribed by 
that agency, the location of each home mortgage loan application, 
origination, or purchase outside the MSAs in which the bank has a home 
or branch office (or outside any MSA) in accordance with the 
requirements of 12 CFR part 1003. Interagency guidance explains that 
institutions that are not required to collect home mortgage loan data 
by HMDA need not collect home mortgage loan data under this provision 
of CRA.\1513\ If a bank wants to ensure that examiners consider all of 
its home mortgage loans, the institution may collect and maintain the 
data on these loans.
---------------------------------------------------------------------------

    \1513\ See Q&A Sec.  __.42(b)(3)-1.
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to revise current Sec.  __.42(b)(3), 
renumbered in the proposal as Sec.  __.42(a)(3), to require certain 
banks to collect and maintain certain home mortgage loan data, similar 
to current practice. Specifically, if a bank is a HMDA reporter, the 
agencies proposed to require a bank (other than a small bank or 
intermediate bank) to collect and maintain, in machine readable form as 
prescribed by the Board, FDIC, or OCC, as applicable, until the 
completion of its next CRA examination, the location of each home 
mortgage loan application, origination, or purchase outside of the MSAs 
in which the bank has a home or branch office (or outside any MSA) in 
accordance with the requirements of 12 CFR part 1003.
    The agencies sought feedback on whether certain banks that are not 
mandatory reporters under HMDA should be required to collect and 
maintain, or report, mortgage loan data if they engage in a minimum 
volume of home mortgage lending. The agencies described an option that 
would require any large bank that is not a mandatory HMDA reporter due 
to the locations of its branches, but that otherwise meets the HMDA 
size and lending activity requirements, to collect, maintain, and 
report the mortgage loan data necessary to calculate the retail lending 
volume screen and distribution metrics in the proposed Retail Lending 
Test in Sec.  __.22.
    The agencies also solicited specific feedback on whether the 
benefits of requiring home mortgage loan data collection and reporting 
by non-HMDA reporter large banks that engage in a minimum volume of 
mortgage lending outweigh the burden associated with the data 
collection, and whether the further benefit of requiring these data to 
be reported outweighs the additional burden of reporting.
Comments Received
    The agencies received comments on several aspects of data 
collection and maintenance for home mortgage lending data. A majority 
of commenters supported expanding home mortgage loan data collection, 
maintenance, and reporting to non-HMDA reporter large banks that engage 
in a minimum volume of mortgage lending. These commenters generally 
believed the benefits would outweigh the burden associated with such a 
requirement. In support of this view, one of these commenters stated 
that even with limited volume mortgage lending there could be high 
denial rates and disparities in loan terms that the agencies need to 
review. A few commenters also noted that in addition to expanding the 
data, the data should be available by race and ethnicity, while another 
commenter noted that the benefit of added transparency for rural areas 
of collecting and publishing these data would outweigh the burden 
placed on these large banks.
    By contrast, a commenter argued against expanding HMDA data 
collection to non-HMDA reporting banks because this would exacerbate an 
existing regulatory imbalance between banks' and non-bank mortgage 
lenders' level of regulatory scrutiny. Finally, several of the 
commenters addressing this issue of requiring HMDA data collection to 
non-HMDA reporting banks also stated that the previous reporting 
threshold of 25 closed-end loans should be implemented.
Final Rule
    The agencies are finalizing proposed Sec.  __.42(a)(3), renumbered 
in the final rule as Sec.  __.42(a)(3)(i) with a few wording changes. 
Similar to the current rule, the final rule requires large banks that 
are HMDA reporters to collect and maintain the location of each home 
mortgage loan application, origination, or purchase outside the MSAs in 
which the bank has a home or branch office, or outside any MSAs. The 
agencies believe this requirement is appropriate and consistent with 
current practice. In addition, the agencies are adopting new Sec.  
__.42(a)(3)(ii) to implement certain data requirements for certain non-
HMDA reporters. Specifically, final Sec.  __.42(a)(3)(ii) requires a 
large bank that is not a mandatory HMDA reporter due to the location of 
its branches but that otherwise meets the HMDA size and lending 
activity requirements, to collect and maintain the mortgage loan data 
necessary to calculate the retail lending volume screen and 
distribution metrics. Such large banks will be required to collect and 
maintain in electronic form, as prescribed by the Board, FDIC, or OCC, 
as applicable, until the completion of the bank's next CRA examination 
in which the data are evaluated, the following data for each closed-end 
home mortgage loan, excluding multifamily loans, originated or 
purchased during the evaluation period: (1) A unique number or alpha-
numeric symbol that can be used to identify the relevant loan file; (2) 
the date of the loan origination or purchase; (3) the loan amount at 
origination or purchase; (4) the location of each home mortgage 
origination or purchase, including county, State and census tract; (5) 
the gross annual income the bank relied on in making the credit 
decision; and (6) an indicator for whether the loan was originated or 
purchased by the bank. The agencies believe these data fields 
sufficiently allow for the calculation of all the bank's retail lending 
metrics for mortgage lending, clarify expectations for banks, and 
facilitate a more complete

[[Page 7057]]

and accurate analysis by including this information in the bank 
metrics.
    In recognition of their more limited capacities and to avoid unduly 
burdening small banks and intermediate banks, the new requirements in 
Sec.  __.42(a)(3)(ii) only apply to certain large banks. In this 
regard, the agencies are requiring HMDA-equivalent data collection only 
for a very limited set of large banks, including only those banks that 
would otherwise be required to report HMDA data but for a bank having 
no branches within metropolitan areas. The agencies believe this 
strikes an appropriate balance by evaluating mortgage lending data for 
all large banks with sufficient mortgage lending activity to trigger 
HMDA reporting requirements.
    In reaching this determination, the agencies have considered 
commenter feedback on the issue of whether to expand the collection and 
maintenance of certain mortgage loan data for non-HMDA reporters. The 
agencies believe this decision strikes an appropriate balance between 
the need to collect and evaluate data from banks with substantial 
mortgage lending in an area and the importance of tailoring data 
collection burden to bank size. In response to the comments regarding 
the impact this change would have on the existing imbalance between 
banks' and non-bank mortgage lenders' level of regulatory scrutiny, the 
agencies note that non-bank mortgage lenders are not subject to 
evaluation under CRA. Additionally, to minimize data burden and 
restrict data collection to relevant areas, the agencies have 
determined not to collect appraisals data as suggested by one 
commenter. Although an important part of the mortgage lending process, 
appraisals are not conducted by banks; appraisal companies are not 
covered by the CRA and thus any collection or evaluation of appraisal 
data would be beyond the scope of this regulation.
    In reaching the determination to add the new requirements for 
certain large banks in Sec.  __.42(a)(3)(ii), the agencies considered 
that this is a targeted data collection and maintenance requirement for 
closed-end home mortgages that only includes data necessary for the 
evaluation of home mortgage lending under the Retail Lending Test.
    In addition, the agencies note that the final rule provision does 
not include requirements for home mortgage lending data related to 
borrower race and ethnicity. Therefore, because the agencies will not 
have information on race and ethnicity related to these expanded data, 
the agencies cannot publish said information as suggested by 
commenters. The agencies note, however, that the final rule will 
include publication of HMDA data by income level, race, and ethnicity 
in final Sec.  __.42(j). As explained in more detail in the section-by-
section analysis of Sec.  __.42(j), the relevant agency will publish on 
its website on an annual basis, certain HMDA data reported by large 
banks under 12 CFR part 1003 by income level, race, and ethnicity.
    The agencies also note, in response to commenters suggesting that 
the agencies implement the reporting threshold of 25 closed-end loans 
under HMDA, that as of the date of this final rule, the reporting 
threshold under 12 CFR part 1003 is 25 closed-end loans.\1514\
---------------------------------------------------------------------------

    \1514\ The CFPB issued a technical amendment, effective December 
21, 2022, to reflect the closed-end mortgage loan reporting 
threshold of 25 mortgage loans in each of the two preceding calendar 
years. See 87 FR 7790 (Dec. 21, 2022).
---------------------------------------------------------------------------

Section __.42(a)(4) Information Required To Be Collected and 
Maintained--Retail Services and Products Data

Current Approach
    Under the current CRA regulations, there are no specific data 
collection or reporting requirements for retail services and products. 
Examiners, however, review information provided by a bank at the time 
of the examination and the bank's CRA public file that demonstrates its 
performance in these areas, as applicable.\1515\ A bank's CRA public 
file is required to include, among other things, a list of bank 
branches with addresses and census tracts; \1516\ a list of branches 
opened or closed; \1517\ 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.\1518\ Banks have the option of 
including information in the public file regarding the availability of 
alternative systems for delivering services.\1519\
---------------------------------------------------------------------------

    \1515\ See Q&A Sec.  __.24(d)(4)-1.
    \1516\ See current 12 CFR __.43(a)(3).
    \1517\ See current 12 CFR __.43(a)(4).
    \1518\ See current 12 CFR __.43(a)(5).
    \1519\ See id.
---------------------------------------------------------------------------

Section __.42(a)(4) Overview
The Agencies' Proposal
    In Sec.  __.42(a)(4), the agencies proposed that large banks 
collect and maintain information to support the analysis of a bank's 
delivery systems and deposit products under the proposed Retail 
Services and Products Test in Sec.  __.23 based on the large bank's 
asset size. The agencies proposed to require that large banks with 
assets of over $10 billion collect and maintain the data for both 
branches and remote service facilities under Sec.  __.42(a)(4)(i), data 
for digital and other delivery systems under Sec.  __.42(a)(4)(ii), and 
responsive deposit products under Sec.  __.42(a)(4)(iii).
    To reduce the data burden of new data collection requirements for 
large banks with assets of $10 billion or less, the agencies proposed 
collecting and maintaining only the data for branches and remote 
service facilities under Sec.  __.42(a)(4)(i). The agencies invited 
feedback on this approach, as described below.
    The agencies also proposed that banks with assets of $10 billion or 
less that request additional consideration for digital and other 
delivery systems under Sec.  __.23(b)(3) collect and maintain data for 
digital and other delivery systems under Sec.  __.42(a)(4)(ii). The 
agencies further proposed that small banks and intermediate banks 
seeking additional consideration for retail services and products 
activities provide the data in the format used in the bank's normal 
course of business.
Comments Received
    Several commenters responded to the agencies' request for feedback 
on tailoring data collection and maintenance requirements related to 
digital and other delivery systems and to responsive deposit products 
for large banks with assets of $10 billion or less. A few of these 
commenters supported a requirement for all large banks to collect and 
maintain these data, with one of the commenters suggesting also that 
these requirements also apply to intermediate banks. One of the 
commenters stated that large banks with assets of $10 billion or less 
should be permitted to report these data at their option. Another 
commenter indicated that the agencies should review the responsiveness 
of deposit products for large banks with assets of $10 billion or less 
and that any bank that cannot collect and maintain these data within 
the 12-month period should describe in its capacity building plan how 
it will comply with the data collection requirements within a 24-month 
period. This commenter also noted that communities should be involved 
with product responsiveness reviews by being invited to provide ratings 
to the agencies of product responsiveness, and that there may be other 
stakeholders that would benefit from greater transparency of the data 
reported by banks and of the ratings provided by consumers (if this 
occurs).

[[Page 7058]]

Final Rule
    After consideration of the comments received and further internal 
analysis, the agencies have determined not to extend the data 
collection and maintenance of digital delivery systems and other 
delivery systems and deposit products to large banks with assets of $10 
billion or less and that operate one or more branches, to reduce burden 
on the industry. However, as discussed in greater detail below, the 
agencies have determined to extend data requirements for digital 
delivery systems and other delivery systems to banks with $10 billion 
or less that do not maintain branches. The agencies believe this 
approach appropriately tailors the data requirements to large banks 
based on their business model. Moreover, and in recognition of their 
more limited capacity, the agencies have determined not to extend any 
data requirements to small and intermediate banks.
Section __.42(a)(4)(i) Branch and Remote Service Facility Availability 
Data
The Agencies' Proposal
    The agencies proposed in Sec.  __.42(a)(4)(i) to require large 
banks to collect and maintain, until the completion of the bank's next 
CRA examination, the following information: (1) number and location of 
branches and remote service facilities; (2) whether branches are full-
service facilities (by offering both credit and deposit services) or 
limited-service facilities, and for each remote service facility 
whether it is deposit-taking, cash-advancing, or both; (3) locations 
and dates of branch and remote service facility openings and closings, 
as applicable; (4) hours of operation of each branch and remote service 
facility, as applicable; and (5) services offered at each branch that 
are responsive to low- and moderate-income individuals and low- and 
moderate-income census tracts. While this branch information is 
consistent with the information currently provided in a bank's public 
file,\1520\ the proposed requirement to collect remote service 
facilities data would be a change from the current practice, under 
which banks are not required, but have the option, to provide ATM 
location data in a bank's public file.\1521\
---------------------------------------------------------------------------

    \1520\ See current 12 CFR __.43(a).
    \1521\ See current 12 CFR __.43(a)(5).
---------------------------------------------------------------------------

    The agencies sought specific feedback on whether to require 
collection and maintenance of branch and remote service facility 
availability data as proposed or, alternatively, whether to continue 
with the current practice of reviewing the data from the bank's public 
file (i.e., requiring branch data but keeping remote service facility 
availability data optional).
Comments Received
    The agencies received several comments in response to their request 
for feedback on whether, instead of requiring branch and remote service 
facility availability data, the agencies should continue the current 
practice of reviewing the data from the bank's public file. A few 
commenters supported the agencies' proposal to require banks to report 
data on branch and remote service facility availability under a 
standardized process. Commenter sentiment in support of the proposal 
included noting that banks should collect and report these data 
publicly to permit evaluation of usefulness to underserved communities. 
Additionally, commenter sentiment included that the agencies should use 
these data towards the creation of industry and market benchmarks.
    By contrast, a few commenters indicated that the current practice 
of reviewing these data from the bank's public file should continue 
rather than separately requiring banks to collect and maintain these 
data pursuant to Sec.  __.42. Another commenter noted that branch and 
remote service facility data are ``widely and publicly'' available 
through most banks' websites, so current practices should continue. 
This commenter also noted that the FDIC's Summary of Deposits data 
should be sufficient for identifying most banks' branch locations and 
that separately collecting and reporting data on branch distribution 
within the proposed rule seems redundant and burdensome for banks due 
to the FDIC's current comprehensive process. Another commenter 
recommended that the agencies determine whether they could perform an 
evaluation with data from the bank's public file and other reliable 
sources before requiring a new data collection; otherwise, the agencies 
should require collection and maintenance of the data as proposed.
Final Rule
    For the reasons discussed below, the agencies are finalizing Sec.  
__.42(a)(4)(i) substantially as proposed, with technical edits to 
revise the heading of this paragraph and to update the reference of 
``machine readable'' to ``electronic.'' No substantive change is 
intended. In addition, as explained below, the agencies are revising 
Sec.  __.42(a)(4)(i) to conform to changes made in the final rule with 
respect to the inclusion of ``main office'' and the availability of 
branches and remote service facilities in Sec.  __.23(b)(2) and (3), 
respectively, in the Retail Services and Products Test.
    The agencies are finalizing the requirement that all large banks 
collect and maintain, as prescribed by the appropriate Federal 
financial supervisory agency, until the completion of the bank's next 
CRA examination in which the data are evaluated, retail banking 
services and retail banking products data, which includes the branches 
and remote service facilities data as proposed in Sec.  __.42(a)(4)(i). 
The agencies are also including the same data collection requirements 
for the bank's main office if it meets the requirements of final Sec.  
__.23(a)(2). After careful consideration of the comments, the agencies 
believe that requiring the collection and maintenance of this 
information appropriately supports the analysis of a bank's branch, 
applicable main office, and remote service facility availability and 
the establishment of benchmarks required for the Retail Services and 
Products Test. A data collection and maintenance requirement will 
ensure that the agencies have the information they need to evaluate the 
availability of branches and remote service facilities, and also 
provides examiners with consistent data across all agencies. For banks, 
the agencies believe that a data collection requirement minimizes 
ambiguity as to what data the agencies will use in their evaluations. 
The agencies note that the final rule largely codifies in final Sec.  
__.42(a)(4) certain information that banks are currently required to 
provide in their public file, including, among other things, the 
locations of current branches and their street address, and branches 
opened or closed by the bank during the calendar year. In response to 
comments that the agencies should continue the current practice of 
reviewing the data from the bank's public file, the agencies believe 
that the data requirements are justified as the best means to obtain 
accurate and uniform data to evaluate a bank's retail banking services. 
In addition, the final Sec.  __.42(a)(4)(i) also requires banks to 
collect and maintain remote service facility information, which is 
currently included in the bank's public file on an optional basis. 
However, the data will be standardized in a template to be developed by 
the agencies, as described below. As a result, the agencies believe 
that requiring collection of these data would not add significant 
burden to banks. In addition, final

[[Page 7059]]

Sec.  __.42(a)(4)(i) requires large banks to collect and maintain an 
indicator of whether each branch is full-service or limited-service, 
and whether each remote service facility is deposit-taking, cash-
advancing, or both.
    The agencies have considered commenter feedback that the agencies 
should rely on the FDIC's Summary of Deposits data, rather than require 
the data collection under Sec.  __.42(a)(4)(i) as proposed. The 
agencies do not believe the evaluation of branches and remote service 
facilities under the Retail Services and Products Test can be 
accomplished using the FDIC's Summary of Deposits. First, the data 
required in Sec.  __.42(a)(4)(i) provides additional detailed 
information required to conduct the analysis under the Retail Services 
and Products Test, including hours of operation and services offered at 
each branch that are responsive to low- and moderate-income individuals 
and census tracts. Second, the FDIC's Summary of Deposits does not 
include remote service facilities and is not timely in that it is 
reported at the conclusion of each calendar year consistent with most 
other CRA data.\1522\ In response to the comment suggesting that the 
collected data be used towards the creation of industry and market 
benchmarks, the agencies note that relevant community and market 
benchmarks for the evaluation of branch and remote service facility 
will be drawn from the American Community Survey and industry data, as 
proposed.
---------------------------------------------------------------------------

    \1522\ FDIC's Summary of Deposits data is reported as of June 30 
of each year.
---------------------------------------------------------------------------

Section __.42(a)(4)(ii) Digital Delivery Systems and Other Delivery 
Systems Data
The Agencies' Proposal
    The agencies proposed data collection and maintenance requirements 
that would facilitate a review of whether digital and other delivery 
systems are responsive to the needs of low- and moderate-income 
individuals. Specifically, proposed Sec.  __.42(a)(4)(ii) would require 
a large bank with assets of over $10 billion in both of the prior two 
calendar years and a large bank that had assets of $10 billion or less 
in either of the prior two calendar years that requests additional 
consideration for digital and other delivery systems, to collect and 
maintain the information required in proposed Sec.  __.42(a)(4)(ii)(A) 
and (B) as follows: (1) the range of services and products offered 
through digital and other delivery systems and (2) digital activity by 
individuals in low-, moderate-, middle-, and upper-income census 
tracts, respectively, such as the number of savings and checking 
accounts opened through digital and other delivery systems and 
accountholder usage of digital and other delivery systems. The agencies 
also proposed Sec.  __.42(a)(4)(ii)(C), a general provision that would 
permit banks to optionally provide any information that demonstrated 
that digital and other delivery systems serve low- and moderate-income 
individuals and low- and moderate-income census tracts. The agencies 
sought feedback on whether the agencies should determine which data 
points a bank should collect and maintain to demonstrate responsiveness 
to low- and moderate-income individuals via the bank's digital and 
other delivery systems, or whether to allow banks the flexibility to 
determine which data points to collect, maintain, and provide for 
evaluation.
Comments Received
    Most commenters addressing the agencies' request for comments on 
whether or not to prescribe the data a bank should collect and maintain 
to demonstrate responsiveness to low- and moderate-income individuals 
through digital and other delivery systems, were generally supportive 
of the agencies determining the required data points. A few commenters 
recommended that the data the agencies collect and maintain should 
align with the Bank On program.\1523\ A commenter also noted that 
standardized fields would be needed if the agencies were to create 
benchmarks and compare an institution's performance against those 
benchmarks. Another commenter recommended that, to maintain 
consistency, no flexibility should be given to banks in determining 
which data points to collect and maintain.
---------------------------------------------------------------------------

    \1523\ See Bank On, ``Open a no-overdraft Bank On certified 
account now!,'' https://bankononline.org/?gclid=EAIaIQobChMI_5yN1PiogQMVSsvICh3n9Qu7EAAYASAAEgJ3FfD_BwE/.
---------------------------------------------------------------------------

    By contrast, a few commenters indicated that banks should have 
flexibility to demonstrate responsiveness, with guidance provided in 
the form of examples. One of these commenters suggested that for CDFI 
banks the agencies defer to the process banks use to demonstrate the 
effectiveness of their delivery systems for the purposes of CDFI 
certification, and for non-CDFI banks, the agencies could provide a 
schedule of baseline data to ensure consistency between exams, and 
grant banks flexibility with regard to any additional data points they 
might collect and maintain for evaluation. Some commenters suggested 
that the agencies make any information that the agencies collect on 
digital and other delivery systems publicly available.
Final Rule
    As discussed below, the agencies are finalizing proposed Sec.  
__.42(a)(4)(ii), renumbered in the final rule as Sec.  
__.42(a)(4)(ii)(A), with substantive, conforming, and technical edits. 
The agencies are finalizing as proposed the data collection and 
maintenance requirements pertaining to digital delivery systems and 
other delivery systems \1524\ for large banks with assets greater than 
$10 billion and for large banks with assets of $10 billion or less that 
request additional consideration pursuant to Sec.  __.23(b)(4).
---------------------------------------------------------------------------

    \1524\ See final Sec.  __.12 for the definitions of ``digital 
delivery systems'' and ``other delivery systems.''
---------------------------------------------------------------------------

    Additionally, the agencies are revising Sec.  __.42(a)(4)(ii)(A) to 
require that a subset of large banks with assets of $10 billion or less 
as of December 31 in either of the prior two calendar years that do not 
operate any branches collect and maintain digital delivery systems and 
other delivery systems data. The agencies are revising this paragraph 
to conform to changes made in the final rule with respect to the 
evaluation of a bank's digital delivery systems and other delivery 
systems in the Retail Services and Products Test, which will only 
evaluate these banks for their digital delivery systems and other 
delivery systems under Sec.  __.23(b)(4) due to their lack of 
branches.\1525\ As a result, these banks will only be required to 
collect and maintain delivery system data for their digital delivery 
systems and other delivery systems under Sec.  __.42(a)(4)(ii).
---------------------------------------------------------------------------

    \1525\ See the section-by-section analysis in Sec.  __.23(b)(4).
---------------------------------------------------------------------------

    The agencies are also making edits to conform to changes made to 
the definition of a ``large bank'' and making technical edits to better 
distinguish the data points that are required from those that are 
optional, including technical edits to renumber the paragraphs 
pertaining to the data banks will collect and maintain under the final 
rule. With respect to the conforming and technical edits, the agencies 
do not intend substantive changes.
    The agencies are finalizing the data banks are required to collect 
and maintain in proposed Sec.  __.42(a)(4)(ii)(A) and (B), renumbered 
in the final rule as Sec.  __.42(a)(4)(ii)(B)(1) (range of retail 
banking services and retail banking products) and (2) (digital delivery

[[Page 7060]]

systems and other delivery systems activity by individuals), 
substantially as proposed, with clarifying edits. Specifically, the 
agencies are finalizing as proposed the data banks are required to 
collect and maintain for a bank's range of retail banking services and 
retail banking products in Sec.  __.42(a)(4)(ii)(B)(1), but are 
modifying the requirement in Sec.  __.42(a)(4)(ii)(B)(2), the digital 
delivery systems and other delivery systems activity by individuals, 
families, or households in low-, moderate-, middle-, and upper-income 
census tracts. In particular, the agencies are clarifying that banks 
evidence digital delivery systems and other delivery systems activity 
under Sec.  __.42(a)(4)(ii)(B)(2) by providing data on the number of 
checking and savings accounts opened through digital delivery systems 
and other delivery systems by census tract income level for each 
calendar year and the number of checking and savings accounts opened 
digitally and through other delivery systems that are active at the end 
of each calendar year by census tract income level for each calendar 
year (rather than by accountholder usage as initially proposed). By 
requiring the number of active accounts rather than account usage as 
proposed, the agencies believe that the final rule reduces the burden 
for banks, as the number of accounts is generally less complex to 
monitor in bank data systems relative to account usage, and because 
account usage could be defined in numerous ways. The use of number of 
active accounts also builds on other data elements in the final rule. 
The agencies are also finalizing proposed Sec.  __.42(a)(4)(ii)(C), 
which provides that banks required to collect and maintain digital 
delivery systems and other delivery systems data may collect and 
maintain additional information that demonstrates that the bank's 
digital delivery systems and other delivery systems serve low- and 
moderate-income individuals, families, or households and low- and 
moderate-income census tracts.
    The agencies believe that requiring large banks with assets greater 
than $10 billion and those with assets of $10 billion and less with no 
branches to collect and maintain digital delivery systems and other 
delivery systems data is appropriate given that these data are required 
in the analysis of the evaluation of digital delivery systems and other 
delivery systems for these banks under the Retail Services and Products 
Test.\1526\ Collecting and maintaining these data will assist the 
agencies in standardizing the evaluation criteria. Additionally, given 
the widespread use of online and mobile banking delivery systems and 
the expected continued growth of these systems, collection of these 
data supports the agencies' evaluation of digital delivery systems and 
other delivery systems and, accordingly, updates the agencies' 
evaluation of a bank's delivery systems performance. The agencies also 
believe that requiring the collection of these data for only these 
banks strikes the appropriate balance of: (1) facilitating a useful and 
effective review of whether digital delivery systems and other delivery 
systems are responsive to the needs of low- and moderate-income 
individuals, families, or households; (2) evaluating the delivery 
systems of banks with different business models, including those with 
national digital footprints; and (3) minimizing burden.
---------------------------------------------------------------------------

    \1526\ See the section-by-section analysis of Sec.  __.23(b)(4).
---------------------------------------------------------------------------

    The agencies considered commenters' recommendations regarding which 
data the agencies should require banks to collect and maintain for 
digital delivery systems and other delivery services. The agencies 
believe that, as finalized, the data required by the agencies will 
provide consistency with respect to the evaluation of the 
responsiveness of digital delivery systems and other delivery systems 
to low- and moderate-income individuals, families, or households and 
communities. The data collected will also help the agencies better 
understand how banks continue to serve their communities as technology 
and bank business models evolve.
    Recognizing that banks have different methods and means for 
assessing the effectiveness of their digital delivery systems and other 
delivery systems to low- and moderate-income individuals, families, or 
households as noted above, the final rule also permits banks the 
ability to provide additional information that demonstrates that 
digital and other delivery systems serve low- and moderate-income 
individuals, families, or households, thus providing certain 
flexibility to banks.
    Banks will not report the data on digital delivery systems and 
other delivery systems; therefore, the agencies will make this 
information publicly available only to the extent it is discussed in 
the bank's CRA performance evaluation.
    Finally, in response to comments and the agencies' own 
determination, the agencies intend to explore options to provide banks 
with interagency guidance on the submission of these data to promote 
clarity, consistency, and transparency, which is discussed further 
below.
Section __.42(a)(4)(iii) Data for Deposit Products Responsive to the 
Needs of Low- and Moderate-Income Individuals
The Agencies' Proposal
    For deposit products responsive to the needs of low- and moderate-
income individuals, proposed Sec.  __.42(a)(4)(iii) required large 
banks with assets of over $10 billion to collect and maintain data 
concerning: (1) the number of responsive deposit accounts that were 
opened and closed for each calendar year in low-, moderate-, middle-, 
and upper income census tracts, respectively; (2) the percentage of 
responsive deposit accounts compared to total deposit accounts for each 
year of the evaluation period; and (3) optionally, any additional 
information regarding the responsiveness of deposit products to the 
needs of low- and moderate-income individuals and low- and moderate-
income census tracts. Further, the agencies also proposed in Sec.  
__.42(a)(4)(iii) that this data would also be required for large banks 
with assets of $10 billion or less that request additional 
consideration for deposit products responsive to the needs of low- and 
moderate-income individuals. The agencies sought feedback on the 
appropriateness of the proposed data collection requirements, including 
whether to grant banks the flexibility to determine which data points 
to collect and maintain for evaluation.
Comments Received
    With regard to the appropriateness of the agencies' proposed data 
collection elements for the evaluation of the responsiveness of deposit 
products, a few commenters indicated that the proposed elements were 
appropriate, with two of these commenters also suggesting that the 
agencies must standardized these elements. A commenter also opined that 
the proposed elements closely track what many banks already report to 
the National Data Hub at the St. Louis Federal Reserve for Bank On 
products.\1527\ Two other commenters indicated that the agencies could 
group

[[Page 7061]]

deposit accounts by account terms and direct deposit requirements. One 
commenter proposed that direct deposit affordability should be 
determined by the FFIEC median family income data for the assessment 
area (MSA, etc.) and the favorability of the account terms. This 
commenter further recommended that, if the monthly direct deposit 
threshold for the accounts with the most favorable terms is more than 
80 percent of the area median family income, then the deposit account 
would not be considered affordable. The other commenter suggested that 
direct deposit affordability should be determined by the FFIEC MSA 
income threshold for the branch location. This commenter further 
suggested that if the monthly direct deposit threshold is more than 80 
percent of the area median family income and more than 30 percent of 
the customer's income on a monthly basis, the deposit product should 
not be considered affordable.
---------------------------------------------------------------------------

    \1527\ See BankOn, ``Open a no-overdraft Bank On certified 
account now!,'' https://bankononline.org/?gclid=EAIaIQobChMI_5yN1PiogQMVSsvICh3n9Qu7EAAYASAAEgJ3FfD_BwE/; see 
also Federal Reserve Bank of St. Louis, ``Bank On National Data 
Hub,'' https://www.stlouisfed.org/community-development/bank-on-national-data-hub.
---------------------------------------------------------------------------

Final Rule
    The agencies are finalizing Sec.  __.42(a)(4)(iii) largely as 
proposed pertaining to the collection and maintenance of data on 
responsive deposit products required for banks with assets greater than 
$10 billion and large banks with assets of $10 billion or less that 
request additional consideration for their responsive deposit products 
under the Retail Services and Products in Sec.  __.23(c)(3). The 
agencies are also making technical edits, format changes, and other 
minor word changes, with no substantive change in meaning intended. For 
instance, the final rule changes the format of the data that is 
required to be collected and maintained from ``machine readable'' to 
``electronic'' form.
    The agencies carefully balanced considerations of regulatory burden 
against the benefit of more clarity, consistency, and transparency with 
respect to CRA evaluations, while still providing banks flexibility. In 
particular, banks must collect and maintain the data described above, 
and are permitted to provide any other information that demonstrates 
the availability and usage of the bank's deposit products responsive to 
the needs of low- and moderate-income individuals and low- and 
moderate-income census tracts. In the final rule, the agencies 
clarified that ``a bank may opt to collect and maintain additional data 
pursuant to paragraph (a)(4)(iii)(C) of this section in a format of the 
bank's choosing.'' In addition, the agencies added clarifying language 
that optional data collected and maintained must ``demonstrate the 
availability and usage'' of the bank's responsive deposit products.
    As discussed below, the agencies also plan to provide guidance for 
banks on the submission of these data to promote the clarity, 
consistency, and transparency of this information.
    After considering the commenters' recommendations, the agencies 
have decided to finalize the data elements as proposed. The agencies 
decline to incorporate commenters' recommendations regarding grouping 
deposit accounts together by account terms and including direct deposit 
affordability as one of the elements to consider for responsive deposit 
accounts. With regard to commenters that suggested the agencies group 
deposit accounts by account terms and direct deposit requirements, the 
agencies believe deposit accounts are relatively heterogeneous and 
different banks may take different approaches in how they organize 
their deposit accounts with regard to affordability. With regard to 
commenters that suggested the agencies should use direct deposit 
threshold as a proxy for the depositors' median income to determine 
product affordability, the agencies note that banks take different 
approaches with regard to how their direct deposit features are 
structured, and depositors take different approaches with regard to how 
they deposit their funds, whether using direct deposit for all, part, 
or none of their deposits across one or more accounts. The agencies 
believe that banks are best positioned to determine how to present the 
affordability of the direct deposit features of their deposit accounts, 
as relevant for their distinct customer bases. Nevertheless, the 
agencies will take commenters' recommendations under advisement to 
determine if they could be used as examples examiners can consider in 
the evaluation.
Additional Issues
The Agencies' Proposal
    The agencies invited comment on whether the proposed retail 
services data exist in a format that is transferrable to data 
collection or whether the agencies should require a standardized 
template to facilitate the collection and maintenance of data for the 
Retail Services and Products Test. The agencies considered that a 
template would potentially offer flexibility for providing quantitative 
and qualitative information, which may be particularly relevant for 
aspects of retail services that banks have not consistently provided to 
the agencies previously, or that may change over time. The agencies 
also invited public feedback on steps that could be taken to minimize 
burden of the proposed information collection requirements while still 
ensuring adequate information to inform the evaluation of services.
Comments Received
    Comments regarding the format for information collection. In 
response to the agencies' request for comment on whether the proposed 
retail services data exist in a format that is transferable to data 
collection or whether a required template provided by the agencies 
would be sufficient in the collection of retail services and products 
information, several commenters provided feedback. All commenters 
indicated that the agencies should develop and provide a template to 
ensure that the data are standardized, with two of these commenters 
also suggesting that, prior to implementation, the agencies should 
release the template for public input. Another commenter indicated that 
the response could vary by bank, which is why the commenter supports 
making a template available if it is not feasible to transfer the data 
collection.
    Comments related to burden reduction. In response to the agencies' 
request for feedback on what steps could be taken to reduce burden of 
the proposed information collection requirements, the agencies received 
recommendations from several commenters. Commenters' suggestions 
included that the agencies create templates for data requirements and 
to provide technical assistance and training, particularly for MDIs, 
and small and intermediate banks. Other recommendations included 
providing guides, manuals, and training programs; standardizing and 
automating data collection, with as much data as possible drawn from 
``authoritative sources of bank profiles and community development 
data;'' providing strong resources to help navigate differences in 
definitions of various regulations, and creating a portal or listing of 
qualifying activities; distributing a questionnaire to banks to collect 
feedback on how data burden might be reduced; and requesting consistent 
data that provides insights about income, race, ethnicity, and 
location.
    A few commenters generally addressed the burden related to the data 
requirements for retail services and products. Commenter views included 
that this requirement would be costly and disproportionately burdensome 
relative to the small impact this test would have on a bank's overall 
CRA rating. A commenter stated that the

[[Page 7062]]

incremental burdens associated with maintaining data needed for the 
proposed test will be significant because much of these data are not 
currently being captured or maintained by banks. Another commenter 
listed reasons data will be challenging and burdensome (e.g., hard to 
determine accurate location of customer of a particular product) and 
stated that the burden is not worth it. This commenter also stated that 
digital banking data at census tract level is inconsistent with the 
deposits data proposal, which aggregates data at the county level.
Final Rule
    Regarding the commenter that expressed concerns that reporting data 
at the census tract level would be burdensome because of the difficulty 
in determining the accurate location of customers of a particular 
product, the agencies' supervisory expectations are that banks maintain 
current addresses for their accountholders. Geocoding technology for 
associating addresses with census tracts is widely available and used 
in the banking industry. As a result, the agencies do not expect that 
the requirement for large banks to collect and maintain data for their 
digital and other delivery systems at the census tract level will 
create a significant increase in burden.
    Regarding the inconsistency between the deposits data collected and 
maintained at the county level, which the agencies will use for the 
purpose of calculating metrics for the Retail Lending Test and the 
Community Development Financing Test, and the digital delivery systems 
or other delivery systems data collected and maintained at the census 
tract level, which the agencies will use to evaluate the degree to 
which these products are serving low- and moderate-income individuals 
and low- and moderate-income census tracts, the agencies note that 
these data are used for different purposes. The deposits volume data at 
the county level are used for constructing weights and metrics; they 
are not evaluated with regard to the income characteristics of 
underlying census tracts. On the other hand, the agencies will evaluate 
data on accounts opened by digital delivery systems and other delivery 
systems with regard to the income level of the census tracts where 
consumers reside, as well as other data that banks may provide 
indicating the income levels of consumers of these products. It is 
appropriate that banks collect these data at different geographic 
levels.
    Upon consideration of the comments received, the agencies intend to 
develop various materials for banks including data reporting guides and 
other technical assistance to assist banks in understanding supervisory 
expectations with respect to the data requirements for retail banking 
services and retail banking products, navigating through various 
definitions, and the types of responsive deposit products that could 
qualify for CRA consideration. In addition, the agencies intend to 
develop a template for the submission of data for digital delivery 
systems and other delivery systems as well as responsive deposit 
products to increase consistency for the collection and maintenance of 
the data and will continue to explore other tools to reduce burden. The 
agencies decline to publish a complete listing of retail banking 
services or retail banking products that could qualify for 
consideration, as the agencies are concerned that doing so may narrow 
the potential for innovative deposit products a bank could develop or 
offer to their customer base. However, the agencies will consider 
including illustrative examples of retail banking services and retail 
banking products in any future guides and technical assistance the 
agencies issue outside of the final rule. Importantly, responsive 
deposit products are dependent on the needs of the community which can 
differ. With respect to other recommendations, the agencies will 
continue to explore the possibility of including them in guidance, 
outside of this final rule.

Section __.42(a)(5) Information Required To Be Collected and 
maintained--Community Development Loans and Community Development 
Investments Data

Section __.42(b)(2) Information Required To Be Reported--Community 
Development Loans and Community Development Investments Data

Current Approach
    Current Sec.  __.42(b)(2) requires that a bank, except a small bank 
(including an intermediate small bank) or a bank that was a small bank 
during the prior calendar year, report annually by March 1 to the 
Board, FDIC, or OCC, as applicable, the aggregate number and dollar 
amount of community development loans originated or purchased by the 
bank during the prior calendar year. Current agency guidance provides 
that a large bank or intermediate small bank that seeks consideration 
for community development activities must be prepared to demonstrate 
the activities' qualifications but this can be provided in a format of 
the bank's choosing.\1528\
---------------------------------------------------------------------------

    \1528\ See Q&A Sec.  __.12(h)-8; see also current 12 CFR __.21 
and __.26.
---------------------------------------------------------------------------

    Regarding data about a bank's individual community development 
loans and community development investments, as well as prior period 
information about a bank's community development investments, examiners 
currently rely on loan level and investment level information provided 
by a bank at the time of an examination, including the number and 
dollar amount of loans and investments, the location of or areas 
benefited by these activities, and information describing the community 
development purpose for each community development loan and 
investment.\1529\ Data collection, maintenance, and reporting 
requirements for this information is currently not included in the CRA 
regulations. In addition, the CRA regulations do not currently consider 
community development loans from prior periods that remain on the 
bank's books; therefore, there is no requirement for the collection and 
reporting of these data. As a result of the lack of data collection and 
reporting of individual community development loans and community 
development investments, the total number and dollar amount (originated 
and on-balance sheet) of such loans and investments nationally, or 
within specific geographies, is not available through reported data.
---------------------------------------------------------------------------

    \1529\ See Q&A Sec.  __.22(b)(4)-1.
---------------------------------------------------------------------------

The Agencies' Proposal
    Proposed Sec.  __.42(a)(5)(i)(A) required a bank, except a small or 
an intermediate bank, to collect and maintain the data on individual 
community development loans and investments in proposed Sec.  
__.42(a)(5)(ii), in machine readable form, as prescribed by the 
agencies. Data to be collected and maintained about each individual 
community development loan or investment included: (1) general 
information on the loan or investment; \1530\ (2) specific information 
on the loan or investment, such as the name of organization or entity, 
type (loan or investment), community development purpose, and community 
development loan or investment detail, which could include, for 
example, whether the loan or investment was a low-income housing tax 
credit investment or a multifamily mortgage loan; \1531\ (3) indicators 
of the impact of the community development

[[Page 7063]]

loan or investment; \1532\ (4) location information; \1533\ (5) other 
details relevant to the determination that the loan or investment meets 
the standards in proposed Sec.  __.13, including indicators of whether 
the bank has retained certain types of documentation, such as rent 
rolls, to assist with verifying the eligibility of the loan or 
investment; \1534\ and (6) the allocation of the dollar value of the 
community development loan or investment to specific geographic areas, 
if available.\1535\
---------------------------------------------------------------------------

    \1530\ Proposed Sec.  __.42(a)(5)(ii)(A).
    \1531\ Proposed Sec.  __.42(a)(5)(ii)(B).
    \1532\ Proposed Sec.  __.42(a)(5)(ii)(C).
    \1533\ Proposed Sec.  __.42(a)(5)(ii)(D).
    \1534\ Proposed Sec.  __.42(a)(5)(ii)(E).
    \1535\ Proposed Sec.  __.42(a)(5)(ii)(F).
---------------------------------------------------------------------------

    Proposed Sec.  __.42(a)(5)(i)(B) required an intermediate bank that 
opted to be evaluated under the Community Development Financing Test in 
Sec.  __.24 to collect and maintain the data in Sec.  __.42(a)(5)(ii), 
but could do so in the format used by the bank during the normal course 
of business.\1536\ The agencies did not propose to require small banks 
to collect, maintain, or report any data on community development loans 
and investments, even if the small bank requested consideration for 
such activities.
---------------------------------------------------------------------------

    \1536\ The agencies also noted in the proposal that intermediate 
banks evaluated under the status quo intermediate bank community 
development evaluation would not be required to collect and maintain 
data.
---------------------------------------------------------------------------

    The agencies also proposed to revise current Sec.  __.42(b)(2), 
renumbered in the proposal as Sec.  __.42(b)(5), to require a bank, 
except a small or an intermediate bank, to report annually by April 1 
all the individual loan and investment data collected and maintained 
discussed above under Sec.  __.42(a)(5)(ii), with the exception of the 
name of the organization or entity supported.
    The agencies requested comment regarding several aspects of the 
agencies' proposal to collect, maintain, and report community 
development lending and investment data. With respect to collection of 
the data, the agencies sought feedback on other steps they could take, 
or what procedures they could develop, to reduce the burden of the 
collection of additional community development lending and investment 
data fields while still ensuring adequate data to inform the evaluation 
of the bank's community development loans and investments. The agencies 
also sought feedback on how a data template could be designed to 
promote consistency and reduce burden. With respect to reporting of the 
data, the agencies sought feedback on how the format and level of data 
reporting requirements might affect those banks required to report 
community development lending and investment data, as well as the 
usefulness of the data. For example, the agencies sought feedback on 
whether it would be appropriate and less burdensome to require 
reporting of community development lending and investment data 
aggregated at the county-level as opposed to the individual loan- or 
investment-level.
Comments Received
    Comments related to collection and maintenance of community 
development loans and investments data. Several commenters provided 
general comments on the agencies' proposed community development 
lending and investment data requirements. These commenters were 
generally supportive of the agencies' proposed strategy, with one 
commenter noting that the proposed community development lending and 
investment data would make the Community Development Financing Test in 
Sec.  __.24 more rigorous by allowing examiners to compare a bank 
against its peers to determine whether the bank is especially 
responsive to local needs. This commenter further noted that the 
community development lending and investment data would help 
stakeholders more accurately determine areas that are receiving 
considerable amounts of community development lending and investment 
financing and which areas are not. One commenter noted that the new 
data requirements would highlight gaps in financial services in 
underserved communities and was hopeful it would spur economic 
activity.
    A few other commenters offered additional suggestions on how to 
improve data collection for community development lending and 
investments. For instance, a few commenters suggested that the agencies 
could improve data collection for the impact review section of the 
Community Development Financing Test in Sec.  __.24, noting for 
example, that capturing contextual data on the factors, such as the 
number of beds in health facilities or the number of housing units that 
had lead paint abatement, might better capture the importance of 
funding health initiatives and better motivate banks to invest in those 
initiatives. A commenter suggested that the final rule might implement 
data collection and reporting requirements on the race and ethnicity of 
the beneficiaries of community development loans, investments, and 
services. Another commenter asked that the agencies make all the data 
publicly available.
    Commenters also provided feedback on what steps the agencies might 
take to reduce the burden of collecting additional community 
development lending and investment data, including the design of a 
template to promote consistency and reduce burden. Most commenters who 
opined on this question agreed that providing a template would be 
useful. These commenters also provided other suggestions on how to 
reduce the burden of collecting community development lending and 
investment data. For example, one commenter suggested that the agencies 
should automate the template and provide it to CRA software vendors. A 
few commenters noted the importance of standardizing and automating 
data collection to minimize duplication of effort and more efficiently 
implement data collection using existing sources, with one of these 
commenters also noting that data sharing tools including standard 
visualizations for the bank's community and Application Programing 
Interface (API) for researchers would also be beneficial. A few other 
commenters noted that, in addition to developing the template, the 
agencies should develop training materials and programs for banks and 
the public and provide sufficient time for the industry to implement 
the reporting process. One other commenter suggested that a template 
for collecting community development lending and investment data should 
include data fields to record geographical targeting, partnerships, and 
other features that might help the qualitative evaluation become more 
quantitative and objective.
    A few other commenters provided other recommendations to streamline 
data collection. For example, a commenter suggested that banks should 
have the flexibility to classify small business loans with a primary 
purpose of community development as community development loans and 
investments. This commenter noted that documentation for these 
activities could then be drawn from data to be required as part of the 
CFPB's section 1071 process. Similarly, another commenter noted that 
SBA documentation through various forms includes fields on job creation 
and retention, similar to those likely to be needed for CRA purposes. 
The agencies aim to use readily available data whenever possible.
    Comments related to reporting of community lending and investment 
data. Several commenters responded to the agencies' request for 
feedback on whether the format and level of data

[[Page 7064]]

required to be reported might affect the burden on banks required to 
report community development lending and investment data as well as the 
usefulness of the data. A majority of these commenters supported the 
proposed rule's requirement that banks report community development 
lending and investment data at the individual loan or investment level. 
Rationale provided by these commenters varied. A few of these 
commenters asserted that loan or investment level data would allow for 
more precise tracking of community development loan or investment data, 
including the number and percentages of activities that met one or more 
of the impact review factors or specific community development 
categories, such as affordable housing activities. Another one of these 
commenters observed that large banks would have to collect individual 
loan- or investment-level data whether or not the data are reported at 
the activity level. This commenter noted that reporting at the loan- or 
investment-level would give the agencies and the public more granular 
data with which to compare banks with other banks. One commenter, while 
agreeing that large banks should collect and report loan- or 
investment-level community development data, also, suggested that banks 
should have the option to report data annually, with the perspective 
that quarterly reporting would be overly burdensome. This commenter 
misunderstood the proposal, as the proposal included the option to 
report data annually.
    A few commenters provided other recommendations including that the 
agencies: require reporting of community development lending and 
investment data at an aggregated level, without reporting individual 
loans and investments; review the format and level of data reported by 
CDFIs to the Treasury data system called Awards Management Information 
System (AMIS), in the hopes that there might be an opportunity to 
capture the full profile of a bank's community development lending and 
investments in one system leveraging this existing reporting system to 
facilitate data standardization, exchange, and consolidation; include 
an indicator of whether a product is targeted or offered in a low- or 
moderate-income location or targeted to a broader low- or moderate-
income community; and require banks to collect and report community 
development lending and investment data for activities in Native Land 
Areas and with entities such as Native CDFIs and tribal governments.
    Publication of community development lending and investment data. A 
number of commenters suggested that the agencies publish community 
development lending and investment data. For example, one commenter 
encouraged the agencies to disclose data on the community development 
purpose of activities, even if such data are published at the aggregate 
level, as publication would allow the public to have greater insight 
into how community development lending and investment dollars are 
allocated and to compare trends over time. This commenter, along with a 
few others, also requested that community development lending and 
investment data be made available on a census tract level so that 
members of the public can determine which neighborhoods are receiving 
an adequate amount of community development lending and investment and 
which neighborhoods need more.
Final Rule
    The agencies are adopting Sec.  __.42(a)(5)(i)(A) largely as 
proposed with technical and clarifying edits. Specifically, the 
agencies are revising this paragraph to update the reference from 
``machine readable'' to ``electronic.'' No substantive change is 
intended. In addition, to conform to changes made in Sec.  __.24, the 
agencies are clarifying that the data to be collected and maintained in 
Sec.  __.42(a)(5)(ii) applies to community development loans and 
investments originated and purchased, as originally proposed, as well 
the refinance, renewal, or modification of a loan or investment.
    The agencies are not finalizing the requirement in proposed Sec.  
__.42(a)(5)(i)(C) that banks collect and maintain the outstanding 
dollar volume of community development loans and investments for 
previous years that are still held on the balance sheet at the end of 
each quarter, by March 31, June 30, September 30, and December 30. 
Instead, to reduce burden, the agencies are finalizing proposed Sec.  
__.42(a)(5)(i)(C), renumbered as Sec.  __.42(a)(5)(ii)(A)(4)(iii), to 
require the bank to collect and maintain the outstanding balance of 
community development loan originated, purchased, refinanced, or 
renewed in previous years that remain on the bank's balance sheet as of 
December 31 of the calendar year for each year the loan remains on the 
bank's balance sheet; or an existing community development investment 
made or renewed in a year subsequent to the year of the investment as 
of December 31 for each year that the investment remains on the bank's 
balance sheet. This change requires the bank to collect and maintain 
these data based on the end of year balance instead of the average of 
the quarterly balance, which the agencies believe will be easier for 
banks to comply with. The agencies have also made technical and 
conforming edits to the remainder of this paragraph.
    The agencies are revising proposed Sec.  __.42(a)(5)(ii)(A) to 
conform to the revisions made to proposed Sec.  __.42(a)(5)(i)(C), as 
described above, and Sec.  __.24 and for organizational and clarifying 
purposes. The agencies are also making changes to proposed Sec.  
__.42(a)(5)(ii)(C) to conform to the changes made to Sec.  __.15(b), 
including adding to the list of indicators of the impact and 
responsiveness of the activity whether an activity benefits or serves 
one or more census tracts with a poverty rate of 40 percent or higher 
or the activity is an investment in a project financed with LIHTCs or 
NMTCs. In response to commenters and the agencies' further review, the 
agencies are revising proposed Sec.  __.42(a)(5)(ii)(D) to include the 
census tract as part of the data a bank is required to collect and 
maintain for the specific location information of the community 
development loan or investment. Finally, other technical and 
organizational changes were made to Sec.  __.42(a)(5)(ii) with no 
change in meaning intended.
    The agencies are finalizing proposed Sec.  __.42(b)(3), renumbered 
in the final rule as Sec.  __.42(b)(2), largely as proposed pertaining 
to the reporting of community development lending and investment data 
collected and maintained in Sec.  __.42(a)(5)(ii), with revisions and 
minor technical and conforming edits. Specifically, in addition to 
finalizing Sec.  __.42(b)(2) to exclude from reporting the name of the 
organization or entity supported in Sec.  __.42(a)(5)(ii)(B)(1), in the 
final rule the agencies are also excluding the specific location 
information of the community development loan or investment in Sec.  
__.42(a)(5)(ii)(D)(1) through (5) to further address potential privacy 
issues. The agencies are further revising Sec.  __.42(b)(2) to require 
that banks subject to the data reporting requirements in Sec.  
__.42(b)(2) report the census tract location of the community 
development loan or investment in new Sec.  __.42(a)(5)(ii)(D)(6). This 
requirement, which was included upon consideration of commenter 
feedback, is intended to assist the agencies in determining if the loan 
or investment qualifies as community development.

[[Page 7065]]

    As explained in the proposal, the agencies believe collecting and 
reporting community development lending and investment data at the 
loan- or investment-level is necessary to construct community 
development lending and investment metrics and benchmarks. Requirements 
for data collection and maintenance will also aid the agencies in 
conducting data integrity evaluations, and the agencies anticipate 
addressing data integrity procedures as part of interagency guidance. 
The agencies note that, under the final rule, banks will be required to 
report annually, by April 1, the data required to be collected and 
maintained on an annual basis until the completion of the bank's next 
examination period. The agencies believe some commenters may have 
misunderstood that the required data were to be reported on a quarterly 
basis, rather than reported on an annual basis using the quarterly 
average of the data. To clarify, the agencies are simplifying the data 
collection and reporting by requiring annual reporting of new money and 
year-end balances of activities that remain on the bank's balance sheet 
from prior years as opposed to quarterly averages.
    In response to commenters that suggested that banks record a small 
business loan with a community development purpose as a community 
development loan or investment to receive consideration, the agencies 
will allow consideration of small business and small farm loans under 
the Retail Lending Test, as well as the relevant community development 
tests applicable to the bank, subject to meeting the necessary criteria 
(see the section-by-section analysis of Sec.  __.13 for additional 
details).
    Regarding comments to make community development lending and 
investments data publicly available, the agencies believe that this 
information will be disclosed in a number of ways, including through 
CRA Disclosure Statements, aggregate disclosure statements, and public 
performance evaluation reports. Public performance evaluations would 
include the metrics and benchmarks used to determine conclusions on the 
Community Development Financing Test for each facility-based assessment 
area, multistate MSA, State, and institution. The agencies believe the 
information in these statements and reports will provide stakeholders 
greater insight into how community development lending and investment 
dollars are allocated and compare trends over time to assist with the 
identification of areas where capital is most needed.
    Upon consideration of the comments, the agencies are not including 
data on the race and ethnicity of the beneficiaries of community 
development activities as the agencies believe this would increase 
burden without providing a corresponding benefit that would assist the 
agencies in effectuating the rule, as finalized.
    To assist banks with the collection and maintenance of community 
development lending and investment data, the agencies intend to develop 
a standardized template to gather the data in a consistent manner. 
Gathering of standardized data will also assist the agencies in 
understanding the impact and responsiveness of community development 
loans and investments when applying the impact and responsiveness 
review. The electronic form will include the impact and responsiveness 
factors for consistency and to reduce burden. Banks will be permitted 
to provide examiners additional contextual and qualitative information 
on community development loans and investments during the CRA 
examination, consistent with current practices.
    The agencies will take into consideration other commenter 
suggestions for simplifying data collection, including the automation 
of the template when developing the tools and resources to implement 
the new rule. Under the final rule, use of the template will be 
required for large banks and limited purpose banks that would be large 
based on the asset size described in the definition of large bank. The 
agencies believe that requiring these banks to use the prescribed 
template will, in addition to reducing burden, improve the consistency 
of the data collected. An intermediate bank that opts to be evaluated 
under the Community Development Financing Test in Sec.  __.24 may 
provide community development lending and investment data in the format 
used by the bank in the normal course of business, or may use the 
standardized template provided by the agencies. In addition, the 
agencies intend to develop other materials to assist banks with 
community development data collection. As suggested by commenters, the 
agencies are considering developing training materials and programs for 
banks and the public, and a data reporting guide to assist in accurate 
data reporting.

Section __.42(a)(6) Information Required To Be Collected and 
Maintained--Community Development Services Data

Current Approach
    There are no specific data collection or reporting requirements in 
the current CRA regulations for community development services. 
However, current interagency guidance explains that a bank should 
provide examiners with sufficient information to demonstrate its 
performance in these areas, as applicable,\1537\ such as by providing 
the number of activities, bank staff hours dedicated, or the number of 
financial education sessions offered.\1538\
---------------------------------------------------------------------------

    \1537\ See Q&A Sec.  __.12(h)-8.
    \1538\ See Q&A Sec.  __.24(e)-2.
---------------------------------------------------------------------------

The Agencies' Proposal
    To facilitate the proposed evaluation of a bank's community 
development services activities and the use of the proposed Bank 
Assessment Area Community Development Services Hours metric, proposed 
Sec.  __.42(a)(6) required large banks with assets of over $10 billion 
to collect and maintain, until the completion of the bank's next CRA 
examination, the following community development services information, 
in machine readable form, as prescribed by the agencies: (1) number of 
full-time equivalent employees at the facility-based assessment area, 
State, multistate MSA, and institution levels; \1539\ (2) total number 
of community development services hours performed by the bank in each 
facility-based assessment area, State, multistate MSA, and in total; 
\1540\ (3) date of community development activity; \1541\ (4) name of 
organization or entity; \1542\ (5) community development purpose; 
\1543\ (6) capacity served; \1544\ (7) whether the activity is related 
to the provision of financial services; \1545\ (8) the location of the 
activity; \1546\ and (9) whether the bank is seeking consideration at 
the assessment area, statewide, or nationwide level.\1547\ Although not 
expressly stated in proposed Sec.  __.42(a)(6), the agencies explained 
in the proposal that large banks with assets of $10 billion or less 
would have the option, but would not be required, to collect and 
maintain the same community development services data in Sec.  
__.42(a)(6). However, these

[[Page 7066]]

banks would have the option to collect and maintain data in their own 
format, or to use the template prescribed by the agencies.
---------------------------------------------------------------------------

    \1539\ Proposed Sec.  __.42(a)(6)(i)(A).
    \1540\ Proposed Sec.  __.42(a)(6)(i)(B).
    \1541\ Proposed Sec.  __.42(a)(6)(ii)(A).
    \1542\ Proposed Sec.  __.42(a)(6)(ii)(B).
    \1543\ Proposed Sec.  __.42(a)(6)(ii)(C).
    \1544\ Proposed Sec.  __.42(a)(6)(ii)(D).
    \1545\ Proposed Sec.  __.42(a)(6)(ii)(E).
    \1546\ Proposed Sec.  __.42(a)(6)(iii)(A) through (E).
    \1547\ Proposed Sec.  __.42(a)(6)(iii)(F).
---------------------------------------------------------------------------

    To compute the Bank Assessment Area Community Development Services 
Hours Metric proposed in Sec.  __.25(b)(2), proposed Sec.  __.42(b)(4) 
would have required large banks with assets of over $10 billion to 
report annually by April 1: (1) the number of full-time equivalent 
employees at the facility-based assessment area, State, multistate MSA, 
and institution levels; and (2) the total number of community 
development services hours performed by the bank in each facility-based 
assessment area, State, multistate MSA, and in total.
    In addition, the agencies asked for feedback regarding whether 
large banks with assets of $10 billion or less should be required to 
collect and maintain community development services data in machine 
readable form, as prescribed by the agencies, equivalent to the data 
required to be collected and maintained by large banks with assets of 
over $10 billion. Under this alternative, the agencies asked whether 
large banks with assets of $10 billion or less should have the option 
of using a standardized template or collecting and maintaining the data 
in their own format, and whether a longer transition period for these 
banks to begin to collect and maintain deposits data (such as an 
additional 12 or 24 months beyond the transition period for large banks 
with assets of over $10 billion) would make this alternative more 
feasible. The agencies further asked whether the added value from being 
able to use these data in the construction of a metric outweighs the 
burden involved in requiring data collection by these banks. The 
agencies also asked for feedback regarding whether large banks with 
assets of over $10 billion should be required to collect, maintain, and 
report data on the number of full-time equivalent employees in order to 
develop a standardized metric to evaluate community development service 
performance for these banks.
Comments Received
    A few commenters provided general feedback on the agencies' 
community development services data requirements. One of these 
commenters noted that requiring large banks to report community 
development data on an individual activity level would be one of the 
most impactful changes in the proposed rule. The other commenter 
suggested that the agencies clarify that there is no need to collect 
and report community development services data in which a bank does not 
intend to seek CRA credit.
    Several commenters expressed differing views on whether large banks 
with assets of $10 billion or less should be required to collect 
community development services data, and if so, whether banks should 
have the option of using the standardized template or their own format. 
Many of these commenters supported requiring that all large banks 
report these data in the manner prescribed for banks with assets over 
$10 billion, with a few of these commenters also supporting a 
requirement that data be reported in machine-readable form. One 
commenter thought that intermediate banks should have the flexibility 
to collect and maintain data either in their own format or in a 
template provided by the agencies. Another commenter suggested that 
large banks with assets of $10 billion or less should have the option 
of using a standardized template or their own format, but in either 
case, the format should be in a machine-readable form. This commenter 
further noted that although a longer transition period is always 
desirable, the added value of using these data in the construction of a 
metric outweighs the burden involved in requiring data collection by 
these banks. Another commenter expressed an opposing view with respect 
to requiring these banks to provide data in a machine-readable form, 
noting that banks should maintain the data internally but not have to 
report it externally. One commenter did not support additional 
reporting of these data points for any large bank because of what the 
commenter deemed to be excessive cost burden.
    Regarding the agencies' request for feedback on whether large banks 
with assets over $10 billion should collect, maintain, and report data 
on the number of full-time equivalent employees at the assessment area, 
State, multistate MSA, and institution level in order to develop a 
standardized metric to evaluate community development service 
performance, a few commenters supported the proposal. One of these 
commenters also noted that if a standardized metric is developed by the 
agencies, it would be important that data be sufficient to evaluate 
community development services performance. This commenter further 
suggested that requiring banks to report data on the number of full-
time equivalent employees would help complete the profile of the bank's 
investment in community development services. Another commenter 
expressed the view that the requirement to report data on the number of 
full-time equivalent employees should apply to all large banks and 
intermediate banks, and that the performance evaluation should include 
a copy of the institution's most recent Employment Information Report 
(EEO-1) Component Data report to evaluate a bank's diversity and 
inclusion.
    One commenter noted that it would be difficult for banks to 
collect, maintain, and report these data. One commenter objected to the 
requirement that large banks with assets of over $10 billion collect, 
maintain, and report these data while not requiring the same of all 
other banks. In this commenter's view, there is no logical reason for 
the different treatment. The commenter urged the agencies not to impose 
what they described as sweeping, burdensome, and inefficient data 
collection requirements.
Final Rule
    After consideration of the comments, the agencies are adopting 
Sec.  __.42(a)(6) pertaining to the data collection and maintenance of 
community development services, with changes, including technical and 
conforming changes. Specifically, because final Sec.  __.25 requires 
all large banks to be evaluated under the Community Development 
Services Test (see the section-by-section analysis of Sec.  __.25), the 
agencies are conforming proposed Sec.  __.42(a)(6) to require all large 
banks to collect and maintain the community development services data 
in final Sec.  __.42(a)(6)(i) and (ii). The agencies believe collection 
and maintenance of the community development services data for all 
large banks is necessary to facilitate evaluation under the Community 
Development Services Test. The agencies further believe that requiring 
these data of all large banks, rather than just banks with assets over 
$10 billion, will provide more consistency and clarity in the 
evaluation of community development services for all large banks, 
without significantly increasing burden. The agencies note from prior 
supervisory experience that many large banks already collect and 
maintain these data for CRA examination purposes.
    However, to reduce burden and provide flexibility while maintaining 
consistency in the data elements, the final rule permits all large 
banks to collect and maintain these data in a format of the bank's 
choosing or in a standardized format as provided by the Board, FDIC, or 
OCC, as applicable, until the completion of the bank's next CRA 
examination. The agencies note that they intend to develop a 
standardized template for community

[[Page 7067]]

development services data to improve consistency in evaluations. Large 
banks will have the choice to use the template or their own format.
    Finally, the agencies note that small banks and intermediate banks 
that request consideration for community development services are not 
required to collect and maintain these data in a manner equivalent to 
large banks. However, consistent with current practice, small and 
intermediate banks should be prepared to provide examiners with 
sufficient information to demonstrate that the activities qualify as 
community development services, such as the number of activities, bank 
staff hours dedicated, or the number of financial education sessions 
offered.
    The agencies are also making changes to the data required to be 
collected and maintained to conform to changes made in final Sec.  
__.25. Specifically, the agencies are not adopting the proposed Bank 
Community Development Services Hours Metric for banks with assets over 
$10 billion. As a result, the data regarding the number of full-time 
equivalent employees at the facility-based assessment area, State, 
multistate MSA, and institution levels in proposed Sec.  
__.42(a)(6)(i)(A) are no longer necessary. In addition, the agencies 
further revised Sec.  __.42(a)(6)(i) by removing the total number of 
community development services hours performed by the bank in each 
facility-based assessment area, state, multistate MSA, and in total. 
This was removed because the number of board member or employee service 
hours was added to the list of community development services 
information, proposed as Sec.  __.42(a)(6)(ii)(A) and renumbered as 
Sec.  __.42(a)(6)(i). The agencies will be able to add the number of 
total service hours based on the hours provided for each community 
development service.
    The agencies added Sec.  __.42(a)(6)(i)(F) to require the 
collection and maintenance of the indicators of the impact and 
responsiveness of the activity, as applicable, to be consistent with 
final Sec.  __.15(b). The agencies note that while the impact factors 
were not specifically included in the data collection, these data are 
required for the evaluation of the Community Development Services Test 
pursuant to Sec.  __.25(c)(5). Final Sec.  __.42(a)(6)(i)(F)(1) through 
(10) provides the indicators required to be collected and maintained 
for community development services consistent with Sec.  __.15(b).
    The agencies have also revised proposed Sec.  __.42(a)(6)(ii)(E) by 
removing the indicator for whether the activity is related to the 
provision of financial services. As explained in the section-by-section 
analysis of Sec.  __.25, the agencies determined that this requirement 
is not necessary because the final rule requires all community 
development services activities to be related to the provision of 
financial services. Therefore, collection of this indicator in proposed 
Sec.  __.42(a)(6)(ii)(E) is no longer necessary.
    The agencies have also renumbered and streamlined the data 
requirements for the location information of the activity in proposed 
Sec.  __.42(a)(6)(iii)(A) through (F). Specifically, the final rule 
replaces the requirement to collect and maintain the specific location 
of the activity, street address, city, county, State, and zip code in 
proposed Sec.  __.42(a)(6)(iii)(A) through (E), with a list of the 
geographic areas served by the activity, specifying any census tracts, 
county, counties, State, States, or nationwide area served. This 
revised list is renumbered in the final rule as Sec.  
__.42(a)(6)(ii)(A). In addition, the geographic level for which the 
bank seeks consideration for the community development services 
activity in proposed Sec.  __.42(a)(6)(iii)(F) has been renumbered in 
the final rule as Sec.  __.42(a)(6)(ii)(B).
    The agencies are not finalizing the requirement that banks with 
asset over $10 billion must report the number of full-time equivalent 
employees proposed Sec.  __.42(b)(4). As stated above, the agencies are 
not requiring that banks collect and maintain the number of full-time 
equivalent employees at the facility-based assessment area, State, 
multistate MSA, and institution levels collected in proposed Sec.  
__.42(a)(6)(i)(A). As a result, the requirement to report these data no 
longer applies.
    Because the final rule does not require that data for community 
development services be reported, the agencies will not publish 
community development services data as suggested by one commenter. With 
respect to the data collection requirement, and in response to a 
comment, while the agencies are not specifying in the final rule that 
if a bank does not intend to seek CRA credit the bank need not collect 
community development services data, the agencies note that there are 
no data requirements if the bank does not engage in a particular 
product or service that requires data collection, maintenance, or 
reporting under Sec.  __.42.

Section __.42(a)(7) Information Required To Be Collected and 
Maintained--Deposits Data

Section __.42(b)(3) Information Required To Be Reported--Deposits Data

Current Approach
    The current CRA regulations do not require banks to collect, 
maintain, or report deposits data.\1548\ Instead, for small banks, 
total deposits and total loans data from the bank's Call Report are 
used to calculate the loan-to-deposit ratio for the entire bank. For 
banks of any size, the agencies may use total deposits allocated to 
each branch from the FDIC's Summary of Deposits for performance 
context. Further, deposits data by depositor location are not currently 
required to be collected or reported, but may have been used by 
examiners for performance context at the bank's request, if available.
---------------------------------------------------------------------------

    \1548\ See current 12 CFR __.42.
---------------------------------------------------------------------------

The Agencies' Proposal
    As explained below, the agencies proposed that deposits data would 
be used for several evaluation metrics, benchmarks, and weights under 
the applicable performance tests. In Sec.  __.42(a)(7) (collection and 
maintenance) and (b)(5) (reporting), the agencies proposed an approach 
for the deposits data requirements tailored to different bank sizes.
Deposits Data Collection and Maintenance Requirements
    Large Banks with Assets of Over $10 Billion. The agencies proposed 
in Sec.  __.42(a)(7) to require large banks that had average assets of 
over $10 billion in both of the prior two calendar years, based on the 
assets reported on its four quarterly Call Reports for each of those 
calendar years, to collect annually and maintain until the completion 
of the bank's next CRA examination the dollar amount of the bank's 
deposits at the county level, based on the addresses associated with 
accounts and calculated based on the average daily balances as provided 
in statements, such as monthly or quarterly statements. The proposal 
also indicated that deposits data must be collected and maintained in 
machine readable form prescribed by the Agency.\1549\ Further, the 
proposed deposits data would not be assigned to branches but would 
instead reflect the county-level dollar amount of the bank's deposit 
base.\1550\ As a result, county-level deposits data would be based on 
the county in which the depositor's

[[Page 7068]]

account address is located, rather than on the location of the bank 
branch to which the deposits are assigned as is the case with the 
FDIC's Summary of Deposits.\1551\ The agencies explained in the 
preamble to the proposal that this approach would allow for more 
precise measurement of a bank's local deposits by county. Furthermore, 
the agencies noted that banks generally collect and maintain depositor 
location data to comply with Customer Identification Program 
requirements and as part of their ordinary course of business.
---------------------------------------------------------------------------

    \1549\ See proposed Sec.  __.42(a)(7).
    \1550\ See id.
    \1551\ See id.
---------------------------------------------------------------------------

    The agencies also explained in the preamble to the proposal that 
the current approach of associating deposits with the location of the 
branch to which they are assigned would raise challenges under the 
proposed evaluation framework for large banks with assets of over $10 
billion. The agencies explained that the proposed collection and 
maintenance of deposits data at the county level for large banks with 
assets of over $10 billion would permit the agencies to more 
accurately: (1) construct the bank volume metric and community 
development financing metric for each bank at the facility-based 
assessment area, State, multistate MSA, and institution levels, as 
applicable; (2) construct the market benchmarks used for the retail 
lending volume screen and the community development financing metric at 
the facility-based assessment area, State, multistate MSA, and 
institution levels, as applicable; and, (3) implement a standardized 
approach for deriving State-, multistate MSA-, and institution-level 
conclusions and ratings by weighting facility-based assessment area 
conclusions, retail lending assessment area conclusions, and outside 
retail lending area conclusions through a combination of deposits and 
lending volumes.
    The agencies did not believe it was practicable to implement their 
proposal using the FDIC's Summary of Deposits data for all large banks, 
particularly with respect to banks with more than $10 billion in 
assets. For example, the agencies noted that the FDIC's Summary of 
Deposits data is not always an accurate measure of a bank's deposit 
base within an assessment area. Specifically, deposits assigned to a 
branch in the FDIC's Summary of Deposits data may have been deposited 
by a customer located outside of the assessment area where the branch 
is located, such as in a different assessment area of the bank or 
outside of any of the bank's assessment areas.\1552\ The agencies noted 
that this limitation could introduce imprecision when using the FDIC's 
Summary of Deposits data to weight performance conclusions in retail 
lending assessment areas, outside retail lending areas, and areas for 
eligible community development activity. For large banks with assets of 
over $10 billion, the agencies believed that the benefits of precision, 
given the range of important measurements which are dependent on these 
data, outweighed the burden of requiring the collection and reporting 
of deposits data.
---------------------------------------------------------------------------

    \1552\ See FDIC ``Summary of Deposits Reporting Instructions'' 3 
(June 30, 2022), https://www.fdic.gov/resources/bankers/call-reports/summary-of-deposits/summary-of-deposits-reporting-instructions.pdf (``Institutions should assign deposits to each 
office in a manner consistent with their existing internal record-
keeping practices. The following are examples of procedures for 
assigning deposits to offices:  Deposits assigned to the 
office in closest proximity to the accountholder's address.  
Deposits assigned to the office where the account is most active. 
 Deposits assigned to the office where the account was 
opened.  Deposits assigned to offices for branch manager 
compensation or similar purposes. Other methods that logically 
reflect the deposit gathering activity of the financial 
institution's branch offices may also be used. 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.'').
---------------------------------------------------------------------------

    The agencies sought feedback on whether the proposed approach of 
requiring only large banks with assets of over $10 billion to collect, 
maintain, and report deposits data creates the appropriate balance 
between tailoring data requirements and ensuring accuracy of the 
proposed metrics. The agencies also sought feedback on whether large 
banks with assets of $10 billion or less that elect to collect and 
maintain deposits data also should be required to report deposits data. 
Relatedly, the agencies sought feedback on an alternative approach in 
which all large banks with assets of $10 billion or less are required 
to collect, maintain, and report deposits data, with the standards and 
requirements for these data as proposed for large banks with assets of 
over $10 billion. Additionally, the agencies sought feedback on whether 
a longer transition period (such as an additional 12 or 24 months 
beyond the transition period for large banks with assets of over $10 
billion) to begin collecting, maintaining, and reporting deposits data 
for large banks with assets of $10 billion or less would make this 
alternative more feasible. The agencies also sought comment on whether 
it would be preferable to require deposits data collected as a year- or 
quarter-end total, rather than an average annual deposit balance 
calculated based on average daily balances from monthly or quarterly 
statements.
    Under the proposal, for deposit account types for which 
accountholder location information is not generally available, the 
aggregate dollar amount of deposits for these accounts would be 
included at the overall institution level and not at other geographic 
levels.\1553\ The agencies explained in the preamble to the proposal 
that they expected that the aggregate dollar amount of deposits for 
accounts associated with pre-paid debit cards or Health Savings 
Accounts would likely be included at the institution level. The 
agencies sought feedback on additional clarifications regarding what 
deposit account types may not be appropriate to include at a county 
level and whether these deposits should be included at the institution 
level. The agencies also requested feedback on whether brokered 
deposits should be reported at the institution level.
---------------------------------------------------------------------------

    \1553\ See proposed Sec.  __.42(a)(7) and (b)(5).
---------------------------------------------------------------------------

    For large banks with more than $10 billion in assets that collect, 
maintain, and report deposits data, agencies proposed in Sec.  __.12 a 
definition of deposits based on two subcategories of the Call Report 
category of Deposits in Domestic Offices: (1) deposits of individuals, 
partnerships, and corporations; and (2) commercial banks and other 
depository institutions in the United States. The agencies proposed 
these two subcategories of deposits, which constitute the majority of 
deposit dollars captured overall in the Call Report categories of 
Deposits in Domestic Offices, because they best reflect a bank's 
capacity to lend and invest. The proposed definition excluded 
domestically held deposits of foreign banks and of foreign governments 
and institutions because these deposits are not derived from a bank's 
domestic customer base. The proposed definition also excluded United 
States, State, and local government deposits because these deposits are 
sometimes subject to restrictions and may be periodically rotated among 
different banks, causing fluctuations in the level of deposits over 
time.
    The agencies sought feedback on whether deposits for which the 
depositor is a commercial bank or other depository institution should 
be excluded from the definition and whether other categories of 
deposits should be included in these deposits

[[Page 7069]]

data. The agencies explained that while these deposits may augment a 
bank's capacity to lend and invest, they are primarily held in banker's 
banks and credit banks, many of which are exempt from CRA, or operate 
under the Community Development Financing Test tailored for limited 
purpose banks, which does not use deposits data. Further, the agencies 
sought feedback on the appropriate treatment of non-brokered reciprocal 
deposits in order to appropriately measure an institution's amount of 
deposits, avoid double counting of deposits, and ensure that 
accountholder location information for deposit accounts is available to 
the bank that would be collecting and maintaining the data. The 
agencies stated that a non-brokered reciprocal deposit as defined in 12 
U.S.C. 1831f(i)(2)(E) for the institution sending the non-brokered 
reciprocal deposit would qualify under the proposed deposits definition 
in Sec.  __.12, but such deposit for the institution receiving the non-
brokered reciprocal deposit would not qualify under the proposed 
definition. The agencies also sought feedback on whether bank 
operational systems needed to be upgraded to permit the collection at 
the county level based on a depositor's address and, if upgrades were 
needed, what would be the associated costs.
    Small Banks, Intermediate Banks, and Large Banks with Assets of $10 
Billion or Less. Under proposed Sec.  __.42(a)(7), small banks, 
intermediate banks, and large banks with assets of $10 billion or less 
would not be required to collect deposits data. Instead, the agencies 
proposed in Sec.  __.22(c)(3) and appendix A that the FDIC's Summary of 
Deposits data would be used for calculating the retail lending volume 
screen, as applicable, for small banks, intermediate banks, and large 
banks with assets of $10 billion or less, if they do not elect to 
collect and maintain deposits data. Under proposed Sec.  __.24(b) and 
appendix B, the FDIC's Summary of Deposits data also would be used for 
calculating the community development financing metric for large banks 
with assets of $10 billion or less and for intermediate banks that opt 
into the Community Development Financing Test. Under proposed Sec.  
__.28 and appendix C, the Summary of Deposits data also would be used 
for the weights assigned to each facility-based assessment area when 
calculating performance scores at the State, multistate MSA, and 
institution levels, as applicable. The agencies believed that this 
approach would minimize the data collection burden on banks with assets 
of less than $10 billion, in recognition that large banks with assets 
of over $10 billion have more capacity to collect and report new 
deposits data.
    The agencies explained in the preamble to the proposal that small 
banks, intermediate banks, and large banks with assets of $10 billion 
or less could choose to collect and maintain deposits data on a 
voluntary basis. Proposed Sec.  __.42(a)(7) required large banks with 
assets of $10 billion or less that elect to collect deposits data to do 
so in a machine readable form provided by the agencies. Small banks and 
intermediate banks would have the option to collect deposits data in 
the bank's own format. The agencies indicated in the preamble to the 
proposal that, if a small or intermediate bank opted to collect 
deposits data, the agencies would use the bank's collected data instead 
of the FDIC's Summary of Deposits data to calculate the bank's metrics 
and weights for all applicable tests and evaluation areas. The agencies 
explained that a bank with a significant percentage of deposits drawn 
from outside of assessment areas may prefer to collect and maintain 
deposits data to reflect performance more accurately under the retail 
lending volume screen and the community development financing metrics, 
and to have weights given to the bank's assessment areas in a way that 
more accurately reflects the bank's deposit base when assigning 
ratings.
    Wholesale Banks and Limited Purpose Banks. Under proposed Sec.  
__.42(a)(7), wholesale and limited purpose banks would not be required 
to collect or maintain deposits data.
Deposits Data Reporting Requirements
    Large Banks with Assets of Over $10 Billion. The agencies proposed 
in Sec.  __.42(b)(5) that large banks with assets of over $10 billion 
would be required to report, by April 1 of each year, the aggregate 
dollar amount of deposits at the county, State, multistate MSA, and 
institution level based on average annual deposits (calculated based on 
average daily balances as provided in statements such as monthly or 
quarterly statements, as applicable) from the respective geography. The 
agencies intended for this approach to appropriately account for 
deposits that vary significantly over short time periods or seasonally. 
The reported deposits data would inform bank metrics, benchmarks, and 
weighting procedures for the Retail Lending Test and Community 
Development Financing Test.
    The agencies sought feedback on requiring large banks to report the 
number of depositors at the county level. The agencies explained that 
such data would be used to support the agencies' analysis of deposits 
data and could be used to support an alternative approach of using the 
proportion of a bank's depositors in each county to calculate the 
bank's deposit dollars for purposes of the community development 
financing metrics and benchmarks. The agencies also sought comment on 
whether there are steps the agencies could take or further guidance or 
reporting tools that the agencies could develop to reduce burden while 
still ensuring adequate data to inform the metrics approach.
    Finally, the agencies proposed not to make deposits data reported 
under Sec.  __.42(b)(5) publicly available in the form of a data set 
for all reporting lenders; nevertheless, the agencies requested 
feedback on whether they should consider an alternative approach of 
publishing a data set containing county-level deposits data in order to 
provide greater insight into bank performance.
    Large Banks with Assets of $10 Billion or Less, Intermediate Banks, 
Small Banks, and Wholesale and Limited Purpose Banks. Under proposed 
Sec.  __.42(b)(5), large banks with assets of $10 billion or less, 
intermediate banks, small banks, and wholesale and limited purpose 
banks would not be required to report deposits data. Under proposed 
Sec. Sec.  __.22(c)(3) and __.24(b) and appendices A and B, the FDIC's 
Summary of Deposits data would be used for measuring the deposits of 
large banks with assets of $10 billion or less for purposes of 
calculating the proposed market volume benchmark and community 
development financing benchmarks, even if a bank chose to collect and 
maintain deposits data for purposes of calculating its metrics and 
weights. The agencies explained that not requiring these banks to 
report these data would reduce their new data burden.
Comments Received
    Comments were mixed regarding the agencies' proposed deposits data 
collection and reporting requirements. Some commenters were generally 
supportive of the agencies' proposal; while others expressed concern 
that the deposits data collection and reporting requirements would be 
overly burdensome for large banks.
    Many of the commenters that expressed support for the deposits data 
collection and reporting requirements also suggested that the deposits 
data collection and reporting requirements should be expanded beyond 
large banks

[[Page 7070]]

with assets of over $10 billion to include all large banks. Multiple 
commenters described multiple limitations of the FDIC's Summary of 
Deposits data and as a result, supported the proposed requirement that 
banks with assets of over $10 billion collect and report deposits data 
based on the counties in which depositors' addresses are located. One 
commenter noted that, although this would include a relatively small 
number of banks, it would include the great majority of deposits. This 
commenter also recommended that the Summary of Deposits data should be 
comprehensively reformed to better support the CRA as well as for other 
regulatory purposes. Another commenter was supportive of not only 
making deposits data collection and reporting a requirement for all 
large banks, but also for intermediate banks.
    Another commenter asserted that deposits data requirements would 
not further the CRA's objectives regardless of what deposit types are 
included. Citing economic conditions as an example, the commenter 
stated that during an economic downturn, an individual's savings 
increases while spending decreases, which would have an impact in the 
demand for certain banking products and services. As a result, the 
commenter expressed that using a deposit-based benchmark would 
artificially inflate a bank's CRA performance standards during this 
economic downturn that may not be achievable or sustainable.
    By contrast, most industry commenters that addressed the proposed 
deposits data collection and reporting requirements believed such 
requirements would be complex to implement, as well as costly and 
burdensome, and that as a result the deposits data already collected 
should instead be used. For example, a few of these commenters 
suggested that the deposits data already reported through the annual 
FDIC's Summary of Deposits data collection and reporting process should 
be sufficient. Another commenter noted that subjecting banks with 
assets of just over $10 billion to the same deposits data collection 
and reporting requirements as their much larger counterparts places 
these smaller large banks at a significant resource disadvantage, which 
in turn may reduce their ability to engage in community development 
activities. The commenter also suggested that the requirements would be 
a significant burden for even the largest banks because those banks 
will also need to make significant changes to their systems, programs, 
and procedures to collect the data and report it accurately. This 
commenter also noted that many of the data collection and reporting 
requirements in the proposal would require that the data be provided in 
a machine-readable form that has yet to be prescribed by the agencies. 
Another commenter stated that it may need to collect deposit data to 
pass the Retail Lending Test, even though the data collection and 
reporting requirements would not apply to the bank, because the FDIC's 
Summary of Deposits data may not be fully representative of its deposit 
sourcing for a market. The commenter noted that the burden to collect 
these data would be significant. A few other commenters expressed 
support for limiting any new data burden for these banks by maintaining 
the option as proposed.
    One commenter stated that the agencies failed to address why 
requiring county-level deposits data based on the depositor's address 
rather than on the location of the bank branch to which the deposits 
are assigned is relevant to recognizing a bank's support of low- and 
moderate-income communities. Absent a reliable means of determining 
which approach is more accurate, the commenter believes the compliance 
costs associated with gathering depositor address data are unwarranted. 
As such, the commenter suggested that the agencies maintain the branch 
assignment method, make address-based reporting optional, and place 
more importance on data that provide a better picture of a community's 
needs.
    Some commenters suggested alternatives to the agencies' proposed 
method of averaging annual deposits based on average daily balances 
included in monthly or quarterly statements. One commenter expressed 
that the proposed approach was burdensome, and instead suggested to 
collect deposits as of the beginning of the examination period and 
allow banks to provide performance context information to the extent 
there are significant changes to deposits distribution during the 
examination period. Another commenter recommended that deposits data 
should be collected and reported based on end-of-quarter or end-of-year 
balances. This commenter further suggested that the agencies consider 
creating an online platform akin to the CFPB's HMDA Loan Application 
Register formatting tool to provide banks with a direct and efficient 
manner to submit the required deposits data.
    A number of commenters addressed the technical requirements of 
collecting, maintaining, and reporting deposits data, including the 
need for banks to geocode depositor addresses so that the data can be 
summarized at the county level. One commenter asserted that some banks 
complain that deposits data collection and reporting would create data 
burden when, in reality, they already geocode their deposits. Two other 
commenters suggested that deposits data should be collected at the 
census tract level rather than at the county level, which would provide 
greater insight into the patterns of reinvestment observed. These 
commenters further stated that there may be significant data quality 
issues with deposits data that have not been addressed in the proposed 
rule, for example when a customer might open a deposit account with an 
address which does not reflect where the customer lives. These 
commenters also noted that deposits data will not be subject to the 
same data integrity standards as HMDA data, and that requiring such 
accuracy would be overly burdensome to depository institutions.
    Several commenters asked that the agencies incorporate exemptions 
to the deposits data requirements. For example, two commenters 
suggested that branch-based banks of any size should be exempt from 
tracking deposits by location or delineating deposits-based assessment 
areas. Other commenters similarly suggested that the deposits data 
collection and reporting requirements should not apply to banks with 
facility-based models, with one of these commenters asserting that 
banks that are mainly internet-based banks, without a brick-and-mortar 
presence, should be required to collect and report deposits data. A few 
of commenters also noted that additional guidance would be needed with 
regard to deposits data collection and reporting, with one of the 
commenters noting that there would need to be significant guidance 
provided for non-standard situations, such as when the physical address 
on record for a deposit account is very old (and has not been updated), 
when the recorded address is a P.O. Box, where the customer spends part 
of the year at one address and part of the year at a different address, 
or for when mail to the depositor is returned and there is no accurate 
address on file. Another commenter stated that the FDIC's Summary of 
Deposits data should be used for all banks except those that generate a 
substantial portion of their deposits digitally.
    Regarding alternative approaches to deposits data collection and 
reporting requirements the agencies could consider to minimize 
additional data burden, commenters made several recommendations 
including: permit banks to use the FDIC's Summary of Deposits data 
rather than require them

[[Page 7071]]

to geocode, collect, and report deposits data based on the residence of 
their depositors; collect and report deposits data based on an average 
annual deposit balance based on average daily balances from quarterly 
statements rather than from monthly statements; and have the option to 
determine the frequency by which they would collect and report deposits 
data (and requiring banks to commit to one specific method/frequency 
for each CRA examination cycle). One commenter suggested that the 
agencies should ``stress test'' this issue, to determine whether a 
quarterly average is almost as accurate as average daily balances 
computed monthly or quarterly, which might indicate that quarterly 
averages would be a viable alternative. Another commenter suggested the 
agencies should work with the financial industry to determine the best 
balance between accuracy and burden with respect to data collection, 
reporting, and associated metrics' calculations. One other commenter 
suggested that, as an alternative, banks could upload summary records 
they keep for qualitative analysis in the interim while they work 
towards building capacity to collect, maintain, and report deposits 
data at the appropriate interval (quarterly, semi-annually, or 
annually).
    Regarding whether deposits sourced from commercial banks or other 
depository institutions should be excluded from the proposed deposits 
data collection and reporting requirements, multiple commenters 
suggested that all deposits, including those from commercial banks and 
other depository institutions, should be included in the deposits data. 
Another commenter suggested that deposits from commercial banks should 
not be included unless these commercial banks are designated as small, 
disadvantaged business enterprises or some similar category. However, 
this commenter also suggested that deposits sourced from minority 
depository institutions should be included in the deposits data. 
Another commenter suggested that ``mission deposits'' or non-brokered 
reciprocal deposits should be excluded from the deposits data, and 
noted that it could be problematic to identify these deposits among 
deposits from commercial banks or other depository institutions. 
Another commenter suggested that neither commercial bank deposits nor 
deposits from other depository institutions, such as credit unions, 
should be excluded. Finally, one commenter indicated that corporate, 
commercial bank, and other depository institution deposits should be 
excluded from the deposits data.
    Regarding whether brokered deposits and other types of deposit 
accounts such as prepaid debit card accounts and Health Savings 
Accounts that may not include depositor location information should be 
reported at the institution level, commenters generally agreed that 
deposits without depositor location data should be reported at the 
institution level. A few commenters suggested that accounts for which 
Customer Identification Program information is not required are 
unlikely to have customer location data and might be treated as a 
category at the institution level. One of these commenters suggested 
that banks could include depositor information for deposit accounts for 
which Customer Identification Program information is collected. Another 
commenter also noted how consideration of prepaid debit card accounts 
can be complicated because many are one-time use cards; they can be 
sold in retail establishments with no collection of customer 
information; and geographic mobility is a feature of these accounts. 
This commenter suggested that the agencies should consider the purpose 
of the deposit products, for example if a CDFI bank were to raise 
prepaid card deposits from across the United States with the intention 
of using those deposits to fund a national lending program to help low- 
and moderate-income individuals improve their credit, rather than the 
geographic location from which deposits are collected or products 
delivered. Another commenter suggested that these types of accounts 
should have some locational information, whether location of sale or 
location of employer, and that the agencies should investigate 
available data on these types of products to see if a more specific 
geography can be attributed to these products than at the institution 
level. Another commenter suggested that the agencies should conduct 
research to determine whether deposit location might be identified at 
the county level, but if not, this commenter stated that these types of 
deposits should be considered at the institution level.
    Regarding the appropriate treatment of non-brokered reciprocal 
deposits, the few commenters that addressed this issue agreed with the 
proposed approach. These commenters noted that non-brokered reciprocal 
deposits should be considered as a deposit for the bank sending the 
non-brokered reciprocal deposit, but they should not be considered as a 
deposit for the bank receiving the reciprocal deposit. Two of these 
commenters indicated that they supported this approach to ensure CDFI 
banks are not penalized for accepting CRA and impact-motivated 
deposits. Multiple other commenters stated they supported the approach 
to prevent double-counting of deposits included in these transactions. 
A commenter offered a technical suggestion to align terminology used in 
the CRA regulation with that included in the Federal Deposit Insurance 
Act (FDI Act) and corresponding FDIC regulations, which do not speak in 
terms of institutions sending non-brokered (or brokered) reciprocal 
deposits and instead describe an agent institution sending or placing a 
``covered deposit'' through a deposit placement network and receiving 
reciprocal deposits in the same aggregate amount. The commenter 
therefore suggested that the final rule exclude all reciprocal deposits 
(whether or not brokered) that a bank receives and include all covered 
deposits that a bank places on a reciprocal basis (whether or not they 
become non-brokered reciprocal deposits for the receiving institution) 
to provide a more workable description of ``deposits'' for purposes of 
the CRA metrics.
    In response to the question regarding whether bank operations 
systems currently permit the collection of deposit information at the 
county-level, commenters expressed different views. A commenter 
indicated that its operations systems would need to be modified to 
capture this information because they do not currently geocode 
depositors' addresses, noting that the cost for such modifications 
would need to be determined through vendor due diligence. Another 
commenter suggested that the capacity to collect the information and 
its associated costs may vary by bank, but it is important for the 
agencies to get available data that can be used for branch level 
assessments. One more commenter indicated that CDFI banks report that 
the cost of modifying and upgrading operations systems would be 
significant (with one member financial institution indicating a cost 
between $30,000 and $50,000). In contrast, a few commenters indicated 
that bank systems exist for collecting these sorts of data (such as 
those used for reporting Bank On account data), that many banks already 
geocode their deposits data, and that it should not be burdensome or 
costly for financial institutions that do not already utilize these 
systems to do so.
    Regarding steps the agencies might take to reduce the burden 
associated with the reporting of deposits data, a few commenters made 
several recommendations. Two commenters

[[Page 7072]]

suggested the agencies develop a geocoding platform. Other commenters 
suggested the agencies provide sufficient transition time for the 
existing financial services data systems providers that currently 
collect, geocode, validate, and report data for CRA and fair lending 
compliance purposes to create deposits data-based applications. This 
commenter indicated its expectation that as an ``add on'' function, 
this solution should not be particularly expensive. One other commenter 
suggested that CDFIs should be able to rely on information they already 
submit related to their annual CDFI certification. The commenter also 
suggested that the agencies provide technical assistance grants to help 
banks below $1 billion obtain the technological resources necessary to 
comply with the proposed data collection, recordkeeping, and reporting 
requirements with priority, or a potential set aside, for MDIs or 
CDFIs. Two commenters suggested the agencies should coordinate with 
other agencies to standardize data definitions and formats in order to 
both use data already collected when possible and to otherwise automate 
reporting through integration of existing software and file types. One 
other commenter similarly recommended that the agencies automate 
reporting with integration of current software or develop a certain 
file type so that the data can be parsed by the agencies' systems 
uniformly. Another commenter suggested that the agencies should clarify 
that in the case of an omnibus account (e.g., in a sweep program or 
prepaid program) a bank can treat the depositor's address as that of 
the accountholder of record. Similarly, this commenter suggested the 
agencies clarify that a bank can rely on a depositor's address in its 
system of records, which is typically collected at account opening, and 
that the CRA regulations' proposed data collection requirements do not 
impose a new obligation on banks to periodically request current 
address information from customers.
    Nearly all comments received responding to whether the agencies 
should consider the alternative approach of publishing a dataset 
containing county-level deposits data were supportive of the agencies 
publishing such a dataset. Several commenters indicated that the 
agencies not proposing to publish these data limits the public's 
ability to hold banks accountable. Other commenters made various 
recommendations concerning the manner in which the data should be 
published, including that, if possible, the data should be published at 
the lowest available level of aggregation, such as at the census tract 
or zip code level. One of these commenters also asserted that the 
agencies should consider publishing data by income category of census 
tracts or by census tracts with respect to percentages of minority 
consumers. Another commenter stated that the more granular the data, 
the more the data can help with identifying performance gaps of a 
specific branch. This commenter also stated that if an alternative 
approach can help with this effort, then the agencies should consider 
it, but that, since these data would be used to support agency analysis 
of deposits data in devising alternative approaches, the agencies 
should determine if the data collection is still needed after the 
analysis has been completed. Another commenter suggested the agencies 
consider the alternative with publication of Geographic Information 
Systems maps of the assessment area. One other commenter suggested that 
the agencies provide deposit market-share data as it is today; use 
deposits data to develop customer physical location data internally; 
and decide whether to anonymize depositor data or provide that deposits 
data collection requirements do not result in privacy violations 
between banks and their customers.
Final Rule
    The agencies are adopting proposed Sec.  __.42(a)(7) regarding the 
collection and maintenance of deposits data substantially as proposed 
with technical edits for clarification and to conform to other changes 
made in the final rule. Specifically, the agencies are revising this 
paragraph to update the reference ``machine readable'' to 
``electronic'' with no change in meaning intended.
    The agencies are also revising this paragraph to clarify that the 
dollar amount of deposits at the county level is based on ``deposit 
location'' as defined in Sec.  __.12, and to conform to the definition 
of deposit location in the final rule, which provides more detailed 
guidance to banks regarding how to determine the location of deposits 
associated with deposit accounts. In addition, to clarify how banks are 
to collect and maintain deposits data for account types for which a 
deposit location is not available, the agencies are adding language 
stating that such deposits data must be collected and maintained at the 
nationwide area. Specifically, recognizing that there is no reasonable 
method for assigning deposits to a local area in cases where a 
depositor address is not available, the agencies determined that it is 
appropriate to consider these deposits at the nationwide area. These 
deposits would not be included in calculations for bank-specific 
metrics or aggregate benchmarks for any local geographic area, but 
would be included in calculations at the nationwide area or institution 
level (e.g., for the community development investment metric). An 
alternative to collecting, maintaining, and reporting these data at the 
nationwide area is to not consider them at all, which the agencies did 
not consider appropriate given that these deposits are financial 
resources available to the bank.
    The agencies are revising this paragraph to indicate that a large 
bank that had assets greater than $10 billion as of December 31 in both 
of the prior two calendar years must collect and maintain deposits 
data. This change was made to conform to changes made in Sec.  __.12 
regarding how assets data are used in the definitions of large bank, 
intermediate bank, and small bank.
    The agencies are also adding to this paragraph the phrase ``in 
which the data are evaluated,'' to clarify how long a bank must collect 
and maintain the deposits data. More specifically, the final rule 
clarifies that these data must be maintained ``until the completion of 
the bank's next CRA examination in which the data are evaluated,'' 
rather than ``until the completion of the bank's next CRA 
examination,'' as provided under the proposal. This clarification is 
made to ensure that these data are maintained until they are evaluated 
in a CRA examination, which may not be the bank's next CRA examination.
    Lastly, the agencies are revising this paragraph to indicate that 
``any other bank'' that opts to collect and maintain deposits data must 
do so in the same form and for the same duration as is required of 
large banks with assets greater than $10 billion. This is an expansion 
of the proposed language, which required these data only for ``a large 
bank that had average assets of $10 billion or less.'' This change was 
made to improve the efficiency and accuracy of calculations using 
deposits data, including those for bank metrics and benchmarks used in 
the Retail Lending Test and Community Development Financing Test, as 
well as for the weighting calculations used for creating benchmarks and 
conclusions. Deposits data collection and maintenance requirements 
remain optional for banks with assets of $10 billion or less, but if 
they do opt to collect and maintain these data, as just noted, they 
must do so in the same form and for the same

[[Page 7073]]

duration as is required of large banks with assets greater than $10 
billion.
    The agencies are also adopting proposed Sec.  __.42(b)(5) 
substantially as proposed, renumbered in the final rule as Sec.  
__.42(b)(3)(i) and (ii), regarding the reporting of deposits data. The 
agencies are making one substantive addition, requiring banks with 
assets of $10 billion or less that opt to collect and maintain deposits 
data to also report these data. The agencies are also making technical 
edits for clarification and removal of superfluous language in the 
regulatory text. Specifically, the agencies are clarifying in new Sec.  
__.42(b)(3)(ii) that the data collected and maintained by large banks 
in Sec.  __.42(a)(7) for which deposit location is not available must 
be reported at the nationwide area. This clarification is necessary to 
ensure that the full set of deposits are reported for banks included in 
this paragraph. Specifically, the agencies are revising this paragraph 
to update the reference ``machine readable'' to ``electronic'' with no 
change in meaning intended.
    The agencies are adding a requirement for banks with assets of $10 
billion or less that opt to collect and maintain deposits data that 
they must also report these data. The agencies made this change to 
improve the efficiency and accuracy of calculations using deposits 
data, including those for bank metrics and benchmarks used in the 
Retail Lending Test and Community Development Financing Test, as well 
as for the weighting calculations used for creating benchmarks and 
conclusions. The data reporting requirement remains optional for banks 
with assets of $10 billion or less, but if they do opt to collect and 
maintain these data, they must also report these data in the same form 
and for the same duration as is required of large banks with assets 
greater than $10 billion.
    The agencies are also revising this paragraph to indicate that a 
large bank that had assets greater than $10 billion as of December 31 
in both of the prior two calendar years must report deposits data. This 
change was made to conform to changes in Sec.  __.12 regarding how 
assets data are used in the definitions of large banks, intermediate 
banks, and small banks.
    Additionally, the agencies added language to this paragraph 
indicating that a bank that reports deposits data for which a deposit 
location is not available must report these deposits at the nationwide 
area, conforming with the requirement for collecting and maintaining 
these data in final Sec.  __.42(a)(7). These deposits would not be 
included in calculations for bank-specific metrics or aggregate 
benchmarks for any local geographic area, but would be included in 
calculations at the nationwide area or institution level (e.g., for the 
community development investment metric). An alternative to reporting 
these data at the nationwide area is not reporting them at all, which 
the agencies did not consider appropriate given that these deposits are 
financial resources available to the bank.
    The final rule does not include the language in proposed Sec.  
__.42(b)(5) which stated that the agencies ``will not make deposits 
data reported under this paragraph publicly available in the form of a 
data set for all reporting banks.'' The agencies do not intend this as 
a substantive change from the proposed approach. Instead, the agencies 
realize that it is not necessary or appropriate for the final rule to 
indicate what is not included in the examination and evaluation 
process, or, in this case, what data will not be published as part of 
the evaluation process.
    Lastly, the agencies revised this paragraph to indicate that ``any 
other bank'' that opts to collect and maintain deposits data must 
report these data in the same form and for the same duration as 
described in this paragraph for large banks with assets greater than 
$10 billion. This is an expansion to the proposed language indicating 
this data requirement is only for ``a large bank that had average 
assets of $10 billion or less.'' This change was made to improve the 
efficiency and accuracy of calculations using deposits data, including 
those for bank metrics and benchmarks used in the Retail Lending Test 
and the Community Development Financing Test, as well as for the 
weighting calculations used for creating benchmarks and conclusions. 
This deposits data collection and reporting requirement remains 
optional for banks with assets of $10 billion or less, but if they do 
opt to collect and maintain these data, they must do so in the same 
form and for the same duration as is required of large banks with 
assets greater than $10 billion.
    Deposits data requirements--generally. The final rule maintains the 
proposed approach to require data collection, maintenance, and 
reporting only for banks with assets of over $10 billion. Upon 
consideration of the comments, the agencies have determined that this 
approach achieves an appropriate balance between the burden required to 
collect and report these data and the benefit that will result from 
using these data in the final rule. The agencies believe that large 
banks with assets greater than $10 billion have the capacity to 
collect, maintain, and report these data.
    The agencies believe that including the distribution of these 
banks' deposits by depositor location is an important aspect of the 
effort to modernize CRA. Banking has evolved over the past several 
decades, particularly since the advent of the internet, to the point 
that physical bank branch locations are no longer a sole proxy for the 
local communities served by banks, with the exception of banks that 
remain primarily branch-based in their operations, which are likely to 
be smaller institutions.
    As discussed in the agencies' proposal, the final rule approach 
leverages these data in a number of ways that the FDIC's Summary of 
Deposits data do not allow for, including assigning weights to Retail 
Lending Test and Community Development Financing Test performance in 
areas outside of facility-based assessment areas. In addition, the 
agencies believe that the collected, maintained, and reported deposits 
data will more accurately reflect the location of a bank's depositors 
than would the FDIC's Summary of Deposits data, which will result in 
more accurate metrics and benchmarks. The agencies believe that the 
approach adopted in the final rule will capture a substantial majority 
of all bank deposits data,\1554\ thereby significantly improving the 
accuracy of aggregate benchmarks that use deposits data, such as the 
Market Volume Benchmark used for the Retail Lending Volume Screen, and 
the benchmarks used for the Community Development Financing Test.
---------------------------------------------------------------------------

    \1554\ See FDIC analysis of 2015-2020 FDIC's Summary of Deposits 
data shows that in each of these years, deposits in banks with 
assets greater than $10 billion comprised over 80 percent of 
deposits in all banks. See Joseph R. Harris III, Caitlyn R. Kasper, 
Camille A. Keith, and Derek K. Thieme, ``2020 Summary of Deposits 
Highlights,'' Table 3 (2021), https://www.fdic.gov/analysis/quarterly-banking-profile/fdic-quarterly/2021-vol15-1/article2.pdf.
---------------------------------------------------------------------------

    The agencies considered, but are not adopting, an alternative 
approach of extending the deposits data collection and reporting 
requirement to all large banks, including those with assets of $10 
billion or less and intermediate banks. The agencies determined that 
this approach would place a significant burden on these banks and would 
only yield the enhanced data for a relatively small additional share of 
industry deposits.\1555\ The agencies believe that these banks may have 
lesser capacity than large banks with assets of over $10 billion to 
comply with the requirement, such as the ability to geocode depositor

[[Page 7074]]

addresses and summarize depositor data at the county level on an 
ongoing basis.
---------------------------------------------------------------------------

    \1555\ See id.
---------------------------------------------------------------------------

    In the final rule, banks with assets of $10 billion or less may 
elect to collect, maintain, and report deposits data as required of 
larger banks. Under the proposed rule, in contrast, such a bank would 
have the option to collect and maintain deposits data, but would not 
have been required to report deposits data that the bank elected to 
collect and maintain. The agencies believe that requiring banks that 
elect to collect and maintain deposits data to also report these data 
will enhance the consistency of reporting requirements and allow these 
data to be incorporated into aggregate benchmarks. This will result in 
any bank opting into having collected and maintained deposits data 
included in their metrics also having their deposits data included in 
the benchmarks against which they are evaluated. The agencies do not 
believe that this change increases complexity or burden, because 
collecting and maintaining deposits data would remain optional for 
banks with assets of $10 billion or less, as in the proposed approach.
    The agencies considered, but are not adopting, suggestions to use 
the FDIC's Summary of Deposits data for large banks with assets of over 
$10 billion to reduce complexity, instead of requiring deposits data 
collection, maintenance, and reporting. The agencies believe that large 
banks with assets of over $10 billion are likely to already have 
systems in place for geocoding deposits or, due to existing 
requirements to geocode HMDA loans, small business loans, and small 
farm loans, systems that can be adapted to produce these data. The 
agencies believe that using Summary of Deposits data for these banks 
may inflate these banks' deposits in areas where branches are located 
and dilute deposits in areas where these banks do not have branches but 
where their depositors are located. Because the great majority of 
industry deposits are held by these banks, the agencies believe this 
would have a distorting effect on the creation of benchmarks for all 
banks as well as on the creation of metrics for these banks. Finally, 
the agencies considered that Summary of Deposits data include deposits 
from government and foreign sources, which the agencies believe is 
preferable to exclude from CRA evaluations, as discussed below.
    The agencies have considered commenter feedback that suggested 
requiring these data of large banks with assets only slightly over $10 
billion places these banks at a disadvantage with regards to their 
ability to engage in community development activities. However, the 
agencies believe that most large banks, and particularly most large 
banks with assets of over $10 billion, have access to systems capable 
of identifying the addresses of their depositors and systems capable of 
geocoding addresses. As mentioned above, banks of this size are 
typically required to geocode addresses of their small business loans 
and small farm loans, as well as HMDA loans (for those required to 
report HMDA data). To the extent there are any such banks that do not 
already possess the systems needed to handle these data requirements, 
bank service providers are capable of providing support to banks. 
Therefore, the agencies do not believe that this requirement would 
impact a bank's ability to engage in community development activities 
or any other type of CRA activity. With regard to addressing the 
limitations of the FDIC's Summary of Deposits data, these limitations 
are known to the agencies; the agencies believe that addressing such 
limitations is outside the scope of this final rule.
    The agencies are sensitive to concerns that there may be banks with 
assets of $10 billion or less that may be disadvantaged by using the 
FDIC's Summary of Deposits data, particularly with regard to the Bank 
Volume Metric used in the Retail Lending Volume Screen as part of the 
Retail Lending Test, and the metrics used in the Community Development 
Financing Test. The agencies considered that, as noted by multiple 
commenters, the Summary of Deposits data may not accurately represent a 
bank's deposits in a market, which could impact the bank's metrics. In 
addition, the agencies considered that the inclusion of government 
deposits and deposits from foreign entities in the Summary of Deposits 
data could negatively impact a bank's metrics relative to a bank that 
is collecting and reporting deposits data, since government and foreign 
entity deposits are excluded from the collected and reported data. For 
these reasons, the agencies are permitting banks with assets of $10 
billion or less to opt to collect, maintain, and report deposits data. 
The agencies believe that this option addresses concerns that Summary 
of Deposits data could negatively impact a bank's metrics, because a 
bank with assets of $10 billion or less can determine whether the 
benefit of collecting and reporting these data is in their best 
interest. The agencies believe this decision is best left to each 
individual bank in this size category, based on their own 
circumstances, rather than imposing a requirement for these banks.
    With respect to the alternative approach discussed in the proposal 
to publish a county-level deposits data set in order to provide greater 
insight into bank performance, the final rule does not provide that the 
agencies publish bank-specific deposit information at the county level 
in a published data set. While the agencies considered that this 
alternative could increase the transparency of CRA evaluations, and 
that such a data set could help to inform other policies and community 
development efforts beyond CRA, the agencies determined that the 
potential benefits are outweighed by other considerations. These 
considerations stem from an overarching intent by the agencies to make 
data publicly available as necessary for transparency in the 
examination process, but otherwise to protect privacy and competitive 
concerns for consumers and banks by not publishing data that is not 
necessary to support transparency. This concern is particularly 
important for data that has not been collected and reported previously, 
such as deposits data. The agencies intend to develop tools to provide 
information regarding metrics, benchmarks, and weights in different 
geographic areas using reported lending and deposits data. In addition, 
the agencies believe that the information included in a bank's public 
CRA performance evaluation will provide sufficiently detailed 
information on bank performance. While the final rule does not provide 
that the agencies would publish a county-level deposits data set, the 
agencies note that deposits information pertaining to facility-based 
assessment areas, which may consist of a single county, would be 
included in performance evaluations and in data tools for the purpose 
of calculating metrics, benchmarks and weights.
    The agencies considered a comment that the agencies failed to 
address why requiring county-level deposits data based on depositor's 
address rather than the location of the bank branch to which the 
deposits are assigned is relevant to recognizing a bank's support of 
low- and moderate-income communities. The agencies believe that 
collecting and reporting these deposits data is necessary for large 
banks with assets over $10 billion for the construction of metrics, 
benchmarks, and weights, which inform the conclusions and ratings that 
reflect a bank's support of low- and moderate-income communities. The 
agencies believe that deposits data aggregated at the county level, 
based on depositor addresses, will provide a better measure of the 
volume

[[Page 7075]]

of deposits sourced by the bank from depositors in that area, than 
would deposits aggregated at the location of the bank branch to which 
they are assigned. The agencies consider deposits in a bank from an 
area to be representative of a bank's capacity to conduct retail 
lending and community development financing in that area.
    The agencies also considered an approach of summarizing deposits 
data at an even finer geographic level, such as census tracts. While 
this would enable better identification of deposits in low- and 
moderate-income communities, the agencies recognize the need to protect 
depositor privacy and to limit bank data collection and reporting 
burden. Additionally, the agencies note that although deposits data are 
used to calculate metrics, benchmarks, and weights, the rule does not 
use deposits data collected pursuant to Sec.  __.42(a)(7) to evaluate 
the distribution of deposits themselves, including by the low- or 
moderate-income characteristics of areas from which deposits are 
received. This distinction explains why the agencies require some other 
data for which these distributions are evaluated to be reported at a 
finer geographic scale (i.e., by census tract income level), but such 
specificity is not necessary for these deposits data. Finally, pursuant 
to Sec. Sec.  __.16 and __.17, under the final rule approach, large 
bank facility-based assessment areas and retail lending assessment 
areas must consist of at least an entire county. As a result, census 
tract-level deposits data are not necessary to calculate metrics, 
benchmarks, and weights pertaining to large banks.
    In response to the commenter that argued against requiring deposits 
data due to the impact of economic cycles (downturns) on the 
appropriateness of using deposits in benchmarks, the agencies note that 
the data used for an individual bank's metrics and the market 
benchmarks against which that bank's metrics are compared are always 
drawn from the same geographic areas and for the same time period. Any 
impact of economic cycles would impact both individual bank metrics and 
market benchmarks. The amount of community development financing 
activity (or retail lending activity) that a bank would need to report 
in order to perform well in comparison to benchmarks would fluctuate in 
tandem with economic changes impacting all banks reporting data for the 
benchmark for the same geographic area. This is an important feature of 
how these benchmarks function, and is very much a benefit, rather than 
a liability, of using deposits data in these benchmarks.
    Averaging annual deposits based on average daily balances. The 
agencies are also finalizing deposits data collection as proposed with 
regard to basing deposit amounts on average annual deposits based on 
average daily balances included in monthly or quarterly statements. The 
agencies believe it is important to include the most timely and 
accurate deposit amounts as reasonably possible in calculations used in 
the final rule. The final rule approach reflects seasonal changes that 
may occur over the course of a year, as well as year-to-year changes 
over the course of an evaluation period. In addition, the final rule 
approach would ensure that the timing of the deposits data incorporated 
into a bank's evaluation aligns with the timing of the retail lending 
and community development financing data. For example, the agencies 
considered that the Retail Lending Volume Screen should measure a 
bank's retail lending over the evaluation period relative to its 
deposits over the evaluation period. Alternatives suggested by 
commenters to use deposit information at the time of the bank's 
examination, or from end-of-quarter or end-of year balances during the 
evaluation period rather than average daily balances, could result in a 
mismatch in the timing of the deposits data and timing of other data 
that are incorporated in the same metrics and benchmarks. Furthermore, 
the agencies considered that banks typically calculate average daily 
balances at monthly or quarterly intervals to support issuing banking 
statements, which reduces the potential burden of the final rule 
approach.
    The agencies considered a comment to create an online platform for 
banks to submit their deposits data. The agencies expect that the final 
rule approach of requiring deposits data collection and reporting using 
an electronic form, as prescribed by the agencies, will achieve many of 
the same efficiencies that would be achieved by creating an online 
platform, such as ensuring consistent data formatting and enabling data 
integrity checks during the submission process. Although the agencies 
have not finalized the specific mechanism through which banks will 
submit their reported deposits data, the agencies will take commenter 
feedback into consideration as they develop this mechanism.
    Exemptions to deposits data requirements. As noted above, the 
agencies are finalizing the deposits data collection and reporting for 
large banks with assets of over $10 billion, and are not providing 
exemptions based on whether a bank is primarily branch-based, as 
suggested by some commenters. The agencies believe that having deposits 
data at the county level based on depositor addresses is an important 
and appropriate aspect of the modernization of the CRA regulations, is 
responsive to changes in the geographic distribution of bank customers 
relative to bank branches, and resolves other challenges with the use 
of the FDIC's Summary of Deposits data discussed above. These changes 
are relevant to branch-based banks as well as banks with a more 
digitally-based business model. The agencies also believe that the 
proposed approach of using depositor addresses included in the Customer 
Identification Program or another documented address is an appropriate 
strategy for identifying depositor locations; banks are expected to 
maintain timely and accurate information regarding their 
accountholders.
    Data integrity. The agencies are sensitive to commenter concerns 
that deposits data will not be subject to the same data integrity 
standards as data reported pursuant to the HMDA requirements. The 
agencies believe that deposits data based on depositor location will be 
accurate, because this information is required by the Customer 
Identification Program regulation, and because banks have important 
business reasons to maintain accurate addresses beyond compliance with 
the final rule. The agencies acknowledge that there are situations in 
which a customer may use an address that does not reflect the location 
of where they live, such as a place of work, or a P.O. Box, but believe 
that customer address information is generally accurate.
    The agencies note, in response to comments regarding the need for 
additional guidance for banks required to report deposits data, that 
they already produce a data guide for CRA, which they intend to update 
in accordance with the changes in the final rule. The agencies will 
consider whether additional guidance is necessary outside of the final 
rule to address non-standard situations such as when the physical 
address on record for a deposits account has not been updated for a 
significant amount of time or when the customer spends part of the year 
at one address and part of the year at a different address.
    Other approaches to deposits data collection to reduce burden. The 
agencies appreciate the recommendations made by commenters on different 
approaches to reduce burden. However, after further

[[Page 7076]]

consideration, the agencies believe that the strategies to use 
depositor addresses included in the CIP, which is a part of a bank's 
requirements through the Bank Secrecy Act, or other documented address, 
and to include deposits for which there is no available address at the 
nationwide area, sufficiently reduce the burden of this approach. The 
agencies believe that the decision to use deposits data that banks are 
already maintaining, as well as the decision to extend the 
applicability of the new deposits data collection and maintenance 
requirements to January 1, 2026, as discussed in the section-by-section 
analysis of Sec.  __.51, should address commenter concerns that a 
longer transition time might be necessary for collecting and reporting 
these deposits data.
    In addition, the agencies note that there is an ongoing effort by 
the FFIEC, which the agencies are a part of, to develop and deliver an 
improved geocoding system. As noted, the agencies believe that banks 
that are subject to the requirements to collect, maintain, and report 
deposits data under the final rule already have access to geocoding 
systems adaptable to geocode depositor addresses, and thus any residual 
burden, if any, is relatively incremental. The agencies believe that 
the transition times are sufficient for any adaptations or development 
that may be necessary for these systems.
    In response to the comments received suggesting that CDFIs should 
be able to rely on information they already submit related to their 
annual CDFI certification to meet the deposits data reporting 
requirement, and that the agencies should coordinate with other 
agencies to standardize data definitions and formats in order to both 
use data already collected when possible, the agencies are unaware of 
any existing data reporting requirements by other agencies, including 
the CDFI Fund, that are similar to the deposits data collection 
included in the final rule. To the extent that the CDFI certification 
process includes information about CDFI bank deposits or depositors, 
the agencies note that the vast majority of banks are not certified 
CDFIs, so there would be little benefit in attempting to use data 
included in the CDFI certification process.
    The agencies do not believe it appropriate to require ``stress 
testing,'' as suggested by a commenter, to determine whether reporting 
quarterly average deposits data might be as accurate as average daily 
balances computed monthly or quarterly, thereby reducing reporting 
burden. The agencies considered that banks already calculate and 
maintain monthly or quarterly account balances based on average daily 
balances for the purposes of generating account statements, and as a 
result, the agencies believe that it is reasonable to use these data in 
CRA evaluations. Also, in response to a comment suggesting an 
alternative approach of requiring banks to upload summary deposits 
records they keep for qualitative analysis as an interim approach while 
they build capacity to collect, maintain, and report deposits data, the 
agencies believe that summary records of deposits data would not enable 
the agencies to construct metrics, benchmarks, and weights required 
under the performance tests, and that it is appropriate to use county-
level data as provided in the final rule.
    Treatment of deposit accounts which do not have depositor 
addresses. Consistent with most commenters responding to how to handle 
deposit accounts that do not have depositor addresses, the agencies 
believe that these concerns are appropriately addressed by 
incorporating deposit accounts for which no depositor address is 
available at the institution level, reported to the nationwide area. 
The agencies believe that this approach is preferred relative to the 
alternative of requiring banks to identify locations where accounts 
were opened (e.g., where prepaid cards were purchased) or to identify 
specific locations to assign to these deposit accounts. In addition, 
the agencies note that including these deposit accounts at the 
nationwide area ensures that these deposits are included in the Bank 
Nationwide Community Development Financing Metric and Benchmark, as 
well as the Bank Nationwide Community Development Investment Metric and 
Benchmark.
    Appropriate treatment of non-brokered, reciprocal deposits. 
Regarding non-brokered, reciprocal deposits, under the final rule, 
these deposits will be collected and reported by the sending bank, 
which is the bank that would have collected the deposits from their 
original depositors and thus would have the associated relationships 
with the depositors' communities. Banks receiving these reciprocal 
deposits do not need to collect and report associated depositor 
location data for CRA purposes. The rationale for this decision is that 
the underlying deposits included in the reciprocal deposit transaction 
are already accounted for by the sending bank; for that reason, these 
transactions are better considered as transfers between banks than as 
deposits. In addition, because the sending bank originally collected 
the deposits from customers, the agencies believe that the sending bank 
is more able to collect, maintain, and report depositor location 
information than the receiving bank.
    In response to a commenter's concern with the specific terminology 
used in the regulation with regard to non-brokered, reciprocal 
deposits, the agencies note that reciprocal deposits are not mentioned 
in the final rule; therefore, there is no issue with (or possibility 
of) using terminology from the FDI Act or other regulations. However, 
effectively, these deposits will be handled in a manner consistent with 
what the commenter is suggesting.
    Bank operations systems. The agencies understand the concern by 
some commenters regarding the potential burden created by the need to 
upgrade bank operations systems. However, the agencies believe that 
banks with assets of over $10 billion will generally possess either 
internal capabilities or vendor relationships with capabilities to 
aggregate deposits data at the county level, as required in the final 
rule. The agencies believe that large banks, especially those with 
assets of over $10 billion, typically possess in-house data systems or 
use vendor data systems with geocoding capabilities. For example, 
geocoding is routinely used to identify the census tracts in which 
mortgage loans, small business loans, and small farm loans are located.
    In response to commenters that argued banks have systems for 
reporting deposits data, such as those used for reporting Bank On 
account data, the agencies note that Bank On data is reported at the 
zip code level--part of the depositor's street address--and does not 
require geocoding. For banks that do not already have access to 
geocoding systems that are required or opt to collect and report 
deposits data, such systems are readily available in the marketplace.
    Regarding the suggestion from commenters that the agencies provide 
sufficient time for financial service data systems providers to create 
deposits data-based applications, the final rule provides for a longer 
transition period than proposed. As explained in the section-by-section 
analysis of final Sec.  __.51, the agencies believe that providing 
additional time for transitioning to the provisions balances the 
concerns raised by commenters for an adequate transition period with 
the needs of banks' communities, including low- and moderate-income 
neighborhoods, to benefit from modernized CRA regulations.
    The agencies also considered the comments regarding the use of 
deposit data collected pursuant to Sec.  __.42 as opposed to the FDIC's 
Summary of Deposits data in the denominator for the

[[Page 7077]]

Bank Assessment Area Community Development Financing Metric. The split 
in commenters' views on this issue reflects the inherent tradeoffs 
associated with each option. While use of collected deposits data would 
make the Bank Assessment Area Community Development Financing Metric 
more accurate, collecting data on deposits would be a new data 
collection requirement that results in additional burden on banks. In 
contrast, although using Summary of Deposits data in the denominator 
eliminates the burden on banks to collect data, it may not accurately 
reflect the amount of deposits drawn from a particular geographic area.
    The agencies are adopting the final rule as proposed because it 
balances the tradeoff between increased burden associated with 
collecting, maintaining, and reporting deposits data and the accuracy 
of the deposits data. Under the final rule, large banks with assets of 
over $10 billion as of December 31 in both of the prior two calendar 
years will be required to collect, maintain, and report deposits data. 
The agencies believe that it is important to tailor the requirement to 
require collection, maintenance, and reporting of deposits data in 
order to limit this requirement for smaller banks with fewer resources. 
The agencies have determined that, due to the greater resources of 
banks over $10 billion, these banks generally have the capacity to 
collect, maintain, and report more accurate deposits data. Furthermore, 
the agencies have considered the significant downsides of not having 
accurate deposits data for banks with assets above $10 billion. For 
example, as noted above, deposits in these banks constitute a 
substantial majority of deposits in all banks; the agencies considered 
that use of collected deposits data for these banks therefore supports 
accurate calculation of benchmarks. For banks with $10 billion or less 
in assets as of December 31 of either of the prior two calendar years, 
the final rule uses FDIC's Summary of Deposits data in the denominator, 
thereby limiting the burden for these banks.
    Nonetheless, because certain banks with $10 billion or less in 
assets as of December 31 of either of the prior two calendar years may 
have dispersed deposits or the assignment of their deposits under the 
FDIC's Summary of Deposits may not reflect the actual location of the 
deposits, the final rule provides these banks with the option to 
collect, maintain, and report deposits data. The agencies believe that 
providing this option mitigates the potential negative consequences of 
using FDIC's Summary of Deposits data in the denominator because banks 
that would not perform well compared to their peers using Summary of 
Deposits data will have an incentive to collect, maintain, and report 
deposits data pursuant to Sec.  __.42.

Section __.42(c) Data on Operations Subsidiaries or Operating 
Subsidiaries

Section __.42(d) Data on Other Affiliates

Current Approach
    Under the current CRA regulations, a bank is not required to 
include the activities of any of its affiliates even if the affiliate 
is an operations subsidiary or operating subsidiary \1556\ of the bank. 
Instead, the current CRA regulations require that, if a bank elects to 
have loans by an affiliate under Sec.  __.42(d) considered for purposes 
of the lending or community development test or an approved strategic 
plan, the bank must also collect, maintain, and report the data for 
these loans as if it had originated or purchased these loans directly. 
For home mortgage loans, the bank must also be prepared to identify the 
home mortgage loans reported under Regulation C \1557\ by the 
affiliate.\1558\
---------------------------------------------------------------------------

    \1556\ See the section-by-section analysis of Sec.  __.21(b).
    \1557\ 12 CFR part 1003.
    \1558\ See current 12 CFR __.42(d).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to require the inclusion of relevant 
activities of a bank's operations subsidiaries or operating 
subsidiaries, as applicable, for purposes of evaluating the bank's 
performance tests. The agencies proposed new Sec.  __.42(c) to require 
that all banks collect, maintain, and report any retail lending, retail 
services and products, community development loans or investments, and 
community development services activities of a bank's operations 
subsidiaries or operating subsidiaries, as applicable, to the extent 
these subsidiaries engage in these activities. Proposed Sec.  __.42(c) 
also required the bank to identify the home mortgage loans reported by 
the operations subsidiaries or operating subsidiaries under Regulation 
C,\1559\ if applicable, or collect and maintain home mortgage loans by 
these subsidiaries that the bank would have collected and maintained 
under proposed Sec.  __.42(a)(3) had the loans been originated or 
purchased by the bank.
---------------------------------------------------------------------------

    \1559\ 12 CFR part 1003.
---------------------------------------------------------------------------

    The agencies further proposed to revise current Sec.  __.42(d) 
pertaining to the collection, maintenance, and reporting of a bank's 
affiliate activities. Similar to current Sec.  __.42(d), the agencies' 
proposal required banks to collect, maintain, and report the data on 
loans by an affiliate (other than an operations subsidiary or operating 
subsidiary) that they elect to have considered for purposes of the CRA 
regulations if the bank would have collected, maintained, and reported 
these activities had the bank engaged in them directly. The agencies 
also proposed to require the bank to identify the home mortgage loans 
reported by an affiliate (other than an operations subsidiary or 
operating subsidiary) under Regulation C,\1560\ if applicable, or 
collect and maintain such loans as would be required for the bank under 
proposed Sec.  __.42(a)(3) had the loans been originated or purchased 
by the bank.
---------------------------------------------------------------------------

    \1560\ Id.
---------------------------------------------------------------------------

Comments Received
    A few commenters addressed this aspect of the agencies' proposal. 
One of these commenters stated that the agencies should not include 
lending by a subsidiary in the bank's CRA evaluation. Another commenter 
noted that the proposed rule was unclear with regard to whether the 
proposed data collection for operations subsidiaries or operating 
subsidiaries, as applicable, and other affiliates was intended as an 
expansion of other data reporting requirements, such as home mortgage 
loan reporting under Regulation C or small business loan reporting 
under Regulation B (Section 1071 Final Rule), even when those separate 
regulations would not otherwise require such reporting. Although 
supportive of the proposed requirement that activities of operations 
and operating subsidiaries should be evaluated as part of a bank's 
overall CRA performance, this commenter was opposed to an expansion of 
reporting requirements housed in other regulations and also asserted 
that banks should retain the flexibility, when multiple options are 
available, to elect the performance test under which the agencies 
evaluate the activities of an operations or operating subsidiary. 
Another commenter asked the agencies to clarify that an affiliate's 
activities need to be included in the bank's data collection and 
reporting only to the extent that the category of retail or community 
development lending or community development investment is included in 
the bank's evaluation. This commenter further stated that the agencies 
should exempt

[[Page 7078]]

functionally regulated subsidiaries \1561\ from a bank's performance 
evaluation and data collection and reporting requirements. The 
commenter asserted that mandatory inclusion of these subsidiaries 
within CRA examinations would exceed the agencies' statutory authority 
under the Gramm-Leach-Bliley Act (GLBA).
---------------------------------------------------------------------------

    \1561\ Under 12 U.S.C. 1844(c)(5), the term ``functionally 
regulated subsidiary'' means any company--(1) that is not a bank 
holding company or a depository institution; and (2) that is--(i) a 
broker or dealer that is registered under the Securities Exchange 
Act of 1934 (15 U.S.C. 78a et seq.); (ii) a registered investment 
adviser, properly registered by or on behalf of either the 
Securities and Exchange Commission or any State, with respect to the 
investment advisory activities of such investment adviser and 
activities incidental to such investment advisory activities; (iii) 
an investment company that is registered under the Investment 
Company Act of 1940 (15 U.S.C. 80a-1 et seq.); (iv) an insurance 
company, with respect to insurance activities of the insurance 
company and activities incidental to such insurance activities, that 
is subject to supervision by a State insurance regulator; or (v) an 
entity that is subject to regulation by, or registration with, the 
Commodity Futures Trading Commission, with respect to activities 
conducted as a futures commission merchant, commodity trading 
adviser, commodity pool, commodity pool operator, swap execution 
facility, swap data repository, swap dealer, major swap participant, 
and activities that are incidental to such commodities and swaps 
activities.
---------------------------------------------------------------------------

Final Rule
    The agencies are finalizing proposed Sec.  __.42(c) and (d) 
pertaining to a bank's data requirements related to the activities of 
the bank's operations subsidiaries or operating subsidiaries, as 
applicable, and its other affiliates, respectively, as proposed, with 
non-substantive revisions intended for clarity.
    The agencies have determined that, with respect to operations 
subsidiaries or operating subsidiaries, as applicable, mandatory data 
collection, maintenance, and reporting for these entities is 
appropriate to enable the agencies to capture all of the activities of 
operations subsidiaries or operating subsidiaries in banks' CRA 
evaluations, in recognition that banks exercise a high level of 
ownership, control, and management of their operations subsidiaries or 
operating subsidiaries. As discussed in the section-by-section analysis 
of Sec.  __.21(b), the agencies do not believe that mandatory inclusion 
of functionally regulated subsidiaries within a bank's CRA examination 
would exceed the agencies' statutory authority under GLBA. Therefore, 
the activities of a bank's operations subsidiary or operating 
subsidiary will be evaluated in the bank's CRA evaluation and the 
relevant data requirements will apply, unless the operations subsidiary 
or operating subsidiary is independently subject to the CRA.
    In response to commenters that expressed concern that these data 
requirements would expand the reporting requirements in other 
regulations, the agencies are clarifying that the data requirements 
under Sec.  __.42(c) and (d), for operations subsidiaries or operating 
subsidiaries, as applicable, and other affiliates, respectively, are 
not intended to, and do not, expand the data reporting requirements for 
other regulations such as home mortgage loans under Regulation C or 
small business loans under Regulation B (CFPB's Section 1071 Final 
Rule) (once section 1071 data become available). The agencies are also 
clarifying that the data requirements in Sec.  __.42(d) for the bank's 
other affiliates are triggered only if the bank elects to have certain 
activities of the bank's affiliate considered for purposes of the 
bank's CRA evaluation.

Section __.42(e) Data on Community Development Loans and Community 
Development Investments by a Consortium or a Third Party

    Current Sec.  __.42(e), provides that a bank that elects to have 
the agencies consider community development loans by a consortium or 
third party for purposes of the lending or community development tests 
or an approved strategic plan, must report for those loans the data 
that the bank would have reported under current Sec.  __.42(b)(2) had 
the loans been originated or purchased by the bank.
    Consistent with the current rule, in proposed Sec.  __.42(e), the 
agencies required banks that elect to have community development loans 
or investments by a consortium or third party considered for purposes 
of the CRA regulations, to collect, maintain, and report the community 
development lending and investments that the bank would have collected, 
maintained, and reported under proposed Sec.  __.42(a)(5) and (b)(3) 
had the community development loans or investments been originated or 
purchased by the bank.
    The agencies received no comments regarding the proposed data on 
community development loans and investments by a consortium or a third 
party in proposed Sec.  __.42(e) and are finalizing as proposed, with 
minor technical and conforming changes.

Section __.42(f) Assessment Area Data

Current Approach
    Under current Sec.  __.42(g), a bank, except a small bank or a bank 
that was small during the prior calendar year, which includes 
intermediate small banks, must collect and report annually by March 1 a 
list for each assessment area showing the geographies within the 
area.\1562\
---------------------------------------------------------------------------

    \1562\ Current 12 CFR __.42(g).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to revise current Sec.  __.42(g), renumbered 
as proposed Sec.  __.42(f), to change the date in which banks are 
required to collect and report assessment area data, and to provide a 
separate provision for data regarding facility-based assessment areas 
and retail lending assessment areas. Specifically, the agencies 
proposed to change the date banks are required to collect and report 
assessment area data from March 1 to April 1. The agencies also 
proposed to require in Sec.  __.42(f)(1), that a bank, except a small 
bank or an intermediate bank, collect and report to the Board, FDIC, or 
OCC, as appropriate, annually by April 1 a list for each facility-based 
assessment area showing the States, MSAs, county or county equivalents, 
and metropolitan divisions within the facility-based assessment area. 
Consistent with the current regulations, the proposal required small 
banks and intermediate banks to maintain assessment area data in their 
CRA public files, including a map of each facility-based assessment 
area, but these banks would not be required to report the data under 
Sec.  __.42(f)(1).\1563\
---------------------------------------------------------------------------

    \1563\ See proposed Sec.  __.43(a)(6).
---------------------------------------------------------------------------

    In proposed Sec.  __.42(f)(2), the agencies required large banks to 
collect and report to the Board, FDIC, or OCC, as appropriate, annually 
by April 1, a list for each retail lending assessment area showing the 
MSAs and counties within each retail lending assessment area, as 
applicable.
    The agencies requested feedback regarding whether small banks that 
opt to be evaluated under the metrics-based Retail Lending Test should 
be required to collect, maintain, and report related data or whether it 
is appropriate to use data that a small bank maintains in its own 
format or by sampling the bank's loan files. The agencies also 
requested feedback on whether a tool to identify retail lending 
assessment areas based on reported data would be useful.
Comments Received
    Most commenters addressing the agencies' request for feedback on 
whether a retail lending assessment area tool would be useful expressed 
support for a number of reasons, including that it could provide 
helpful information to the general public and banks. Although

[[Page 7079]]

supportive of a tool, a commenter expressed some concern that 
collecting and tailoring the data needed for defining its potential 
retail lending assessment areas each year would be a labor-intensive 
task.
    One commenter responded to the agencies' request for feedback 
regarding data requirements should a small bank opt to be evaluated 
under the Retail Lending Test. In this commenter's view, if a small 
bank opts into the metrics-based test, it would be appropriate for the 
agencies to provide the bank the option to use data that it maintains 
in its own format or sample the bank's loan files. The agencies 
received no other comments regarding the proposed assessment area data.
Final Rule
    The agencies received no specific comments regarding the changes in 
proposed Sec.  __.42(f) pertaining to a bank's data requirements for 
facility-based assessment areas in proposed Sec.  __.42(f)(1) and 
retail lending assessment areas in proposed Sec.  __.42(f)(2) or the 
change in date for annual reporting, and are finalizing those changes 
as proposed, with a few revisions. Specifically, the agencies are 
revising the language in proposed Sec.  __.42(f)(1) to clarify that the 
data collected and reported annually by April 1 for the bank's 
facility-based assessment areas is as of December 31 of the prior 
calendar year or the last date the facility-based assessment area was 
in effect, provided the facility-based assessment area was delineated 
for at least six months of that year. While the delineation of 
facility-based assessment areas is a continuous process within the 
bank, this clarification ensures that the timing of the reported data 
for facility-based assessment areas is consistent across banks: either 
as of December 31 of the prior calendar year or as of the date that the 
facility-based assessment area was most recently delineated.
    The language in final Sec.  __.42(f)(1), ``provided the facility-
based assessment area was delineated for at least six months of the 
prior calendar year,'' was added to ensure that a facility-based 
assessment area was in existence for a sufficient time period to 
evaluate the lending around a bank's facility. For example, if a bank 
closed the sole branch in a county the first part of the year, the 
facility-based assessment area would not be evaluated as such for that 
year. Similarly, in a situation where a branch is opened in the latter 
part of a calendar year which creates a new facility-based assessment 
area, that new facility-based assessment area would not be reported. If 
those facility-based assessment areas that are not reported for the 
year have sufficient lending to trigger a retail lending assessment 
area, they should be reported as such for that calendar year.
    The agencies are also revising the language in proposed Sec.  
__.42(f)(2) to clarify that data collected and reported by April 1 for 
the bank's retail lending assessment areas is for the prior calendar 
year.
    The agencies believe that collection and reporting of data for 
facility-based assessment areas and retail lending assessment areas is 
appropriate because the agencies measure a bank's performance under the 
CRA in these areas. Specifically, these data improve the agencies' 
understanding of areas served by a bank and help assess whether the 
bank is meeting the credit needs of its communities through an 
evaluation of various tests. For example, the agencies require these 
data to assist examiners in the analysis of borrower and geographic 
distributions under the Retail Lending Test (see the section-by-section 
analysis of Sec.  __.22), distributions which are needed to construct 
the metrics and benchmarks the agencies use to evaluate the bank's 
performance.
    The agencies considered commenter feedback that including a retail 
lending assessment area tool would be useful to banks and to the 
general public. The section-by-section analysis of Sec.  __.17 includes 
discussion of data tools that the agencies intend to make available 
regarding retail lending assessment areas.
    The agencies have also considered the comment regarding assessment 
area data requirements for small banks that opt to be evaluated under 
the Retail Lending Test. The agencies have determined that additional 
assessment area data requirements for these banks would be burdensome 
and would outweigh any potential benefit of requiring the data. Such 
data are readily available in the bank's CRA public file, which under 
the final rule must be made available on a bank's website, if the bank 
maintains one.
    Finally, as noted in the proposal, the agencies' proposed change in 
date from March 1 to April 1 for annual collection and reporting of 
assessment area data is intended to conform to other changes proposed 
in Sec.  __.42.

Section __.42(g) CRA Disclosure Statement

    Under current Sec.  __.42(h), the agencies prepare annually a CRA 
Disclosure Statement for each bank that reports certain data under 
Sec.  __.42. The statement provides information on small business and 
small farm lending and community development loans with respect to 
banks that are subject to those reporting requirements.
    The agencies proposed to continue the preparation of the CRA 
Disclosure Statement as required in current Sec.  __.42(h), renumbered 
in the proposal as Sec.  __.42(g), with revisions to conform to changes 
made throughout the proposal. Specifically, consistent with the current 
regulations, the CRA Disclosure Statement would contain, on a State-by-
State basis, specified demographic information about the areas in which 
the bank operates. The agencies proposed expanding the CRA Disclosure 
Statement to include not only the number and amount of small business 
and small farm loans reported by the bank in its facility-based 
assessment areas, but also those reported by the bank in its retail 
lending assessment areas and outside retail lending areas. Similarly, 
the statement would be expanded to not only include the number and 
amount of community development loans reported as originated or 
purchased by the bank, but would also include community development 
investments reported as originated or purchased inside each facility-
based assessment area, each State in which the bank has a branch, each 
multistate MSA in which a bank has a branch in two or more States of 
the multistate MSA, and nationwide outside of these States and 
multistate MSAs.
    The agencies received no comments on the changes to proposed Sec.  
__.42(g) and are finalizing those changes as proposed, with a technical 
change to accurately represent that the responsibilities for 
preparation of CRA Disclosure Statements correspond to the agencies' or 
the agencies' ``appointed agent.'' The agencies also made conforming 
and non-substantive word revisions to this section. The agencies 
believe it is appropriate to make the changes described above in 
proposed Sec.  __.42(g) to conform to other changes made to the data 
requirements in Sec.  __.42. After the transition to the section 1071 
data takes effect, there is no additional data disclosure burden 
created by the CRA final rule with regard to small business and small 
farm lending data.\1564\
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    \1564\ The transition amendments included in this final rule 
will permit the agencies to transition the CRA data disclosure 
requirements for small business loans and small farm loans to the 
CFPB's section 1071 data. This is consistent with the agencies' 
intent articulated in the preamble to the proposal and elsewhere in 
this final rule to transition to the CFPB's section 1071 data for 
small business loan and small loan data under the CRA regulations. 
The agencies will provide notice of the effective date of this 
amendment in the Federal Register once the CFPB section 1071 data 
are available.

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[[Page 7080]]

Section __.42(h) Aggregate Disclosure Statement

    In current Sec.  __.42(i), the agencies prepare an aggregate 
disclosure statement for all banks subject to reporting under Sec.  
__.42. The aggregate disclosure statements indicate, for each 
geography, the number and amount of small business and small farm loans 
originated or purchased by all reporting institutions, except that the 
agencies may adjust the form of the disclosure, if necessary, because 
of special circumstances, to protect the privacy of a borrower or the 
competitive position of an institution.\1565\
---------------------------------------------------------------------------

    \1565\ See current 12 CFR __.42(i).
---------------------------------------------------------------------------

    The agencies proposed to continue the preparation of aggregate 
disclosure statements as required in current Sec.  __.42(i), renumbered 
in the proposal as Sec.  __.42(h), with revisions to conform to other 
changes made throughout the proposal. Specifically, in addition to the 
reporting of small business and small farm loans, as under the current 
regulations, for each MSA or metropolitan division (including those 
that cross a State boundary) and the nonmetropolitan portion of each 
State, the agencies proposed expanding aggregate disclosure statements 
to include community development loans and community development 
investments for each MSA or metropolitan division and the 
nonmetropolitan portion of each State. Similar to the content required 
under the current CRA regulations, these aggregate disclosure 
statements indicate, for each census tract, and with respect to 
community development loans and community development investments for 
each county, the number and amount of all small business loans, small 
farm loans, community development loans, and community development 
investments, originated or purchased by reporting banks. Further, as in 
the current rule, the agencies proposed that they may adjust the form 
of the disclosure, if necessary, because of special circumstances, to 
protect the privacy of a borrower or the competitive position of a 
bank.
    The agencies received no comments on the changes to proposed Sec.  
__.42(h) and are finalizing those changes as proposed, with a technical 
revision to accurately represent that the responsibilities regarding 
the preparation of aggregate disclosure statements correspond to the 
agencies' or the agencies' ``appointed agent.'' The agencies also made 
conforming and non-substantive revisions to this section to accurately 
describe at what level the aggregate data would be reported. The 
agencies believe it is appropriate to make the changes described above 
in proposed Sec.  __.42(h) to conform to other changes made to the data 
requirements in Sec.  __.42.\1566\
---------------------------------------------------------------------------

    \1566\ See also supra note 145.
---------------------------------------------------------------------------

Section __.42(i) Availability of Disclosure Statements

    Under current Sec.  __.42(j), the agencies make the individual bank 
CRA Disclosure Statements and aggregate disclosure statements 
``available to the public at central data depositories'' and ``publish 
a list of the depositories at which the statements are available.'' The 
agencies proposed to revise current Sec.  __.42(j), renumbered as 
proposed Sec.  __.42(i), to make the CRA Disclosure Statements in 
proposed Sec.  __.42(g) and aggregate disclosure statements in proposed 
Sec.  __.42(h) ``available on the FFIEC's website,'' codifying the 
current interagency process.
    The agencies received no comments on proposed Sec.  __.42(i) and 
are finalizing as proposed, with a technical change to rename the 
heading of this section to ``Availability of disclosure statements'' 
from ``Central data depositories.'' Because proposed Sec.  __.42(i) 
replaced ``central data depositories'' in the regulatory text of the 
current rule with the FFIEC's website in the regulatory text of the 
proposal, the agencies believe the heading in final Sec.  __.42(i) more 
accurately reflect the new regulatory text.

Section __.42(j) HMDA Data Disclosure

Current Approach and the Agencies' Proposal
    CRA performance evaluations do not currently report data on lending 
by borrower race or ethnicity. However, for mortgage lending, race and 
ethnicity data are collected and reported by most banks subject to the 
large bank CRA lending test through HMDA. Tabulations of the HMDA data 
by race or ethnicity for each of the reporting banks within their 
assessment areas are not easily accessible online, nor are they 
currently included in CRA performance evaluations.
    In furtherance of the agencies' objective to promote transparency, 
the agencies proposed in Sec.  __.42(j) a new requirement to disclose 
in the CRA performance evaluation of a large bank the distribution of 
borrower race and ethnicity of the bank's home mortgage loan 
originations and applications in each of the bank's facility-based 
assessment areas, and as applicable, in its retail lending assessment 
areas. The agencies proposed to disclose this information for each year 
of the evaluation period using data currently reported under 
HMDA.\1567\ Furthermore, the agencies proposed to disclose the number 
and percentage of the bank's home mortgage loan originations and 
applications by race and ethnicity and compare that data to the 
aggregate mortgage lending of all lenders in the assessment area and 
the demographic data in that assessment area.\1568\ Proposed Sec.  
__.42(j)(3) provided that the disclosure of race and ethnicity of the 
bank's home mortgage loan originations and applications in the bank's 
CRA performance evaluation would not impact the conclusions or ratings 
of the bank.
---------------------------------------------------------------------------

    \1567\ See proposed Sec.  __.42(j)(1).
    \1568\ See proposed Sec.  __.42(j)(2).
---------------------------------------------------------------------------

Comments Received
    Most commenters generally supported the agencies' effort to 
increase transparency of a bank's mortgage lending operations through 
the disclosure of HMDA data by race and ethnicity in CRA exams. 
Commenters in support of the agencies' proposal noted that this 
disclosure would be an important step towards increasing transparency.
    However, several commenters expressed their disappointment in the 
agencies' clarification that this disclosure would not impact an 
institution's CRA ratings. In these commenters' view, this is a factor 
they believe is essential to help combat racial inequities in bank 
lending and other banking products and services and suggested that HMDA 
data should play a larger role in the CRA examination process and CRA 
ratings. Some of these commenters and a few others, noted that simply 
disclosing HMDA data that is already public would not provide 
meaningful transparency and recommended that the agencies require banks 
to publish home lending data tables and maps that show disaggregated 
HMDA data by race and ethnicity in a prominent place on their websites. 
Several commenters suggested that HMDA data by race and ethnicity 
should be presented in all bank CRA exams, not simply those of large 
banks, to enable the public to readily compare a bank's performance to 
its peers and demographic benchmarks. A few other commenters described 
various places

[[Page 7081]]

where HMDA data could be used in the CRA examination process, including 
for example, as an explicit lending benchmark or metric when creating 
assessment areas, as an impact review factor, and as a justification 
for discrimination downgrades. One commenter suggested that the 
agencies publicly share HMDA data by race and ethnicity--specifically 
American Indians, Alaska Natives, and Native Hawaiians--with interested 
stakeholders on an annual basis, and annually provide to these groups 
an updated longitudinal analysis of HMDA data trends involving 
particular racial and ethnic groups and a discussion of which large 
banks are improving and which are not. A few commenters also suggested 
disclosing data on non-mortgage loan types based on race and ethnicity 
such as CFPB's section 1071 data, once available.
    Some commenters opposed the agencies' proposal. Commenters opposed 
to the agencies' proposal to disclose HMDA data by race and ethnicity 
in CRA performance evaluations stated various reasons for their 
opposition. One commenter asserted that the HMDA and the CRA statutory 
purposes are different, and that HMDA data should not be commingled 
with the CRA. Another commenter stated that HMDA data are used 
extensively in fair lending reviews, while the CRA has always focused 
on income. A few commenters stated that disclosing demographic data 
without appropriate context could be confusing or misleading to the 
public. One of these commenters noted that these data could suggest to 
the public that the bank is engaging in discrimination while the CFPB 
and the FFIEC have stated many times that HMDA data are a screening 
tool and cannot alone establish discrimination. Two commenters stated 
that, because this information would not be part of the data used for 
CRA examinations and thus not part of the written evaluation, requiring 
publication of HMDA data would be outside the scope of CRA. One of 
these commenters specifically stated that this HMDA provision seeks to 
strengthen the purpose of a regulation that falls outside the agencies' 
rulemaking authority, is unrelated to a bank's CRA performance and the 
agencies' fair lending oversight, and lacks sufficient context by 
itself to convey an accurate and comprehensive picture of bank 
marketing and advertising practices. One other commenter suggested 
that, instead of including HMDA data in the performance evaluation, 
examiners should provide a summary of their findings and any 
disparities that correlate to, or are offset by, a bank's other 
performance metrics. Finally, a few other commenters opposed the 
disclosure of HMDA data for other reasons, including that it would be 
an unjustified duplication of reporting and would not increase 
transparency because HMDA data are already available to the public; 
there are already sufficient existing data metrics to measure a bank's 
mortgage lending without HMDA data; it could improperly incentivize 
banks to allow racial and ethnic characteristics of applicants to 
influence credit decisions; and if the data will not be included in CRA 
conclusions, it is a burden that is not justified by the regulation.
Final Rule
    The final rule adopts proposed Sec.  __.42(j), with modifications 
as described below. The agencies are not finalizing in proposed Sec.  
__.42(j)(1), disclosure of the HMDA data by race and ethnicity required 
in final Sec.  __.42(j)(2) in the bank's CRA performance evaluation. 
Instead, based on the comments received and upon additional agency 
consideration, final Sec.  __.42(j)(1) provides that the relevant 
agency will publish annually, based on the data reported by large banks 
under 12 CFR part 1003, the data in Sec.  __.42(j)(2) by borrower 
income level, race, and ethnicity. In final Sec.  __.42(j)(2), the 
Board, FDIC, or OCC, as applicable, will publish on their respective 
websites, for each large bank's facility-based assessment areas, and as 
applicable, its retail lending assessment areas: (1) the number and 
percentage of originations and applications of a large bank's home 
mortgage loans by borrower or applicant income level, race, and 
ethnicity; (2) the number and percentage of originations and 
applications of aggregate mortgage lending of all lenders reporting 
HMDA data in the facility-based assessment area and as applicable, the 
retail lending assessment area; and (3) demographic data of the 
geographic area. By publishing this information on their websites, the 
agencies are making the existing public data available in a more user-
friendly format. The agencies also continue to believe that public 
disclosure of these data in each assessment area will increase the 
transparency of a bank's mortgage lending operations.
    To increase public awareness that the HMDA data by income level, 
race, and ethnicity in Sec.  __.42(j)(2) is available, the final rule 
adopts two new provisions. First, under Sec.  __.42(j)(3) of the final 
rule, upon publishing the data required in Sec.  __.42(j)(2), the 
agencies will ``publicly announce'' that the data has been published on 
the agency's website. Second, as explained in the section-by-section 
analysis of Sec.  __.43(b)(2), the final rule also requires a large 
bank to include a written notice in their public file that the HMDA 
data published by the agency is available on the agency's website.
    Finally, consistent with the agencies' proposed Sec.  __.42(j)(3), 
renumbered in the final rule as Sec.  __.42(j)(4), the final rule 
provides that the information published by the agencies with respect to 
race and ethnicity will not independently impact the CRA conclusions 
and ratings of a large bank. As explained by the agencies in the 
proposal, the disclosure in the final rule also would not constitute a 
lending analysis for the purpose of evaluating redlining risk factors 
as part of a fair lending examination. The agencies will publish the 
HMDA data by borrower income level, race, and ethnicity on their own 
websites, not in the CRA performance evaluation as initially proposed. 
The agencies have determined that this approach appropriately provides 
the intended transparency of publishing these data, without adding to 
the length and complexity of CRA performance evaluations. Including 
these data on the agencies' websites will provide a more user-friendly 
way to access the HMDA data--whether by income, race, and ethnicity--in 
a single place. In this manner, the data will be readily available to 
all stakeholders to analyze trends involving lending to various groups 
in the communities served by the bank. HMDA data by income level will 
continue to be included in the CRA performance evaluation.
    With respect to commenters suggestions that HMDA data by borrower 
race and ethnicity should play a larger role in the CRA examination 
process and should independently impact a bank's CRA ratings, the 
agencies reiterate that the HMDA data is not the only information used 
to determine whether a fair lending violation occurred, and would 
typically not be sufficient, by itself, to demonstrate that redlining 
exists. However, to the extent the HMDA data supports a conclusion that 
a violation occurred in the context of a fair lending examination, the 
final rule also provides in Sec.  __.28 that the agency's evaluation of 
a bank's CRA performance rating is adversely affected if the relevant 
agency's fair lending examination concludes that discrimination 
occurred based on its analysis of the HMDA data.

[[Page 7082]]

    The agencies have considered comments opposing the publication of 
tabulations of the HMDA data by borrower race and ethnicity for each 
bank on the ground that the purposes of the CRA and HMDA are different 
in that HMDA data on race or ethnicity are used in fair lending 
examinations while the CRA focuses on income. HMDA data by borrower 
race and ethnicity are used in fair lending examinations, and the 
agencies believe that CRA and fair lending obligations are mutually 
reinforcing. For example, under the existing CRA regulations and under 
the final rule, the results of the fair lending examination can affect 
a bank's CRA rating.\1569\ In addition, the agencies note that they are 
not publishing the HMDA data by race and ethnicity in the CRA 
performance evaluations as initially proposed, but on their own 
websites to provide this already-existing public data in a specific and 
user-friendly format. The agencies have also considered commenters 
concerns that disclosure of the HMDA data would improperly incentivize 
banks to use racial characteristics in credit decisions. The agencies 
note that the commenters did not provide evidence for the assertion 
that a more accessible presentation of information that is currently 
available to the public would result in such an outcome. In addition, 
the agencies examine banks to ensure their lending meets safety and 
soundness and consumer protection requirements, including fair lending 
laws and regulations. The agencies believe that these laws and 
regulations, along with examinations to ensure compliance, provide 
adequate safeguards against racial characteristics becoming an 
impermissible basis for credit decisions under the final rule.
---------------------------------------------------------------------------

    \1569\ See current 12 CFR __.28(c)(1)(i) and final Sec.  
__.28(d)(3)(i).
---------------------------------------------------------------------------

    In response to some commenters that raised issues about potential 
burdens related to HMDA data publication, the final rule provides that 
the agencies take existing HMDA data and publish it on the agency's 
website. The operative provisions of the final rule do not increase 
regulatory burden for large banks in a perceptible manner.
    The agencies considered commenters suggestion that disclosure of 
these tabulations would be duplicative since HMDA data are publicly 
available, or that it would not meaningfully increase transparency. The 
agencies believe that providing the distribution of the bank's home 
mortgage loan originations and applications by income level, race, and 
ethnicity in each of the bank's assessment areas will increase the 
transparency of a bank's mortgage lending operations. Although the HMDA 
data are publicly available, the agencies currently do not provide 
these specific tabulations to the public, as previously noted. In 
addition, by publishing these tabulations on the relevant agency's 
website and publicly announcing that they are available, the agencies 
believe the data will be accessible to more stakeholders to analyze 
trends involving lending to various groups within the communities 
served by the bank.
    The agencies are sensitive to commenter concerns that disclosing 
HMDA data without appropriate context could be confusing or misleading. 
The agencies intend to address this issue in part by providing a 
statement, along with the release of the tabulations of the HMDA data 
in Sec.  __.42(j)(2), regarding some of the limitations of the data. 
The agencies also acknowledge that while the information on race and 
ethnicity within the HMDA data can be used to analyze and identify fair 
lending risks, they are not the only data used to make a determination 
of whether a fair lending violation occurred. However, as explained in 
the proposal, separate from this disclosure, to the extent that 
analysis of HMDA reportable mortgage lending along with additional data 
and information evaluated during a fair lending examination leads the 
relevant agency to conclude that discrimination occurred, a bank's CRA 
rating may be affected (see the section-by-section analysis of Sec.  
__.28(d)).
    Upon consideration of the comments, the agencies decline to extend 
the tabulations by race and ethnicity of HMDA data to all banks, rather 
than just large banks. The agencies decided to focus the tabulation of 
publication of HMDA data on the agencies' websites on just large banks 
because these institutions are the most significant mortgage lenders 
among banks.
    Finally, regarding commenters' recommendations to disclose data on 
non-mortgage lending based on race and ethnicity, such as CFPB's 
section 1071 data, the agencies decline to expand disclosure of data 
based on race and ethnicity. The agencies' purpose for disclosing HMDA 
data by race and ethnicity in the proposal was, and in this final rule 
is, to increase transparency in a bank's mortgage lending operations. 
Disclosing data for non-mortgage lending by race and ethnicity would be 
outside the scope of the agencies' proposal. In addition, racial and 
ethnic data on non-mortgage lending, such as the CFPB's section 1071 
data, are not available for disclosure at this time. The agencies do 
not believe it is a prudent course of action to address the disclosure 
of the data before preliminary issues such as access to the data itself 
are resolved.

Section __.43 Content and Availability of Public File

Section __.43(a) Information Available to the Public

Current Approach
    Under the current CRA regulations, a bank is required to maintain a 
public file that includes specific information related to the bank's 
branches, services, and performance in helping meet community credit 
needs.\1570\ The public file must include all written comments received 
from the public for the current year and each of the two prior calendar 
years related to the bank's performance in helping to meet community 
credit needs, along with any responses by the bank,\1571\ and a copy of 
the public section of the bank's most recent CRA performance 
evaluation.\1572\ The public file is also required to include: a list 
of the bank's current branches, their street addresses, and 
geographies; \1573\ a list of branches that have opened or closed 
during the current year and each of the prior two calendar years; 
\1574\ a list of services generally offered at the bank's branches, and 
if a bank chooses, information regarding alternative delivery systems; 
\1575\ and a map of each of the bank's assessment areas.\1576\ A bank 
may opt to add any other information to its public file.\1577\
---------------------------------------------------------------------------

    \1570\ See current 12 CFR __.43(a).
    \1571\ See current 12 CFR __.43(a)(1).
    \1572\ See current 12 CFR __.43(a)(2).
    \1573\ See current 12 CFR __.43(a)(3).
    \1574\ See current 12 CFR __.43(a)(4).
    \1575\ See current 12 CFR __.43(a)(5).
    \1576\ See current 12 CFR __.43(a)(6).
    \1577\ See current 12 CFR __.43(a)(7).
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies proposed to maintain the current requirements in Sec.  
__.43 regarding information that banks must include in their public 
files, with additional clarification regarding specific aspects of 
those requirements. Consistent with a technical change throughout the 
regulatory text, the agencies proposed replacing the term 
``geographies'' with the term ``census tracts'' to specify the 
geographic level at which a bank must provide information on its 
current branches, and branches that have been opened or closed during 
the current year and each of the prior two calendar years.
    In addition, the agencies proposed technical changes to current 
Sec.  __.43(a)(5), regarding the list of services that a bank must 
include in its

[[Page 7083]]

public file. Proposed Sec.  __.43(a)(5) referred to ``retail banking 
services,'' as defined in proposed Sec.  __.12,\1578\ rather than 
``services'' as it is described in current Sec.  __.43(a)(5).\1579\ 
Current Sec.  __.43(a)(5) also states that, ``[a]t its option, a bank 
may include information regarding the availability of alternative 
systems for delivering retail banking services (e.g., ATMs, banking by 
telephone, computer, or mail, loan production offices, and bank-at-work 
programs).'' \1580\ Proposed Sec.  __.43(a)(5) revised the current 
provision to reflect changes to the types of alternative systems 
commonly used--specifically, the proposal referred instead to ``mobile 
or online banking, loan production offices, and bank-at-work or mobile 
branch programs.''
---------------------------------------------------------------------------

    \1578\ ``Retail banking services'' was defined in the proposal 
to mean, ``retail financial services provided by a bank to 
consumers, small businesses, and small farms and includes a bank's 
systems for delivering retail financial services.'' Proposed Sec.  
__.12.
    \1579\ The current regulation describes ``services'' as 
including ``hours of operation, available loan and deposit products, 
and transaction fees'' that are ``generally offered at the bank's 
branches.'' Current 12 CFR __.43(a)(5).
    \1580\ Under the FDIC's CRA regulations, current 12 CFR 
345.43(a)(5) describes alternative delivery systems as ``RSFs, RSFs 
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.''
---------------------------------------------------------------------------

    The agencies also proposed changes to the information that large 
banks would need to include in their public file related to assessment 
areas. Specifically, the agencies proposed to update current Sec.  
__.43(a)(6) to replace the reference to ``assessment area'' with 
``facility-based assessment area and retail lending assessment area,'' 
thus requiring a bank to include in its public file ``[a] map of each 
facility-based assessment area and retail lending assessment area 
showing the boundaries of the area and identifying the census tracts 
contained within the area, either on the map or in a separate list.'' 
\1581\
---------------------------------------------------------------------------

    \1581\ See proposed Sec.  __.43(a)(6).
---------------------------------------------------------------------------

Comments Received and Final Rule
    The agencies received no comments regarding the technical changes 
described above in proposed Sec.  __.43(a) and are finalizing those 
revisions as proposed. In addition, the agencies are clarifying 
``current year'' requirements in the following public file provisions:
     Section __.43(a)(1), which requires a bank to include in 
the public file all written comments received from the public for the 
current year and each of the two prior calendar years related to the 
bank's performance in helping to meet community credit needs, along 
with any responses by the bank; and
     Section __.43(a)(4), which requires a list of branches 
opened or closed by the bank during the current year and each of the 
prior two calendar years.
    Specifically, these provisions are revised to require a bank to 
update its list of branches opened and closed (Sec.  __.43(a)(1)) and 
written public comments (Sec.  __.43(a)(4)) for the current year ``on a 
quarterly basis for the prior quarter by March 31, June 30, September 
30, and December 31.'' This is in addition to each of the two prior 
calendar years. Based on supervisory experience, the agencies believe 
that the term ``current year'' is ambiguous, and therefore, are 
clarifying that banks are required to update their public files with 
this information on a designated quarterly basis. The agencies believe 
that regulatory burden will be reduced by mitigating confusion 
regarding whether banks must continuously update the public file with 
the list of branches opened and closed, and with comments received 
during the current year.
    Finally, the agencies received one comment relating to the 
assessment area map requirement in proposed Sec.  __.43(a)(6). 
Specifically, this commenter recommended that the public file maintain 
at least five years of assessment area maps that include the majority-
minority census tracts and the original date of the acquisition or 
establishment of a branch. After consideration of this comment, the 
agencies are finalizing the requirement for assessment areas in Sec.  
__.43(a)(6) as proposed with a clarification to make clear that a bank 
is required to include in its public file a map of retail lending 
assessment areas, ``as applicable.''
    The agencies believe that more extensive map requirements beyond 
the agencies' proposal, especially maintaining five years of maps, 
would be overly burdensome for banks. In addition, the agencies 
consider the focus of CRA to be on low- and moderate-income census 
tracts, rather than majority-minority census tracts. Finally, the 
agencies believe that requiring banks to include the original date of 
the acquisition or establishment of a branch is duplicative and 
unnecessary, since the establishment date for bank branches is already 
publicly available from the FDIC's website.

Section __.43(b) Additional Information Available to the Public

Current Approach
    Current additional public file requirements vary based on a bank's 
size and circumstances. A bank, except a small bank or a bank that was 
a small bank in the prior calendar year, must include in its public 
file for each of the prior two calendar years the following information 
for the bank and, if applicable, its affiliates: a copy of the bank's 
CRA Disclosure Statement \1582\ and, if a bank has elected to have one 
or more categories of its consumer loans considered, the number and 
amount of each category of consumer loans made by the bank and its 
affiliates (1) to low-, moderate-, middle-, and upper-income 
individuals; (2) located in low-, moderate-, middle-, and upper-income 
census tracts; and (3) located inside the bank's assessment areas and 
outside of the bank's assessment areas.\1583\ HMDA reporting 
institutions must include a statement in the public file that their 
HMDA data may be obtained on the CFPB's website, as well as the name of 
any affiliate whose home mortgage lending the bank elected to have 
considered in its CRA evaluation and a written notice that the 
affiliates' HMDA data may be obtained on the CFPB's website.\1584\
---------------------------------------------------------------------------

    \1582\ See current 12 CFR __.43(b)(1)(ii).
    \1583\ See current 12 CFR __.43(b)(1)(i).
    \1584\ See current 12 CFR __.43(b)(2).
---------------------------------------------------------------------------

    Under current requirements, a small bank or a bank that was a small 
bank during the prior calendar year must include in its public file the 
bank's loan-to-deposit ratio for each quarter of the prior calendar 
year \1585\ and, if it elects to be evaluated under the lending, 
investment, and service tests, it must include the information that 
other banks subject to these tests must report, as provided 
above.\1586\ A bank evaluated according to an approved strategic plan 
must include a copy of the plan in its public file.\1587\ Finally, a 
bank that received less than a ``Satisfactory'' rating during its most 
recent examination must include in its public file a description of its 
current efforts to improve its performance in helping to meet the 
credit needs of its entire community and update the description 
quarterly.\1588\
---------------------------------------------------------------------------

    \1585\ See current 12 CFR __.43(b)(3)(i). At its option, a bank 
may include in its public file additional data on its loan-to-
deposit ratio. See id.
    \1586\ See current 12 CFR __.43(b)(3)(ii) (cross-referencing 
current 12 CFR __.43(b)(1)).
    \1587\ See current 12 CFR __.43(b)(4).
    \1588\ See current 12 CFR __.43(b)(5).

---------------------------------------------------------------------------

[[Page 7084]]

The Agencies' Proposal
    The agencies proposed to revise current Sec.  __.43(b)(1) to 
reflect the proposed designations of banks as ``small,'' 
``intermediate,'' and ``large,'' such that this provision instead would 
apply to ``large'' banks. The agencies also proposed to remove current 
Sec.  __.43(b)(1)(i), because consumer loans would not be considered 
under the proposed Retail Lending Test for banks subject to this 
provision.
    As a result of the proposed removal of current Sec.  
__.43(b)(1)(i), the agencies proposed to renumber current Sec.  
__.43(b)(1)(ii), requiring a bank (other than a small bank or an 
intermediate bank) to include in its public file a copy of the bank's 
CRA Disclosure Statement, to Sec.  __.43(b)(1). Proposed Sec.  
__.43(b)(1) required that banks subject to data reporting requirements 
described in proposed Sec.  __.42 include in their public file a 
written notice that the bank's CRA Disclosure Statement pertaining to 
the bank, its operations subsidiaries or operating subsidiaries, and 
any other affiliates, if applicable, may be obtained on the FFIEC's 
website. This would be a change from current Sec.  __.43(b)(1)(ii), 
which requires a bank to include the CRA Disclosure Statement itself in 
its public file. Proposed Sec.  __.43(b)(1) also differed from current 
Sec.  __.43(b)(1)(ii) in adding reference to the CRA Disclosure 
Statement of a bank's operations subsidiaries or operating 
subsidiaries, and any other affiliate of the bank, if applicable.
    The agencies also proposed to revise current Sec.  __.43(b)(2), 
pertaining to information that must be available to the public for 
banks that are required to report home mortgage loan data under HMDA. 
Proposed Sec.  __.43(b)(2) referenced not only affiliates whose home 
mortgage lending the bank opted to have considered as part of its CRA 
evaluation, but also operations subsidiaries or operating subsidiaries 
whose home mortgage lending is required to be considered under the 
proposal.\1589\
---------------------------------------------------------------------------

    \1589\ See proposed Sec.  __.21(c)(1).
---------------------------------------------------------------------------

    In addition, the agencies proposed to remove current Sec.  
__.43(b)(3)(ii), which requires small banks that elected to be 
evaluated under the lending, investment, and services test to include 
in their public file the information required under current Sec.  
__.43(b)(1)(i) and (ii) described above.
    Further, the agencies proposed technical revisions to current Sec.  
__.43(b)(5), regarding public file requirements for banks with a less 
than ``Satisfactory'' rating, for clarity. Proposed Sec.  __.43(b)(5) 
reflected current Sec.  __.43(b)(5), but specified that quarterly 
updates must occur by March 31, June 30, September 30, and December 31.
Comments Received and Final Rule
    The agencies received no comments regarding the changes in proposed 
Sec.  __.43(b)(1) or the removal of the requirements under current 
Sec.  __.43(b)(1)(i) and (b)(3)(ii) and are finalizing these revisions 
as proposed. Specifically, with respect to Sec.  __.43(b)(1), the 
agencies believe adding the reference to the CRA Disclosure Statement 
of a bank's operations subsidiaries or operating subsidiaries, and its 
other affiliates, if applicable, reflects that in some cases the 
activities of operations subsidiaries or operating subsidiaries, as 
defined in Sec.  __.12 (proposed and final), as well as the activities 
of other affiliates, will be considered in a bank's CRA 
evaluation.\1590\
---------------------------------------------------------------------------

    \1590\ See the section-by-section analysis of Sec.  __.21(b).
---------------------------------------------------------------------------

    The agencies also believe that retaining current Sec.  
__.43(b)(1)(i) and (b)(3)(ii), is unnecessary. With respect to Sec.  
__.43(b)(1)(i), in the final rule, consumer loans, with the exception 
of automobile loans as specified in the section-by-section analysis of 
Sec.  __.22, will no longer be considered under the Retail Lending 
Test; therefore, a bank is no longer required to include in its public 
file the information required in Sec.  __.43(b)(1)(i). Instead, the 
agencies will consider the qualitative aspects of consumer loans 
(except automobile loans) only under the Retail Services and Products 
Test as explained in the section-by-section analysis of Sec.  __.23. 
Therefore, removing current Sec.  __.43(b)(1)(i) is appropriate. With 
respect to Sec.  __.43(b)(3)(ii), with the removal in the final rule of 
current Sec.  __.43(b)(1)(i), as just explained, the only requirement 
remaining in current Sec.  __.43(b)(1) would be the CRA Disclosure 
Statement in Sec.  __.43(b)(1)(ii). Because a small bank is not 
required to report CRA loan data under Sec.  __.42 (proposed and 
final), a CRA Disclosure Statement would not be prepared for a small 
bank to place in its public file. Therefore, the requirements in 
current Sec.  __.43(b)(3)(ii) no longer apply to small banks, making 
the provision unnecessary. The agencies also made technical changes to 
the inline header of Sec.  __.43(b)(1) to make clear that this 
paragraph applies to any bank subject to the data reporting 
requirements under Sec.  __.42 and to update the FFIEC's website link 
for where the CRA Disclosure Statement may be obtained.
    The agencies are also adopting proposed Sec.  __.43(b)(2), with 
modifications related to the disclosure of the HMDA data on borrower 
race and ethnicity in finalSec.  __.42(j). See the section-by-section 
analysis of Sec.  __.42(j). Proposed Sec.  __.43(b)(2) pertains to the 
requirement that HMDA-reporting banks include in their public file a 
written notice that the bank's HMDA data in Sec.  __.42(j) can be 
obtained at the CFPB's website. Specifically, the agencies are 
renumbering proposed Sec.  __.43(b)(2) as Sec.  __.43(b)(2)(i), and are 
adopting new Sec.  __.43(b)(2)(ii), which requires a large bank to 
include in their public file a written notice that the HMDA data 
published by the Board, FDIC, or OCC, as applicable, under Sec.  
__.42(j)(1) is available on the Board's, FDIC's, or OCC's website (see 
the section-by-section analysis of Sec.  __.42(j)). The agencies are 
adopting this new provision to increase transparency and awareness of a 
bank's mortgage lending operations. After the transition to the section 
1071 data takes effect, banks required to report HMDA data and small-
business lending data will also be required to include in their public 
file a written notice that the bank's small business loan and small 
farm loan data is available at the CFPB's website.\1591\
---------------------------------------------------------------------------

    \1591\ The transition amendments included in this final rule 
will permit the agencies to transition the CRA data collection and 
reporting requirements for small business loans and small farm loans 
to the CFPB's section 1071 data. This is consistent with the 
agencies' intent articulated in the preamble to the proposal and 
elsewhere in this final rule to transition to the CFPB's section 
1071 data for small business loan and small loan data under the CRA 
regulations. The agencies will provide notice of the effective date 
of this amendment in the Federal Register once the CFPB section 1071 
data are available.
---------------------------------------------------------------------------

    The agencies are finalizing proposed Sec.  __.43(b)(4) with a 
technical change to clarify that a bank evaluated under a strategic 
plan must include a copy of the plan in its public file while the plan 
is in effect.
    With respect to proposed Sec.  __.43(b)(5), the agencies received 
one comment which, as discussed above, pertained to public file 
requirements for banks with a less than ``Satisfactory'' rating. The 
commenter suggested that when a bank receives a ``Low Satisfactory'' 
conclusion for an assessment area or a subtest, the bank should be 
required to submit a public improvement plan with measurable 
performance goals (the same or similar to metrics on CRA examinations) 
indicating how a bank will improve its

[[Page 7085]]

performance. The agencies have considered this comment and are 
finalizing Sec.  __.43(b)(5) as proposed. Since final Sec.  __.43(b)(5) 
requires that a bank that received a less than ``Satisfactory'' rating 
during its most recent examination must include in its public file a 
description of its current efforts to improve its performance in 
helping to meet the credit needs of its entire community, the agencies 
believe this provision covers the suggested ``improvement plan'' made 
by the commenter.

Section __.43(c) Location of Public Information

Section __.43(d) Copies

Section __.43(e) Timing Requirements

Current Approach
    Under current Sec.  __.43(c), a bank's entire public file must be 
available for public inspection upon request at no cost: (1) at its 
main office; and (2) if a bank operates in more than one State, at one 
branch office in each of these States.\1592\ At each branch, upon 
request, a bank must make available for inspection the bank's most 
recent CRA performance evaluation and a list of services provided by 
the branch, as well as, within five calendar days of the request, all 
of the information in the public file relating to the branch's 
assessment area.\1593\
---------------------------------------------------------------------------

    \1592\ See current 12 CFR __.43(c)(1).
    \1593\ See current 12 CFR __.43(c)(2).
---------------------------------------------------------------------------

    Under current Sec.  __.43(d), when requested, a bank must also 
provide a copy of its CRA public file either on paper or in another 
form acceptable to the person making the request, and may charge a 
reasonable fee to cover copying and mailing costs.\1594\
---------------------------------------------------------------------------

    \1594\ See current 12 CFR __.43(d).
---------------------------------------------------------------------------

    Under current Sec.  __.43(e), a bank is required to ensure, unless 
otherwise provided in Sec.  __.43, that the information required by 
Sec.  __.43 is current as of April 1 of each year.
The Agencies' Proposal
    The agencies proposed to revise current Sec.  __.43(c)(1) to 
require any bank with a public website to include its CRA public file 
on its website to increase accessibility. If a bank does not maintain a 
public website, the agencies proposed that a bank would have to 
maintain public file information consistent with current rules--namely, 
at the main office and, if an interstate bank, at one branch office in 
each State.\1595\
---------------------------------------------------------------------------

    \1595\ See proposed Sec.  __.43(c)(1).
---------------------------------------------------------------------------

    Consistent with current Sec.  __.43(c)(2)(i), proposed Sec.  
__.43(c)(2)(i) required that a bank must make available to the public a 
copy of the public section of the bank's most recent CRA performance 
evaluation and a list of services provided by the branch.\1596\ 
Proposed Sec.  __.43(c)(2)(ii) required that, within five calendar days 
of the request, a bank make available all of the information in the 
public file relating to the branch's ``facility-based assessment 
area.'' The agencies proposed to refer to ``facility-based assessment 
area'' rather than ``assessment area'' to reflect the proposed changes 
to the CRA evaluation framework regarding assessment areas. See, e.g. 
the section-by-section analysis of Sec. Sec.  __.16 and __.17.
---------------------------------------------------------------------------

    \1596\ Proposed Sec.  __.43(c)(2) should have reflected, 
consistent with current Sec.  __.43(c)(2), that a bank must make the 
information in proposed Sec.  __.43(c)(2)(i) and (ii) available to 
the public at each branch. The final rule is revised to clarify 
this.
---------------------------------------------------------------------------

    Proposed Sec.  __.43(d) required banks to provide, on request, 
either in paper or in a digital form acceptable to the person making 
the request, copies of the information in the bank's public file. As 
allowed currently, banks would be able to charge reasonable copying and 
mailing costs for the provision of paper copies.
    In addition, the agencies proposed to revise current Sec.  __.43(e) 
to require that, except as otherwise provided in proposed Sec.  __.43, 
a bank ensures that its public file contains the information required 
by proposed Sec.  __.43 ``for each of the previous three calendar 
years, with the most recent calendar year included in its file annually 
by April 1 of the current calendar year.''
Comments Received and Final Rule
    The agencies are finalizing proposed Sec.  __.43(c), pertaining to 
the location of information that a bank must make available to the 
public, with technical changes for clarity. The agencies received only 
a few comments on this section; all commenters supported the agencies' 
proposed revisions to Sec.  __.43(c). As explained in the proposal, the 
agencies believe that updating this provision to allow any bank with a 
public website to include its CRA public file on the bank's public 
website, will make a bank's CRA public file more readily accessible to 
the public.
    The agencies are revising proposed Sec.  __.43(c)(1) with a 
technical change to separate the location requirements for a bank's 
public file. Under final Sec.  __.43(c)(1), all information required 
for the bank's public file must be maintained on the bank's website, if 
the bank maintains one. Under final Sec.  __.43(c)(2), the agencies are 
clarifying the requirements for banks that do not maintain a website. 
As proposed, final Sec.  __.43(c)(2)(i) requires that a bank must 
maintain all the information required for the bank's public file at the 
main office, and, if an interstate bank, at one branch office in each 
State. Final Sec.  __.43(c)(2)(ii) clarifies that at each branch, the 
bank is required to maintain a copy of the public section of the bank's 
most recent CRA performance evaluation and a list of services provided 
by the branch. This clarification is consistent with the requirements 
that banks must make available at each branch under current CRA 
regulations, as well as the agencies' intent under proposed Sec.  
__.43(c)(2), as described in the proposal.\1597\
---------------------------------------------------------------------------

    \1597\ See 87 FR 33884, 34004 (June 3, 2022).
---------------------------------------------------------------------------

    The agencies are adopting Sec.  __.43(d) and (e) as proposed. The 
agencies did not receive comments on proposed Sec.  __.43(d), regarding 
a bank's obligation to provide copies of its CRA public file on 
request, and proposed Sec.  __.43(e), requiring a bank to maintain 
three years of information and ensure that its public file is current 
as of April 1 of each year, except as otherwise provided in Sec.  
__.43. With respect to the revisions in Sec.  __.43(e) to maintain the 
information for three years, most banks, with certain exceptions, are 
evaluated during a three-year examination cycle, and as a result, the 
agencies believe that the public is best served when a bank maintains 
the information on its activities and any changes that may have 
occurred since the bank's last CRA performance evaluation. The agencies 
also believe that this expansion will result in minimal, if any, 
associated burden to banks since under the final rule, banks will be 
required to maintain their public file in digital form (if the bank 
maintains a website), as provided in Sec.  __.43(c)(1). The agencies 
note that certain provisions in Sec.  __.43 have other timing 
requirements under which the bank must maintain information in its 
public file. For example, as explained in the section-by-section 
analysis of Sec.  __.43(a)(1), a bank must maintain all written 
comments received by the bank and any responses to the comments by the 
bank, for the current year, updated on a quarterly basis, and the prior 
two calendar years.

Section __.44 Public Notice by Banks

Current Approach
    Under the current CRA regulations, a bank must provide in the 
public lobby of its main office and each of its

[[Page 7086]]

branches the appropriate public notice, as set forth in appendix B (CRA 
Notice), that includes information about the availability of a bank's 
public file, the appropriate Federal financial supervisory agency's CRA 
examination schedule, and how a member of the public may provide public 
comment.\1598\ A branch of a bank having more than one assessment area 
must include certain content in the notice for branch offices.\1599\ 
Bank affiliates of a holding company must include the second to the 
last sentence of the notice.\1600\ Bank affiliates of a holding company 
that is not prevented by statute from acquiring additional banks must 
also include contact information of the bank's Federal regulatory 
agency so that the public may request information about applications 
covered by the CRA filed by the bank's holding company.\1601\
---------------------------------------------------------------------------

    \1598\ See current 12 CFR __.44 and current appendix B.
    \1599\ See id. The additional required content is bracketed in 
appendix B: ``[If you would like to review information about our CRA 
performance in other communities served by us, the public file for 
our entire bank is available at (name of office located in state), 
located at (address).]''
    \1600\ See current 12 CFR __.44 and current appendix B (``We are 
an affiliate of (name of holding company), a bank holding 
company.'').
    \1601\ See current 12 CFR __.44 and current appendix B (``You 
may request . . . an announcement of applications covered by the CRA 
filed by bank holding companies.'').
---------------------------------------------------------------------------

The Agencies' Proposal
    The agencies did not propose substantive changes to the CRA public 
notice requirements in current Sec.  __.44 and current appendix B, 
renumbered in the proposal as appendix F.\1602\ Under proposed Sec.  
__.44 and proposed appendix F, banks would continue to be required to 
provide in the public area of their main office and each of their 
branches the CRA Notice. Consistent with current requirements, only a 
branch of a bank having more than one facility-based assessment area 
would be required to include certain content in the notice for branch 
offices; notices would not be required for proposed retail lending 
assessment areas.\1603\ The agencies also proposed retaining the 
required content for bank affiliates of a bank holding company.\1604\ 
To update the notice, the agencies proposed adding instructions for 
submitting comments on a bank's performance in meeting community credit 
needs not only by mail, but also electronically.\1605\
---------------------------------------------------------------------------

    \1602\ See proposed Sec.  __.44 and proposed appendix F.
    \1603\ See id.
    \1604\ See id.
    \1605\ See proposed appendix F.
---------------------------------------------------------------------------

Comments Received and Final Rule
    The agencies are adopting Sec.  __.44 and appendix F substantively 
as proposed.\1606\ The agencies received few comments concerning these 
proposed CRA public notice provisions. One commenter supported the 
agencies' proposal regarding the public notice a bank is required to 
post in the public area of its main office and at each of its branches. 
Another commenter asked that the agencies consider requiring that banks 
post the required notice not only as currently required, but also 
prominently display the bank's CRA ratings in branch entrances and on 
the bank's public websites to make CRA ratings more transparent and 
publicly visible.
---------------------------------------------------------------------------

    \1606\ See supra note 145.
---------------------------------------------------------------------------

    The agencies have considered comments received on these provisions 
and believe that disclosing the bank's CRA rating in the bank's CRA 
performance evaluation, which will be available on the bank's public 
website, if it maintains one, and on agency websites, is appropriate 
and consistent with the requirements of the CRA. Posting a bank's CRA 
rating in branch entrances and on the bank's public website could be 
misinterpreted without the appropriate context, including, as required 
under the statute, a ``statement describing the basis for the rating.'' 
\1607\
---------------------------------------------------------------------------

    \1607\ 12 U.S.C. 2906(b)(1)(A)(iii).
---------------------------------------------------------------------------

Section __.45 Publication of Planned Examination Schedule

Current Approach and the Agencies' Proposal
    Under current Sec.  __.45, the agencies publish at least 30 days in 
advance of the beginning of each calendar quarter a list of banks 
scheduled for CRA examinations in that quarter. The agencies proposed 
to revise current Sec.  __.45 to provide greater specificity and to 
reflect the agencies' actual practice of publishing the examination 
schedule. Specifically, proposed Sec.  __.45 required that the relevant 
agency ``publish on its public website, at least 60 days in advance of 
the beginning of each calendar quarter, a list of banks scheduled for 
CRA examinations for the next two quarters.'' As noted in the proposal, 
the agencies intended to provide additional advance notice to the 
public of the examination schedule and codify the agencies' current 
practice.\1608\
---------------------------------------------------------------------------

    \1608\ See 87 FR 33884, 34004 (June 3, 2022).
---------------------------------------------------------------------------

Comments Received
    Several commenters supported the proposal stating that it would 
facilitate public engagement in the CRA process and enable banks to 
better respond to community needs. Several others asked that the 
agencies consider providing at least 90 days for the public to comment 
on CRA examinations. A few other commenters also recommended that the 
agencies provide a registry where interested groups could sign up for 
notifications when performance reviews are scheduled so that they can 
provide timely comments. One commenter suggested that the agencies 
encourage public comments to be made at any time, including outside the 
normal CRA schedule. One commenter expressed the view that the current 
approach was appropriate and believed there was no need for changes 
regarding publishing the planned examination schedule.
Final Rule
    In the final rule, the agencies are revising proposed Sec.  __.45 
to provide that the agencies will publish, 30 days in advance of each 
calendar quarter, a list of banks scheduled for CRA examinations for 
the next two quarters. As explained in the proposal, the agencies 
intended to codify the current practice. The current practice is to 
publish a list of banks scheduled for CRA examinations for the next two 
quarters at least 30 days in advance of the beginning of each calendar 
quarter, not 60 days. Although the current regulation requires 
publication of a list of banks scheduled for CRA examinations for the 
upcoming calendar quarter at least 30 days in advance of that quarter, 
the agencies' practice for several years has been to publish a list of 
banks scheduled for CRA examinations for the next two quarters to allow 
interested parties more time to review and provide meaningful comments 
on a bank's performance before a CRA examination. By publishing a list 
of banks scheduled for CRA examinations in the upcoming two calendar 
quarters, 30 days in advance of each calendar quarter, the agencies 
effectively provide at least 120 days advance notice for upcoming CRA 
examinations.
    Regarding the recommendation of some commenters that the agencies 
provide a registry for interested groups to sign up for notifications 
when performance reviews are scheduled so they can provide timely 
comments for scheduled examinations, the agencies note that any member 
of the public can sign up to receive the agencies' notifications, 
including those communicating the next two quarters of scheduled CRA 
examinations. As discussed in the section-by-section analysis of Sec.  
__.46, the agencies

[[Page 7087]]

recognize that transparency and public engagement are fundamental 
aspects of the CRA evaluation process and, therefore, encourage 
communication between members of the public and banks before, during, 
and after a CRA examination is scheduled.

Section __.46 Public Engagement

Section __.46(a) General

Section __.46(b) Submission of Public Comments

Section __.46(c) Timing of Public Comments

    Currently, members of the public may submit comments to the 
agencies regarding a bank's CRA performance over the relevant 
evaluation period. Members of the public may also submit comments in 
connection with banking applications, including in connection with bank 
mergers and acquisitions.
The Agencies' Proposal
    The agencies proposed a new provision in the CRA regulations to 
clarify and promote community engagement in the CRA examination 
process. Specifically, proposed Sec.  __.46(a) affirmatively stated 
that the agencies ``encourage[ ] communication between members of the 
public and banks, including through members of the public submitting 
written public comments'' and also expressly stated that the agencies 
``take these comments into account in connection with the bank's next 
scheduled CRA examination.'' \1609\ This new provision specified that 
comments encouraged and considered include those that address 
``community credit needs and opportunities as well as regarding a 
bank's record of helping to meet community credit needs.'' \1610\ 
Proposed Sec.  __.46(b) provided that members of the public may submit 
comments electronically to the relevant agency. Proposed Sec.  __.46(c) 
explained that comments received by the agencies before the close of an 
examination would be considered in connection with that examination, 
while comments received after the close date of an examination would be 
considered in connection with the subsequent CRA examination.
---------------------------------------------------------------------------

    \1609\ Proposed Sec.  __.46(a).
    \1610\ Id. (emphasis added).
---------------------------------------------------------------------------

    The agencies requested feedback on other ways the agencies could 
encourage public engagement, and whether the agencies should ask for 
public comments on community credit needs and opportunities in specific 
geographic areas.
Comments Received
    Additional ways to encourage public engagement. The agencies 
received many comments from a wide range of commenters. In general, the 
vast majority of these commenters supported the proposed public 
engagement provisions in Sec.  __.46, expressing the view that public 
input is an important element in the CRA examination process, which the 
agencies should routinely solicit. Many of these commenters also argued 
that the current CRA rules and the proposal do a poor job of 
encouraging and valuing community input, asserting that community 
comments on examinations are not solicited and, when provided, are 
ignored or not taken seriously. These commenters offered numerous 
recommendations intended to promote public engagement and increase 
transparency and accountability on the part of examiners to consider 
the comments as part of the examination process. Recommendations 
included specific actions the agencies could take, for example: 
elevating the importance of public comments regarding the extent to 
which banks meet community needs; providing public commenters the 
ability to submit comments to the appropriate agency's website; 
developing clear instructions about to whom to send CRA comments and 
when the due date is for comments on specific CRA examinations; 
establishing a public registry for stakeholders who opt in to being 
contacted by examiners when a CRA evaluation is being conducted in 
their communities and service areas and a calendar of examinations with 
links for stakeholders to provide comments; and forwarding all public 
comments to the appropriate bank and requiring that banks post comments 
and their responses on the bank's website.
    Commenters also made several other suggestions for agency action, 
including the following: publishing a list of organizations that 
submitted comments, identified by those led by people of color and 
women to encourage input from a diverse range of organizations; 
increasing the number of local community interviews and conducting 
proactive outreach with a variety of stakeholders, including community 
residents and historically-underserved groups, regarding bank 
performance and identification of the impact of activities on community 
needs; evaluating how well banks solicit and incorporate feedback from 
community stakeholders; providing details on how the agencies factor 
community input into the CRA evaluation; issuing a guidance document--
similar to the illustrative list of activities--that would help banks 
identify vulnerable communities and build relationships to drive 
investment to those communities; assembling directors of community 
organizations by geographic area; using an opt-in system to notify 
interested parties when performance reviews are scheduled; and 
including provisions in the regulation that provide for strict actions 
against any bank that retaliates against community members because of 
any non-related community action, including comments filed under the 
proposal.
    Commenters also recommended that the agencies impose certain 
requirements on banks to increase public engagement, for example: 
providing information to customers on how to comment on CRA performance 
periodically, including when opening an account; creating community 
advisory boards to facilitate public engagement; complying with the 
terms of Community Benefits Agreements; soliciting input from community 
groups, including climate and environmental organizations on bank 
practices relating to climate, displacement, discrimination, and other 
harmful practices, as well as how banks can best leverage their 
resources to get CRA consideration for community development 
activities; requiring documentation detailing public outreach to, and 
engagement with, organizations; and, as noted, requiring that banks 
post comments and their responses on the bank's website.
    By contrast, a few commenters expressed the view that additional 
public engagement was not necessary and that the agencies already have 
community contacts that are consulted over the course of a CRA 
examination.
    Comments related to the agencies' request for feedback regarding 
public comments on community credit needs and opportunities in specific 
geographic areas. Several commenters addressed the agencies' request 
for feedback regarding public comments on community credit needs and 
opportunities in specific geographic areas. All but one of these 
commenters stated that seeking and encouraging public comment in 
specific census tracts is necessary to address the particular needs of 
each community and provided several recommendations. For example, a few 
commenters noted that asking specific questions about community credit 
needs and bank performance would be helpful to examiners in probing 
whether banks have created specific programs responsive to identified 
needs and would be useful in conducting self-

[[Page 7088]]

assessments and identifying unmet credit needs and other opportunities. 
Commenter feedback also included that any final rule must include 
requirements to ensure that community participation opportunities are 
accessible to people with disabilities and people with limited English 
proficiency, emphasizing the importance of culturally-appropriate 
communications and accessibility with respect to people with 
disabilities or limited language skills. Another commenter suggested 
that the agencies engage people who live in the specific geographic 
areas of interest and that U.S. Treasury Department-certified CDFIs may 
be able to help facilitate the process. One commenter noted that 
providing the public an opportunity to comment on their community 
credit needs and opportunities in specific census tracts might not be 
relevant for a small or intermediate bank's assessment areas due to the 
size and business model of that bank.
Final Rule
    The agencies are adopting proposed Sec.  __.46(a) through (c), 
providing for the submission and timing of written public comments on 
community credit needs and opportunities, as well as the bank's record 
of helping meet community credit needs, largely as proposed, with one 
revision in Sec.  __.46(b). Specifically, the agencies removed the word 
``electronically'' to make clear that comments may be provided both 
electronically and by mail. The agencies believe that the public 
engagement provisions, as finalized, will improve public engagement by 
establishing a regulatory process whereby the public can provide input 
on community credit needs and opportunities in connection with a bank's 
next scheduled CRA examination. This approach would be a compliment to, 
not a substitute for, examiners seeking feedback on bank performance 
from members of a bank's community through community contacts as part 
of the CRA evaluation. The agencies also believe that the final rule 
will increase transparency by clarifying the agencies' treatment of 
public comments in connection with CRA examinations.
    The agencies have considered the comments received and appreciate 
the recommendations made. The agencies are sensitive to commenters' 
concerns regarding the level of importance given by the agencies to CRA 
public comments. Each agency has developed and maintains comprehensive 
internal procedures to consider CRA public comments and complaints, and 
CRA protests related to covered applications. Further, the agencies' 
interagency examination procedures also include requirements for 
examiners to review and consider CRA comments received by the bank or 
the respective agency. As explained in more detail in the section-by-
section analysis of Sec.  __.45, the agencies changed their practice 
several years ago, to lengthen the period for advanced notice of 
scheduled CRA examinations, and in this final rule are codifying this 
practice to give more time for the public to submit comments to the 
bank and/or its respective agency.
    Regarding commenters' recommendations for increasing public 
engagement, the agencies have determined that some of the commenter 
recommendations are currently undertaken by the agencies such as 
publishing a calendar of examinations with links for stakeholders to 
provide comments and the due date and instructions for comments to be 
considered on specific CRA examinations. Examiners also accomplish 
several of commenters' recommendations related to outreach and 
consideration of public comments on the extent to which bank 
performance meets community needs by using community contacts in 
conjunction with a CRA examination. Examiners conduct interviews with 
local community contacts to gather information that assists in the 
development of performance context, to determine opportunities for 
participation by banks in helping to meet local needs, to understand 
perceptions on the performance of banks in helping to meet local credit 
needs, and to provide a context on the community to assist in the 
evaluation of a bank's CRA performance. While these processes address 
some of commenters recommendations related to outreach and the 
importance of public comments, the agencies will consider other 
recommendations, including the recommendation to factor community input 
into CRA examinations when developing training, guidance, and 
examination procedures for this final rule. Other recommendations will 
be implemented in other sections of this final rule, as discussed 
further in the section-by-section analyses of Sec. Sec.  __.43 through 
__.45.
    The agencies believe that other recommendations are appropriately 
implemented in Sec.  __.46 and other sections of this final rule. For 
example, the agencies believe that developing separate instructions 
regarding to whom to send comments and when comments are due is 
unnecessary. The final rule's provision for public notice by banks in 
Sec.  __.44 and the provision for submission of public comments in 
Sec.  __.46(b), instruct the public to send comments to the relevant 
agency's via electronically or by mail, as applicable. Thus, commenters 
may send their comments to the appropriate agency or to their bank, and 
the bank is required to place all comments and the responses to those 
comments regarding the bank's CRA performance in its public file as 
required under Sec.  __.43(a).\1611\ The agencies are sensitive to 
commenters' recommendation to require a response to all comments 
received; however, the agencies note that a bank response may not be 
appropriate in all instances (e.g., complimentary comments, ``off-
topic'' comments).
---------------------------------------------------------------------------

    \1611\ For further discussion of final Sec.  __.43, see the 
corresponding section-by-section analysis above.
---------------------------------------------------------------------------

    Similarly, Sec.  __.46(c) provides the timing under which comments 
will be considered for a particular examination. Although the agencies 
considered establishing a specific window or a due date under which 
comments would be considered on specific CRA examinations, the agencies 
determined that this would carry the potential for inaccuracies, as 
well as challenges updating this information in a timely manner, as 
examination dates are subject to change depending on a wide variety of 
factors. As reflected in the final rule, the agencies believe that, if 
a comment is received during an examination, it is appropriate to 
consider the comment during that examination as these comments could 
contain important information that could affect the evaluation.
    The agencies also agree with the commenters' suggestion that all 
comments received by the agencies should be forwarded to the 
appropriate bank. As explained below in the section-by-section analysis 
of Sec.  __.46(d), the agencies are required under the final rule to 
forward to the bank all public comments received by the agencies 
regarding a bank's CRA performance. The agencies note that Sec.  
__.43(a)(1), as finalized, requires banks to include in their public 
file all written comments and bank responses, if applicable, for the 
current year and each of the prior two calendar years that specifically 
relate to the bank's performance in helping to meet community credit 
needs. The final rule also requires, under Sec.  __.43(c)(1), that the 
public file must be maintained on the bank's website if the bank 
maintains one. Therefore, all comments will be on

[[Page 7089]]

a bank's website to the extent a bank maintains one.\1612\
---------------------------------------------------------------------------

    \1612\ See id.
---------------------------------------------------------------------------

    Regarding suggestions that the agencies establish a separate public 
registry and a calendar of examinations, the agencies note, as 
explained above, in the section-by-section analysis of Sec.  __.45, 
that the public will be able to sign up to receive the agencies' 
notification for which calendar quarter examinations are scheduled so 
that the public can prepare comments. Also, in Sec.  __.45, the final 
rule provides that the agencies will publish a list of banks scheduled 
for CRA examinations for the next two quarters, 30 days in advance of 
each calendar quarter. The agencies believe that these provisions will 
help ensure that the public has sufficient time for the public to 
prepare and provide comments on upcoming examinations.
    Regarding the suggestion that the agencies publish a list of 
organizations led by people of color and women, the agencies note that 
the race, ethnicity, and gender of the individuals that lead these 
organizations is not necessarily known to the agencies, and that 
maintaining privacy and confidentiality is essential. For more 
information and discussion regarding the agencies' consideration of 
comments related to race- and ethnicity-related provisions for the 
final rule, see section III.C of this SUPPLEMENTARY INFORMATION.
    The agencies believe that other recommendations would be best 
addressed outside the final rule. For example, although the agencies 
will not, as part of this final rule, be establishing a separate 
registry for comments, or developing an illustrative list of vulnerable 
communities similar to the illustrative list of community development 
activities in Sec.  __.14, the agencies will continue to explore 
options related to these suggestions outside of the rule. This includes 
consideration of developing a portal to accept bank-specific comments 
from the public for agencies that do not already provide this tool, and 
other ways for the public to provide feedback on community credit needs 
and opportunities in specific geographic areas as a complement to, but 
distinct from, feedback on individual bank performance. In addition, 
each agency has a community affairs department that can be an effective 
resource to banks for identifying and connecting with vulnerable 
communities and populations. Community affairs departments also have 
contacts and conduct outreach with local community organizations 
throughout the country.
    The agencies have also considered commenters' recommendations that 
the agencies evaluate how well banks solicit and incorporate feedback, 
and that the agencies impose certain requirements on banks to increase 
public engagement. The agencies recognize the critical role of public 
engagement in helping banks meet the credit needs of their communities. 
In considering these comments and the importance of public engagement, 
the agencies note that there are a multitude of ways that a bank can 
obtain valuable feedback from the public and its community, and these 
mechanisms are not equally effective for all banks and all communities. 
For this reason, the agencies believe that effective public engagement 
can be promoted by allowing banks to tailor their public engagement 
initiatives to their size and the unique characteristics of their 
communities, rather than for the agencies to prescribe the manner in 
which they must occur. In this regard, the agencies believe that agency 
training and outreach with banks can play an important role in 
encouraging accessibility to the public participation process with 
respect to, for example, people with disabilities or limited language 
skills, and will continue to consider ways to encourage inclusive 
community participation in the CRA process. Importantly, the CRA 
evaluation itself focuses on the results the bank produces from 
incorporating public feedback.
    Finally, the agencies are appreciative of commenters' suggestions 
that public comments on community credit needs and opportunities and 
bank performance are necessary and should be provided through a portal 
at any time. Each agency will consider whether to establish outside of 
this final rule a way for the public to provide feedback on community 
credit needs and opportunities in specific geographic areas.

Section __.46(d) Distribution of Public Comments

    Consistent with current practice, proposed Sec.  __.46(d) provided 
that the relevant agency ``forward all public comments received 
regarding a bank's CRA performance to that bank.'' Proposed Sec.  
__.46(d) also provided that each agency ``may also publish the public 
comments on its public website.'' Although the agencies did not receive 
any comments specifically addressing this provision, the agencies did 
receive comments requesting that the agencies forward public comments 
to the appropriate bank as explained above in the section-by-section 
analysis of Sec.  __.46(a) regarding ways to increase public 
engagement. On consideration of the comments and further deliberation, 
the agencies are finalizing the portion of proposed Sec.  __.46(d) 
providing that the agencies will forward all public comments received 
regarding a bank's CRA performance to the bank, and removing the 
reference to the agencies publishing public comments on their public 
websites.
    The final rule memorializes the agencies' current practice of 
forwarding public comments received by the agencies to the appropriate 
bank for review and, if appropriate, a response to the issues raised in 
the public comment. The agencies believe that the process of forwarding 
the comments to the bank is critical in order to make adjustments and 
improvements, if needed, to the bank's efforts to serve its 
communities. Providing for the forwarding of these comments in the 
final rule will recognize the value of this practice, and help ensure 
consistency in its application, which the agencies believe will benefit 
banks in their efforts to meet the credit needs of their communities, 
as well as the communities they serve.
    The agencies are also revising proposed Sec.  __.46(d) by removing 
language from the regulatory text that states that each agency ``may 
also publish the public comments on its public website.'' The agencies 
have determined that agency-posted comments represent only a subset of 
comments received regarding banks in relation to the CRA and, 
therefore, would be incomplete, are redundant to a bank's public 
file,\1613\ and further strain agency resources.
---------------------------------------------------------------------------

    \1613\ See current 12 CFR__.43(a)(1) and final Sec.  
__.43(a)(1), discussed in the section-by-section analysis of final 
Sec.  __.43(a).
---------------------------------------------------------------------------

    In relation to proposed Sec.  __.46, the agencies requested 
feedback on whether the agencies should publish bank-related data, such 
as retail lending and community development financing metrics in 
advance of completing an examination to provide additional information 
to the public. As discussed below, most commenters responding to the 
agencies' request for feedback on this question generally believed that 
public availability of data is an important aspect of helping to 
determine whether banks are meeting the needs of their communities 
under the CRA. However, a few commenters did not support publishing 
certain data, including metrics, ahead of the conclusion of an 
examination.
    As discussed in more detail in the section-by-section analysis of 
Sec.  __.42, many commenters supported expanding

[[Page 7090]]

the data collection and reporting requirements applicable to banks with 
assets of over $10 billion, to all large banks, with some commenters 
also recommending that the agencies' proposed deposits, lending, and 
community development data be made publicly available. Some of these 
commenters also recommended that the agencies develop a list of 
economic indicators for metropolitan and rural areas that could be used 
by the public to develop comments regarding performance context. Such 
economic indicators could include housing cost burdens, vacancy rates, 
unemployment rates, and percent of households in poverty, as well as 
homeownership and small business ownership rates. One commenter 
suggested that demographic indicators should include racial and ethnic 
breakdowns. One commenter recommended that the agencies work with the 
CFPB to release additional HMDA data, such as the number of units 
financed by a multifamily loan. Another commenter suggested the 
agencies make publicly available bank Call Reports, assessment area 
maps, HMDA data, the CRA public file, and the CFPB's section 1071 data.
    Several commenters recommended various ways in which the data could 
be published in connection with the examination for added transparency. 
For example, some commenters recommended that the data be provided in 
various forms, such as, online with descriptions and definitions, as 
appropriate, that a lay person could understand; on the bank's website 
and on other government websites; and in a dashboard showing bank 
performance and benchmarks. Other commenters recommended that certain 
metrics in performance evaluations be published, including, for 
example, activities that meet one or more impact criteria.
    In contrast, several commenters opposed making data publicly 
available in connection with an examination for several reasons, 
including that: the data is compiled in connection with a CRA 
evaluation and should be made public only when the final report of 
examination is delivered; and early release could cause misleading 
conclusions since the data is not final and adjustments are often made 
in response to examiner feedback and to ensure data integrity. One 
commenter warned that without a formal process for feedback and how the 
specific feedback would impact the final outcome on the bank's CRA 
rating, the process of examinations could be delayed and administrative 
burdens could be added to the agencies.
    The agencies appreciate commenter suggestions and feedback 
regarding publication of data and recognize the importance of making 
information about a bank performance accessible to the public. The 
agencies considered comments suggesting that it would be helpful to 
publish metrics in advance of an examination to better inform public 
comments on bank performance and promote transparency. However, the 
agencies have determined that publishing metrics in connection with an 
examination is not feasible with respect to banks that do not report 
data, and might add delays to the completion of the CRA examination, or 
at minimum, complicate scheduling depending on who prepares the data, 
the available systems and tools to calculate the metrics, and how far 
in advance the metrics would be made public. Furthermore, bank metrics 
are based on data that are typically subject to validation prior to 
calculation of metrics and performance analysis. However, the agencies 
note that the final CRA evaluation includes data, facts, and 
conclusions for public disclosure and will take into account 
suggestions on the type of information that could be made available in 
the final CRA evaluation, such as information on the impact and 
responsiveness review for the Community Development Financing and 
Community Development Services Tests.
    The agencies also appreciate suggestions regarding publication of 
data on economic indicators that could help the public develop comments 
regarding performance context. The agencies will consider these 
recommendations outside of the rule and will continue exploring the 
possibility of publishing additional data to inform public comment.

Section __.51 Applicability Dates and Transition Provisions

The Agencies' Proposal
    In proposed Sec.  __.51, the agencies included provisions regarding 
the transition from the current CRA regulations to amended CRA 
regulations. In general, the agencies proposed a final rule effective 
date of the first day of the first calendar quarter that begins at 
least 60 days after publication in the Federal Register.\1614\ 
Additionally, the agencies proposed staggered applicability dates for 
various provisions of the regulations.\1615\ The agencies also proposed 
to begin conducting CRA examinations pursuant to the proposed 
performance tests two years after Federal Register publication of the 
final rule,\1616\ and that in assessing a bank's CRA performance the 
agencies would consider a loan, investment, or service that was 
eligible for CRA consideration at the time the bank conducted the 
activity or at the time the bank entered into a legally binding 
commitment to make the loan or investment.\1617\ Finally, the agencies 
proposed timing provisions regarding, respectively, continued 
applicability and sunset of the current regulations and applicability 
of the proposed regulations with respect to strategic plans.\1618\
---------------------------------------------------------------------------

    \1614\ See proposed Sec.  __.51(a)(1).
    \1615\ See proposed Sec.  __.51(a)(2).
    \1616\ See proposed Sec.  __.51(b)(1).
    \1617\ See proposed Sec.  __.51(b)(2).
    \1618\ See proposed Sec.  __.51(c).
---------------------------------------------------------------------------

    As discussed further below, the agencies received numerous comments 
on these proposed transition provisions from various stakeholders and 
have increased the transition periods in the final rule by one year 
and, where appropriate, have made other changes to proposed Sec.  __.51 
in the final rule.

Section __.51(a)(1) Applicability Dates in General

The Agencies' Proposal
    In Sec.  __.51(a)(1), the agencies proposed that the following 
provisions would become applicable to banks, and banks must comply with 
any requirements in these provisions, beginning on the first day of the 
first calendar quarter that is at least 60 days after publication of 
the final rule: (1) authority, purposes, and scope (proposed Sec.  
__.11); (2) facility-based assessment areas (proposed Sec.  __.16); (3) 
performance standards for small banks (proposed Sec.  __.29(a)); (4) 
intermediate bank community development performance standards (proposed 
Sec.  __.29(b)(2)); and intermediate bank performance ratings (proposed 
Sec.  __.29(b)(4)); (5) effect of CRA performance on applications 
(proposed Sec.  __.31); (6) content and availability of public file 
(proposed Sec.  __.43); (7) public notice by banks (proposed Sec.  
__.44); (8) publication of planned examination schedule (proposed Sec.  
__.45); (9) public engagement (proposed Sec.  __.46); (10) 
applicability dates, and transition provisions (proposed Sec.  __.51). 
In the proposal, the agencies explained that they believed that setting 
an applicability date for these provisions on the final rule's 
effective date is appropriate and would not present significant 
implementation burden to banks because the agencies proposed

[[Page 7091]]

only minor amendments to these provisions relative to the current CRA 
regulations.
Comments Received
    The agencies received numerous comments on the proposed 
applicability date for these provisions, with most commenters taking 
the position that the proposed applicability date provided banks 
insufficient time for implementation purposes and some commenters 
offering alternatives. Several commenters also stated that the final 
rule should be effective at the beginning of a calendar year to avoid 
subjecting banks to two regulatory frameworks during a single calendar 
year.
Final Rule
    After reviewing the comments, the agencies have determined that 
establishing the same applicability date for all performance tests 
would reduce complexity and confusion for both the banking industry and 
agency examiners. Therefore, the agencies are amending the proposal to 
provide in final Sec.  __.51(a)(2)(i) that the applicability date for 
the small bank performance evaluation \1619\ and the intermediate bank 
performance evaluation \1620\ will be January 1, 2026--the same date as 
for the final rule's other performance tests.
---------------------------------------------------------------------------

    \1619\ See proposed Sec.  __.29(a).
    \1620\ See proposed Sec.  __.29(b).
---------------------------------------------------------------------------

    The agencies continue to believe, as proposed, that the final 
rule's effective date is appropriate for the remaining provisions 
listed above in light of the nature of the changes and their limited 
transition burden.
    The final rule also makes a clarifying change to replace the 
language calculating the applicability date with the final rule's 
actual effective date. In addition, the agencies are making a technical 
change in final Sec.  __.51(a)(1) by removing the following phrase 
included in the proposal: ``this part is applicable to banks, and banks 
must comply with any requirements in this part.'' The agencies 
acknowledge that including this phrase would have been inaccurate 
because some of the relevant provisions apply to the agencies rather 
than banks.

Section __.51(a)(2) Specific Applicability Dates

Section __.51(a)(2)(i)
The Agencies' Proposal
    In Sec.  __.51(a)(2)(i), the agencies proposed that the following 
provisions would be applicable to banks, and that banks must comply 
with any requirements in these provisions, one year after publication 
of the final rule in the Federal Register: (1) definitions (except for 
the definitions of ``small business'' and ``small farm'') (proposed 
Sec.  __.12); (2) community development definitions (proposed Sec.  
__.13); (3) qualifying activities confirmation and illustrative list of 
activities (proposed Sec.  __.14); (4) impact review of community 
development activities (proposed Sec.  __.15); (5) retail lending 
assessment areas (proposed Sec.  __.17); (6) areas for eligible 
community development activity (proposed Sec.  __.18); (7) performance 
tests, standards, and ratings, in general (proposed Sec.  __.21); (8) 
Retail Lending Test (proposed Sec.  __.22); (9) Retail Services and 
Products Test (proposed Sec.  __.23); (10) Community Development 
Financing Test (proposed Sec.  __.24); (11) Community Development 
Services Test (proposed Sec.  __.25); (12) wholesale or limited purpose 
banks (proposed Sec.  __.26); (13) strategic plan (Sec.  __.27); (14) 
assigned conclusions and ratings (proposed Sec.  __.28); (15) certain 
provisions for intermediate banks (proposed Sec.  __.29(b)(1) and (3)); 
(16) certain data collection and data reporting requirements (proposed 
Sec.  __.42(a) and (c) through (f)); and (17) appendices A through F. 
The agencies explained that they believed that a one-year transition 
period would provide banks with the appropriate time to implement these 
provisions.
Comments Received
    The agencies received numerous comments on this provision. The vast 
majority of commenters stated that the one-year transition period in 
proposed Sec.  __.51(a)(2)(i) was insufficient, with many suggesting 
alternatives ranging from 18 months to five years. Several commenters 
further stated that the proposed one-year transition period would 
undermine efforts to modernize and improve the CRA framework and 
referenced the scale and complexity of the proposal as the basis for 
their concern. Other commenters focused on the time needed for 
stakeholders to implement the new regulations, including to build, 
test, and operationalize a new CRA program, and to marshal and deploy 
the requisite financial, technological, compliance, operational, 
administrative, and personnel resources. Several commenters compared 
implementing a new CRA framework to the significant undertaking 
required to implement HMDA amendments.
    Commenters stated that a longer transition period was necessary for 
the agencies themselves to prepare for a new CRA framework. These 
commenters referenced the need for the agencies to: clarify elements of 
the new framework; verify that the final ratings framework is properly 
calibrated; proactively engage with stakeholders; and allow any 
economic impact from the final rule to normalize. Other commenters 
suggested that the agencies use the transition period to focus on 
regulatory infrastructure, interagency coordination, examiner 
recruitment and training, publication of the list of permissible and 
non-permissible community development activities, and standardization 
of their resources (e.g., examination procedures and performance 
evaluation templates). Another commenter stated that banks should not 
be required to implement the final rule until the agencies publish the 
final rule's metrics, benchmarks, multipliers, and thresholds.
    Commenters also focused on how the proposed transition period would 
negatively impact banks of different sizes and stated that all banks 
needed more time. One of these commenters suggested that the agencies 
tailor the implementation schedule based on bank size. This commenter 
stated that if larger banks, which the commenter asserted are the best 
equipped to adjust to a final CRA framework, were the first banks 
required to implement the new regulations, the agencies could learn 
from this experience and address any unintended consequences before 
smaller banks were required to implement the new framework.
    Many commenters focused on the specific effects that the proposed 
rule would have on bank processes, procedures, programs, systems, and 
controls and stated that it would take longer than one year to 
implement these changes. For example, a commenter stated that it will 
need to rebuild virtually all facets of its bank-wide CRA program. 
Another commenter stated that the proposal would not provide sufficient 
time to coordinate the necessary compliance, financial, operational, 
and technological rollout.
    Numerous commenters addressed the staffing needs associated with 
implementing and administering the new regulations, noting that many 
banks would need to hire new staff or reassign existing staff and to 
train all staff on the new regulations and related systems. A few 
commenters noted that nationwide labor shortages may affect the ability 
of banks to transition to a new framework.
    Many other commenters noted that, as proposed, banks would be 
required to comply with the current CRA framework while implementing a 
new

[[Page 7092]]

CRA framework. Some commenters also referenced dual compliance 
obligations related to Federal and State CRA laws. Additionally, a 
commenter stated that providing banks with an extended transition 
period would ensure that credit unions do not benefit from a 
comparatively advantageous regulatory environment.
    Many commenters addressed the expected concurrent transitioning to 
both a new CRA framework and the CFPB's section 1071 framework. Some 
noted that the dual CRA and section 1071 transitions could exacerbate 
staffing challenges, threaten the integrity of relevant data, present 
technological challenges, and lead to unintended consequences. One 
commenter noted the budgetary considerations associated with 
implementing both frameworks. Other commenters encouraged the agencies 
and the CFPB to coordinate on CRA and section 1071 implementation. 
Several commenters stated that regulatory requirements should be 
designed to avoid dual collection and reporting.
    Numerous commenters noted that many stakeholders would need to rely 
on third-party vendors to implement a new CRA framework. At least one 
commenter noted that in prior rulemakings, banks' ability to test 
products and implement the rules was delayed because vendors did not 
have enough time to develop the requisite products. Commenters also 
noted that the demands on vendors would be exacerbated by the need to 
implement both the section 1071 regulations and new CRA regulations.
    Several commenters emphasized the importance of ensuring that the 
transition period provides sufficient time for training stakeholders on 
the new rule and how the agencies would apply it, with at least one 
commenter suggesting interagency training. One commenter suggested that 
the agencies summarize the final rule's applicability dates to help 
with the transition. Another commenter suggested that the comment 
period remain open during the training period. Other commenters stated 
that the agencies should outline the support they will provide to 
banks, especially with respect to assessment area and data collection 
provisions.
    The agencies also received specific comments about the transition 
to implementing the proposed facility-based assessment area and retail 
lending assessment area provisions, noting that it will take time for 
banks to establish corresponding administrative oversight and to meet 
the new benchmarks. Another commenter stated that the agencies should 
allow banks to have implementation and compliance flexibility.
    Some commenters offered the view that the agencies should evaluate 
the final rule after implementation. For example, a commenter stated 
the agencies should study what does and does not work with the new 
regulations and, as needed, update the CRA framework after 
implementation. Other commenters suggested that the agencies test the 
final rule on banks of different sizes and then, if necessary, revise 
or clarify the final rule. A commenter encouraged the agencies to 
invite public comment on the new rule after the first examinations 
under the final rule.
    Another commenter stated that the Retail Lending Test and the 
Community Development Financing Test should not be effective until a 
bank's evaluation period that begins at least three years after the 
agencies publish the community and market benchmarks necessary to 
assess compliance with these performance tests.
    Many commenters specifically referenced the proposed data 
collection and maintenance requirements when explaining why a one-year 
transition period was insufficient. One commenter noted that the 
proposal would require banks to collect and format data that they 
currently do not collect, while other commenters focused on the 
challenges of ensuring the quality and integrity of a bank's data 
within the proposed transition period.
Final Rule
    After considering the comments received, the agencies are revising 
proposed Sec.  __.51(a)(2)(i) to provide additional time relative to 
the proposal for transitioning to these provisions and to provide that 
the applicability date begins at the start of a calendar year. Pursuant 
to final Sec.  __.51(a)(2)(i), banks will have until January 1, 2026, 
to comply with the following: final Sec. Sec.  __.12 through __.15, 
__.17 through __.30, and __.42(a); the data collection and maintenance 
requirements in final Sec.  __.42(c) through (f); and final appendices 
A through F. The agencies moved this applicability date to the 
beginning of the calendar year to align the data collection and 
maintenance with evaluation periods, which typically consist of whole 
calendar years.
    Additionally, the final rule provides that the definitions of 
``small business'' and ``small farm'' in final Sec.  __.12 take effect 
on January 1, 2026, instead of one year after the performance tests as 
proposed, to align with the corresponding performance standards. This 
change is necessary because the definitions of ``small business'' and 
``small farm'' are relevant to, among other things, determining which 
loans, investments, or services meet the community development criteria 
under final Sec.  __.13, evaluating a bank's small business and small 
farm lending under the Retail Lending Test, and evaluating a bank's 
retail banking services and retail banking products under the Retail 
Services and Products Test. In the current regulations, ``small 
business'' and ``small farm'' are not explicitly defined, and 
therefore, if these definitions are not effective until one year after 
the new performance standards are applicable, banks will be unable to 
determine with certainty what these terms mean.
    The final rule also makes a technical correction to provide that 
the data collection and maintenance requirements under final Sec.  
__.42(a), but not the data reporting requirements under final Sec.  
__.42(b), are applicable on January 1, 2026. As described in the 
proposal's preamble, the agencies intended to have the final rule's 
reporting requirements take effect one year after the collecting and 
maintenance requirements, but this intent was not accurately reflected 
in the proposed regulatory text.\1621\ As discussed below, the 
reporting requirements under final Sec.  __.42(b) through (f) are 
applicable one year later, on January 1, 2027, with data reporting 
required by April 1 beginning in 2027.
---------------------------------------------------------------------------

    \1621\ See 87 FR 33884, 34005 (June 3, 2022) (``Banks that would 
be required to collect new data under the proposal starting 12 
months after publication of a final rule, would be required to 
report such data to the agencies by April 1of the year following the 
first year of data collection.'').
---------------------------------------------------------------------------

    The agencies also are making the same technical change in final 
Sec.  __.51(a)(2)(i) and (ii) as discussed above regarding final Sec.  
__.51(a)(1) to remove the proposed bank applicability and compliance 
language because some of the relevant sections apply to the agencies, 
and not to banks.
    The agencies believe that providing until January 1, 2026, or 
January 1, 2027, as applicable, for these provisions balances the 
concerns raised by commenters for an adequate transition period with 
the needs of banks' communities, including low- and moderate-income 
neighborhoods, to benefit from modernized CRA regulations. Further, the 
agencies believe that, with consideration given to bank size, banks 
have the resources necessary to adjust to the new regulatory framework 
during this revised transition period. As commenters suggested, during 
the transition period the agencies will be

[[Page 7093]]

focused on interagency coordination and developing templates, tools, 
and training to help banks implement the new CRA framework. The 
agencies also note that they provided a shorter transition period for 
some of the substantive provisions in the 1995 interagency CRA final 
rule.\1622\
---------------------------------------------------------------------------

    \1622\ See 60 FR 22156, 22176 (May 4, 1995) (providing a 
transition period of less than one year for the data collection 
requirements in the 1995 CRA rule).
---------------------------------------------------------------------------

    The agencies also believe that the transition periods in the final 
rule are appropriate because of the final rule's approach of tailoring 
performance standards and data requirements by bank size and business 
model. Small banks are generally not subject to the new performance 
standards in the CRA final rule unless they opt into the Retail Lending 
Test. Intermediate banks and small banks will not be subject to any 
additional data collection or reporting requirements under the final 
rule, thereby limiting transition burden. Further, the final rule 
updates the asset-size thresholds for determining which banks are 
considered small banks and which are intermediate banks, such that 
approximately 609 banks that would have been designated as intermediate 
small banks under the current regulations will now be considered small 
banks and 135 banks that would have been large banks under the current 
regulations will now be considered intermediate banks.\1623\ Under the 
final rule, newly designated intermediate banks that were formerly 
large banks will have reduced reporting requirements.\1624\ The 
agencies believe that large banks that are subject to any additional 
CRA requirements are large enough to manage the transition in the 
allotted time. In many cases, such as the requirement to geocode 
deposits, the banks likely already collect the requisite data, reducing 
the associated challenges that they might otherwise confront.
---------------------------------------------------------------------------

    \1623\ See the section-by-section analysis for final Sec.  __.12 
for more information.
    \1624\ Under the current rule, small banks, which include 
intermediate small banks, do not have any data collection, 
maintenance, or reporting requirements.
---------------------------------------------------------------------------

    Further, the agencies believe that the changes made to the final 
rule will assist banks in transitioning to the final rule. 
Specifically, the final rule includes changes to the provisions 
regarding retail lending assessment areas, resulting in fewer banks 
having to delineate retail lending assessment areas and, for those that 
do, generally having to delineate fewer retail lending assessment 
areas.\1625\ Additionally, the final rule revised the proposed Retail 
Lending Test such that open-end home mortgage loans and multifamily 
loans will not be evaluated as major product lines under that 
performance test. The agencies have also reduced burden by revising the 
final rule such that a bank subject to the Retail Lending Test will 
only have its automobile loans evaluated if the bank is a majority 
automobile lender or the bank opts to have its automobile loans 
evaluated.
---------------------------------------------------------------------------

    \1625\ See the section-by-section analysis for final Sec.  
__.17.
---------------------------------------------------------------------------

    In response to commenters who suggested a tailored implementation 
period, as noted above the default performance test applicable to for 
small banks will be the same as under the current regulations. Small 
banks will have as much time as necessary to transition to being 
evaluated under the Retail Lending Test if they eventually opt to do 
so. Additionally, as explained in greater detail in the section-by-
section analysis for final Sec.  __.42, the new data collection, 
maintenance, and reporting requirements in the final rule apply only to 
large banks or, in some cases, only to large banks with assets of 
greater than $10 billion. The final rule is tailored to ensure that 
only banks with sufficient resources are subject to the data collection 
and maintenance requirements that are applicable on January 1, 2026, 
and the data reporting requirements that are applicable on January 1, 
2027.
    The agencies acknowledge that the final rule will impact bank 
processes, procedures, programs, systems, and controls. However, as 
discussed above, the agencies believe that the final rule's revised 
implementation period is sufficient for banks to implement necessary 
changes. As noted, the agencies expect to develop tools and training to 
help banks transition to and implement the new regulatory requirements.
    With regard to staffing concerns, the agencies understand that 
banks may need to hire additional staff or that bank staff may need to 
be reassigned to work on CRA implementation. However, based on the 
agencies' supervisory experience, banks have demonstrated the ability 
to comply with major changes to other regulatory requirements. The 
agencies believe that implementing the final rule's requirements 
represents a comparable transition for banks.
    Although the agencies understand that banks must comply with 
current CRA regulations while implementing the new CRA framework, this 
would be true of any transition period provided in the final 
rule.\1626\ The agencies acknowledge that some States have their own 
CRA laws and regulations that apply to State-charted banks and savings 
associations, but the agencies do not possess authority in connection 
with these State laws and regulations or any control over when or if 
these States might update their CRA regulations to conform with the 
final rule.
---------------------------------------------------------------------------

    \1626\ During the period between the final rule's effective date 
and the applicability dates in the final rule for certain 
provisions, the current CRA regulations will remain applicable for 
these provisions. See discussion of Sec.  __.51(a)(2)(iii), below. 
(The final rule includes each agency's current CRA regulation in new 
appendix G and sunsets these appendices as of the final 
applicability date, at which time all provisions of the final rule 
will be applicable.)
---------------------------------------------------------------------------

    The agencies understand that many banks will rely on third-party 
vendors to assist with implementing the final rule. The agencies 
acknowledge the suggestion that the transition period should be longer 
for banks that rely on vendors; however, the agencies believe that 
providing a longer transition period for these banks would unfairly 
disadvantage other banks that handle the majority, or all, of their 
compliance needs internally. The agencies further believe that the 
increased transition time in the final rule provides sufficient time 
for banks working with vendors to implement the amended regulations. 
The agencies also recognize that banks may need to implement both the 
Section 1071 Final Rule and the amended CRA regulations on overlapping 
timelines. However, for the reasons discussed above, the agencies 
believe the transition period provides sufficient time before many 
final rule provisions are applicable on January 1, 2026. Moreover, the 
agencies eventually intend to leverage section 1071 data, which will 
minimize data collection, maintenance, and reporting burden on large 
banks.
    The agencies are committed to maintaining an open dialogue with 
stakeholders during the implementation period. This will allow all 
parties, including the agencies, to learn from the implementation 
process and develop best practices. As discussed above, the agencies 
agree that interagency training will be vital during this period and 
intend to develop training for banks, examiners, and other key 
stakeholders to ensure that they understand the regulatory 
requirements. The agencies expect to issue clarifying guidance to 
address relevant issues that arise following publication of the final 
rule.
Section __.51(a)(2)(ii)
The Agencies' Proposal
    In proposed Sec.  __.51(a)(2)(ii), the agencies provided that the 
proposed Sec.  __.12 definitions of ``small business''

[[Page 7094]]

and ``small farm'' (which are based on the gross annual revenue size) 
would be applicable two years after the Federal Register publication of 
a final rule. The agencies explained that the applicability date for 
these definitions would be on or after the CFPB makes the section 1071 
regulations effective. The agencies sought feedback on whether to tie 
the applicability date of these definitions to when the CFPB finalized 
its section 1071 rulemaking or to provide an additional 12 months after 
the CFPB finalized its rulemaking. The agencies also asked when they 
should sunset the ``small business loan'' and ``small farm loan'' 
definitions.
    Additionally, the agencies proposed that banks that are required to 
collect new CRA data under amended CRA regulations starting 12 months 
after publication of the final rule be required to report data to the 
appropriate Federal financial supervisory agency two years after 
Federal Register publication of a final rule, by April 1 of the year 
following the first year of data collection and maintenance. The 
agencies believed that the applicability dates for these provisions 
would give banks sufficient time to implement the proposed data 
collection, maintenance, and reporting framework. The agencies also 
proposed that the data disclosure requirements in proposed Sec.  
__.42(b) and (g) through (i) would become applicable the year following 
the first year of data collection.
Comments Received
    Most commenters that provided input on this aspect of the proposal 
indicated that they required additional time than proposed to comply 
with new small business lending and small farm lending definitions. 
Some stated that the new definitions should not be applicable in the 
middle of a bank's evaluation period and, in these cases, banks should 
be allowed to use the current definitions. With respect to the 
agencies' question on the timing of the applicability of the new CRA 
small business and small farm definitions in light of the section 1071 
rulemaking, commenter views were mixed. Several commenters supported 
tying the effective dates to the effective date of the section 1071 
rulemaking, but others supported provision of an additional year. A 
commenter requested that the agencies exhibit flexibility, while 
another explained that providing banks with time for data validation 
and analysis using consistent definitions would promote accurate 
metrics for both the CRA and section 1071 frameworks. Another commenter 
stated that it was difficult to evaluate the agencies' CRA proposal 
because the section 1071 rulemaking was not yet final.
    With respect to the agencies' question on sunsetting the current 
small business loan and small farm loan definitions, commenters' 
suggestions included sunsetting the current definitions: at the end of 
the calendar year after the new definitions are effective; within 12 
months of publication of a CRA final rule; when banks transition to 
reporting section 1071 data; one year after banks implement the section 
1071 regulations; and when the current small business loan and small 
farm definitions are not applicable to any examination data.
    Numerous commenters also addressed the transition period for the 
data reporting requirements in the rule, stating that the proposed 
transition period is insufficient. As with the data collection and 
maintenance requirements, many commenters addressed the issues related 
to transitioning to both a new CRA framework and the CFPB's section 
1071 regulations. Other commenters said that banks should not be 
required to report data under two different CRA frameworks in the same 
calendar year. Another noted that CDFI banks already have an 
unsupportable amount of data reporting due by March 1. One commenter 
stated that all banks, particularly large and complex ones, will need 
to invest significant resources to set up new data collection, 
maintenance, and reporting mechanisms and recommended a longer 
transition period for new reporting requirements that is at least 36 
months before the beginning of a bank's first evaluation period.
Final Rule
    To align the data reporting requirements with the January 1, 2026, 
applicability date in the final rule for the data collection and 
maintenance requirements, the final rule provides that all data 
reporting requirements are applicable on January 1, 2027, instead of 
two years after publication in the Federal Register, as proposed. 
Because final Sec.  __.42(b) provides that banks are required to report 
data by April 1 of the year following the collection of data, this 
means that banks will have more than three years following the 
publication of the final rule before they will need to report data 
under the final rule. As with the data collection and maintenance 
requirements and as explained in the section-by-section analysis for 
final Sec.  __.42, the final rule's new data reporting requirements are 
applicable to large banks.
    As noted above, the agencies are finalizing the proposed Sec.  
__.12 definitions of ``small business'' and ``small farm,'' and 
changing the applicability date for these definitions to January 1, 
2026, to align with the performance standards. Without this change, 
there would be ambiguity in the amended regulations in instances where 
those defined terms are used, including in final Sec. Sec.  __.13, 
__.22, and __.23.
    With respect to the agencies' transition to using section 1071 
data, as indicated in the section-by-section analysis for final Sec.  
__.12, the agencies have removed proposed references to section 1071 
data in the final rule's regulatory text. Instead, the agencies are 
including amendments in the final rule that provide for a transition to 
section 1071 small business and small farm lending data once these data 
becomes available. These transition amendments implement the intent of 
the agencies articulated in the proposal to leverage section 1071 data 
while accounting for the current uncertainty surrounding the 
availability of that data. Specifically, when effective, these 
transition amendments will add appropriate references to the Section 
1071 Final Rule, remove references to Call Report-based small business 
and small farm data, and make other corresponding changes to the final 
rule regulatory text.
    The agencies are not including an effective date for these section 
1071-related transition amendments in the final rule. Instead, once the 
availability of section 1071 data is clarified, the agencies will 
provide appropriate notice in the Federal Register of the effective 
date of the transition amendments. The agencies expect that the 
effective date will be on January 1 of the relevant year to align with 
the final rule's data collection and reporting, benchmark calculations, 
and performance analysis, which all are based on whole calendar years.
Section __.51(a)(2)(iii)
    Because the current CRA regulations will continue to apply until 
the above applicability dates take effect, the agencies have included 
in their agency-specific amendments a new appendix G that contains the 
current CRA regulations. The agencies have also added a new paragraph 
(a)(2)(iii) to Sec.  __.51 that references this appendix. Specifically, 
this paragraph provides that, prior to the applicability dates in 
paragraphs (a)(2)(i) and (ii) of the section, banks must comply with 
the relevant provisions of the CRA regulations in effect on the day 
before the final rule's effective date, as set forth in appendix G. 
This paragraph further provides that, the relevant provisions set forth 
in appendix G continue to be

[[Page 7095]]

applicable to CRA performance evaluations pursuant to 12 U.S.C. 
2903(a)(1) that assess activities that a bank conducted prior to the 
date the final rule became applicable, except as provided in paragraphs 
(c) and (d), as discussed below. Appendix G will be effective until 
January 1, 2031, when the agencies expect the appendix to no longer be 
necessary.

Section __.51(b) HMDA Data Disclosures

Section __.51(c) Consideration of Bank Activities

The Agencies' Proposal
    Proposed Sec.  __.51(b)(1) provided that the agencies would begin 
conducting CRA examinations pursuant to the Retail Lending Test, Retail 
Services and Products Test, Community Development Financing Test, 
Community Development Services Test, and Community Development 
Financing Test for Wholesale and Limited Purpose Banks, and for 
strategic plan banks, beginning two years after Federal Register 
publication of a final rule. The preamble to the proposed rule noted 
that examinations conducted after this date would evaluate bank 
activities conducted during the prior year, for which the proposal's 
requirements related to bank activities would already be effective. The 
agencies further explained in the preamble to the proposed rule that 
CRA examinations conducted immediately after this date would use 
modified procedures until peer data and applicable benchmarks become 
available.
    Proposed Sec.  __.51(b)(1) also provided that the agencies would 
comply with the HMDA data disclosure requirements in Sec.  __.42(j) 
beginning two years after publication of a final rule.
    Proposed Sec.  __.51(b)(2) provided that in assessing a bank's CRA 
performance, the agencies would consider any loan, investment, or 
service that was eligible for CRA consideration at the time that the 
bank conducted the activity or entered into a legally binding 
commitment to make the loan or investment.
Comments Received
    The agencies received numerous comments on timing and related 
challenges regarding CRA examinations under a final rule, with several 
suggesting specific approaches to address these challenges. Some 
commenters expressed concern that, for many banks, the next examination 
would be based on two different CRA frameworks and that the first banks 
to be examined under the new framework would be at a disadvantage. 
Another commenter urged the agencies to provide banks with more time to 
understand how their performance will be measured in order to make any 
necessary course corrections. Many other commenters suggested 
alternatives for when examinations under the new framework should 
begin. For example, commenters suggested that examinations should begin 
when banks have had sufficient time or a full examination cycle to 
collect and report data under the amended regulations or in the 
calendar year following adequate data collection. Other alternatives 
suggested are when the agencies have collected and shared with banks 
two or more years of data and 24 months after the data collection 
requirements are applicable.
Final Rule
    After carefully considering the comments, the agencies are removing 
the start dates for examinations pursuant to the amended regulations' 
performance tests from final Sec.  __.51. This change will allow each 
agency to set its own policies and procedures for conducting 
examinations under the amended regulations, including those that cover 
periods when both CRA frameworks apply. The agencies will carefully 
consider the comments received when developing these policies and 
procedures. Not including the start dates for examinations in the final 
rule also ensures that the new performance standards will not be 
applied retroactively to banks' performance in calendar years prior to 
2026.
    The agencies are revising proposed Sec.  __.51(b)(1), renumbered in 
the final rule as Sec.  __.51(b), to reflect the increased length of 
the transition period in the final rule. Final Sec.  __.51(b) provides 
that each agency will publish HMDA data disclosures pursuant to final 
Sec.  __.42(j) on its respective website beginning on January 1, 2027. 
Final Sec.  __.42(j) provides that the Board, FDIC, or OCC, as 
applicable, will publish HMDA demographic information for large banks 
on their respective websites. See the section-by-section analysis for 
Sec.  __.42(j).
    The agencies are finalizing as proposed final Sec.  __.51(b)(2), 
renumbered in the final rule as Sec.  __.51(c). Under the final rule, 
in assessing a bank's CRA performance the agency will consider any 
loan, investment, or service, or product that was eligible for CRA 
consideration at the time the bank conducted the activity or at the 
time that the bank entered into a legally binding commitment to make 
the loan or investment.

Section __.51(d) Strategic Plans

Section __.51(d)(1) New and Replaced Strategic Plans
Section __.51(d)(2) Existing Strategic Plans
The Agencies' Proposal
    The agencies proposed in Sec.  __.51(a)(2)(i) that the strategic 
plan provisions in proposed Sec.  __.27 would be applicable one year 
after publication of a final rule. Proposed Sec.  __.51(c) provided 
that the current regulations would apply to any new strategic plan 
(including a strategic plan that replaces an expired strategic plan) 
that is submitted to an agency for approval on or after the date of the 
final rule's publication in the Federal Register but before proposed 
Sec.  __.27 would be applicable. Strategic plans approved under this 
paragraph would generally remain in effect until the expiration date of 
the plan.\1627\ Proposed Sec.  __.51(c) further provided that a 
strategic plan in effect as of the publication date of the final rule 
would remain in effect until the expiration date of the strategic plan.
---------------------------------------------------------------------------

    \1627\ Specifically, the Board and the FDIC proposed in Sec.  
__.51(c)(2) that a strategic plan in effect as of the effective date 
of a final rule would remain in effect until the expiration date of 
that plan, and the OCC proposed in Sec.  25.51 that a strategic plan 
in effect as of the publication date of a final rule remains in 
effect until the expiration date of the plan, except for provisions 
that were not permissible under its CRA regulations as of January 1, 
2022.
---------------------------------------------------------------------------

Comments Received
    The agencies received only one specific comment on proposed Sec.  
__.51(c). This commenter recommended that the effective date of amended 
regulations relating to strategic plans be the later of the following: 
(1) the day after the bank's current Strategic Plan expires; and (2) 
when the asset-size category-based performance tests are applicable to 
banks not subject to a strategic plan. The commenter stated that this 
will ensure that banks that choose to be evaluated under a strategic 
plan are given enough time to comply with the new requirements if 
implementation requirements are delayed.
Final Rule
    The agencies are revising proposed Sec.  __.51(c), renumbered as 
final Sec.  __.51(d), to provide that the current regulations will 
apply to any new strategic plan (including a strategic plan that 
replaces an expired strategic plan) that is submitted to an agency for 
approval between the date that the final rule is published in the 
Federal Register and November 1, 2025. The agencies

[[Page 7096]]

have updated the date in this provision to reflect the increased 
transition period in the final rule for Sec.  __.27. Additionally, the 
agencies are revising final Sec.  __.51(d) to provide that the agencies 
will not accept any strategic plan submitted on or after November 1, 
2025, and before January 1, 2026, the applicability date of the final 
Sec.  __27. The agencies are making these changes to ensure there is 
sufficient time for each agency to make decisions about submitted 
strategic plans under the current regulations before the final rule's 
strategic plan provisions are applicable. Under the current 
regulations, the agencies have 60 days to act on a complete strategic 
plan once it is received.\1628\ Therefore, implementing a cut-off date 
of November 1, 2025, for strategic plans allows the agencies time to 
review a strategic plan under the current regulations before addressing 
strategic plans received on or after January 1, 2026, and acting on 
such plans under the amended regulations. As a technical change, the 
final rule also clarifies that the current regulations will only apply 
to such a strategic plan submission that the agency has determined is a 
complete plan consistent with the requirements of current 12 CFR __.27.
---------------------------------------------------------------------------

    \1628\ See current 12 CFR __.27(g).
---------------------------------------------------------------------------

    The agencies are finalizing the provision that a strategic plan 
subject to final Sec.  __.51(d)(1), instead of approved under the 
relevant paragraph of the proposed rule (proposed Sec.  __.51(d)(1)), 
remains in effect until expiration of the plan. This technical 
correction recognizes that the agencies do not approve a strategic plan 
under Sec.  __.51(d)(1). Similarly, the agencies are finalizing as 
proposed Sec.  __.51(c)(2), renumbered as final Sec.  __.51(d)(2), 
providing that a strategic plan in effect as of the publication date of 
the final rule in the Federal Register remains in effect until the 
expiration date of the plan.
    The agencies believe that the final rule appropriately addresses 
the commenter's suggestion because a strategic plan approved by the 
agencies under the current regulations remains in effect until 
expiration of the plan, and the new strategic plan provisions are 
applicable on January 1, 2026, the same time that the performance 
standards are applicable.

Section __.51(e) First Evaluation Under This Part on or After February 
1, 2024

    The agencies are revising proposed Sec.  __.51 to add a new 
paragraph (e), which provides that in its first performance evaluation 
under the final rule a large bank that has 10 or more facility-based 
assessment areas in any State or multistate MSA, or nationwide, as 
applicable, and that was subject to evaluation under the agencies' CRA 
regulation prior to February 1, 2024, may not receive a rating of 
``Satisfactory'' or ``Outstanding'' in that State or multistate MSA, or 
for the institution unless the bank received an overall facility-based 
assessment area conclusion, calculated as described in paragraph g.2.ii 
of appendix D, of at least ``Low Satisfactory'' in 60 percent or more 
of the total number of its facility-based assessment areas in that 
State or multistate MSA, or nationwide, as applicable. In a large 
bank's second examination under the final rule and thereafter, the 
requirement in final Sec.  __.28(b)(4)(ii) will apply if a large bank 
has a combined total of 10 or more facility-based assessment areas and 
retail lending assessment areas in any State, multistate MSA, or 
nationwide, as applicable.
    The agencies believe this phased approach is appropriate because, 
for a large bank's first examination under the final rule, both this 
requirement--that a large bank receives an overall assessment area 
conclusion of at least ``Low Satisfactory'' in 60 percent or more of 
its facility-based assessment areas and retail lending assessment areas 
if it meets a threshold number of facility-based assessment areas and 
retail lending assessment areas--and the concept of retail lending 
assessment areas will be new. Therefore, at first, it is appropriate to 
only apply the minimum ``Low Satisfactory'' requirement to large banks 
with the most facility-based assessment areas in States, multistate 
MSAs, and nationwide, as applicable, as well as to provide banks with 
additional time to consider their performance under the Retail Lending 
Test in retail lending assessment areas. See the section-by-section 
analysis of Sec.  __.28(b)(4)(ii) for a detailed discussion of this 
requirement.

V. Regulatory Analysis

Regulatory Flexibility Act

    Under the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq.), 
an agency must consider the impact of its rules on small entities. 
Specifically, section 3 of the RFA requires an agency to provide a 
final regulatory flexibility analysis (FRFA) with a final rule unless 
the head of the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities 
\1629\ and publishes this certification and a statement of its factual 
basis in the Federal Register.
---------------------------------------------------------------------------

    \1629\ Small Business Administration (SBA) regulations currently 
define small entities to include banks and savings associations with 
total assets of $850 million or less, and trust banks with total 
assets of $47.0 million or less.
---------------------------------------------------------------------------

OCC
    The OCC currently supervises 1,060 institutions (commercial banks, 
trust companies, Federal savings associations, and Federal branches or 
agencies of foreign banks, collectively banks),\1630\ of which 
approximately 661 are small entities under the RFA.\1631\ The OCC 
estimates that the final rule will impact approximately 617 of these 
small entities,\1632\ of which the OCC anticipates that 560 entities 
will be small banks, 46 entities will be intermediate banks, and 6 
entities will be limited purpose banks, as defined under the final 
rule, and 5 entities will be evaluated based on an OCC-approved 
strategic plan.
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    \1630\ Based on data accessed using FINDRS on August 23, 2023.
    \1631\ The OCC bases its estimate of the number of small 
entities on the SBA's size thresholds for commercial banks and 
savings institutions ($850 million) and trust companies ($47 
million). Consistent with the SBA General Principles of Affiliation 
in 13 CFR 121.103(a) the OCC counts the assets of affiliated 
financial institutions when determining if the OCC should classify 
an OCC-supervised institution as a small entity. The OCC uses 
December 31, 2022, to determine size because a ``financial 
institution's assets are determined by averaging the assets reported 
on its four quarterly financial statements for the preceding year.'' 
13 CFR 121.201 fn. 8.
    \1632\ These 617 small entities are those OCC-regulated banks 
with total assets of $850 million or less or trust banks with total 
assets of $47.0 million or less that are subject to the OCC's CRA 
regulation.
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    The OCC estimates the annual cost for small entities to comply with 
the final rule will be, on average, approximately $18,304 dollars per 
bank (143 hours \1633\ x $128 per hour \1634\). In general, the OCC 
classifies the economic impact on

[[Page 7097]]

a small entity as significant if the total estimated impact in one year 
is greater than 5 percent of the small entity's total annual salaries 
and benefits or greater than 2.5 percent of the small entity's total 
non-interest expense. The OCC defines a substantial number as five 
percent or more of OCC-supervised small entities, or 31 small entities 
for purposes of this final rule. Based on these thresholds, the OCC 
estimates the final rule will have a significant economic impact on 
approximately 14 small entities, which is not a substantial 
number.\1635\ Therefore, the OCC certifies that the final rule will not 
have a significant economic impact on a substantial number of small 
entities.
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    \1633\ In response to two comment letters the agencies received 
on the OCC's RFA analysis of the proposed rule, the OCC revised its 
hours per bank estimate in the final rule to 143 hours. The OCC 
arrived at this estimate by calculating a weighted average based on 
120 hours for small entities classified as small or limited purpose 
pursuant to the final rule, 2,200 hours for small entities 
classified as strategic plan pursuant to the final rule, and 200 
hours for small entities classified as intermediate pursuant to the 
final rule.
    \1634\ To estimate the compensation rate, the OCC reviewed May 
2022 data for wages (by industry and occupation) from the U.S. 
Bureau of Labor Statistics (BLS) for credit intermediation and 
related activities (NAICS 5220A1). To estimate compensation costs 
associated with the rule, the OCC used $128.05 per hour, which is 
based on the average of the 90th percentile for six occupations 
adjusted for inflation (5.1 percent as of Q1 2023), plus an 
additional 34.3 percent for benefits (based on the percent of total 
compensation allocated to benefits as of Q4 2022 for NAICS 522: 
credit intermediation and related activities).
    \1635\ In response to comment letters, the OCC also evaluated 
the impact of the final rule using a wage rate $150 per hour. Using 
this hourly rate, the OCC estimated the annual cost for small 
entities to comply with the final rule will be on average 
approximately $21,450 dollars per bank (143 hours x $150 per hour), 
and the final rule will have a significant economic impact on 20 
small entities, which is not a substantial number.
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Board
    For the reasons described below, the Board is certifying that the 
final rule will not have a significant economic impact on a substantial 
number of small entities. Board-supervised institutions that will be 
subject to the final rule are state member banks (as defined in section 
3(d)(2) of the Federal Deposit Insurance Act of 1991), and uninsured 
state branches of a foreign bank (other than limited branches) 
resulting from certain acquisitions under the International Banking 
Act, unless such bank does not perform commercial or retail banking 
services by granting credit to the public in the ordinary course of 
business.
    The Board estimates that approximately 464 Board-supervised RFA 
small entities would be subject to the final rule.\1636\ Of these, 
approximately 427 would be considered small banks under the final rule, 
and approximately 37 would be considered intermediate banks under the 
final rule. The final rule defines ``small bank'' to mean a bank that 
had average assets of less than $600 million in either of the prior two 
calendar years, and would define ``intermediate bank'' to mean a bank 
that had average assets of at least $600 million in both of the prior 
two calendar years and average assets of less than $2 billion in either 
of the prior two calendar years, in each case based on the assets 
reported on its four quarterly Call Reports for each of those calendar 
years.
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    \1636\ Consistent with the General Principles of Affiliation in 
13 CFR 121.103, the assets of all domestic and foreign affiliates 
are counted toward the $850 million threshold when determining 
whether to classify a depository institution as a small entity. The 
Board's estimate is based on total assets reported on Forms FR Y-9 
(Consolidated Financial Statements for Holding Companies) and FFIEC 
041 (Consolidated Reports of Condition and Income) for 2021.
---------------------------------------------------------------------------

    The final rule includes a new evaluation framework for evaluating 
the CRA performance of banks that is tailored by bank size and business 
model. For example, the final rule establishes an evaluation framework 
containing four tests for large retail banks: Retail Lending Test, 
Retail Services and Products Test, Community Development Financing 
Test, and Community Development Services Test. In addition to the new 
CRA evaluation framework, the final rule includes data collection, 
maintenance, and reporting requirements necessary to facilitate the 
application of various tests.
    Because the final rule maintains the current small bank evaluation 
process and the small bank performance standards, the final rule does 
not generally impose any new requirements with significant burden on 
Board-supervised small entities with less than $600 million in assets. 
Under the final rule, banks must collect, maintain, and report data on 
the activities of their operations subsidiaries or operating 
subsidiaries (unless the subsidiaries are independently subject to the 
CRA), as applicable. The Board estimates that this requirement impacts 
approximately 139 banks with an estimated annual burden of 38 hours per 
bank. For supervised small entities that are defined as intermediate 
banks under the final rule, i.e., banks with assets between $600 
million and $850 million, the final rule would add some additional 
compliance burden because these banks would be subject to the new 
Retail Lending Test. However, the Board does not believe that these 
requirements would impose a significant economic impact on banks. 
Specifically, with respect to the Retail Lending Test, these 
intermediate banks would not be subject to regulatory data collection 
and maintenance requirements for retail loans. In addition, these 
intermediate banks would be subject to community development 
performance standards that are substantially similar to the criteria 
for evaluating community development performance today. However, these 
intermediate banks could choose to be evaluated under the Community 
Development Financing Test and would then be required to collect and 
maintain the loan and investment data applicable to that test.
    The agencies' current CRA regulations similarly allow small banks 
and intermediate small banks to voluntarily opt into one or more 
alternative tests in lieu of the mandatory or default requirements. 
However, based on the Board's supervisory experience with its current 
CRA regulation, few small banks or intermediate small banks choose to 
be evaluated under alternative tests, and the Board expects that this 
would continue to be the case under the final rule. For the reasons 
described above, the Board is certifying that the final rule would not 
have a significant economic impact on a substantial number of small 
entities.
FDIC
    The RFA generally requires an agency, in connection with a final 
rule, to prepare and make available for public comment a FRFA that 
describes the impact of the final rule on small entities.\1637\ 
However, a FRFA is not required if the agency certifies that the final 
rule will not have a significant economic impact on a substantial 
number of small entities.\1638\ The Small Business Administration (SBA) 
has defined ``small entities'' to include banking organizations with 
total assets of less than or equal to $850 million.\1639\
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    \1637\ 5 U.S.C. 601 et seq.
    \1638\ 5 U.S.C. 605.
    \1639\ The SBA defines a small banking organization as having 
$850 million or less in assets, where an organization's ``assets are 
determined by averaging the assets reported on its four quarterly 
financial statements for the preceding year.'' 13 CFR 121.201 (as 
amended by 87 FR 69118, effective Dec. 19, 2022). In its 
determination, the ``SBA counts the receipts, employees, or other 
measure of size of the concern whose size is at issue and all of its 
domestic and foreign affiliates.'' 13 CFR 121.103. Following these 
regulations, the FDIC uses an insured depository institution's 
affiliated and acquired assets, averaged over the preceding four 
quarters, to determine whether the insured depository institution is 
``'small'' ' for the purposes of RFA.
---------------------------------------------------------------------------

    Generally, the FDIC considers a significant economic impact to be a 
quantified effect in excess of 5 percent of total annual salaries and 
benefits or 2.5 percent of total noninterest expenses. The FDIC 
believes that effects in excess of one or more of these thresholds 
typically represent significant economic impacts for FDIC-supervised 
institutions. While some of the expected effects of the final rule are 
difficult to quantify, the FDIC believes that the final rule is 
unlikely to have a significant impact on a substantial number of small 
entities. Therefore, the FDIC certifies that the final rule will not 
have a significant economic effect on a substantial number of small 
entities. The FDIC's rationale for its determination is discussed 
below.
    As of March 31, 2023, the FDIC supervises 3,012 insured depository 
institutions (IDIs), of which 2,306 are

[[Page 7098]]

defined as small entities by the SBA (``SBA-small entities'') for 
purposes of the RFA.\1640\ The final rule would affect all FDIC-
supervised institutions, therefore the FDIC estimates that the final 
rule would affect all 2,306 small entities. To avoid confusion the 
small and intermediate size categories of the final rule are referred 
to as ``CRA-small'' and ``CRA-intermediate'' to distinguish them from 
``SBA-small entities'' in certain places below. Also, as the final rule 
renames the current ``intermediate small'' category as 
``intermediate,'' for ease of reading the ``intermediate small'' 
category is referred to below as ``intermediate.''
---------------------------------------------------------------------------

    \1640\ Call Report data (Mar. 31, 2023).
---------------------------------------------------------------------------

    As discussed in the SUPPLEMENTARY INFORMATION, the final rule would 
make CRA examinations more transparent and objective through the use of 
quantitative metrics and thresholds, thereby helping ensure that all 
relevant activities are considered and that the scope of the 
performance evaluation more accurately reflects the communities served 
by each institution. The final rule increases the asset size thresholds 
for the CRA-small and CRA-intermediate categories. This change will 
have an immediate effect on the examination requirements of some of 
these banks. Under the final rule, the total asset threshold for CRA-
small IDIs changes from less than $376 million in total assets as of 
December 31 in either of the prior two calendar years, to less than 
$600 million in total assets as of December 31 in either of the prior 
two calendar years. Further, the final rule raises the minimum asset 
size for CRA-intermediate IDIs from $376 million in total assets as of 
December 31 in both of the prior two calendar years to $600 million in 
total assets as of December 31 in both of the prior two calendar years. 
Also, under the final rule the maximum asset size for CRA-intermediate 
IDIs increases from $1.503 billion in total assets as of December 31 in 
either of the prior two calendar years to $2 billion in total assets as 
of December 31 in either of the prior two calendar years. The asset 
size thresholds would be adjusted annually for inflation under the 
final rule, as they are under the current framework. Finally, limited 
purpose SBA-small entities, and SBA-small entities operating under 
strategic plans, would remain in their respective categories under the 
final rule.
    Under the current framework, 1,759 of the 2,306 SBA-small entities 
are CRA-small, 527 are CRA-intermediate, 17 operate according to 
approved strategic plans, and three are designated as wholesale or 
limited purpose banks. Under the final rule, 2,104 of the 2,306 SBA-
small entities are CRA-small, 182 are CRA-intermediate, and the number 
of institutions operating under strategic plans or that are limited 
purpose are unchanged. The final rule's upward adjustment of the asset 
size threshold for CRA-small banks reclassifies 345 institutions from 
CRA-intermediate to CRA-small.
    CRA-small banks under the final rule have the option of continuing 
to have their CRA performance evaluated under the current CRA-small 
bank lending test or of opting into the Retail Lending Test. Similar to 
the current evaluation framework, under the final rule CRA-small banks 
rated ``Satisfactory'' may receive additional consideration for 
qualifying activities to attempt to achieve an institution-level rating 
of ``Outstanding.''
    CRA-intermediate banks under the final rule are evaluated under the 
new Retail Lending Test and the current framework's community 
development test for CRA-intermediate banks, or may opt into the final 
rule's Community Development Financing Test. Similar to the current 
evaluation framework, under the final rule if rated ``Satisfactory'' an 
intermediate bank may receive additional consideration for other 
qualifying activities to attempt to achieve an institution-level rating 
of ``Outstanding.''
    Additionally, SBA-small entities are likely to incur costs 
associated with making changes to their policies, procedures, and 
internal systems in order to comply with the final rule. However, the 
FDIC believes that these costs are likely to be low for the vast 
majority of SBA-small entities because, as mentioned previously, under 
the final rule CRA-small banks' performance will be evaluated under the 
current CRA-small bank lending test. As there are 1,759 SBA-small 
banks--representing 76 percent of all 2,306 SBA-small entities--in the 
CRA-small category under both the current and final rule's framework, 
the FDIC expects the vast majority of SBA-small entities to be only 
modestly affected by the final rule.
    The agencies received two public comments on the RFA analysis in 
the NPR. Both of these commenters asserted that the estimated cost of 
complying with the NPR would be substantially higher than what the 
OCC--the only agency to provide estimated cost burdens for SBA-small 
banks in the NPR--had estimated. While the comments were not directed 
at the FDIC, the FDIC reviewed the comments and determined that while 
the commenters' claims may reflect their experiences or their 
institutions' experiences, the FDIC notes that compliance costs may 
vary substantially across institutions and the agencies' estimates are 
meant to be overall averages. As previously discussed, the FDIC 
incorporated a number of changes into the final rule as a result of 
public comments received regarding compliance burden. The agencies 
believe the initial burden estimates remain appropriate and have not 
made any changes to those estimates for this final rule.
    In addition, some commenters addressed the agencies' PRA burden 
estimates for the information collection requirements of the proposed 
rule. The commenters generally believed that the agencies' estimates of 
annual burden were too low. The FDIC notes that PRA burdens, like 
compliance costs, may vary across institutions, and the agencies' PRA 
burden estimates are meant to be overall averages. The FDIC calculated 
the estimated burden associated with the rule, including implementation 
costs, based on the agencies' extensive experience with CRA compliance 
and estimating associated burden. The FDIC believes the estimates of 
burden hours are accurate related to the recordkeeping, reporting, and 
disclosure requirements of the final rule.
    For the reasons described above, the FDIC certifies that the final 
rule will not have a significant effect on a substantial number of 
small entities.

Paperwork Reduction Act

    Certain provisions of the final rule contain ``collections of 
information'' within the meaning of the Paperwork Reduction Act (PRA) 
of 1995 (44 U.S.C. 3501 through 3521). In accordance with the 
requirements of the PRA, the agencies may not conduct or sponsor, and 
the respondent is not required to respond to, an information collection 
unless it displays a currently valid OMB control number.
Comments Received
    The agencies received four comments that appear to relate to the 
PRA addressing the agencies' estimated burden costs on the information 
collection requirements of the proposed rule. One commenter stated that 
the proposal would generally require considerable additional resources 
for implementation and ongoing costs to manage their CRA programs under 
the proposed rule. The commenter estimated that it could incur 
implementation costs of $150,000. This commenter also believed that 
complying with the proposed rule would require substantially more time 
than the

[[Page 7099]]

estimated yearly burden of 80 hours per year. Another commenter stated 
that the costs associated with implementing the proposal would be 
significantly greater than the agencies had estimated and could require 
significant investments at covered institutions, potentially including 
hiring several additional full-time employees. This commenter requested 
that the agencies provide a more detailed explanation of their 
estimations of the proposed rule's costs. Another commenter believed 
the estimated burden of 80 hours per year was very low, suggesting that 
another 500 hours, minimum, would be required for compliance. The 
commenter stated that the proposed rule is complex and would require 
significant investment by covered institutions to achieve compliance. 
An additional commenter stated that the agencies provided insufficient 
support for their burden estimates. This commenter requested that the 
agencies provide more details on the breakdown of estimated compliance 
costs and an analysis of how the potential costs might impact economic 
output.
    As previously discussed, the agencies incorporated a number of 
changes into the final rule as a result of public comments received 
regarding compliance burden. The agencies have carefully reviewed their 
burden associated with recordkeeping, reporting, and disclosure for 
each section of the rule in light of these changes to the final rule 
and in consideration of the comments received. The agencies note that, 
consistent with the PRA, the PRA burden estimates reflect only the 
burden related to recordkeeping, reporting, and disclosure requirements 
in the final rule. PRA burdens, like compliance costs, may vary across 
institutions, and the agencies' PRA burden estimates are meant to be 
overall averages. The agencies do not have detailed data that would 
permit the agencies to precisely estimate the quantitative effect of 
the final rule for every type of institution. Accordingly, the burden 
estimates are shown based on the agencies' extensive experience with 
CRA compliance and estimating associated burden. The agencies estimated 
the associated burden by referencing the number of entities supervised 
by each agency and estimating the frequency of response and the time 
per response. The agencies believe the estimates of burden hours are 
reasonable considering the recordkeeping, reporting, and disclosure 
requirements of the final rule.
Final Rule
    Under the final rule, the agencies retained the information 
collection provisions of the proposed rule, with certain modifications. 
The agencies have included a reporting burden for the community 
development illustrative list and confirmation of eligibility process 
pursuant to Sec.  __.14. The agencies have included a recordkeeping 
burden for Home Mortgage Loans pursuant to Sec.  __.42(a)(3). The 
agencies have also removed reporting requirements for Community 
development services pursuant to Sec.  __.42(b)(4) and Consumer loans 
data--automobile loans pursuant to Sec.  __.42(b)(2) Consumer loans 
data--automobile loans. However, recordkeeping requirements have been 
maintained for both provisions. More thorough discussion for both 
topics can be found in the SUPPLEMENTARY INFORMATION associated with 
Sec.  __.42.
    The agencies are extending for three years the information 
collections contained in the final rule, with several revisions. The 
information collections contained in the final rule have been submitted 
to OMB for review and approval by the OCC and FDIC under section 
3507(d) of the PRA (44 U.S.C. 3507(d)) and Sec.  1320.11 of OMB's 
implementing regulations (5 CFR part 1320). The Board reviewed the 
final rule under the authority delegated to the Board by OMB. The Board 
will submit information collection burden estimates to OMB, and the 
submission will include burden for only Federal Reserve-supervised 
institutions.
    Title of Information Collection: OCC Community Reinvestment Act 
Regulation; Board Reporting, Recordkeeping, and Disclosure Requirements 
Associated with Regulation BB; FDIC, Community Reinvestment Act.
    OMB Control Numbers: OCC 1557- 0160; Board 7100-0197; FDIC 3064-
0092.
    Affected Public: Businesses or other for-profit.
    Respondents: OCC: National banks, Federal savings associations, 
Federal branches and agencies; FDIC: All insured state nonmember banks, 
insured state-licensed branches of foreign banks, insured state savings 
associations, and bank service providers; Board: All state member banks 
(as defined in 12 CFR 208.2(g)), bank holding companies (as defined in 
12 U.S.C. 1841), savings and loan holding companies (as defined in 12 
U.S.C. 1467a), foreign banking organizations (as defined in 12 CFR 
211.21(o)), foreign banks that do not operate an insured branch, state 
branch or state agency of a foreign bank (as defined in 12 U.S.C. 
3101(11) and (12)), Edge or agreement corporations (as defined in 12 
CFR 211.1(c)(2) and (3)), and bank service providers.
    The new or revised information collection requirements in the final 
rule are as follows:
Reporting Requirements
    Section __.14(b)(1) Request for confirmation of eligibility. A bank 
may request that the Board, FDIC, or OCC, confirm, in the format 
prescribed by that agency, that a loan, investment, or service is 
eligible for community development consideration.
    Section __.26 Bank request for designation as a limited purpose 
bank. Banks requesting a designation as a limited purpose bank must 
file a request in writing with the appropriate Federal financial 
supervisory agency at least 90 days prior to the proposed effective 
date of the designation.
    Section __.27 Strategic plan. Any bank may have its record of 
helping meet the credit needs of its entire community evaluated under a 
strategic plan, provided the appropriate Federal financial supervisory 
agency has approved the plan, the plan is in effect, and the bank has 
been operating under an approved plan for at least one year. Section 
__.27 of the final rule sets forth the requirements for strategic 
plans, including the term of a plan; the treatment of multiple 
assessment areas; the treatment of operations subsidiaries or operating 
subsidiaries, as applicable, and affiliates that are not operations 
subsidiaries or operating subsidiaries; justification requirements; 
public participation; submission; content; and required amendments due 
to a change in material circumstances. Additionally, during the term of 
a plan, a bank could request that the appropriate Federal financial 
supervisory agency approve an amendment to the plan in the absence of a 
change in material circumstances. A bank that requests such an 
amendment must provide an explanation regarding why it is necessary and 
appropriate to amend its plan goals.
    Section __.42(b)(1) Small business loan and small farm loan data. A 
large bank must report annually by April 1 in prescribed electronic 
form, certain aggregate data for the prior calendar year for small 
business loans or small farm loans for each census tract in which the 
bank originated or purchased such loans.
    Section __.42(b)(2) Community development loans and community 
development investments data. A large bank and a limited purpose bank 
that would be a large bank based on the asset size described in the 
definition of a

[[Page 7100]]

large bank, must report annually by April 1 in prescribed electronic 
form the following community development loan and community development 
investment data for the prior calendar year: general information on 
community development loans and community development investments; 
specific information on the community development loan or investment; 
indicators of the impact and responsiveness of the loan or investment; 
allocation of the dollar volume of the community development loan or 
community development investment to geographic areas served by the loan 
or investment; location information; other information relevant to 
determining that an activity meets the standards under community 
development; and allocation of dollar value of activity to counties 
served by the community development activity (if available).
    Section __.42(b)(3) Deposits data. A large bank with assets greater 
than $10 billion must report annually by April 1 in prescribed 
electronic form deposits data for the previous calendar year including 
for each county, State, and multistate MSA and for the institution 
overall. The reporting includes the average annual deposit balances 
(calculated based on average daily balances as provided in statements 
such as monthly or quarterly statements, as applicable), in aggregate, 
of deposit accounts with associated addresses located in such county, 
State or multistate MSA where available, and for the institution 
overall. Any other bank that opts to collect and maintain deposits data 
must report these data in the same form and for the same duration as 
described in this paragraph. A bank that reports deposits data for 
which a deposit location is not available must report these deposits at 
the nationwide area.
    Section __.42(c) Data on operations subsidiaries or operating 
subsidiaries. To the extent that its operations subsidiaries, or 
operating subsidiaries, as applicable, engage in retail banking 
services, retail banking products, community development lending, 
community development investments, or community development services, a 
bank must collect, maintain, and report data for these activities for 
purposes of evaluating the bank's performance. For home mortgage loans, 
a bank must be prepared to identify the loans reported by the 
operations subsidiary, or operating subsidiary, under 12 CFR part 1003, 
if applicable, or collect and maintain home mortgage loans by the 
operations subsidiary or operating subsidiary that the bank would have 
collected and maintained under Sec.  __.42(a)(3) had the loans been 
originated or purchased by the bank.
    Section __.42(d) Data on other affiliates. A bank that elects to 
have retail banking services, retail banking products, community 
development lending, community development investments, or community 
development services engaged in by an affiliate (that is not an 
operations subsidiary or operating subsidiary) considered for purposes 
of this part must collect, maintain, and report the loans and 
investments, services, or products the bank would have collected, 
maintained, and reported under Sec.  __.42(a) and (b) had the loans, 
investments, services, or products been engaged in by the bank. For 
home mortgage loans, the bank must be prepared to identify the home 
mortgage loans reported by its affiliate under 12 CFR part 1003, if 
applicable, or collect and maintain home mortgage loans by the 
affiliate that the bank would have collected and maintained under Sec.  
__.42(a)(3) had the loans been originated or purchased by the bank.
    Section __.42(e) Data on community development loans and community 
development investments by a consortium or a third party. A bank that 
elects to have community development loans and community development 
investments by a consortium or third party be considered for purposes 
of this part must collect, maintain, and report the lending and 
investments data they would have collected, maintained, and reported 
under Sec.  __.42(a)(5) and (b)(2) if the loans or investments had been 
originated, purchased, refinanced, or renewed by the bank.
    Section __.42(f)(1) Facility-based assessment areas. A large bank 
and a limited purpose bank that would be a large bank based on the 
asset size criteria described in the definition of a large bank must 
collect and report by April 1 of each year a list of each facility-
based assessment area showing the States, MSAs, and counties that make 
up each facility-based assessment area, as of December 31 of the prior 
calendar year, or the last date the facility-based assessment area was 
in effect, provided the facility-based assessment area was delineated 
for at least six months of the prior calendar year.
    Section __.42(f)(2) Retail lending assessment areas. A large bank 
with one or more retail lending assessment area delineated pursuant to 
Sec.  __.17 must collect and report each year by April 1 a list of 
retail lending assessment area showing the States, MSAs and counties in 
the retail lending assessment area for the prior calendar year.
Recordkeeping Requirements
    Section __.42(a)(1) Small business loans and small farm loans data. 
A large bank must collect and maintain in prescribed electronic form, 
until the completion of its next CRA examination in which the data are 
evaluated, data on small business loans and small farm loans originated 
or purchased by the bank during the evaluation period.
    Section __.42(a)(2) Consumer loans data--automobile loans. A large 
bank for which automobiles are a product line must collect and maintain 
in prescribed electronic form, until the completion of the bank's next 
CRA examination in which the data are evaluated, data on automobile 
loans originated or purchased by the bank during the evaluation period. 
A small or intermediate bank for which automobiles are a product line 
may collect and maintain the same automobile loan data in a format of 
the bank's choosing, including in an electronic form prescribed by the 
appropriate Federal financial supervisory agency, until the completion 
of the bank's next CRA examination in which the data are evaluated.
    Section __.42(a)(3) Home mortgage loans. A large bank subject to 12 
CFR part 1003 must collect and maintain in prescribed electronic form, 
until the completion of the bank's next CRA examination in which the 
data are evaluated, data on home mortgage loan applications, 
originations, and purchases outside the MSAs in which the bank has a 
home or branch office (or outside any MSA) pursuant to the requirements 
in 12 CFR 1003.4(e). A large bank that is not subject to 12 CFR part 
1003 due to the location of its branches, but would otherwise meet the 
HMDA size and lending activity requirements pursuant to 12 CFR part 
1003, must collect and maintain in electronic form, until the 
completion of the bank's next CRA examination in which the data are 
evaluated, data on closed-end home mortgage loan, excluding multifamily 
loans, originated or purchased during the evaluation period.
    Section __.42(a)(4) Retail banking services and retail banking 
products data. A large bank must collect and maintain in prescribed 
electronic form until the completion of its next CRA examination in 
which the data are evaluated, data on their retail banking services and 
retail banking products. These data include data regarding the bank's 
main offices, branches, and

[[Page 7101]]

remote service facilities, and information with respect to retail 
banking services and retail banking products offered and provided by 
the bank during the evaluation period. Large banks with assets greater 
than $10 billion, large banks with assets of less than or equal to $10 
billion that do not operate any branches, and large banks that request 
additional consideration for digital delivery systems and other 
delivery systems, must collect and maintain data on the range of 
services and products offered through those systems and digital and 
other delivery systems activity by individuals, families, or households 
in low-, moderate-, middle-, and upper-income census tracts. Large 
banks may also submit any additional information not required that 
demonstrates that their digital delivery systems and other delivery 
systems serve the needs of low-and moderate-income individuals, 
families, or households and low- and moderate-income census tracts. 
Large banks with assets greater than $10 billion or large banks with 
assets of less than or equal to $10 billion that request additional 
consideration for deposit products responsive to the needs of low-and 
moderate income individuals, families, or households must collect and 
maintain data including the number of responsive deposit products 
opened and closed in low-, moderate-, middle-, and upper-income census 
tracts, as well as the percentage of responsive deposit accounts in 
comparison to total deposit accounts. Pursuant to Sec.  __.42(a)(4), a 
bank may opt to collect and maintain additional data not required that 
demonstrates that digital delivery systems and other delivery systems 
serve low- and moderate-income individuals, families, or households and 
low- and moderate-income census tracts and any other information that 
demonstrates the availability and usage of the bank's deposit products 
responsive to the needs of low- and moderate-income individuals, 
families, or households and low- and moderate-income census tracts in a 
format of the bank's own choosing.
    Section __.42(a)(5) Community development loans and community 
development investments data. A large bank, a limited purpose bank that 
would be a large bank based on the asset size criteria described in the 
definition of a large bank, and an intermediate bank that opts to be 
evaluated under the Community Development Financing Test, must collect 
and maintain until the completion of its next CRA examination in which 
the data are evaluated, the following data for community development 
loans and community development investments originated, purchased, 
refinanced, renewed, or modified by the bank: general information on 
community development loans and community development investments; 
specific community development loan or investment information; 
indicators of the impact and responsiveness of the loan or investment; 
allocation of the dollar volume of the community development loan or 
community development investment to geographic areas served by the loan 
or investment; location information; and other information relevant to 
determining that an activity meets the standards of a community 
development loan or community development investment. Large banks must 
collect and maintain this information in prescribed electronic form 
while an intermediate bank that opts to be evaluated under the 
Community Development Financing Test, must collect and maintain this 
information in the format used by the bank in the normal course of 
business.
    Section __.42(a)(6) Community development services data. A large 
bank must collect and maintain in a format of the bank's choosing or in 
a standardized format provided by the agencies until the completion of 
its next CRA examination in which the data are evaluated, community 
development services data including community development services 
information, indicators of the impact and responsiveness of the 
activity, and location information.
    Section __.42(a)(7) Deposits data. A large bank with assets greater 
than $10 billion must collect and maintain annually in prescribed 
electronic form until the completion of its next CRA examination in 
which the data are evaluated, the dollar amount of its deposits at the 
county level based on deposit location. The bank allocates the deposits 
for which a deposit location is not available to the nationwide area. 
Annual deposits must be calculated based on average daily balances as 
provided in statements such as monthly or quarterly statements. Any 
other bank that opts to collect and maintain deposits data must collect 
and maintain the data in the same form and for the same duration as 
described in this paragraph in prescribed electronic form, until the 
completion of the bank's next CRA examination in which the data are 
evaluated.
Disclosure Requirements
    Sections __.43 and __.44. Content and availability of public file 
and public notice by banks. Banks must maintain a public file, in 
either paper or digital format, that includes the information 
prescribed in each part. Banks are required to provide copies on 
request, either on paper or in another form acceptable to the person 
making the request, of the information in the bank's public file. A 
bank is also required to provide in the public area of its main office 
and branches the public notice set forth in appendix F.
    The totality of the information collection requirements under the 
final rule are summarized below:

[[Page 7102]]

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[[Page 7103]]


[GRAPHIC] [TIFF OMITTED] TR01FE24.060


[[Page 7104]]


[GRAPHIC] [TIFF OMITTED] TR01FE24.061


[[Page 7105]]


[GRAPHIC] [TIFF OMITTED] TR01FE24.062


[[Page 7106]]


[GRAPHIC] [TIFF OMITTED] TR01FE24.063

FDIC
    The total estimated annual burden for OMB No. 3064-0092 is 234,974 
hours, an increase of 3,392 hours from the most recent PRA 
renewal.\1641\
---------------------------------------------------------------------------

    \1641\ See FDIC Community Reinvestment Act Information 
Collection Request, OMB No. 3064-0092, https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202204-3064-001.
---------------------------------------------------------------------------

OCC
    The total estimated annual burden for OMB No. 1557-0160 is 130,891 
hours, an increase of 17,540 hours from the most recent PRA 
renewal.\1642\
---------------------------------------------------------------------------

    \1642\ See OCC Community Reinvestment Act Information Collection 
Request, OMB No. 1557-0160, https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202202-1557-003.
---------------------------------------------------------------------------

Board
    The total estimated annual burden for OMB No. 7100-0197 is 105,455 
hours, an increase of 30,339 hours from the most recent PRA 
renewal.\1643\
---------------------------------------------------------------------------

    \1643\ See Board Community Reinvestment Act Information 
Collection Request, OMB No. 7100-0197, https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202104-7100-002.
---------------------------------------------------------------------------

Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (2 
U.S.C. 1532) requires an agency to prepare a budgetary impact statement 
before promulgating a final rule that includes any Federal mandate that 
may result in the expenditure by State, local, and tribal governments, 
in the aggregate, or by the private sector, of $100 million or more 
(adjusted annually for inflation and currently $182 million) in any one 
year. If a budgetary impact statement is required, section 205 of the 
UMRA (2 U.S.C. 1535) also requires an agency to identify and consider a 
reasonable number of regulatory alternatives before promulgating a 
rule.
    For the final rule, the OCC estimates that expenditures to comply 
with mandates during the first 12-month period of the final rule's 
implementation will be approximately $91.8 million (approximately $7.9 
million associated with increased data collection, recordkeeping or 
reporting; $82 million for large banks to collect, maintain, and report 
annually geographic data on deposits; and $1.9 million for banks' 
strategic plan submissions).\1644\ Therefore, the OCC concludes that 
the final rule will not result in an expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector of $100 
million or more annually (adjusted for inflation and currently $182 
annually) in any one year. Accordingly, the OCC has not prepared the 
budgetary impact statement.
---------------------------------------------------------------------------

    \1644\ Several commenters addressed the OCC's UMRA analysis of 
the proposed rule. Some of these commenters stated that the agency 
underestimated burden of the proposed rule, and others noted that 
the OCC provided insufficient information about its actual 
calculations. In drafting the final rule, the OCC considered these 
comments and made changes from the proposal where appropriate.
---------------------------------------------------------------------------

Riegle Community Development and Regulatory Improvement Act of 1994

    Pursuant to section 302(a) of the Riegle Community Development and 
Regulatory Improvement Act of 1994 (RCDRIA) (12 U.S.C. 4802(a)), in 
determining the effective date and administrative compliance 
requirements for new regulations that impose additional reporting, 
disclosure, or other requirements on insured depository institutions, 
an agency must consider,

[[Page 7107]]

consistent with principles of safety and soundness and the public 
interest: (1) any administrative burdens that the rule will place on 
depository institutions, including small depository institutions and 
customers of depository institutions; and (2) the benefits of the rule.
    The final rule will impose additional reporting, disclosure, or 
other requirements on banks, and the agencies determined the final 
rule's effective date and administrative compliance requirements in 
accordance with 12 U.S.C. 4802(a). Specifically, the agencies have 
considered the changes made by this final rule and believe that the 
rule's effective and applicability dates, described in the section-by-
section analysis, will provide banks with adequate time to comply with 
the rule's requirements. The agencies also have considered the 
administrative burden of the final rule's administrative compliance by 
tailoring the final rule's performance standards based on bank size so 
that the new performance tests only apply to those banks with the 
greatest capacity to meet the rule's requirements and lend to their 
communities. For example, under the final rule, the agencies will 
continue to evaluate small banks under the small bank performance 
standards in the current CRA framework and to evaluate the community 
development performance of intermediate banks as under the current 
rule. Further, the final rule does not impose any new data requirements 
on small and intermediate banks. Further discussion of the 
consideration by the agencies of these administrative compliance 
requirements, and of the public comment received on these requirements 
as proposed, is found in the section-by-section discussion of the final 
rule in this SUPPLEMENTARY INFORMATION.
    Section 302(b) of RCDRIA (12 U.S.C. 4802(b)) provides that new 
regulations and amendments to regulations prescribed by a Federal 
banking agency which impose additional reporting, disclosures, or other 
new requirements on insured depository institutions must generally take 
effect on the first day of a calendar quarter which begins on or after 
the date on which the regulations are published in final form. 
Consistent with this requirement, this final rule will be effective on 
April 1, 2024, which is the first date of a calendar quarter.

Administrative Procedure Act

    Section 553(d) of the Administrative Procedure Act (APA) (5 U.S.C. 
553(d)) requires that publication or service of a substantive rule 
generally be made not less than 30 days before its effective date. 
Consistent with this requirement, this final rule will be effective on 
April 1, 2024, which is more than 30 days after the final rule's 
publication in the Federal Register.

Plain Language

    Section 722(a) of the Gramm-Leach-Bliley Act (12 U.S.C. 4809(a)) 
requires each Federal banking agency to use plain language in its 
proposed and final rulemakings. In the proposed rule the agencies 
invited but did not receive comments on their use of plain language. In 
this final rule, the agencies use plain language.

Congressional Review Act

    For purposes of the Congressional Review Act (5 U.S.C. 801 et 
seq.), the OMB makes a determination as to whether a final rule 
constitutes a ``major rule.'' If a rule is deemed a ``major rule'' by 
the OMB, the Congressional Review Act generally provides that the rule 
may not take effect until at least 60 days following its publication. 
The Congressional Review Act defines a ``major rule'' as any rule that 
the Administrator of the Office of Information and Regulatory Affairs 
of the OMB finds has resulted in or is likely to result in--(1) an 
annual effect on the economy of $100 million or more; (2) a major 
increase in costs or prices for consumers, individual industries, 
Federal, State, or local government agencies or geographic regions; or 
(3) significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in domestic and 
export markets.\1645\ The agencies have submitted the final rule to the 
OMB for this major rule determination and the OMB has determined the 
final rule to be a major rule. As required by the Congressional Review 
Act, the agencies are submitting the appropriate report to Congress and 
the Government Accountability Office for review.\1646\
---------------------------------------------------------------------------

    \1645\ See 5 U.S.C. 804(2).
    \1646\ See 5 U.S.C. 801(a)(1).
---------------------------------------------------------------------------

Text of Common Rule (All Agencies)

0
The text of the agencies' common rule text appears below:

PART ____COMMUNITY REINVESTMENT

Subpart A--General

Sec.
__.11 Authority, purposes, and scope.
__.12 Definitions.
__.13 Consideration of community development loans, community 
development investments, and community development services.
__.14 Community development illustrative list; Confirmation of 
eligibility.
__.15 Impact and responsiveness review of community development 
loans, community development investments, and community development 
services.
Subpart B--Geographic Considerations
__.16 Facility-based assessment areas.
__.17 Retail lending assessment areas.
__.18 Outside retail lending areas.
__.19 Areas for eligible community development loans, community 
development investments, and community development services.
__.20 [Reserved]
Subpart C--Standards for Assessing Performance
__.21 Evaluation of CRA performance in general.
__.22 Retail lending test.
__.23 Retail services and products test.
__.24 Community development financing test.
__.25 Community development services test.
__.26 Limited purpose banks.
__.27 Strategic plan.
__.28 Assigned conclusions and ratings.
__.29 Small bank performance evaluation.
__.30 Intermediate bank performance evaluation.
__.31 [Reserved]
Subpart D--Records, Reporting, Disclosure, and Public Engagement 
Requirements
__.42 Data collection, reporting, and disclosure.
__.43 Content and availability of public file.
__.44 Public notice by banks.
__.45 Publication of planned examination schedule.
__.46 Public engagement.
Subpart E--Transition Rules
__.51 Applicability dates and transition provisions.
Appendix A to Part _-- Calculations for the Retail Lending Test
Appendix B to Part _-- Calculations for the Community Development 
Tests
Appendix C to Part _-- Performance Test Conclusions
Appendix D to Part _-- Ratings
Appendix E to Part _-- Small Bank and Intermediate Bank Performance 
Evaluation Conclusions and Ratings
Appendix F to Part _-- [Reserved]

PART ____COMMUNITY REINVESTMENT

Subpart A--General


Sec.  __.11  Authority, purposes, and scope.

    (a) [Reserved]
    (b) Purposes. This part implements the requirement in the Community 
Reinvestment Act (12 U.S.C. 2901 et

[[Page 7108]]

seq.) (CRA) that the [Agency] assess a bank's record of helping to meet 
the credit needs of the local communities in which the bank is 
chartered, consistent with the safe and sound operation of the bank, 
and to take this record into account in the agency's evaluation of an 
application for a deposit facility by the bank. Accordingly, this part:
    (1) Establishes the framework and criteria by which the [Agency] 
assesses a bank's record of responding to the credit needs of its 
entire community, including low- and moderate-income neighborhoods, 
consistent with the safe and sound operation of the bank; and
    (2) Provides that the [Agency] takes that record into account in 
considering certain applications.
    (c) [Reserved]


Sec.  __.12  Definitions.

    For purposes of this part, the following definitions apply:
    Affiliate means any company that controls, is controlled by, or is 
under common control with another company. The term ``control'' has the 
same meaning given to that term in 12 U.S.C. 1841(a)(2), and a company 
is under common control with another company if both companies are 
directly or indirectly controlled by the same company.
    Affordable housing means activities described in Sec.  __.13(b).
    Area median income means:
    (1) The median family income for the MSA (as defined in this 
section), if an individual, family, household, or census tract is 
located in an MSA that has not been subdivided into metropolitan 
divisions, or for the metropolitan division, if an individual, family, 
household, or census tract is located in an MSA that has been 
subdivided into metropolitan divisions; or
    (2) The statewide nonmetropolitan median family income, if an 
individual, family, household, or census tract is located in a 
nonmetropolitan area.
    Assets means a bank's total assets as reported in Schedule RC of 
the Consolidated Reports of Condition and Income as filed under 12 
U.S.C. 161, 324, 1464, or 1817, as applicable (Call Report), or 
Schedule RAL of the Report of Assets and Liabilities of U.S. Branches 
and Agencies of Foreign Banks as filed under 12 U.S.C. 1817(a), 
3102(b), or 3105(c)(2), as applicable.
    Branch means a staffed banking facility, whether shared or 
unshared, that the [Agency] approved or authorized as a branch and that 
is open to, and accepts deposits from, the general public.
    Census tract means a census tract delineated by the U.S. Census 
Bureau.
    Closed-end home mortgage loan has the same meaning given to the 
term ``closed-end mortgage loan'' in 12 CFR 1003.2, excluding loan 
transactions set forth in 12 CFR 1003.3(c)(1) through (10) and (13) and 
multifamily loans as defined in this section.
    Combination of loan dollars and loan count means, when applied to a 
particular ratio, the average of:
    (1) The ratio calculated using loans measured in dollar volume; and
    (2) The ratio calculated using loans measured in number of loans.
    Community development means activities described in Sec.  __.13(b) 
through (l).
    Community Development Financial Institution (CDFI) means an entity 
that satisfies the definition in section 103(5)(A) of the Community 
Development Banking and Financial Institutions Act of 1994 (12 U.S.C. 
4702(5)) and is certified by the U.S. Department of the Treasury's 
Community Development Financial Institutions Fund as meeting the 
requirements set forth in 12 CFR 1805.201(b).
    Community development investment means a lawful investment, 
including a legally binding commitment to invest, that is reported on 
Schedule RC-L of the Call Report or on Schedule L of the Report of 
Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks, 
as applicable; deposit; membership share; grant; or monetary or in-kind 
donation that supports community development, as described in Sec.  
__.13.
    Community development loan means a loan, including a legally 
binding commitment to extend credit, such as a standby letter of 
credit, that supports community development, as described in Sec.  
__.13. A community development loan does not include any home mortgage 
loan considered under the Retail Lending Test in Sec.  __.22, with the 
exception of one-to-four family home mortgage loans for rental housing 
with affordable rents in nonmetropolitan areas under Sec.  __.13(b)(3).
    Community development services means the performance of volunteer 
services by a bank's or its affiliate's board members or employees, 
performed on behalf of the bank, where those services:
    (1) Support community development, as described in Sec.  __.13; and
    (2) Are related to the provision of financial services, which 
include credit, deposit, and other personal and business financial 
services, or services that reflect a board member's or an employee's 
expertise at the bank or affiliate, such as human resources, 
information technology, and legal services.
    Consumer loan means a loan to one or more individuals for 
household, family, or other personal expenditures and that is one of 
the following types of loans:
    (1) Automobile loan, as reported in Schedule RC-C of the Call 
Report;
    (2) Credit card loan, as reported as ``credit card'' in Schedule 
RC-C of the Call Report;
    (3) Other revolving credit plan, as reported in Schedule RC-C of 
the Call Report; and
    (4) Other consumer loan, as reported in Schedule RC-C of the Call 
Report.
    County means any county, county equivalent, or statistically 
equivalent entity as used by the U.S. Census Bureau pursuant to title 
13 of the U.S. Code.
    Deposit location means:
    (1) For banks that collect, maintain, and report deposits data as 
provided in Sec.  __.42, the address on file with the bank for purposes 
of the Customer Identification Program required by 31 CFR 1020.220 or 
another documented address at which the depositor resides or is 
located.
    (2) For banks that do not collect, maintain, and report deposits 
data as provided in Sec.  __.42, the county of the bank facility to 
which the deposits are assigned in the FDIC's Summary of Deposits.
    Depository institution means any institution subject to the CRA, as 
described in 12 CFR 25.11, 228.11, and 345.11.
    Deposits has the following meanings:
    (1) For banks that collect, maintain, and report deposits data as 
provided in Sec.  __.42, deposits means deposits in domestic offices of 
individuals, partnerships, and corporations, and of commercial banks 
and other depository institutions in the United States as defined in 
Schedule RC-E of the Call Report; deposits does not include U.S. 
Government deposits, State and local government deposits, domestically 
held deposits of foreign governments or official institutions, or 
domestically held deposits of foreign banks or other foreign financial 
institutions; and
    (2) For banks that do not collect, maintain, and report deposits 
data as provided in Sec.  __.42, deposits means a bank's deposits as 
reported in the FDIC's Summary of Deposits as required under 12 CFR 
304.3(c).
    Digital delivery system means a channel through which banks offer 
retail banking services electronically, such as online banking or 
mobile banking.

[[Page 7109]]

    Distressed or underserved nonmetropolitan middle-income census 
tract means a census tract publicly designated as such by the Board of 
Governors of the Federal Reserve System (Board), the Federal Deposit 
Insurance Corporation (FDIC), and the Office of the Comptroller of the 
Currency (OCC), based on the criteria in paragraphs (1) and (2) of this 
definition, compiled in a list, and published annually by the Federal 
Financial Institutions Examination Council (FFIEC).
    (1) A nonmetropolitan middle-income census tract is designated as 
distressed if it is in a county that meets one or more of the following 
criteria:
    (i) An unemployment rate of at least 1.5 times the national 
average;
    (ii) A poverty rate of 20 percent or more; or
    (iii) A population loss of 10 percent or more between the previous 
and most recent decennial census or a net population loss of five 
percent or more over the five-year period preceding the most recent 
census.
    (2) A nonmetropolitan middle-income census tract is designated as 
underserved if it meets the 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 census tract is 
likely to have difficulty financing the fixed costs of meeting 
essential community needs. The criteria for these designations are 
based on the Urban Influence Codes established by the U.S. Department 
of Agriculture's Economic Research Service numbered ``7,'' ``10,'' 
``11,'' or ``12.''
    Evaluation period means the period, generally in calendar years, 
during which a bank conducted the activities that the [Agency] 
evaluates in a CRA examination, in accordance with the [Agency]'s 
guidelines and procedures.
    Facility-based assessment area means a geographic area delineated 
pursuant to Sec.  __.16.
    High Opportunity Area means an area identified by the Federal 
Housing Finance Agency for purposes of the Duty to Serve Underserved 
Markets regulation in 12 CFR part 1282, subpart C.
    Home mortgage loan means a closed-end home mortgage loan or an 
open-end home mortgage loan as these terms are defined in this section.
    Income level includes:
    (1) Low-income, which means:
    (i) For individuals, families, or households, income that is less 
than 50 percent of the area median income; or
    (ii) For a census tract, a median family income that is less than 
50 percent of the area median income.
    (2) Moderate-income, which means:
    (i) For individuals, families, or households, income that is at 
least 50 percent and less than 80 percent of the area median income; or
    (ii) For a census tract, a median family income that is at least 50 
percent and less than 80 percent of the area median income.
    (3) Middle-income, which means:
    (i) For individuals, families, or households, income that is at 
least 80 percent and less than 120 percent of the area median income; 
or
    (ii) For a census tract, a median family income that is at least 80 
percent and less than 120 percent of the area median income.
    (4) Upper-income, which means:
    (i) For individuals, families, or households, income that is 120 
percent or more of the area median income; or
    (ii) For a census tract, a median family income that is 120 percent 
or more of the area median income.
    Intermediate bank means a bank, excluding a bank designated as a 
limited purpose bank pursuant to Sec.  __.26, that had assets of at 
least $600 million as of December 31 in both of the prior two calendar 
years and less than $2 billion as of December 31 in either of the prior 
two calendar years. The [Agency] adjusts and publishes the figures in 
this definition annually, based on the year-to-year change in the 
average of the Consumer Price Index for Urban Wage Earners and Clerical 
Workers, not seasonally adjusted, for each 12-month period ending in 
November, with rounding to the nearest million.
    Large bank means a bank, excluding a bank designated as a limited 
purpose bank pursuant to Sec.  __.26, that had assets of at least $2 
billion as of December 31 in both of the prior two calendar years. The 
[Agency] adjusts and publishes the figure in this definition annually, 
based on the year-to-year change in the average of the Consumer Price 
Index for Urban Wage Earners and Clerical Workers, not seasonally 
adjusted, for each 12-month period ending in November, with rounding to 
the nearest million.
    Large depository institution means any depository institution, 
excluding depository institutions designated as limited purpose banks 
or savings associations pursuant to 12 CFR 25.26(a) and depository 
institutions designated as limited purpose banks pursuant to 12 CFR 
228.26(a) or 345.26(a), that meets the asset size threshold of a large 
bank.
    Limited purpose bank means a bank that is not in the business of 
extending closed-end home mortgage loans, small business loans, small 
farm loans, or automobile loans evaluated under Sec.  __.22 to retail 
customers, except on an incidental and accommodation basis, and for 
which a designation as a limited purpose bank is in effect, pursuant to 
Sec.  __.26.
    Loan location. A loan is located as follows:
    (1) A consumer loan is located in the census tract where the 
borrower resides at the time that the borrower submits the loan 
application;
    (2) A home mortgage loan or a multifamily loan is located in the 
census tract where the property securing the loan is located; and
    (3) A small business loan or small farm loan is located in the 
census tract where the main business facility or farm is located or 
where the borrower will otherwise apply the loan proceeds, as indicated 
by the borrower.
    Low-cost education loan means any private education loan, as 
defined in section 140(a)(7) of the Truth in Lending Act (15 U.S.C. 
1650(a)(8)) (including a loan under a State or local education loan 
program), originated by the bank for a student at an ``institution of 
higher education,'' as generally defined in sections 101 and 102 of the 
Higher Education Act of 1965 (20 U.S.C. 1001 and 1002), implemented in 
34 CFR part 600, with interest rates and fees no greater than those of 
comparable education loans offered directly by the U.S. Department of 
Education. Such rates and fees are specified in section 455 of the 
Higher Education Act of 1965 (20 U.S.C. 1087e).
    Low-income credit union (LICU) has the same meaning given to that 
term in 12 CFR 701.34.
    Low-Income Housing Tax Credit (LIHTC) means a Federal tax credit 
for housing persons of low income pursuant to section 42 of the 
Internal Revenue Code of 1986 (26 U.S.C. 42).
    Major product line means a product line that the [Agency] evaluates 
in a particular Retail Lending Test Area, pursuant to Sec.  __.22(d)(2) 
and paragraphs II.b.1 and II.b.2 of appendix A to this part.
    Majority automobile lender means a bank for which more than 50 
percent of its home mortgage loans, multifamily loans, small business 
loans, small farm loans, and automobile loans were automobile loans, as 
determined pursuant to paragraph II.b.3 of appendix A to this part.
    Metropolitan area means any MSA.
    Metropolitan division has the same meaning as that term is defined 
by the Director of the Office of Management and Budget.

[[Page 7110]]

    Military bank means a bank whose business predominantly consists of 
serving the needs of military personnel who serve or have served in the 
U.S. Armed Forces (including the U.S. Air Force, U.S. Army, U.S. Coast 
Guard, U.S. Marine Corps, U.S. Navy, and U.S. Space Force) or their 
dependents. A bank whose business predominantly consists of serving the 
needs of military personnel or their dependents means a bank whose most 
important customer group is military personnel or their dependents.
    Minority depository institution (MDI) means:
    (1) For purposes of activities conducted pursuant to 12 U.S.C. 
2907(a), ``minority depository institution'' as defined in 12 U.S.C. 
2907(b)(1); and
    (2) For all other purposes:
    (i) ``Minority depository institution'' as defined in 12 U.S.C. 
2907(b)(1);
    (ii) ``Minority depository institution'' as defined in section 308 
of the Financial Institutions Reform, Recovery, and Enforcement Act of 
1989 (FIRREA) (12 U.S.C. 1463 note); or
    (iii) A depository institution considered to be a minority 
depository institution by the appropriate Federal banking agency. For 
purposes of this paragraph (2)(iii), ``appropriate Federal banking 
agency'' has the meaning given to it in 12 U.S.C. 1813(q).
    Mission-driven nonprofit organization means an organization 
described in section 501(c)(3) of the Internal Revenue Code of 1986 (26 
U.S.C. 501(c)(3)) and exempt from taxation under section 501(a) of the 
Internal Revenue Code that benefits or serves primarily low- or 
moderate-income individuals or communities, small businesses, or small 
farms.
    MSA means a metropolitan statistical area delineated by the 
Director of the Office of Management and Budget, pursuant to 44 U.S.C. 
3504(e)(3) and (10), 31 U.S.C. 1104(d), and Executive Order 10253 (June 
11, 1951).
    Multifamily loan means an extension of credit that is secured by a 
lien on a ``multifamily dwelling'' as defined in 12 CFR 1003.2.
    Multistate MSA means an MSA that crosses a State boundary.
    Nationwide area means the entire United States and its territories.
    Native Land Area means:
    (1) All land within the limits of any Indian reservation under the 
jurisdiction of the United States, as described in 18 U.S.C. 1151(a);
    (2) All dependent Indian communities within the borders of the 
United States whether within the original or subsequently acquired 
territory thereof, and whether within or without the limits of a State, 
as described in 18 U.S.C. 1151(b);
    (3) All Indian allotments, the Indian titles to which have not been 
extinguished, including rights-of-way running through the same, as 
defined in 18 U.S.C. 1151(c);
    (4) Any land held in trust by the United States for tribes or 
Native Americans or tribally-held restricted fee land;
    (5) Reservations established by a State government for a tribe or 
tribes recognized by the State;
    (6) Any Native village, as defined in 43 U.S.C. 1602(c), in Alaska;
    (7) Lands that have the status of Hawaiian Home Lands as defined in 
section 204 of the Hawaiian Homes Commission Act, 1920 (42 Stat. 108), 
as amended;
    (8) Areas defined by the U.S. Census Bureau as Alaska Native 
Village Statistical Areas, Oklahoma Tribal Statistical Areas, Tribal-
Designated Statistical Areas, or American Indian Joint-Use Areas; and
    (9) Land areas of State-recognized Indian tribes and heritage 
groups that are defined and recognized by individual States and 
included in the U.S. Census Bureau's annual Boundary and Annexation 
Survey.
    New Markets Tax Credit (NMTC) means a Federal tax credit pursuant 
to section 45D of the Internal Revenue Code of 1986 (26 U.S.C. 45D).
    Nonmetropolitan area means any area that is not located in an MSA.
    Open-end home mortgage loan has the same meaning as given to the 
term ``open-end line of credit'' in 12 CFR 1003.2, excluding loan 
transactions set forth in 12 CFR 1003.3(c)(1) through (10) and (13) and 
multifamily loans as defined in this section.
    Other delivery system means a channel, other than branches, remote 
services facilities, or digital delivery systems, through which banks 
offer retail banking services.
    Outside retail lending area means the geographic area delineated 
pursuant to Sec.  __.18.
    Persistent poverty county means a county that has had poverty rates 
of 20 percent or more for 30 years, as publicly designated by the 
Board, FDIC, and OCC, compiled in a list, and published annually by the 
FFIEC.
    Product line means a bank's loans in one of the following, separate 
categories in a particular Retail Lending Test Area:
    (1) Closed-end home mortgage loans;
    (2) Small business loans;
    (3) Small farm loans; and
    (4) Automobile loans, if a bank is a majority automobile lender or 
opts to have its automobile loans evaluated pursuant to Sec.  __.22.
    Remote service facility means an automated, virtually staffed, or 
unstaffed banking facility owned or operated by, or operated 
exclusively for, a bank, such as an automated teller machine (ATM), 
interactive teller machine, cash dispensing machine, or other remote 
electronic facility, that is open to the general public and at which 
deposits are accepted, cash dispersed, or money lent.
    Reported loan means:
    (1) A home mortgage loan or a multifamily loan reported by a bank 
pursuant to the Home Mortgage Disclosure Act, as implemented by 12 CFR 
part 1003; or
    (2) A small business loan or a small farm loan reported by a bank 
pursuant to Sec.  __.42.
    Retail banking products means credit and deposit products or 
programs that facilitate a lending or depository relationship between 
the bank and consumers, small businesses, or small farms.
    Retail banking services means retail financial services provided by 
a bank to consumers, small businesses, or small farms and include a 
bank's systems for delivering retail financial services.
    Retail lending assessment area means a geographic area delineated 
pursuant to Sec.  __.17.
    Retail Lending Test Area means a facility-based assessment area, a 
retail lending assessment area, or an outside retail lending area.
    Small bank means a bank, excluding a bank designated as a limited 
purpose bank pursuant to Sec.  __.26, that had assets of less than $600 
million as of December 31 in either of the prior two calendar years. 
The [Agency] adjusts and publishes the dollar figure in this definition 
annually based on the year-to-year change in the average of the 
Consumer Price Index for Urban Wage Earners and Clerical Workers, not 
seasonally adjusted, for each 12-month period ending in November, with 
rounding to the nearest million.
    Small business means a business, other than a farm, that had gross 
annual revenues for its preceding fiscal year of $5 million or less.
    Small business loan means, notwithstanding the definition of 
``small business'' in this section, a loan included in ``loans to small 
businesses'' as reported in Schedule RC-C of the Call Report.
    Small farm means a farm that had gross annual revenues for its 
preceding fiscal year of $5 million or less.
    Small farm loan means, notwithstanding the definition of ``small

[[Page 7111]]

farm'' in this section, a loan included in ``loans to small farms'' as 
reported in Schedule RC-C of the Call Report.
    State means a U.S. State or territory, and includes the District of 
Columbia.
    Targeted census tract means:
    (1) A low-income census tract or a moderate-income census tract; or
    (2) A distressed or underserved nonmetropolitan middle-income 
census tract.
    Tribal government means the recognized governing body of any Indian 
or Alaska Native tribe, band, nation, pueblo, village, community, 
component band, or component reservation, individually identified 
(including parenthetically) in the list most recently published 
pursuant to section 104 of the Federally Recognized Indian Tribe List 
Act of 1994 (25 U.S.C. 5131).
    Women's depository institution (WDI) means ``women's depository 
institution'' as defined in 12 U.S.C. 2907(b)(2).


Sec.  __.13  Consideration of community development loans, community 
development investments, and community development services.

    As provided in paragraph (a) of this section, a bank may receive 
consideration for a loan, investment, or service that supports 
community development as described in paragraphs (b) through (l) of 
this section.
    (a) Full and partial credit for community development loans, 
community development investments, and community development services--
(1) Full credit. A bank will receive credit for its entire loan, 
investment, or service if it meets the majority standard in paragraph 
(a)(1)(i) of this section; meets the bona fide intent standard in 
paragraph (a)(1)(ii) of this section; involves an MDI, WDI, LICU, or 
CDFI as provided in paragraph (a)(1)(iii) of this section; or involves 
a LIHTC as provided in paragraph (a)(1)(iv) of this section.
    (i) Majority standard. A loan, investment, or service meets the 
majority standard if:
    (A) The loan, investment, or service supports community development 
under one or more of paragraphs (b) through (l) of this section; and
    (B)(1) For loans, investments, or services supporting community 
development under paragraphs (b)(1) through (3) of this section, the 
majority of the housing units are affordable to low- or moderate-income 
individuals, families, or households;
    (2) For loans, investments, or services supporting community 
development under paragraphs (b)(4) and (5) and (d) of this section, 
the majority of the beneficiaries are, or the majority of dollars 
benefit or serve, low- or moderate-income individuals, families, or 
households;
    (3) For loans, investments, or services supporting community 
development under paragraph (c) of this section, the majority of the 
beneficiaries are, or the majority of dollars benefit or serve, small 
businesses or small farms;
    (4) For loans, investments, or services supporting community 
development under paragraphs (e), (f), (g), and (i) of this section, 
the majority of the beneficiaries are, or the majority of dollars 
benefit or serve, residents of targeted census tracts;
    (5) For loans, investments, or services supporting community 
development under paragraph (h) of this section, the majority of the 
beneficiaries are, or the majority of dollars benefit or serve, 
residents of designated disaster areas;
    (6) For loans, investments, or services supporting community 
development under paragraph (j) of this section, the majority of the 
beneficiaries are, or the majority of dollars benefit or serve, 
residents of Native Land Areas; or
    (7) For loans, investments, or services supporting community 
development under paragraph (l) of this section, the loan, investment, 
or service primarily supports community development under paragraph (l) 
of this section.
    (ii) Bona fide intent standard. A loan, investment, or service 
meets the bona fide intent standard if:
    (A) The housing units, beneficiaries, or proportion of dollars 
necessary to meet the majority standard are not reasonably quantifiable 
pursuant to paragraph (a)(1)(i) of this section;
    (B) The loan, investment, or service has the express, bona fide 
intent of community development under one or more of paragraphs (b) 
through (l) of this section; and
    (C) The loan, investment, or service is specifically structured to 
achieve community development under one or more of paragraphs (b) 
through (l) of this section.
    (iii) MDI, WDI, LICU, or CDFI. The loan, investment, or service 
supports community development under paragraph (k) of this section.
    (iv) LIHTC. The loan, investment, or service supports LIHTC-
financed affordable housing under paragraph (b)(1) of this section.
    (2) Partial credit. If a loan, investment, or service supporting 
affordable housing under paragraph (b)(1) of this section does not meet 
the majority standard under paragraph (a)(1)(i) of this section, a bank 
will receive partial credit for the loan, investment, or service in 
proportion to the percentage of total housing units in any development 
that are affordable to low- or moderate-income individuals.
    (b) Affordable housing. Affordable housing comprises the following:
    (1) Rental housing in conjunction with a government affordable 
housing plan, program, initiative, tax credit, or subsidy. Rental 
housing for low- or moderate-income individuals purchased, developed, 
financed, rehabilitated, improved, or preserved in conjunction with a 
Federal, State, local, or tribal government affordable housing plan, 
program, initiative, tax credit, or subsidy.
    (2) Multifamily rental housing with affordable rents. Multifamily 
rental housing purchased, developed, financed, rehabilitated, improved, 
or preserved if:
    (i) For the majority of units, the monthly rent as underwritten by 
the bank, reflecting post-construction or post-renovation changes as 
applicable, does not exceed 30 percent of 80 percent of the area median 
income; and
    (ii) One or more of the following additional criteria are met:
    (A) The housing is located in a low- or moderate-income census 
tract;
    (B) The housing is located in a census tract in which the median 
income of renters is low- or moderate-income and the median rent does 
not exceed 30 percent of 80 percent of the area median income;
    (C) The housing is purchased, developed, financed, rehabilitated, 
improved, or preserved by any nonprofit organization with a stated 
mission of, or that otherwise directly supports, providing affordable 
housing; or
    (D) The bank provides documentation that a majority of the housing 
units are occupied by low- or moderate-income individuals, families, or 
households.
    (3) One-to-four family rental housing with affordable rents in a 
nonmetropolitan area. One-to-four family rental housing purchased, 
developed, financed, rehabilitated, improved, or preserved in a 
nonmetropolitan area that meets the criteria in paragraph (b)(2) of 
this section.
    (4) Affordable owner-occupied housing for low- or moderate-income 
individuals. Assistance for low- or moderate-income individuals to 
obtain, maintain, rehabilitate, or improve affordable owner-occupied 
housing, excluding loans by a bank directly to one or more owner-
occupants of such housing.
    (5) Mortgage-backed securities. Purchases of mortgage-backed 
securities where a majority of the underlying loans

[[Page 7112]]

are not loans that the bank originated or purchased and:
    (i) Are home mortgage loans made to low- or moderate-income 
individuals; or
    (ii) Are loans that finance multifamily affordable housing that 
meets the requirements of paragraph (b)(1) of this section.
    (c) Economic development. Economic development comprises:
    (1) Government-related support for small businesses and small 
farms. Loans, investments, and services undertaken in conjunction or in 
syndication with Federal, State, local, or tribal government plans, 
programs, or initiatives that support small businesses or small farms, 
as follows:
    (i) Loans, investments, and services other than direct loans to 
small businesses and small farms. Loans, investments, and services that 
support small businesses or small farms in accordance with how small 
businesses and small farms are defined in the applicable plan, program, 
or initiative, but excluding loans by a bank directly to small 
businesses or small farms (either as defined in a government plan, 
program, or initiative or in Sec.  __.12). If the government plan, 
program, or initiative does not identify a standard for the size of the 
small businesses or small farms supported by the plan, program, or 
initiative, the small businesses or small farms supported must meet the 
definition of small business or small farm in Sec.  __.12. Loans to, 
investments in, or services provided to the following are presumed to 
meet the criteria of this paragraph (c)(1)(i):
    (A) Small Business Investment Company (13 CFR part 107);
    (B) New Markets Venture Capital Company (13 CFR part 108);
    (C) Qualified Community Development Entity (26 U.S.C. 45D(c)); or
    (D) U.S. Department of Agriculture Rural Business Investment 
Company (7 CFR 4290.50).
    (ii) Direct loans to small businesses and small farms. Loans by a 
bank directly to businesses or farms, including, but not limited to, 
loans in conjunction or syndicated with a U.S. Small Business 
Administration (SBA) Certified Development Company (13 CFR 120.10) or 
Small Business Investment Company (13 CFR part 107), that meet the 
following size and purpose criteria:
    (A) Size eligibility standard. Loans that may be considered under 
paragraph (c)(1)(ii) of this section must be to businesses and farms 
that meet the size eligibility standards of the U.S. Small Business 
Administration Development Company (13 CFR 121.301) or Small Business 
Investment Company (13 CFR 121.301 and 121.201) programs or that meet 
the definition of small business or small farm in Sec.  __.12.
    (B) Purpose test. Loans that may be considered under paragraph 
(c)(1)(ii) of this section must have the purpose of promoting permanent 
job creation or retention for low- or moderate-income individuals or in 
low- or moderate-income census tracts.
    (2) Intermediary support for small businesses and small farms. 
Loans, investments, or services provided to intermediaries that lend 
to, invest in, or provide assistance, such as financial counseling, 
shared space, technology, or administrative assistance, to small 
businesses or small farms.
    (3) Other support for small businesses and small farms. Assistance, 
such as financial counseling, shared space, technology, or 
administrative assistance, to small businesses or small farms.
    (d) Community supportive services. Community supportive services 
are activities that assist, benefit, or contribute to the health, 
stability, or well-being of low- or moderate-income individuals, such 
as childcare, education, workforce development and job training 
programs, health services programs, and housing services programs. 
Community supportive services include, but are not limited to, 
activities that:
    (1) Are conducted with a mission-driven nonprofit organization;
    (2) Are conducted with a nonprofit organization located in and 
serving low- or moderate-income census tracts;
    (3) Are conducted in a low- or moderate-income census tract and 
targeted to the residents of the census tract;
    (4) Are offered to individuals at a workplace where the majority of 
employees are low- or moderate-income, based on U.S. Bureau of Labor 
Statistics data for the average wage for workers in that particular 
occupation or industry;
    (5) Are provided to students or their families through 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;
    (6) Primarily benefit or serve individuals who receive or are 
eligible to receive Medicaid;
    (7) Primarily benefit or serve individuals who receive or are 
eligible to receive Federal Supplemental Security Income, Social 
Security Disability Insurance, or support through other Federal 
disability assistance programs; or
    (8) Primarily benefit or serve recipients of government assistance 
plans, programs, or initiatives that have income qualifications 
equivalent to, or stricter than, the definitions of low- and moderate-
income as defined in this part. Examples include, but are not limited 
to, the U.S. Department of Housing and Urban Development's section 8, 
202, 515, and 811 programs or the U.S. Department of Agriculture's 
section 514, 516, and Supplemental Nutrition Assistance programs.
    (e) Revitalization or stabilization--(1) In general. Revitalization 
or stabilization comprises activities that support revitalization or 
stabilization of targeted census tracts, including adaptive reuse of 
vacant or blighted buildings, brownfield redevelopment, support of a 
plan for a business improvement district or main street program, or any 
other activity that supports revitalization or stabilization, and that:
    (i) Are undertaken in conjunction with a plan, program, or 
initiative of a Federal, State, local, or tribal government or a 
mission-driven nonprofit organization, where the plan, program, or 
initiative includes a focus on revitalizing or stabilizing targeted 
census tracts;
    (ii) Benefit or serve residents, including low- or moderate-income 
individuals, of targeted census tracts; and
    (iii) Do not directly result in the forced or involuntary 
relocation of low- or moderate-income individuals in targeted census 
tracts.
    (2) Mixed-use revitalization or stabilization project. Projects to 
revitalize or stabilize a targeted census tract that include both 
commercial and residential components qualify as revitalization or 
stabilization activities under this paragraph (e)(2), if:
    (i) The criteria in paragraph (e)(1) of this section are met; and
    (ii) More than 50 percent of the project is non-residential as 
measured by the percentage of total square footage or dollar amount of 
the project.
    (f) Essential community facilities. Essential community facilities 
are public facilities that provide essential services generally 
accessible by a local community, including, but not limited to, 
schools, libraries, childcare facilities, parks, hospitals, healthcare 
facilities, and community centers that benefit or serve targeted census 
tracts, and that:
    (1) Are undertaken in conjunction with a plan, program, or 
initiative of a Federal, State, local, or tribal government or a 
mission-driven nonprofit organization, where the plan, program, or 
initiative includes a focus

[[Page 7113]]

on benefitting or serving targeted census tracts;
    (2) Benefit or serve residents, including low- or moderate-income 
individuals, of targeted census tracts; and
    (3) Do not directly result in the forced or involuntary relocation 
of low- or moderate-income individuals in targeted census tracts.
    (g) Essential community infrastructure. Essential community 
infrastructure comprises activities benefitting or serving targeted 
census tracts, including, but not limited to, broadband, 
telecommunications, mass transit, water supply and distribution, and 
sewage treatment and collection systems, and that:
    (1) Are undertaken in conjunction with a plan, program, or 
initiative of a Federal, State, local, or tribal government or a 
mission-driven nonprofit organization, where the plan, program, or 
initiative includes a focus on benefitting or serving targeted census 
tracts;
    (2) Benefit or serve residents, including low- or moderate-income 
individuals, of targeted census tracts; and
    (3) Do not directly result in the forced or involuntary relocation 
of low- or moderate-income individuals in targeted census tracts.
    (h) Recovery of designated disaster areas--(1) In general. 
Activities that promote recovery of a designated disaster area are 
those that revitalize or stabilize geographic areas subject to a Major 
Disaster Declaration administered by the Federal Emergency Management 
Agency (FEMA), and that:
    (i) Are undertaken in conjunction with a disaster plan, program, or 
initiative of a Federal, State, local, or tribal government or a 
mission-driven nonprofit organization, where the plan, program, or 
initiative includes a focus on benefitting or serving the designated 
disaster area;
    (ii) Benefit or serve residents, including low- or moderate-income 
individuals, of the designated disaster area; and
    (iii) Do not directly result in the forced or involuntary 
relocation of low- or moderate-income individuals in the designated 
disaster area.
    (2) Eligibility limitations for loans, investments, or services 
supporting recovery of a designated disaster area. (i) Loans, 
investments, or services that support recovery from a designated 
disaster in counties designated to receive only FEMA Public Assistance 
Emergency Work Category A (Debris Removal) and/or Category B (Emergency 
Protective Measures) are not eligible for consideration under this 
paragraph (h)(2), unless the Board, the FDIC, and the OCC announce a 
temporary exception.
    (ii) The [Agency] will consider loans, investments, and services 
that support recovery from a designated disaster under this paragraph 
(h)(2) for 36 months after a Major Disaster Declaration, unless that 
time period is extended by the Board, the FDIC, and the OCC.
    (i) Disaster preparedness and weather resiliency. Disaster 
preparedness and weather resiliency activities assist individuals and 
communities to prepare for, adapt to, and withstand natural disasters 
or weather-related risks or disasters. Disaster preparedness and 
weather resiliency activities benefit or serve targeted census tracts 
and:
    (1) Are undertaken in conjunction with a plan, program, or 
initiative of a Federal, State, local, or tribal government or a 
mission-driven nonprofit organization, where the plan, program, or 
initiative includes a focus on benefitting or serving targeted census 
tracts;
    (2) Benefit or serve residents, including low- or moderate-income 
individuals, in targeted census tracts; and
    (3) Do not directly result in the forced or involuntary relocation 
of low- or moderate-income individuals in targeted census tracts.
    (j) Revitalization or stabilization, essential community 
facilities, essential community infrastructure, and disaster 
preparedness and weather resiliency in Native Land Areas. (1) 
Revitalization or stabilization, essential community facilities, 
essential community infrastructure, and disaster preparedness and 
weather resiliency activities in Native Land Areas are activities 
specifically targeted to and conducted in Native Land Areas.
    (2) Revitalization or stabilization activities in Native Land Areas 
are defined consistent with paragraph (e) of this section, but 
specifically:
    (i) Are undertaken in conjunction with a plan, program, or 
initiative of a Federal, State, local, or tribal government or a 
mission-driven nonprofit organization, where the plan, program, or 
initiative includes an explicit focus on revitalizing or stabilizing 
Native Land Areas and a particular focus on low- or moderate-income 
households;
    (ii) Benefit or serve residents in Native Land Areas, with 
substantial benefits for low- or moderate-income individuals in Native 
Land Areas; and
    (iii) Do not directly result in the forced or involuntary 
relocation of low- or moderate-income individuals in Native Land Areas.
    (3) Essential community facilities, essential community 
infrastructure, and disaster preparedness and weather resiliency 
activities in Native Land Areas are defined consistent with paragraphs 
(f), (g), and (i) of this section, respectively, but specifically:
    (i) Are undertaken in conjunction with a plan, program, or 
initiative of a Federal, State, local, or tribal government or a 
mission-driven nonprofit organization, where the plan, program, or 
initiative includes an explicit focus on benefitting or serving Native 
Land Areas;
    (ii) Benefit or serve residents, including low- or moderate-income 
individuals, in Native Land Areas; and
    (iii) Do not directly result in the forced or involuntary 
relocation of low- or moderate-income individuals in Native Land Areas.
    (k) Activities with MDIs, WDIs, LICUs, or CDFIs. Activities with 
MDIs, WDIs, LICUs, or CDFIs are loans, investments, or services 
undertaken by any bank, including by an MDI, WDI, or CDFI bank 
evaluated under part 25, 228, or 345 of this title, in cooperation with 
an MDI, WDI, LICU, or CDFI. Such activities do not include investments 
by an MDI, WDI, or CDFI bank in itself.
    (l) Financial literacy. Activities that promote financial literacy 
are those that assist individuals, families, and households, including 
low- or moderate-income individuals, families, and households, to make 
informed financial decisions regarding managing income, savings, 
credit, and expenses, including with respect to homeownership.


Sec.  __.14  Community development illustrative list; Confirmation of 
eligibility.

    (a) Illustrative list--(1) Issuing and maintaining the illustrative 
list. The Board, the FDIC, and the OCC jointly issue and maintain a 
publicly available illustrative list of non-exhaustive examples of 
loans, investments, and services that qualify for community development 
consideration as provided in Sec.  __.13.
    (2) Modifying the illustrative list. (i) The Board, the FDIC, and 
the OCC update the illustrative list in paragraph (a)(1) of this 
section periodically.
    (ii) If the Board, the FDIC, and the OCC determine that a loan or 
investment is no longer eligible for community development 
consideration, the owner of the loan or investment at the time of the 
determination will continue to receive community development 
consideration for the remaining term or period of the loan or

[[Page 7114]]

investment. However, these loans or investments will not be considered 
eligible for community development consideration for any new purchasers 
of that loan or investment after the agencies make a determination that 
the loan or investment is no longer eligible for community development 
consideration.
    (b) Confirmation of eligibility--(1) Request for confirmation of 
eligibility. A bank subject to this part may request that the [Agency] 
confirm that a loan, investment, or service is eligible for community 
development consideration by submitting a request to, and in a format 
prescribed by, the [Agency].
    (2) Determination of eligibility. (i) To determine the eligibility 
of a loan, investment, or service for which a request has been 
submitted under paragraph (b)(1) of this section, the [Agency] 
considers:
    (A) Information that describes and supports the request; and
    (B) Any other information that the [Agency] deems relevant.
    (ii) The Board, the FDIC, and the OCC expect and are presumed to 
jointly determine eligibility of a loan, investment, or service under 
paragraph (b)(2)(i) of this section to promote consistency. Before 
making a determination under paragraph (b)(2)(i) of this section, the 
[Agency] consults with the [other Agencies] regarding the eligibility 
of a loan, investment, or service.
    (iii) The [Agency] may impose limitations or requirements on a 
determination of the eligibility of a loan, investment, or service to 
ensure consistency with this part.
    (3) Notification of eligibility. The [Agency] notifies the 
requestor and the [other Agencies] in writing of any determination 
under paragraph (b)(2) of this section, as well as the rationale for 
such determination.


Sec.  __.15  Impact and responsiveness review of community development 
loans, community development investments, and community development 
services.

    (a) Impact and responsiveness review, in general. Under the 
Community Development Financing Test in Sec.  __.24, the Community 
Development Services Test in Sec.  __.25, and the Community Development 
Financing Test for Limited Purpose Banks in Sec.  __.26, the [Agency] 
evaluates the extent to which a bank's community development loans, 
community development investments, and community development services 
are impactful and responsive in meeting community development needs in 
each facility-based assessment area and, as applicable, each State, 
multistate MSA, and the nationwide area. The [Agency] evaluates the 
impact and responsiveness of a bank's community development loans, 
community development investments, or community development services 
based on paragraph (b) of this section, and may take into account 
performance context information pursuant to Sec.  __.21(d).
    (b) Impact and responsiveness review factors. Factors considered in 
evaluating the impact and responsiveness of a bank's community 
development loans, community development investments, and community 
development services include, but are not limited to, whether the 
community development loan, community development investment, or 
community development service:
    (1) Benefits or serves one or more persistent poverty counties;
    (2) Benefits or serves one or more census tracts with a poverty 
rate of 40 percent or higher;
    (3) Benefits or serves one or more geographic areas with low levels 
of community development financing;
    (4) Supports an MDI, WDI, LICU, or CDFI, excluding certificates of 
deposit with a term of less than one year;
    (5) Benefits or serves low-income individuals, families, or 
households;
    (6) Supports small businesses or small farms with gross annual 
revenues of $250,000 or less;
    (7) Directly facilitates the acquisition, construction, 
development, preservation, or improvement of affordable housing in High 
Opportunity Areas;
    (8) Benefits or serves residents of Native Land Areas;
    (9) Is a grant or donation;
    (10) Is an investment in projects financed with LIHTCs or NMTCs;
    (11) Reflects bank leadership through multi-faceted or instrumental 
support; or
    (12) Is a new community development financing product or service 
that addresses community development needs for low- or moderate-income 
individuals, families, or households.

Subpart B--Geographic Considerations


Sec.  __.16  Facility-based assessment areas.

    (a) In general. A bank must delineate one or more facility-based 
assessment areas within which the [Agency] evaluates the bank's record 
of helping to meet the credit needs of its entire community pursuant to 
the performance tests and strategic plan described in Sec.  __.21.
    (b) Geographic requirements for facility-based assessment areas. 
(1) Except as provided in paragraph (b)(3) of this section, a bank's 
facility-based assessment areas must include each county in which a 
bank has a main office, a branch, or a deposit-taking remote service 
facility, as well as the surrounding counties in which the bank has 
originated or purchased a substantial portion of its loans (including 
home mortgage loans, multifamily loans, small business loans, small 
farm loans, and automobile loans).
    (2) Except as provided in paragraph (b)(3) of this section, each of 
a bank's facility-based assessment areas must consist of a single MSA, 
one or more contiguous counties within an MSA, or one or more 
contiguous counties within the nonmetropolitan area of a State.
    (3) An intermediate bank or a small bank may adjust the boundaries 
of its facility-based assessment areas to include only the portion of a 
county that it reasonably can be expected to serve, subject to 
paragraph (c) of this section. A facility-based assessment area that 
includes a partial county must consist of contiguous whole census 
tracts.
    (c) Other limitations on the delineation of a facility-based 
assessment area. Each of a bank's facility-based assessment areas:
    (1) May not reflect illegal discrimination; and
    (2) May not arbitrarily exclude low- or moderate-income census 
tracts. In determining whether a bank has arbitrarily excluded low- or 
moderate-income census tracts from a facility-based assessment area, 
the [Agency] takes into account the bank's capacity and constraints, 
including its size and financial condition.
    (d) Military banks. Notwithstanding the requirements of this 
section, a military bank whose customers are not located within a 
defined geographic area may delineate the entire United States and its 
territories as its sole facility-based assessment area.
    (e) Use of facility-based assessment areas. The [Agency] uses the 
facility-based assessment areas delineated by a bank in its evaluation 
of the bank's CRA performance unless the [Agency] determines that the 
facility-based assessment areas do not comply with the requirements of 
this section.


Sec.  __.17  Retail lending assessment areas.

    (a) In general. (1) Based upon the criteria described in paragraphs 
(b) and (c) of this section, a large bank must delineate retail lending 
assessment areas within which the [Agency] evaluates the bank's record 
of helping to meet the credit needs of its entire community pursuant to 
Sec.  __.22.

[[Page 7115]]

    (2) A large bank is not required to delineate retail lending 
assessment areas for a particular calendar year if, in the prior two 
calendar years, the large bank originated or purchased within its 
facility-based assessment areas more than 80 percent of its home 
mortgage loans, multifamily loans, small business loans, small farm 
loans, and automobile loans if automobile loans are a product line for 
the large bank as described in paragraph II.a.1 of appendix A to this 
part.
    (3) If, in a retail lending assessment area delineated pursuant to 
paragraph (c) of this section, the large bank did not originate or 
purchase any reported loans in any of the product lines that formed the 
basis of the retail lending assessment area delineation pursuant to 
paragraph (c)(1) or (2) of this section, the [Agency] will not consider 
the retail lending assessment area to have been delineated for that 
calendar year.
    (b) Geographic requirements for retail lending assessment areas. 
(1) A large bank's retail lending assessment area must consist of 
either:
    (i) The entirety of a single MSA (using the MSA boundaries that 
were in effect as of January 1 of the calendar year in which the 
delineation applies), excluding any counties inside the large bank's 
facility-based assessment areas; or
    (ii) All of the counties in the nonmetropolitan area of a State 
(using the MSA boundaries that were in effect as of January 1 of the 
calendar year in which the delineation applies), excluding:
    (A) Any counties included in the large bank's facility-based 
assessment areas; and
    (B) Any counties in which the large bank did not originate any 
closed-end home mortgage loans or small business loans that are 
reported loans during that calendar year.
    (2) A retail lending assessment area may not extend beyond a State 
boundary unless the retail lending assessment area consists of counties 
in a multistate MSA.
    (c) Delineation of retail lending assessment areas. Subject to the 
geographic requirements in paragraph (b) of this section, a large bank 
must delineate, for a particular calendar year, a retail lending 
assessment area in any MSA or in the nonmetropolitan area of any State 
in which it originated:
    (1) At least 150 closed-end home mortgage loans that are reported 
loans in each year of the prior two calendar years; or
    (2) At least 400 small business loans that are reported loans in 
each year of the prior two calendar years.
    (d) Use of retail lending assessment areas. The [Agency] uses the 
retail lending assessment areas delineated by a large bank in its 
evaluation of the bank's closed-end home mortgage lending and small 
business lending performance unless the [Agency] determines that the 
retail lending assessment areas do not comply with the requirements of 
this section.


Sec.  __.18  Outside retail lending areas.

    (a) In general--(1) Large banks. The [Agency] evaluates a large 
bank's record of helping to meet the credit needs of its entire 
community in its outside retail lending area pursuant to Sec.  __.22. 
However, the [Agency] will not evaluate a large bank in its outside 
retail lending area if it did not originate or purchase loans in any 
product lines in the outside retail lending area during the evaluation 
period.
    (2) Intermediate or small banks. The [Agency] evaluates the record 
of an intermediate bank, or a small bank that opts to be evaluated 
under the Retail Lending Test, of helping to meet the credit needs of 
its entire community in its outside retail lending area pursuant to 
Sec.  __.22, for a particular calendar year, if:
    (i) The bank opts to have its major product lines evaluated in its 
outside retail lending area; or
    (ii) In the prior two calendar years, the bank originated or 
purchased outside the bank's facility-based assessment areas more than 
50 percent of the bank's home mortgage loans, multifamily loans, small 
business loans, small farm loans, and automobile loans if automobile 
loans are a product line for the bank, as described in paragraph II.a.2 
of appendix A to this part.
    (b) Geographic requirements of outside retail lending areas--(1) In 
general. A bank's outside retail lending area consists of the 
nationwide area, excluding:
    (i) The bank's facility-based assessment areas and retail lending 
assessment areas; and
    (ii) Any county in a nonmetropolitan area in which the bank did not 
originate or purchase any closed-end home mortgage loans, small 
business loans, small farm loans, or automobile loans if automobile 
loans are a product line for the bank.
    (2) Component geographic area. The outside retail lending area is 
comprised of component geographic areas. A component geographic area is 
any MSA or the nonmetropolitan area of any State, or portion thereof, 
included within the outside retail lending area.


Sec.  __.19  Areas for eligible community development loans, community 
development investments, and community development services.

    The [Agency] may consider a bank's community development loans, 
community development investments, and community development services 
provided outside of its facility-based assessment areas, as provided in 
this part.


Sec.  __.20  [Reserved]

Subpart C--Standards for Assessing Performance


Sec.  __.21  Evaluation of CRA performance in general.

    (a) Application of performance tests and strategic plans--(1) Large 
banks. To evaluate the performance of a large bank, the [Agency] 
applies the Retail Lending Test in Sec.  __.22, the Retail Services and 
Products Test in Sec.  __.23, the Community Development Financing Test 
in Sec.  __.24, and the Community Development Services Test in Sec.  
__.25.
    (2) Intermediate banks--(i) In general. To evaluate the performance 
of an intermediate bank, the [Agency] applies the Retail Lending Test 
in Sec.  __.22 and either the Intermediate Bank Community Development 
Test in Sec.  __.30(a)(2) or, at the bank's option, the Community 
Development Financing Test in Sec.  __.24.
    (ii) Intermediate banks evaluated under Sec.  __.24. If an 
intermediate bank opts to be evaluated pursuant to the Community 
Development Financing Test in Sec.  __.24, the [Agency] evaluates the 
intermediate bank for the evaluation period preceding the bank's next 
CRA examination pursuant to the Community Development Financing Test in 
Sec.  __.24 and continues evaluations pursuant to this performance test 
for subsequent evaluation periods until the bank opts out. If an 
intermediate bank opts out of the Community Development Financing Test 
in Sec.  __.24, the [Agency] reverts to evaluating the bank pursuant to 
the Intermediate Bank Community Development Test in Sec.  __.30(a)(2), 
starting with the evaluation period preceding the bank's next CRA 
examination.
    (iii) Additional consideration. An intermediate bank may request 
additional consideration pursuant to Sec.  __.30(b).
    (3) Small banks--(i) In general. To evaluate the performance of a 
small bank, the [Agency] applies the Small Bank Lending Test in Sec.  
__.29(a)(2), unless the bank opts to be evaluated pursuant to the 
Retail Lending Test in Sec.  __.22.

[[Page 7116]]

    (ii) Small banks evaluated under the Retail Lending Test. If a 
small bank opts to be evaluated pursuant to the Retail Lending Test in 
Sec.  __.22, the following applies:
    (A) The [Agency] evaluates the small bank using the same provisions 
used to evaluate intermediate banks pursuant to the Retail Lending Test 
in Sec.  __.22.
    (B) The [Agency] evaluates the small bank for the evaluation period 
preceding the bank's next CRA examination pursuant to the Retail 
Lending Test in Sec.  __.22 and continues evaluations under this 
performance test for subsequent evaluation periods until the bank opts 
out. If a small bank opts out of the Retail Lending Test in Sec.  
__.22, the [Agency] reverts to evaluating the bank pursuant to the 
Small Bank Lending Test in Sec.  __.29(a)(2), starting with the 
evaluation period preceding the bank's next CRA examination.
    (iii) Additional consideration. A small bank may request additional 
consideration pursuant to Sec.  __.29(b).
    (4) Limited purpose banks--(i) In general. The [Agency] evaluates a 
limited purpose bank pursuant to the Community Development Financing 
Test for Limited Purpose Banks in Sec.  __.26.
    (ii) Additional consideration. A limited purpose bank may request 
additional consideration pursuant to Sec.  __.26(b)(2).
    (5) Military banks--(i) In general. The [Agency] evaluates a 
military bank pursuant to the applicable performance tests described in 
paragraph (a) of this section.
    (ii) Evaluation approach for military banks operating under Sec.  
__.16(d). If a military bank delineates the entire United States and 
its territories as its sole facility-based assessment area pursuant to 
Sec.  __.16(d), the [Agency] evaluates the bank exclusively at the 
institution level based on its performance in its sole facility-based 
assessment area.
    (6) Banks operating under a strategic plan. The [Agency] evaluates 
the performance of a bank that has an approved strategic plan pursuant 
to Sec.  __.27.
    (b) Loans, investments, services, and products of [operations 
subsidiaries or operating subsidiaries] and other affiliates--(1) In 
general. In the performance evaluation of a bank, the [Agency] 
considers the loans, investments, services, and products of a bank's 
[operations subsidiaries or operating subsidiaries] and other 
affiliates, as applicable, as provided in paragraphs (b)(2) and (3) of 
this section, so long as no other depository institution claims the 
loan, investment, service, or product for purposes of 12 CFR part 25, 
228, or 345.
    (2) Loans, investments, services, and products of [operations 
subsidiaries or operating subsidiaries]. The [Agency] considers the 
loans, investment, services, and products of a bank's [operations 
subsidiaries or operating subsidiaries] under this part, unless an 
[operations subsidiary or operating subsidiary] is independently 
subject to the CRA. The bank must collect, maintain, and report data on 
the loans, investments, services, and products of its [operations 
subsidiaries or operating subsidiaries] as provided in Sec.  __.42(c).
    (3) Loans, investments, services, and products of other affiliates. 
The [Agency] considers the loans, investments, services, and products 
of affiliates of a bank that are not [operations subsidiaries or 
operating subsidiaries], at the bank's option, subject to the 
following:
    (i) The affiliate is not independently subject to the CRA.
    (ii) The bank collects, maintains, and reports data on the loans, 
investments, services, or products of the affiliate as provided in 
Sec.  __.42(d).
    (iii) Pursuant to the Retail Lending Test in Sec.  __.22, if a bank 
opts to have the [Agency] consider the closed-end home mortgage loans, 
small business loans, small farm loans, or automobile loans that are 
originated or purchased by one or more of the bank's affiliates in a 
particular Retail Lending Test Area, the [Agency] will consider, 
subject to paragraphs (b)(3)(i) and (ii) of this section, all of the 
loans in that product line originated or purchased by all of the bank's 
affiliates in the particular Retail Lending Test Area.
    (iv) Pursuant to the Retail Lending Test in Sec.  __.22, if a large 
bank opts to have the [Agency] consider the closed-end home mortgage 
loans or small business loans that are originated or purchased by any 
of the bank's affiliates in any Retail Lending Test Area, the [Agency] 
will consider, subject to paragraphs (b)(3)(i) and (ii) of this 
section, the closed-end home mortgage loans or small business loans 
originated by all of the bank's affiliates in the nationwide area when 
delineating retail lending assessment areas pursuant to Sec.  __.17(c).
    (v) Pursuant to the Community Development Financing Test in Sec.  
__.24, the Community Development Financing Test for Limited Purpose 
Banks in Sec.  __.26, the Intermediate Bank Community Development Test 
in Sec.  __.30(a)(2), or pursuant to an approved strategic plan in 
Sec.  __.27, the [Agency] will consider, at the bank's option, 
community development loans or community development investments that 
are originated, purchased, refinanced, or renewed by one or more of the 
bank's affiliates, subject to paragraphs (b)(3)(i) and (ii) of this 
section.
    (c) Community development lending and community development 
investment by a consortium or a third party. If a bank invests in or 
participates in a consortium that originates, purchases, refinances, or 
renews community development loans or community development 
investments, or if a bank invests in a third party that originates, 
purchases, refinances, or renews community development loans or 
community development investments, the [Agency] may consider, at the 
bank's option, either those loans or investments, subject to the 
limitations in paragraphs (c)(1) through (3) of this section, or the 
investment in the consortium or third party.
    (1) The bank must collect, maintain, and report the data pertaining 
to the community development loans and community development 
investments as provided in Sec.  __.42(e), as applicable;
    (2) If the participants or investors choose to allocate community 
development loans or community development investments among themselves 
for consideration under this section, no participant or investor may 
claim a loan origination, loan purchase, or investment for community 
development consideration if another participant or investor claims the 
same loan origination, loan purchase, or investment; and
    (3) The bank may not claim community development loans or community 
development investments accounting for more than its percentage share 
(based on the level of its participation or investment) of the total 
loans or investments made by the consortium or third party.
    (d) Performance context information considered. When applying 
performance tests and strategic plans pursuant to paragraph (a) of this 
section, and when determining whether to approve a strategic plan 
pursuant to Sec.  __.27(h), the [Agency] may consider the following 
performance context information to the extent that it is not considered 
as part of the performance tests as provided in paragraph (a) of this 
section:
    (1) Any information regarding a bank's institutional capacity or 
constraints, including the size and financial condition of the bank, 
safety and soundness limitations, or any other bank-specific factors 
that significantly affect the bank's ability to provide retail

[[Page 7117]]

lending, retail banking services and retail banking products, community 
development loans, community development investments, or community 
development services;
    (2) Any information regarding the bank's past performance;
    (3) Demographic data on income levels and income distribution, 
nature of housing stock, housing costs, economic climate, or other 
relevant data;
    (4) Any information about retail banking and community development 
needs and opportunities provided by the bank or other relevant sources, 
including, but not limited to, members of the community, community 
organizations, State, local, and tribal governments, and economic 
development agencies;
    (5) Data and information provided by the bank regarding the bank's 
business strategy and product offerings;
    (6) The bank's public file, as provided in Sec.  __.43, including 
any written comments about the bank's CRA performance submitted to the 
bank or the [Agency] and the bank's responses to those comments; and
    (7) Any other information deemed relevant by the [Agency].
    (e) Conclusions and ratings--(1) Conclusions. The [Agency] assigns 
conclusions to a large bank's or limited purpose bank's performance on 
the applicable tests described in paragraph (a) of this section 
pursuant to Sec.  __.28 and appendix C to this part. The [Agency] 
assigns conclusions to a small bank's or intermediate bank's 
performance on the applicable tests described in paragraph (a) of this 
section pursuant to Sec.  __.28 and appendices C and E to this part. 
The [Agency] assigns conclusions to a bank that has an approved 
strategic plan pursuant to Sec.  __.28 and paragraph g of appendix C to 
this part.
    (2) Ratings. The [Agency] assigns an overall CRA performance rating 
to a bank in each State or multistate MSA, as applicable, and for the 
institution pursuant to Sec.  __.28 and appendices D and E to this 
part.
    (f) Safe and sound operations. The CRA and this part do not require 
a bank to originate or purchase loans or investments or to provide 
services that are inconsistent with safe and sound banking practices, 
including underwriting standards. Banks are permitted to develop and 
apply flexible underwriting standards for loans that benefit low- or 
moderate-income individuals, small businesses or small farms, and low- 
or moderate-income census tracts, only if consistent with safe and 
sound operations.


Sec.  __.22  Retail lending test.

    (a) Retail Lending Test--(1) In general. Pursuant to Sec.  __.21, 
the Retail Lending Test evaluates a bank's record of helping to meet 
the credit needs of its entire community through the bank's origination 
and purchase of home mortgage loans, multifamily loans, small business 
loans, and small farm loans.
    (2) Automobile loans. The Retail Lending Test evaluates a bank's 
record of helping to meet the credit needs of its entire community 
through the bank's origination and purchase of automobile loans if the 
bank is a majority automobile lender. A bank that is not a majority 
automobile lender may opt to have automobile loans evaluated under this 
section.
    (b) Methodology overview--(1) Retail Lending Volume Screen. The 
[Agency] evaluates whether a bank meets or surpasses the Retail Lending 
Volume Threshold in each facility-based assessment area pursuant to the 
Retail Lending Volume Screen as provided in paragraph (c) of this 
section.
    (2) Retail lending distribution analysis. Except as provided in 
paragraph (b)(5) of this section, the [Agency] evaluates the geographic 
and borrower distributions of each of a bank's major product lines in 
each Retail Lending Test Area, as provided in paragraphs (d) and (e) of 
this section.
    (3) Retail Lending Test recommended conclusions. Except as provided 
in paragraph (b)(5) of this section, the [Agency] develops a Retail 
Lending Test recommended conclusion pursuant to paragraph (f) of this 
section for each Retail Lending Test Area.
    (4) Retail Lending Test conclusions. Except as provided in 
paragraph (b)(5) of this section, the [Agency]'s determination of a 
bank's Retail Lending Test conclusion for a Retail Lending Test Area is 
informed by the bank's Retail Lending Test recommended conclusion for 
the Retail Lending Test Area, performance context factors provided in 
Sec.  __.21(d), and the additional factors provided in paragraph (g) of 
this section.
    (5) Exceptions--(i) No major product line. If a bank has no major 
product line in a facility-based assessment area, the [Agency] assigns 
the bank a Retail Lending Test conclusion for that facility-based 
assessment area based upon its performance on the Retail Lending Volume 
Screen pursuant to paragraph (c) of this section, performance context 
factors provided in Sec.  __.21(d), and the additional factors provided 
in paragraph (g) of this section.
    (ii) Banks that lack an acceptable basis for not meeting the Retail 
Lending Volume Threshold. The [Agency] assigns a Retail Lending Test 
conclusion for a facility-based assessment area in which a bank lacks 
an acceptable basis for not meeting the Retail Lending Volume Threshold 
as provided in paragraph (c)(3)(iii) of this section.
    (c) Retail Lending Volume Screen--(1) Retail Lending Volume 
Threshold. A bank meets or surpasses the Retail Lending Volume 
Threshold in a facility-based assessment area if the bank has a Bank 
Volume Metric of 30 percent or greater of the Market Volume Benchmark 
for that facility-based assessment area. The [Agency] calculates the 
Bank Volume Metric and the Market Volume Benchmark pursuant to section 
I of appendix A to this part.
    (2) Banks that meet or surpass the Retail Lending Volume Threshold 
in a facility-based assessment area. If a bank meets or surpasses the 
Retail Lending Volume Threshold in a facility-based assessment area 
pursuant to paragraph (c)(1) of this section, the [Agency] develops a 
Retail Lending Test recommended conclusion for the facility-based 
assessment area pursuant to paragraphs (d) through (f) of this section.
    (3) Banks that do not meet the Retail Lending Volume Threshold in a 
facility-based assessment area--(i) Acceptable basis factors. If a bank 
does not meet the Retail Lending Volume Threshold in a facility-based 
assessment area pursuant to paragraph (c)(1) of this section, the 
[Agency] determines whether the bank has an acceptable basis for not 
meeting the Retail Lending Volume Threshold in the facility-based 
assessment area by considering:
    (A) The bank's dollar volume of non-automobile consumer loans;
    (B) The bank's institutional capacity and constraints, including 
the financial condition of the bank;
    (C) The presence or lack of other lenders in the facility-based 
assessment area;
    (D) Safety and soundness limitations;
    (E) The bank's business strategy; and
    (F) Any other factors that limit the bank's ability to lend in the 
facility-based assessment area.
    (ii) Banks that have an acceptable basis for not meeting the Retail 
Lending Volume Threshold in a facility-based assessment area. If, after 
reviewing the factors described in paragraph (c)(3)(i) of this section, 
the [Agency] determines that a bank has an acceptable basis for not 
meeting the Retail Lending Volume Threshold in a facility-based 
assessment area, the [Agency] develops a Retail Lending Test 
recommended conclusion for the facility-based assessment area in

[[Page 7118]]

the same manner as for a bank that meets or surpasses the Retail 
Lending Volume Threshold under paragraph (c)(2) of this section.
    (iii) Banks that lack an acceptable basis for not meeting the 
Retail Lending Volume Threshold in a facility-based assessment area--
(A) Large banks. If, after reviewing the factors in paragraph (c)(3)(i) 
of this section, the [Agency] determines that a large bank lacks an 
acceptable basis for not meeting the Retail Lending Volume Threshold in 
a facility-based assessment area, the [Agency] assigns the bank a 
Retail Lending Test conclusion of ``Needs to Improve'' or ``Substantial 
Noncompliance'' for that facility-based assessment area. In determining 
whether ``Needs to Improve'' or ``Substantial Noncompliance'' is the 
appropriate conclusion, the [Agency] considers:
    (1) The bank's retail lending volume and the extent by which it did 
not meet the Retail Lending Volume Threshold;
    (2) The bank's distribution analysis pursuant to paragraphs (d) 
through (f) of this section;
    (3) Performance context factors provided in Sec.  __.21(d); and
    (4) Additional factors provided in paragraph (g) of this section.
    (B) Intermediate or small banks. If, after reviewing the factors in 
paragraph (c)(3)(i) of this section, the [Agency] determines that an 
intermediate bank, or a small bank that opts to be evaluated under the 
Retail Lending Test, lacks an acceptable basis for not meeting the 
Retail Lending Volume Threshold in a facility-based assessment area, 
the [Agency] develops a Retail Lending Test recommended conclusion for 
the facility-based assessment area pursuant to paragraphs (d) through 
(f) of this section. The [Agency]'s determination of a bank's Retail 
Lending Test conclusion for the facility-based assessment area is 
informed by:
    (1) The bank's Retail Lending Test recommended conclusion for the 
facility-based assessment area;
    (2) The bank's retail lending volume and the extent by which it did 
not meet the Retail Lending Volume Threshold;
    (3) Performance context factors provided in Sec.  __.21(d); and
    (4) Additional factors provided in paragraph (g) of this section.
    (d) Scope of Retail Lending Test distribution analysis--(1) Product 
lines evaluated in a Retail Lending Test Area. In each applicable 
Retail Lending Test Area, the [Agency] evaluates originated and 
purchased loans in each of the following product lines that is a major 
product line, as described in paragraph (d)(2) of this section:
    (i) Closed-end home mortgage loans in a bank's facility-based 
assessment areas and, as applicable, retail lending assessment areas 
and outside retail lending area;
    (ii) Small business loans in a bank's facility-based assessment 
areas and, as applicable, retail lending assessment areas and outside 
retail lending area;
    (iii) Small farm loans in a bank's facility-based assessment areas 
and, as applicable, outside retail lending area; and
    (iv) Automobile loans in a bank's facility-based assessment areas 
and, as applicable, outside retail lending area.
    (2) Major product line standards--(i) Major product line standard 
for facility-based assessment areas and outside retail lending areas. 
In a facility-based assessment area or outside retail lending area, a 
product line is a major product line if the bank's loans in that 
product line comprise 15 percent or more of the bank's loans across all 
of the bank's product lines in the facility-based assessment area or 
outside retail lending area, as determined pursuant to paragraph II.b.1 
of appendix A to this part.
    (ii) Major product line standards for retail lending assessment 
areas. In a retail lending assessment area:
    (A) Closed-end home mortgage loans are a major product line in any 
calendar year in the evaluation period in which the bank delineates a 
retail lending assessment area based on its closed-end home mortgage 
loans as determined by the standard in Sec.  __.17(c)(1); and
    (B) Small business loans are a major product line in any calendar 
year in the evaluation period in which the bank delineates a retail 
lending assessment area based on its small business loans as determined 
by the standard in Sec.  __.17(c)(2).
    (e) Retail Lending Test distribution analysis. The [Agency] 
evaluates a bank's Retail Lending Test performance in each of its 
Retail Lending Test Areas by considering the geographic and borrower 
distributions of a bank's loans in its major product lines.
    (1) Distribution analysis in general--(i) Distribution analysis for 
closed-end home mortgage loans, small business loans, and small farm 
loans. For closed-end home mortgage loans, small business loans, and 
small farm loans, respectively, the [Agency] compares a bank's 
geographic and borrower distributions to performance ranges based on 
the applicable market and community benchmarks, as provided in 
paragraph (f) of this section and section V of appendix A to this part.
    (ii) Distribution analysis for automobile loans. For automobile 
loans, the [Agency] compares a bank's geographic and borrower 
distributions to the applicable community benchmarks, as provided in 
paragraph (f) of this section and section VI of appendix A to this 
part.
    (2) Categories of lending evaluated--(i) Geographic distributions. 
For each major product line in each Retail Lending Test Area, the 
[Agency] evaluates the geographic distributions separately for the 
following categories of census tracts:
    (A) Low-income census tracts; and
    (B) Moderate-income census tracts.
    (ii) Borrower distributions. For each major product line in each 
Retail Lending Test Area, the [Agency] evaluates the borrower 
distributions separately for, as applicable, the following categories 
of borrowers:
    (A) Low-income borrowers;
    (B) Moderate-income borrowers;
    (C) Businesses with gross annual revenues of $250,000 or less;
    (D) Businesses with gross annual revenues greater than $250,000 but 
less than or equal to $1 million;
    (E) Farms with gross annual revenues of $250,000 or less; and
    (F) Farms with gross annual revenues greater than $250,000 but less 
than or equal to $1 million.
    (3) Geographic distribution measures. To evaluate the geographic 
distributions in a Retail Lending Test Area, the [Agency] considers the 
following measures:
    (i) Geographic Bank Metric. For each major product line, a 
Geographic Bank Metric, calculated pursuant to paragraph III.a of 
appendix A to this part;
    (ii) Geographic Market Benchmark. For each major product line 
except automobile loans, a Geographic Market Benchmark, calculated 
pursuant to paragraph III.b of appendix A to this part for facility-
based assessment areas and retail lending assessment areas, and 
paragraph III.d of appendix A to this part for outside retail lending 
areas; and
    (iii) Geographic Community Benchmark. For each major product line, 
a Geographic Community Benchmark, calculated pursuant to paragraph 
III.c of appendix A to this part for facility-based assessment areas 
and retail lending assessment areas, and paragraph III.e of appendix A 
to this part for outside retail lending areas.
    (4) Borrower distribution measures. To evaluate the borrower 
distributions in a Retail Lending Test Area, the [Agency] considers the 
following measures:
    (i) Borrower Bank Metric. For each major product line, a Borrower 
Bank Metric, calculated pursuant to

[[Page 7119]]

paragraph IV.a of appendix A to this part;
    (ii) Borrower Market Benchmark. For each major product line except 
automobile loans, a Borrower Market Benchmark, calculated pursuant to 
paragraph IV.b of appendix A to this part for facility-based assessment 
areas and retail lending assessment areas, and paragraph IV.d of 
appendix A to this part for outside retail lending areas; and
    (iii) Borrower Community Benchmark. For each major product line, a 
Borrower Community Benchmark, calculated pursuant to paragraph IV.c of 
appendix A to this part for facility-based assessment areas and retail 
lending assessment areas, and paragraph IV.e of appendix A to this part 
for outside retail lending areas.
    (f) Retail Lending Test recommended conclusions--(1) In general. 
Except as described in paragraphs (b)(5)(i) and (c)(3)(iii)(A) of this 
section, the [Agency] develops a Retail Lending Test recommended 
conclusion for each of a bank's Retail Lending Test Areas based on the 
distribution analysis described in paragraph (e) of this section and 
using performance ranges, supporting conclusions, and product line 
scores as provided in sections V through VII of appendix A to this 
part. For each major product line, the [Agency] develops a separate 
supporting conclusion for each category of census tracts and each 
category of borrowers described in paragraphs V.a and VI.a of appendix 
A to this part.
    (2) Geographic distribution supporting conclusions--(i) Geographic 
distribution supporting conclusions for closed-end home mortgage loans, 
small business loans, and small farm loans. To develop supporting 
conclusions for geographic distributions of closed-end home mortgage 
loans, small business loans, and small farm loans, the [Agency] 
evaluates the bank's performance by comparing the Geographic Bank 
Metric to performance ranges, based on the Geographic Market Benchmark, 
the Geographic Community Benchmark, and multipliers, as described in 
paragraphs V.b and V.c of appendix A to this part.
    (ii) Geographic distribution supporting conclusions for automobile 
loans. To develop supporting conclusions for geographic distributions 
for automobile loans, the [Agency] evaluates the bank's performance by 
comparing the Geographic Bank Metric to the Geographic Community 
Benchmark, as described in paragraph VI.b of appendix A to this part.
    (3) Borrower distribution supporting conclusions--(i) Borrower 
distribution supporting conclusions for closed-end home mortgage loans, 
small business loans, and small farm loans. To develop supporting 
conclusions for borrower distributions of closed-end home mortgage 
loans, small business loans, and small farm loans, the [Agency] 
evaluates the bank's performance by comparing the Borrower Bank Metric 
to performance ranges, based on the Borrower Market Benchmark, Borrower 
Community Benchmark, and multipliers, as described in paragraphs V.d 
and V.e of appendix A to this part.
    (ii) Borrower distribution supporting conclusions for automobile 
loans. To develop supporting conclusions for borrower distributions for 
automobile loans, the [Agency] evaluates the bank's performance by 
comparing the Borrower Bank Metric to the Borrower Community Benchmark, 
as described in paragraph VI.c of appendix A to this part.
    (4) Development of Retail Lending Test recommended conclusions--(i) 
Assignment of performance scores. For each supporting conclusion 
developed pursuant to paragraphs (f)(2) and (3) of this section, the 
[Agency] assigns a corresponding performance score as described in 
sections V and VI of appendix A to this part.
    (ii) Combination of performance scores. As described in section VII 
of appendix A to this part, for each Retail Lending Test Area, the 
[Agency]:
    (A) Combines the performance scores for each supporting conclusion 
for each major product line into a product line score; and
    (B) Calculates a weighted average of product line scores across all 
major product lines.
    (iii) Retail Lending Test recommended conclusions. For each Retail 
Lending Test Area, the [Agency] develops the Retail Lending Test 
recommended conclusion that corresponds to the weighted average of 
product line scores developed pursuant to paragraph (f)(4)(ii)(B) of 
this section, as described in section VII of appendix A to this part.
    (g) Additional factors considered when evaluating retail lending 
performance. The factors in paragraphs (g)(1) through (7) of this 
section, as appropriate, inform the [Agency]'s determination of a 
bank's Retail Lending Test conclusion for a Retail Lending Test Area:
    (1) Information indicating that a bank purchased closed-end home 
mortgage loans, small business loans, small farm loans, or automobile 
loans for the sole or primary purpose of inappropriately enhancing its 
retail lending performance, including, but not limited to, information 
indicating subsequent resale of such loans or any indication that such 
loans have been considered in multiple depository institutions' CRA 
evaluations, in which case the [Agency] does not consider such loans in 
the bank's performance evaluation;
    (2) The dispersion of a bank's closed-end home mortgage lending, 
small business lending, small farm lending, or automobile lending 
within a facility-based assessment area to determine whether there are 
gaps in lending that are not explained by performance context;
    (3) The number of lenders whose home mortgage loans, multifamily 
loans, small business loans, and small farm loans and deposits data are 
used to establish the applicable Retail Lending Volume Threshold, 
geographic distribution market benchmarks, and borrower distribution 
market benchmarks;
    (4) Missing or faulty data that would be necessary to calculate the 
relevant metrics and benchmarks or any other factors that prevent the 
[Agency] from calculating a Retail Lending Test recommended conclusion. 
If unable to calculate a Retail Lending Test recommended conclusion, 
the [Agency] assigns a Retail Lending Test conclusion based on 
consideration of the relevant available data;
    (5) Whether the Retail Lending Test recommended conclusion does not 
accurately reflect the bank's performance in a Retail Lending Test Area 
in which one or more of the bank's major product lines consists of 
fewer than 30 loans;
    (6) A bank's closed-end home mortgage lending, small business 
lending, small farm lending, or automobile lending in distressed or 
underserved nonmetropolitan middle-income census tracts where a bank's 
nonmetropolitan facility-based assessment area or nonmetropolitan 
retail lending assessment area includes very few or no low- and 
moderate-income census tracts; and
    (7) Information indicating that the credit needs of the facility-
based assessment area or retail lending assessment area are not being 
met by lenders in the aggregate, such that the relevant benchmarks do 
not adequately reflect community credit needs.
    (h) Retail Lending Test performance conclusions and ratings--(1) 
Conclusions--(i) In general. Pursuant to Sec.  __.28, section VIII of 
appendix A to this part, and appendix C to this part, the [Agency] 
assigns conclusions for a bank's Retail Lending Test performance in 
each Retail Lending Test Area, State, and multistate MSA, as 
applicable, and for the institution.

[[Page 7120]]

    (ii) Retail Lending Test Area conclusions. The [Agency] assigns a 
Retail Lending Test conclusion for each Retail Lending Test Area based 
on the Retail Lending Test recommended conclusion, performance context 
factors provided in Sec.  __.21(d), and the additional factors provided 
in paragraph (g) of this section, except as provided in paragraphs 
(h)(1)(ii)(A) and (B) of this section:
    (A) Facility-based assessment areas with no major product line. The 
[Agency] assigns a Retail Lending Test conclusion for a facility-based 
assessment area in which a bank has no major product line based on the 
bank's performance on the Retail Lending Volume Screen pursuant to 
paragraph (c) of this section, performance context information provided 
in Sec.  __.21(d), and the additional factors provided in paragraph (g) 
of this section.
    (B) Facility-based assessment areas in which a bank lacks an 
acceptable basis for not meeting the Retail Lending Volume Threshold. 
The [Agency] assigns a Retail Lending Test conclusion for a facility-
based assessment area in which a bank lacks an acceptable basis for not 
meeting the Retail Lending Volume Threshold as provided in paragraph 
(c)(3)(iii) of this section.
    (2) Ratings. Pursuant to Sec.  __.28 and appendix D to this part, 
the [Agency] incorporates a bank's Retail Lending Test conclusions into 
its State or multistate MSA ratings, as applicable, and its institution 
rating.


Sec.  __.23  Retail services and products test.

    (a) Retail Services and Products Test--(1) In general. Pursuant to 
Sec.  __.21, the Retail Services and Products Test evaluates the 
availability of a bank's retail banking services and retail banking 
products and the responsiveness of those services and products to the 
credit needs of the bank's entire community, including low- and 
moderate-income individuals, families, or households, low- and 
moderate-income census tracts, small businesses, and small farms. The 
[Agency] evaluates the bank's retail banking services, as described in 
paragraph (b) of this section, and the bank's retail banking products, 
as described in paragraph (c) of this section.
    (2) Main offices. For purposes of this section, references to a 
branch also include a main office that is open to, and accepts deposits 
from, the general public.
    (3) Exclusion. If the [Agency] considers services under the 
Community Development Services Test in Sec.  __.25, the [Agency] does 
not consider those services under the Retail Services and Products 
Test.
    (b) Retail banking services--(1) Scope of evaluation. To evaluate a 
bank's retail banking services, the [Agency] considers a bank's branch 
availability and services provided at branches, remote service facility 
availability, and digital delivery systems and other delivery systems, 
as follows:
    (i) Branch availability and services. The [Agency] considers the 
branch availability and services provided at branches of banks that 
operate one or more branches pursuant to paragraph (b)(2) of this 
section.
    (ii) Remote service facility availability. The [Agency] considers 
the remote service facility availability of banks that operate one or 
more remote service facilities pursuant to paragraph (b)(3) of this 
section.
    (iii) Digital delivery systems and other delivery systems. The 
[Agency] considers the digital delivery systems and other delivery 
systems of banks pursuant to paragraph (b)(4) of this section, as 
follows:
    (A) The [Agency] considers the digital delivery systems and other 
delivery systems of the following banks:
    (1) Large banks that had assets greater than $10 billion as of 
December 31 in both of the prior two calendar years; and
    (2) Large banks that had assets less than or equal to $10 billion 
as of December 31 in either of the prior two calendar years and that do 
not operate branches.
    (B) For a large bank that had assets less than or equal $10 billion 
as of December 31 in either of the prior two calendar years and that 
operates at least one branch, the [Agency] considers the bank's digital 
delivery systems and other delivery systems at the bank's option.
    (2) Branch availability and services. The [Agency] evaluates a 
bank's branch availability and services in a facility-based assessment 
area based on the following:
    (i) Branch distribution. The [Agency] considers a bank's branch 
distribution using the following:
    (A) Branch distribution metrics. The [Agency] considers the number 
and percentage of the bank's branches within low-, moderate-, middle-, 
and upper-income census tracts.
    (B) Benchmarks. The [Agency]'s consideration of the branch 
distribution metrics is informed by the following benchmarks:
    (1) Percentage of census tracts in the facility-based assessment 
area that are low-, moderate-, middle-, and upper-income census tracts;
    (2) Percentage of households in the facility-based assessment area 
that are in low-, moderate-, middle-, and upper-income census tracts;
    (3) Percentage of total businesses in the facility-based assessment 
area that are in low-, moderate-, middle-, and upper-income census 
tracts; and
    (4) Percentage of all full-service depository institution branches 
in the facility-based assessment area that are in low-, moderate-, 
middle-, and upper-income census tracts.
    (C) Additional geographic considerations. The [Agency] considers 
the availability of branches in the following geographic areas:
    (1) Middle- and upper-income census tracts in which a branch 
delivers services to low- and moderate-income individuals, families, or 
households to the extent that these individuals, families, or 
households use the services offered;
    (2) Distressed or underserved nonmetropolitan middle-income census 
tracts; and
    (3) Native Land Areas.
    (ii) Branch openings and closings. The [Agency] considers a bank's 
record of opening and closing branches since the previous CRA 
examination to inform the degree of accessibility of services to low- 
and moderate-income individuals, families, or households, small 
businesses, and small farms, and low- and moderate-income census 
tracts.
    (iii) Branch hours of operation and services. The [Agency] 
considers the following:
    (A) The reasonableness of branch hours in low- and moderate-income 
census tracts compared to middle- and upper-income census tracts, 
including, but not limited to, whether branches offer extended and 
weekend hours.
    (B) The range of services provided at branches in low-, moderate-, 
middle-, and upper-income census tracts, respectively, including, but 
not limited to:
    (1) Bilingual and translation services;
    (2) Free or low-cost check cashing services, including, but not 
limited to, check cashing services for government-issued and payroll 
checks;
    (3) Reasonably priced international remittance services; and
    (4) Electronic benefit transfers.
    (C) The degree to which branch-provided retail banking services are 
responsive to the needs of low- and moderate-income individuals, 
families, or households in a bank's facility-based assessment areas.
    (3) Remote service facility availability. The [Agency] evaluates a 
bank's remote service facility availability in a facility-based 
assessment area based on the following:

[[Page 7121]]

    (i) Remote service facility distribution. The [Agency] considers a 
bank's remote service facility distribution using the following:
    (A) Remote service facility distribution metrics. The [Agency] 
considers the number and percentage of the bank's remote service 
facilities within low-, moderate-, middle-, and upper-income census 
tracts.
    (B) Benchmarks. The [Agency]'s consideration of the remote service 
facility distribution metrics is informed by the following benchmarks:
    (1) Percentage of census tracts in the facility-based assessment 
area that are low-, moderate-, middle-, and upper-income census tracts;
    (2) Percentage of households in the facility-based assessment area 
that are in low-, moderate-, middle-, and upper-income census tracts; 
and
    (3) Percentage of total businesses in the facility-based assessment 
area that are in low-, moderate-, middle-, and upper-income census 
tracts.
    (C) Additional geographic considerations. The [Agency] considers 
the availability of remote service facilities in the following 
geographic areas:
    (1) Middle- and upper-income census tracts in which a remote 
service facility delivers services to low- and moderate-income 
individuals, families, or households to the extent that these 
individuals, families, or households use the services offered;
    (2) Distressed or underserved nonmetropolitan middle-income census 
tracts; and
    (3) Native Land Areas.
    (ii) Access to out-of-network ATMs. The [Agency] considers whether 
the bank offers customers fee-free access to out-of-network ATMs in 
low- and moderate-income census tracts.
    (4) Digital delivery systems and other delivery systems. The 
[Agency] evaluates the availability and responsiveness of a bank's 
digital delivery systems and other delivery systems, including to low- 
and moderate-income individuals, families, or households at the 
institution level by considering:
    (i) The range of retail banking services and retail banking 
products offered through digital delivery systems and other delivery 
systems;
    (ii) The bank's strategy and initiatives to serve low- and 
moderate-income individuals, families, or households with digital 
delivery systems and other delivery systems as reflected by, for 
example, the costs, features, and marketing of the delivery systems; 
and
    (iii) Digital delivery systems and other delivery systems activity 
by individuals, families or households in low-, moderate-, middle-, and 
upper-income census tracts as evidenced by:
    (A) The number of checking and savings accounts opened each 
calendar year during the evaluation period digitally and through other 
delivery systems in low-, moderate-, middle-, and upper-income census 
tracts;
    (B) The number of checking and savings accounts opened digitally 
and through other delivery systems and that are active at the end of 
each calendar year during the evaluation period in low-, moderate-, 
middle-, and upper-income census tracts; and
    (C) Any other bank data that demonstrates digital delivery systems 
and other delivery systems are available to individuals and in census 
tracts of different income levels, including low- and moderate-income 
individuals, families, or households and low- and moderate-income 
census tracts.
    (c) Retail banking products evaluation--(1) Scope of evaluation. 
The [Agency] evaluates a bank's retail banking products offered in the 
bank's facility-based assessment areas and nationwide, as applicable, 
at the institution level as follows:
    (i) Credit products and programs. The [Agency] evaluates a bank's 
credit products and programs pursuant to paragraph (c)(2) of this 
section.
    (ii) Deposit products. The [Agency] evaluates a bank's deposit 
products pursuant to paragraph (c)(3) of this section as follows:
    (A) For large banks that had assets greater than $10 billion as of 
December 31 in both of the prior two calendar years; and
    (B) For large banks that had assets less than or equal to $10 
billion as of December 31 in either of the prior two calendar years, 
the [Agency] considers a bank's deposit products only at the bank's 
option.
    (2) Credit products and programs. The [Agency] evaluates whether a 
bank's credit products and programs are, consistent with safe and sound 
operations, responsive to the credit needs of the bank's entire 
community, including the needs of low- and moderate-income individuals, 
families, or households, residents of low- and moderate-income census 
tracts, small businesses, or small farms. Responsive credit products 
and programs may include, but are not limited to, credit products and 
programs that:
    (i) Facilitate home mortgage and consumer lending targeted to low- 
or moderate-income borrowers;
    (ii) Meet the needs of small businesses and small farms, including 
small businesses and small farms with gross annual revenues of $250,000 
or less;
    (iii) Are conducted in cooperation with MDIs, WDIs, LICUs, or 
CDFIs;
    (iv) Are low-cost education loans; or
    (v) Are special purpose credit programs pursuant to 12 CFR 1002.8.
    (3) Deposit products. The [Agency] evaluates the availability and 
usage of a bank's deposit products responsive to the needs of low- and 
moderate-income individuals, families, or households as follows:
    (i) Availability of deposit products responsive to the needs of 
low- and moderate-income individuals, families, or households. The 
[Agency] considers the availability of deposit products responsive to 
the needs of low- and moderate-income individuals, families, or 
households based on the extent to which a bank offers deposit products 
that, consistent with safe and sound operations, have features and cost 
characteristics responsive to the needs of low- and moderate-income 
individuals, families, or households. Deposit products responsive to 
the needs of low- and moderate-income individuals, families, or 
households include but are not limited to, deposit products with the 
following types of features:
    (A) Low-cost features, including, but not limited to, deposit 
products with no overdraft or insufficient funds fees, no or low 
minimum opening balance, no or low monthly maintenance fees, or free or 
low-cost check-cashing and bill-pay services;
    (B) Features facilitating broad functionality and accessibility, 
including, but not limited to, deposit products with in-network ATM 
access, debit cards for point-of-sale and bill payments, and immediate 
access to funds for customers cashing government, payroll, or bank-
issued checks; or
    (C) Features facilitating inclusivity of access by individuals 
without banking or credit histories or with adverse banking histories.
    (ii) Usage of deposit products responsive to the needs of low- and 
moderate-income individuals. The [Agency] considers the usage of a 
bank's deposit products responsive to the needs of low- and moderate-
income individuals, families, or households based on the following 
information:
    (A) The number of responsive deposit accounts opened and closed 
during each year of the evaluation period in low-, moderate-, middle-, 
and upper-income census tracts;
    (B) In connection with paragraph (c)(3)(ii)(A) of this section, the 
percentage of responsive deposit

[[Page 7122]]

accounts compared to total deposit accounts for each year of the 
evaluation period;
    (C) Marketing, partnerships, and other activities that the bank has 
undertaken to promote awareness and use of responsive deposit accounts 
by low- and moderate-income individuals, families, or households; and
    (D) Optionally, any other information the bank provides that 
demonstrates usage of the bank's deposit products that have features 
and cost characteristics responsive to the needs of low- and moderate-
income individuals, families, or households and low- and moderate-
income census tracts.
    (d) Retail Services and Products Test performance conclusions and 
ratings--(1) Conclusions. Pursuant to Sec.  __.28 and appendix C to 
this part, the [Agency] assigns conclusions for a bank's Retail 
Services and Products Test performance in each facility-based 
assessment area, State and multistate MSA, as applicable, and for the 
institution. In assigning conclusions under this performance test, the 
[Agency] may consider performance context information as provided in 
Sec.  __.21(d). The evaluation of a bank's retail banking products 
under paragraph (c) of this section may only contribute positively to 
the bank's Retail Services and Products Test conclusion.
    (2) Ratings. Pursuant to Sec.  __.28 and appendix D to this part, 
the [Agency] incorporates a bank's Retail Services and Products Test 
conclusions into its State or multistate MSA ratings, as applicable, 
and its institution rating.


Sec.  __.24  Community development financing test.

    (a) Community Development Financing Test--(1) In general. Pursuant 
to Sec.  __.21, the Community Development Financing Test evaluates the 
bank's record of helping to meet the credit needs of its entire 
community through community development loans and community development 
investments (i.e., the bank's community development financing 
performance).
    (2) Allocation. The [Agency] considers community development loans 
and community development investments allocated pursuant to paragraph 
I.b of appendix B to this part.
    (b) Facility-based assessment area evaluation. The [Agency] 
evaluates a bank's community development financing performance in a 
facility-based assessment area using the metric in paragraph (b)(1) of 
this section, benchmarks in paragraph (b)(2) of this section, and a 
review of the impact and responsiveness of the bank's community 
development loans and community development investments in paragraph 
(b)(3) of this section, and assigns a conclusion for a facility-based 
assessment area pursuant to paragraph d.1 of appendix C to this part.
    (1) Bank Assessment Area Community Development Financing Metric. 
The Bank Assessment Area Community Development Financing Metric 
measures the dollar volume of a bank's community development loans and 
community development investments that benefit or serve a facility-
based assessment area compared to deposits in the bank that are located 
in the facility-based assessment area, calculated pursuant to paragraph 
II.a of appendix B to this part.
    (2) Benchmarks. The [Agency] compares the Bank Assessment Area 
Community Development Financing Metric to the following benchmarks:
    (i) Assessment Area Community Development Financing Benchmark. For 
each of a bank's facility-based assessment areas, the Assessment Area 
Community Development Financing Benchmark measures the dollar volume of 
community development loans and community development investments that 
benefit or serve the facility-based assessment area for all large 
depository institutions compared to deposits located in the facility-
based assessment area for all large depository institutions, calculated 
pursuant to paragraph II.b of appendix B to this part.
    (ii) MSA and Nonmetropolitan Nationwide Community Development 
Financing Benchmarks. (A) For each of a bank's facility-based 
assessment areas within an MSA, the MSA Nationwide Community 
Development Financing Benchmark measures the dollar volume of community 
development loans and community development investments that benefit or 
serve MSAs in the nationwide area for all large depository institutions 
compared to deposits located in the MSAs in the nationwide area for all 
large depository institutions.
    (B) For each of a bank's facility-based assessment areas within a 
nonmetropolitan area, the Nonmetropolitan Nationwide Community 
Development Financing Benchmark measures the dollar volume of community 
development loans and community development investments that benefit or 
serve nonmetropolitan areas in the nationwide area for all large 
depository institutions compared to deposits located in nonmetropolitan 
areas in the nationwide area for all large depository institutions.
    (C) The [Agency] calculates the MSA and Nonmetropolitan Nationwide 
Community Development Financing Benchmarks pursuant to paragraph II.c 
of appendix B to this part.
    (3) Impact and responsiveness review. The [Agency] reviews the 
impact and responsiveness of a bank's community development loans and 
community development investments that benefit or serve a facility-
based assessment area, as provided in Sec.  __.15.
    (c) State evaluation. The [Agency] evaluates a bank's community 
development financing performance in a State, pursuant to Sec. Sec.  
__.19 and __.28(c), using the two components in paragraphs (c)(1) and 
(2) of this section and assigns a conclusion for each State based on a 
weighted combination of those components pursuant to paragraph II.p of 
appendix B to this part.
    (1) Component one--weighted average of facility-based assessment 
area performance conclusions in a State. The [Agency] considers the 
weighted average of the performance scores corresponding to the bank's 
Community Development Financing Test conclusions for its facility-based 
assessment areas within the State, pursuant to section IV of appendix B 
to this part.
    (2) Component two--State performance. The [Agency] considers a 
bank's community development financing performance in a State using the 
metric and benchmarks in paragraphs (c)(2)(i) and (ii) of this section 
and a review of the impact and responsiveness of the bank's community 
development loans and community development investments in paragraph 
(c)(2)(iii) of this section.
    (i) Bank State Community Development Financing Metric. The Bank 
State Community Development Financing Metric measures the dollar volume 
of a bank's community development loans and community development 
investments that benefit or serve all or part of a State compared to 
deposits in the bank that are located in the State, calculated pursuant 
to paragraph II.d of appendix B to this part.
    (ii) Benchmarks. The [Agency] compares the Bank State Community 
Development Financing Metric to the following benchmarks:
    (A) State Community Development Financing Benchmark. The State 
Community Development Financing Benchmark measures the dollar volume of 
community development loans and community development investments that 
benefit or serve all or part of a State for all large depository 
institutions compared to deposits located in the State for all large 
depository

[[Page 7123]]

institutions, calculated pursuant to paragraph II.e of appendix B to 
this part.
    (B) State Weighted Assessment Area Community Development Financing 
Benchmark. The State Weighted Assessment Area Community Development 
Financing Benchmark is the weighted average of the bank's Assessment 
Area Community Development Financing Benchmarks for each facility-based 
assessment area within the State, calculated pursuant to paragraph II.f 
of appendix B to this part.
    (iii) Impact and responsiveness review. The [Agency] reviews the 
impact and responsiveness of the bank's community development loans and 
community development investments that benefit or serve a State, as 
provided in Sec.  __.15.
    (d) Multistate MSA evaluation. The [Agency] evaluates a bank's 
community development financing performance in a multistate MSA, 
pursuant to Sec. Sec.  __.19 and __.28(c), using the two components in 
paragraphs (d)(1) and (2) of this section and assigns a conclusion in 
each multistate MSA based on a weighted combination of those components 
pursuant to paragraph II.p of appendix B to this part.
    (1) Component one--weighted average of facility-based assessment 
area performance in a multistate MSA. The [Agency] considers the 
weighted average of the performance scores corresponding to the bank's 
Community Development Financing Test conclusions for its facility-based 
assessment areas within the multistate MSA, calculated pursuant to 
section IV of appendix B to this part.
    (2) Component two--multistate MSA performance. The [Agency] 
considers a bank's community development financing performance in a 
multistate MSA using the metric and benchmarks in paragraphs (d)(2)(i) 
and (ii) of this section and a review of the impact and responsiveness 
of the bank's community development loans and community development 
investments in paragraph (d)(2)(iii) of this section.
    (i) Bank Multistate MSA Community Development Financing Metric. The 
Bank Multistate MSA Community Development Financing Metric measures the 
dollar volume of a bank's community development loans and community 
development investments that benefit or serve a multistate MSA compared 
to deposits in the bank located in the multistate MSA, calculated 
pursuant to paragraph II.g of appendix B to this part.
    (ii) Benchmarks. The [Agency] compares the Bank Multistate MSA 
Community Development Financing Metric to the following benchmarks:
    (A) Multistate MSA Community Development Financing Benchmark. The 
Multistate MSA Community Development Financing Benchmark measures the 
dollar volume of community development loans and community development 
investments that benefit or serve a multistate MSA for all large 
depository institutions compared to deposits located in the multistate 
MSA for all large depository institutions, calculated pursuant to 
paragraph II.h of appendix B to this part.
    (B) Multistate MSA Weighted Assessment Area Community Development 
Financing Benchmark. The Multistate MSA Weighted Assessment Area 
Community Development Financing Benchmark is the weighted average of 
the bank's Assessment Area Community Development Financing Benchmarks 
for each facility-based assessment area within the multistate MSA, 
calculated pursuant to paragraph II.i of appendix B to this part.
    (iii) Impact and responsiveness review. The [Agency] reviews the 
impact and responsiveness of the bank's community development loans and 
community development investments that benefit or serve a multistate 
MSA, as provided in Sec.  __.15.
    (e) Nationwide area evaluation. The [Agency] evaluates a bank's 
community development financing performance in the nationwide area, 
pursuant to Sec.  __.19, using the two components in paragraphs (e)(1) 
and (2) of this section and assigns a conclusion for the institution 
based on a weighted combination of those components pursuant to 
paragraph II.p of appendix B to this part.
    (1) Component one--weighted average of facility-based assessment 
area performance in the nationwide area. The [Agency] considers the 
weighted average of the performance scores corresponding to the bank's 
conclusions for the Community Development Financing Test for its 
facility-based assessment areas within the nationwide area, calculated 
pursuant to section IV of appendix B to this part.
    (2) Component two--nationwide area performance. The [Agency] 
considers a bank's community development financing performance in the 
nationwide area using the metrics and benchmarks in paragraphs 
(e)(2)(i) through (iv) of this section and a review of the impact and 
responsiveness of the bank's community development loans and community 
development investments in paragraph (e)(2)(v) of this section.
    (i) Bank Nationwide Community Development Financing Metric. The 
Bank Nationwide Community Development Financing Metric measures the 
dollar volume of the bank's community development loans and community 
development investments that benefit or serve all or part of the 
nationwide area compared to deposits in the bank located in the 
nationwide area, calculated pursuant to paragraph II.j of appendix B to 
this part.
    (ii) Community Development Financing Benchmarks. The [Agency] 
compares the Bank Nationwide Community Development Financing Metric to 
the following benchmarks:
    (A) Nationwide Community Development Financing Benchmark. The 
Nationwide Community Development Financing Benchmark measures the 
dollar volume of community development loans and community development 
investments that benefit or serve all or part of the nationwide area 
for all large depository institutions compared to the deposits located 
in the nationwide area for all large depository institutions, 
calculated pursuant to paragraph II.k of appendix B to this part.
    (B) Nationwide Weighted Assessment Area Community Development 
Financing Benchmark. The Nationwide Weighted Assessment Area Community 
Development Financing Benchmark is the weighted average of the bank's 
Assessment Area Community Development Financing Benchmarks for each 
facility-based assessment area within the nationwide area, calculated 
pursuant to paragraph II.l of appendix B to this part.
    (iii) Bank Nationwide Community Development Investment Metric. For 
a large bank that had assets greater than $10 billion as of December 31 
in both of the prior two calendar years, the Bank Nationwide Community 
Development Investment Metric measures the dollar volume of the bank's 
community development investments that benefit or serve all or part of 
the nationwide area, excluding mortgage-backed securities, compared to 
the deposits in the bank located in the nationwide area, calculated 
pursuant to paragraph II.m of appendix B to this part.
    (iv) Nationwide Community Development Investment Benchmark. (A) For 
a large bank that had assets greater than $10 billion as of December 31 
in both of the prior two calendar years, the [Agency] compares the Bank 
Nationwide Community Development Investment Metric to the Nationwide 
Community Development Investment Benchmark. This comparison may only 
contribute positively to the bank's

[[Page 7124]]

Community Development Financing Test conclusion for the institution.
    (B) The Nationwide Community Development Investment Benchmark 
measures the dollar volume of community development investments that 
benefit or serve all or part of the nationwide area, excluding 
mortgage-backed securities, of all large depository institutions that 
had assets greater than $10 billion as of December 31 in both of the 
prior two calendar years compared to deposits located in the nationwide 
area for those depository institutions, calculated pursuant to 
paragraph II.n of appendix B to this part.
    (v) Impact and responsiveness review. The [Agency] reviews the 
impact and responsiveness of the bank's community development loans and 
community development investments that benefit or serve the nationwide 
area, as provided in Sec.  __.15.
    (f) Community Development Financing Test performance conclusions 
and ratings--(1) Conclusions. Pursuant to Sec.  __.28 and appendix C to 
this part, the [Agency] assigns conclusions for a bank's Community 
Development Financing Test performance in each facility-based 
assessment area, each State or multistate MSA, as applicable, and for 
the institution. In assigning conclusions under this performance test, 
the [Agency] may consider performance context information as provided 
in Sec.  __.21(d).
    (2) Ratings. Pursuant to Sec.  __.28 and appendix D to this part, 
the [Agency] incorporates a bank's Community Development Financing Test 
conclusions into its State or multistate MSA ratings, as applicable, 
and its institution rating.


Sec.  __.25  Community development services test.

    (a) Community Development Services Test--(1) In general. Pursuant 
to Sec.  __.21, the Community Development Services Test evaluates a 
bank's record of helping to meet the community development services 
needs of its entire community.
    (2) Allocation. The [Agency] considers information provided by the 
bank and may consider publicly available information and information 
provided by government or community sources that demonstrates that a 
community development service benefits or serves a facility-based 
assessment area, State, or multistate MSA, or the nationwide area.
    (b) Facility-based assessment area evaluation. The [Agency] 
evaluates a bank's community development services performance in a 
facility-based assessment area and assigns a conclusion for a facility-
based assessment area, by considering one or more of the following:
    (1) The number of community development services attributable to 
each type of community development described in Sec.  __.13(b) through 
(l);
    (2) The capacities in which a bank's or its affiliate's board 
members or employees serve (e.g., board member of a nonprofit 
organization, technical assistance, financial education, general 
volunteer);
    (3) Total hours of community development services performed by the 
bank;
    (4) Any other evidence demonstrating that the bank's community 
development services are responsive to community development needs, 
such as the number of low- and moderate-income individuals that are 
participants, or number of organizations served; and
    (5) The impact and responsiveness of the bank's community 
development services that benefit or serve the facility-based 
assessment area, as provided in Sec.  __.15.
    (c) State, multistate MSA, or nationwide area evaluation. The 
[Agency] evaluates a bank's community development services performance 
in a State or multistate MSA, as applicable, or nationwide area, and 
assigns a conclusion for those areas, based on the following two 
components:
    (1) Component one--weighted average of facility-based assessment 
area performance in a State, multistate MSA, or nationwide area. The 
[Agency] considers the weighted average of the performance scores 
corresponding to the bank's Community Development Services Test 
conclusions for its facility-based assessment areas within a State, 
multistate MSA, or the institution pursuant to section IV of appendix B 
to this part.
    (2) Component two--evaluation of community development services 
outside of facility-based assessment areas. The [Agency] may adjust 
upwards the conclusion based on the weighted average derived under 
paragraph (c)(1) of this section and an evaluation of the bank's 
community development services performed outside of its facility-based 
assessment areas pursuant to Sec.  __.19, which may consider one or 
more of the factors in paragraphs (b)(1) through (5) of this section.
    (d) Community Development Services Test performance conclusions and 
ratings--(1) Conclusions. Pursuant to Sec.  __.28 and appendix C to 
this part, the [Agency] assigns conclusions for a bank's Community 
Development Services Test performance in each facility-based assessment 
area, each State or multistate MSA, as applicable, and for the 
institution. In assigning conclusions under this performance test, the 
[Agency] may consider performance context information as provided in 
Sec.  __.21(d).
    (2) Ratings. Pursuant to Sec.  __.28 and appendix D to this part, 
the [Agency] incorporates a bank's Community Development Services Test 
conclusions into its State or multistate MSA ratings, as applicable, 
and its institution rating.


Sec.  __.26  Limited purpose banks.

    (a) Bank request for designation as a limited purpose bank. To 
receive a designation as a limited purpose bank, a bank must file a 
written request with the [Agency] at least 90 days prior to the 
proposed effective date of the designation. If the [Agency] approves 
the designation, it remains in effect until the bank requests 
revocation of the designation or until one year after the [Agency] 
notifies a limited purpose bank that the [Agency] has revoked the 
designation on the [Agency]'s own initiative.
    (b) Performance evaluation--(1) In general. To evaluate a limited 
purpose bank, the [Agency] applies the Community Development Financing 
Test for Limited Purpose Banks as described in paragraphs (c) through 
(f) of this section.
    (2) Additional consideration--(i) Community development services. 
The [Agency] may adjust a limited purpose bank's institution rating 
from ``Satisfactory'' to ``Outstanding'' where a bank requests and 
receives additional consideration for services that would qualify under 
the Community Development Services Test in Sec.  __.25.
    (ii) Additional consideration for low-cost education loans. A 
limited purpose bank may request and receive additional consideration 
at the institution level for providing low-cost education loans to low-
income borrowers pursuant to 12 U.S.C. 2903(d), regardless of the 
limited purpose bank's overall institution rating.
    (c) Community Development Financing Test for Limited Purpose 
Banks--(1) In general. Pursuant to Sec.  __.21, the Community 
Development Financing Test for Limited Purpose Banks evaluates a 
limited purpose bank's record of helping to meet the credit needs of 
its entire community through community development loans and community 
development investments (i.e., the bank's community development 
financing performance).

[[Page 7125]]

    (2) Allocation. The [Agency] considers community development loans 
and community development investments allocated pursuant to paragraph 
I.b of appendix B to this part.
    (d) Facility-based assessment area evaluation. The [Agency] 
evaluates a limited purpose bank's community development financing 
performance in a facility-based assessment area and assigns a 
conclusion in the facility-based assessment area based on the 
[Agency]'s:
    (1) Consideration of the dollar volume of the limited purpose 
bank's community development loans and community development 
investments that benefit or serve the facility-based assessment area; 
and
    (2) A review of the impact and responsiveness of the limited 
purpose bank's community development loans and community development 
investments that benefit or serve a facility-based assessment area, as 
provided in Sec.  __.15.
    (e) State or multistate MSA evaluation. The [Agency] evaluates a 
limited purpose bank's community development financing performance in 
each State or multistate MSA, as applicable pursuant to Sec. Sec.  
__.19 and __.28(c), and assigns a conclusion for the bank's performance 
in the State or multistate MSA based on the [Agency]'s consideration of 
the following two components:
    (1) Component one--facility-based assessment area performance 
conclusions in a State or multistate MSA. A limited purpose bank's 
community development financing performance in its facility-based 
assessment areas in the State or multistate MSA; and
    (2) Component two--State or multistate MSA performance. The dollar 
volume of the limited purpose bank's community development loans and 
community development investments that benefit or serve the State or 
multistate MSA and a review of the impact and responsiveness of those 
loans and investments, as provided in Sec.  __.15.
    (f) Nationwide area evaluation. The [Agency] evaluates a limited 
purpose bank's community development financing performance in the 
nationwide area, pursuant to Sec.  __.19, and assigns a conclusion for 
the institution based on the [Agency]'s consideration of the following 
two components:
    (1) Component one--facility-based assessment area performance. The 
limited purpose bank's community development financing performance in 
all of its facility-based assessment areas; and
    (2) Component two--nationwide area performance. The limited purpose 
bank's community development financing performance in the nationwide 
area based on the following metrics and benchmarks in paragraphs 
(f)(2)(i) through (iv) of this section and a review of the impact and 
responsiveness of the bank's community development loans and community 
development investments in paragraph (f)(2)(v) of this section.
    (i) Limited Purpose Bank Community Development Financing Metric. 
The Limited Purpose Bank Community Development Financing Metric 
measures the dollar volume of a bank's community development loans and 
community development investments that benefit or serve all or part of 
the nationwide area compared to the bank's assets calculated pursuant 
to paragraph III.a of appendix B to this part.
    (ii) Community Development Financing Benchmarks. The [Agency] 
compares the Limited Purpose Bank Community Development Financing 
Metric to the following benchmarks:
    (A) Nationwide Limited Purpose Bank Community Development Financing 
Benchmark. The Nationwide Limited Purpose Bank Community Development 
Financing Benchmark measures the dollar volume of community development 
loans and community development investments of depository institutions 
designated as limited purpose banks or savings associations pursuant to 
12 CFR 25.26(a) or designated as limited purpose banks pursuant to 12 
CFR 228.26(a) or 345.26(a) reported pursuant to 12 CFR 25.42(b), 
228.42(b), or 345.42(b) that benefit and serve all or part of the 
nationwide area compared to assets for those depository institutions, 
calculated pursuant to paragraph III.b of appendix B to this part; and
    (B) Nationwide Asset-Based Community Development Financing 
Benchmark. The Nationwide Asset-Based Community Development Financing 
Benchmark measures the dollar volume of community development loans and 
community development investments that benefit or serve all or part of 
the nationwide area of all depository institutions that reported 
pursuant to 12 CFR 25.42(b), 228.42(b), or 345.42(b) compared to assets 
for those depository institutions, calculated pursuant to paragraph 
III.c of appendix B to this part.
    (iii) Limited Purpose Bank Community Development Investment Metric. 
For a limited purpose bank that had assets greater than $10 billion as 
of December 31 in both of the prior two calendar years, the Limited 
Purpose Bank Community Development Investment Metric measures the 
dollar volume of the bank's community development investments that 
benefit or serve all or part of the nationwide area, excluding 
mortgage-backed securities, compared to the bank's assets, calculated 
pursuant to paragraph III.d of appendix B to this part.
    (iv) Nationwide Asset-Based Community Development Investment 
Benchmark. (A) For a limited purpose bank that had assets greater than 
$10 billion as of December 31 in both of the prior two calendar years, 
the [Agency] compares the Limited Purpose Bank Community Development 
Investment Metric to the Nationwide Asset-Based Community Development 
Investment Benchmark. This comparison may only contribute positively to 
the bank's Community Development Financing Test for Limited Purpose 
Banks conclusion for the institution.
    (B) The Nationwide Asset-Based Community Development Investment 
Benchmark measures the dollar volume of community development 
investments that benefit or serve all or part of the nationwide area, 
excluding mortgage-backed securities, of all depository institutions 
that had assets greater than $10 billion as of December 31 in both of 
the prior two calendar years, compared to assets for those depository 
institutions, calculated pursuant to paragraph III.e of appendix B to 
this part.
    (v) Impact and responsiveness review. The [Agency] reviews the 
impact and responsiveness of the bank's community development loans and 
community development investments that benefit or serve the nationwide 
area, as provided in Sec.  __.15.
    (g) Community Development Financing Test for Limited Purpose Banks 
performance conclusions and ratings--(1) Conclusions. Pursuant to Sec.  
__.28 and appendix C to this part, the [Agency] assigns conclusions for 
a limited purpose bank's Community Development Financing Test for 
Limited Purpose Banks performance in each facility-based assessment 
area, each State or multistate MSA, as applicable, and for the 
institution. In assigning conclusions under this performance test, the 
[Agency] may consider performance context information as provided in 
Sec.  __.21(d).
    (2) Ratings. Pursuant to Sec.  __.28 and appendix D to this part, 
the [Agency] incorporates a limited purpose bank's Community 
Development Financing Test for Limited Purpose Banks conclusions into 
its State or multistate

[[Page 7126]]

MSA ratings, as applicable, and its institution rating.


Sec.  __.27  Strategic plan.

    (a) Alternative election. Pursuant to Sec.  __.21, the [Agency] 
evaluates a bank's record of helping to meet the credit needs of its 
entire community under a strategic plan, if:
    (1) The [Agency] has approved the plan pursuant to this section;
    (2) The plan is in effect; and
    (3) The bank has been operating under an approved plan for at least 
one year.
    (b) Data requirements. The [Agency]'s approval of a plan does not 
affect the bank's obligation, if any, to collect, maintain, and report 
data as required by Sec.  __.42.
    (c) Plans in general--(1) Term. A plan may have a term of not more 
than five years.
    (2) Performance tests in plan. (i) A bank's plan must include the 
same performance tests that would apply in the absence of an approved 
plan, except as provided in paragraph (g)(1) of this section.
    (ii) Consistent with paragraph (g) of this section, a bank's plan 
may include optional evaluation components or eligible modifications 
and additions to the performance tests that would apply in the absence 
of an approved plan.
    (3) Assessment areas and other geographic areas--(i) Multiple 
geographic areas. A bank may prepare a single plan or separate plans 
for its facility-based assessment areas, retail lending assessment 
areas, outside retail lending area, or other geographic areas that 
would be evaluated in the absence of an approved plan.
    (ii) Geographic areas not included in a plan. Any facility-based 
assessment area, retail lending assessment area, outside retail lending 
area, or other geographic area that would be evaluated in the absence 
of an approved plan, but is not included in an approved plan, will be 
evaluated pursuant to the performance tests that would apply in the 
absence of an approved plan.
    (4) [Operations subsidiaries or operating subsidiaries] and 
affiliates--(i) [Operations subsidiaries or operating subsidiaries]. 
The loans, investments, services, and products of a bank's [operations 
subsidiary or operating subsidiary] must be included in the bank's 
plan, unless the [operations subsidiary or operating subsidiary] is 
independently subject to CRA requirements.
    (ii) Affiliates--(A) Optional inclusion of other affiliates' loans, 
investments, services, and products. Consistent with Sec.  __.21(b)(3), 
a bank may include loans, investments, services, and products of 
affiliates of a bank that are not [operations subsidiaries or operating 
subsidiaries] in a plan, if those loans, investments, services, and 
products are not included in the CRA performance evaluation of any 
other depository institution.
    (B) Joint plans. Affiliated depository institutions supervised by 
the same Federal financial supervisory agency may prepare a joint plan, 
provided that the plan includes, for each bank, the applicable 
performance tests that would apply in the absence of an approved plan. 
The joint plan may include optional evaluation components or eligible 
modifications and additions to the performance tests that would apply 
in the absence of an approved plan.
    (C) Allocation. The inclusion of an affiliate's loans, investments, 
services, and products in a bank's plan, or in a joint plan of 
affiliated depository institutions, is subject to the following:
    (1) The loans, investments, services, and products may not be 
included in the CRA performance evaluation of another depository 
institution; and
    (2) The allocation of loans, investments, services, and products to 
a bank, or among affiliated banks, must reflect a reasonable basis for 
the allocation and may not be for the sole or primary purpose of 
inappropriately enhancing any bank's CRA evaluation.
    (d) Justification and appropriateness of plan election--(1) 
Justification requirements. A bank's plan must provide a justification 
that demonstrates the need for the following aspects of a plan due to 
the bank's business model (e.g., its retail banking services and retail 
banking products):
    (i) Optional evaluation components pursuant to paragraph (g)(1) of 
this section;
    (ii) Eligible modifications or additions to the applicable 
performance tests pursuant to paragraph (g)(2) of this section;
    (iii) Additional geographic areas pursuant to paragraph (g)(3) of 
this section; and
    (iv) The conclusions and ratings methodology pursuant to paragraph 
(g)(6) of this section.
    (2) Justification elements. Each justification must specify the 
following:
    (i) Why the bank's business model is outside the scope of, or 
inconsistent with, one or more aspects of the performance tests that 
would apply in the absence of an approved plan;
    (ii) Why an evaluation of the bank pursuant to any aspect of a plan 
in paragraph (d)(1) of this section would more meaningfully reflect a 
bank's record of helping to meet the credit needs of its community than 
if it were evaluated under the performance tests that would apply in 
the absence of an approved plan; and
    (iii) Why the optional performance components and eligible 
modifications or additions meet the standards of paragraphs (g)(1) and 
(2) of this section, as applicable.
    (e) Public participation in initial draft plan development--(1) In 
general. Before submitting a draft plan to the [Agency] for approval 
pursuant to paragraph (h) of this section, a bank must:
    (i) Informally seek suggestions from members of the public while 
developing the plan;
    (ii) Once the bank has developed its initial draft plan, formally 
solicit public comment on the initial draft plan for at least 60 days 
by:
    (A) Submitting the initial draft plan for publication on the 
[Agency]'s website and by publishing the initial draft plan on the 
bank's website, if the bank maintains one; and
    (B)(1) Except as provided in paragraph (e)(1)(ii)(B)(2) of this 
section, publishing notice in at least one print newspaper of general 
circulation (if available, otherwise a digital publication) in each 
facility-based assessment area covered by the plan; and
    (2) For a military bank, publishing notice in at least one print 
newspaper of general circulation targeted to members of the military 
(if available, otherwise a digital publication targeted to members of 
the military); and
    (iii) Include in the notice required under paragraph (e)(1)(ii) of 
this section a means by which members of the public can electronically 
submit and mail comments to the bank on its initial draft plan.
    (2) Availability of initial draft plan. During the period when the 
bank is formally soliciting public comment on its initial draft plan, 
the bank must make copies of the initial draft plan available for 
review at no cost at all offices of the bank in any facility-based 
assessment area covered by the plan and provide copies of the initial 
draft plan upon request for a reasonable fee to cover copying and 
mailing, if applicable.
    (f) Submission of a draft plan. The bank must submit its draft plan 
to the [Agency] at least 90 days prior to the proposed effective date 
of the plan. The bank must also submit with its draft plan:
    (1) Proof of notice publication and a description of its efforts to 
seek input from members of the public, including individuals and 
organizations the bank

[[Page 7127]]

contacted and how the bank gathered information;
    (2) Any written comments or other public input received;
    (3) If the bank revised the initial draft plan in response to the 
public input received, the initial draft plan as released for public 
comment with an explanation of the relevant changes; and
    (4) If the bank did not revise the initial draft plan in response 
to suggestions or concerns from public input received, an explanation 
for why any suggestion or concern was not addressed in the draft plan.
    (g) Plan content. In addition to meeting the requirements in 
paragraphs (c) and (d) of this section, the plan must meet the 
following requirements:
    (1) Applicable performance tests and optional evaluation 
components. A bank must include in its plan a focus on the credit needs 
of its entire community, including low- and moderate-income 
individuals, families, or households, low- and moderate-income census 
tracts, and small businesses and small farms. The bank must describe 
how its plan is responsive to the characteristics and credit needs of 
its facility-based assessment areas, retail lending assessment areas, 
outside retail lending area, or other geographic areas served by the 
bank, considering public comment and the bank's capacity and 
constraints, product offerings, and business strategy. As applicable, a 
bank must specify components in its plan for helping to meet:
    (i) The retail lending needs of its facility-based assessment 
areas, retail lending assessment areas, and outside retail lending area 
that are covered by the plan. A bank that originates or purchases loans 
in a product line evaluated pursuant to the Retail Lending Test in 
Sec.  __.22 or originates or purchases loans evaluated pursuant to the 
Small Bank Lending Test in Sec.  __.29(a)(2) must include the 
applicable test in its plan, subject to eligible modifications or 
additions specified in paragraph (g)(2) of this section.
    (ii) The retail banking services and retail banking products needs 
of its facility-based assessment areas and at the institution level 
that are covered by the plan.
    (A) A large bank that maintains delivery systems evaluated pursuant 
to the Retail Services and Products Test in Sec.  __.23(b) must include 
this component of the test in its plan, subject to eligible 
modifications or additions specified in paragraph (g)(2) of this 
section.
    (B) A large bank that does not maintain delivery systems evaluated 
pursuant to the Retail Services and Products Test in Sec.  __.23(b) may 
include retail banking products components in Sec.  __.23(c) and 
accompanying annual measurable goals in its plan.
    (C) A bank other than a large bank may include components of retail 
banking services or retail banking products and accompanying annual 
measurable goals in its plan.
    (iii) The community development loan and community development 
investment needs of its facility-based assessment areas, States, or 
multistate MSAs, as applicable, and the nationwide area that are 
covered by the plan. Subject to eligible modifications or additions as 
provided in paragraph (g)(2) of this section:
    (A) A large bank must include the Community Development Financing 
Test in Sec.  __.24 in its plan.
    (B) An intermediate bank must include either the Community 
Development Financing Test in Sec.  __.24 or the Intermediate Bank 
Community Development Test in Sec.  __.30(a)(2) in its plan.
    (C) A limited purpose bank must include the Community Development 
Financing Test for Limited Purpose Banks in Sec.  __.26 in its plan.
    (D) A small bank may include a community development loan or 
community development investment component and accompanying annual 
measurable goals in its plan.
    (iv) The community development services needs of its facility-based 
assessment areas served by the bank that are covered by the plan.
    (A) A large bank must include the Community Development Services 
Test in Sec.  __.25 in its plan, subject to eligible modifications or 
additions as provided in paragraph (g)(2) of this section, for each 
facility-based assessment area where the bank has employees.
    (B) A bank other than a large bank may include a community 
development services component and accompanying annual measurable goals 
in its plan.
    (2) Eligible modifications or additions to applicable performance 
tests--(i) Retail lending. (A) For a bank that the [Agency] would 
otherwise evaluate pursuant to the Small Bank Lending Test in Sec.  
__.29(a)(2):
    (1) A bank may omit, as applicable, the evaluation of performance 
criteria related to the loan-to-deposit ratio or the percentage of 
loans located in the bank's facility-based assessment area(s).
    (2) A bank may add annual measurable goals for any aspect of the 
bank's retail lending.
    (B) For a bank the [Agency] would otherwise evaluate pursuant to 
the Retail Lending Test in Sec.  __.22:
    (1) A bank may add additional loan products, such as non-automobile 
consumer loans or open-end home mortgage loans, or additional goals for 
major product lines, such as closed-end home mortgage loans to first-
time homebuyers, with accompanying annual measurable goals.
    (2) Where annual measurable goals for additional loan products or 
additional goals for major product lines have been added pursuant to 
paragraph (g)(2)(i)(B)(1) of this section, a bank may provide different 
weights for averaging together the performance across these loan 
products and may include those loan products in the numerator of the 
Bank Volume Metric.
    (3) A bank may use alternative weights for combining the borrower 
and geographic distribution analyses for major product line(s) or other 
loan products.
    (ii) Retail banking services and retail banking products. (A) A 
large bank may add annual measurable goals for any component of the 
Retail Services and Products Test in Sec.  __.23.
    (B) A large bank may modify the Retail Services and Products Test 
by removing a component of the test.
    (C) A large bank may assign specific weights to applicable 
components in paragraph (g)(2)(ii)(A) of this section in reaching a 
Retail Services and Products Test conclusion.
    (D) A bank other than a large bank may include retail banking 
services or retail banking products component(s) and accompanying 
annual measurable goals in its plan.
    (iii) Community development loans and community development 
investments. (A) A bank may specify annual measurable goals for 
community development loans, community development investments, or 
both. The bank must base any annual measurable goals as a percentage or 
ratio of the bank's community development loans and community 
development investments for all or certain types of community 
development described in Sec.  __.13(b) through (l), presented either 
on a combined or separate basis, relative to the bank's capacity and 
should account for community development needs and opportunities.
    (B) A bank may specify using assets as an alternative denominator 
for a community development financing metric if it better measures a 
bank's capacity.
    (C) A bank may specify additional benchmarks to evaluate a 
community development financing metric.

[[Page 7128]]

    (D) A small bank may include community development loans, community 
development investments, or both, and accompanying annual measurable 
goals in its plan.
    (iv) Community development services. (A) A bank may specify annual 
measurable goals for community development services activity, by number 
of activity hours, number of hours per full-time equivalent employee, 
or some other measure.
    (B) A bank other than a large bank may include a community 
development services component and accompanying annual measurable goals 
in its plan.
    (v) Weights for assessing performance across geographic areas. A 
bank may specify alternative weights for averaging test performance 
across assessment areas or other geographic areas. These alternative 
weights must be based on the bank's capacity and community needs and 
opportunities in specific geographic areas.
    (vi) Test weights. For ratings at the State, multistate MSA, and 
institution levels pursuant to Sec.  __.28(b) and paragraph g.2 of 
appendix D to this part, as applicable:
    (A) A bank may request an alternate weighting method for combining 
performance under the applicable performance tests and optional 
evaluation components. In specifying alternative test weights for each 
applicable test, a bank must emphasize retail lending, community 
development financing, or both. Alternative weights must be responsive 
to the characteristics and credit needs of a bank's assessment areas 
and public comments and must be based on the bank's capacity and 
constraints, product offerings, and business strategy.
    (B) A bank that requests an alternate weighting method pursuant to 
paragraph (g)(2)(vi)(A) of this section must compensate for decreasing 
the weight under one test by committing to enhance its efforts to help 
meet the credit needs of its community under another performance test.
    (3) Geographic coverage of plan. (i) A bank may incorporate 
performance evaluation components and accompanying annual measurable 
goals for additional geographic areas but may not eliminate the 
evaluation of its performance in any geographic area that would be 
included in its performance evaluation in the absence of an approved 
plan.
    (ii) If a large bank is no longer required to delineate a retail 
lending assessment area previously identified in the plan as a result 
of not meeting the required retail lending assessment area thresholds 
pursuant to Sec.  __.17, the [Agency] will not evaluate the bank for 
its performance in that area for the applicable years of the plan in 
which the area is no longer a retail lending assessment area.
    (iii) A bank that includes additional performance evaluation 
components with accompanying annual measurable goals in its plan must 
specify the geographic areas where those components and goals apply.
    (4) Confidential information. A bank may submit additional 
information to the [Agency] on a confidential basis, but the goals 
stated in the plan must be sufficiently specific to enable the public 
and the [Agency] to judge the merits of the plan.
    (5) ``Satisfactory'' and ``Outstanding'' performance goals. A bank 
that includes modified or additional performance evaluation components 
with accompanying annual measurable goals in its plan must specify in 
its plan annual measurable goals that constitute ``Satisfactory'' 
performance and may specify annual measurable goals that constitute 
``Outstanding'' performance.
    (6) Conclusions and rating methodology. A bank must specify in its 
plan how all elements of a plan covered in paragraphs (g)(1) through 
(5) of this section, in conjunction with any other applicable 
performance tests not included in an approved strategic plan, should be 
considered to assign:
    (i) Conclusions. Pursuant to Sec.  __.28 and appendix C to this 
part, the [Agency] assigns conclusions for each facility-based 
assessment area, retail lending assessment area, outside retail lending 
area, State, and multistate MSA, as applicable, and the institution. In 
assigning conclusions under a strategic plan, the [Agency] may consider 
performance context information as provided in Sec.  __.21(d).
    (ii) Ratings. Pursuant to Sec.  __.28 and paragraph f of appendix D 
to this part, the [Agency] incorporates the conclusions of a bank 
evaluated under an approved plan into its State or multistate MSA 
ratings, as applicable, and its institution rating, accounting for 
paragraph g.2 of appendix D to this part, as applicable.
    (h) Draft plan evaluation--(1) Timing. The [Agency] seeks to act 
upon a draft plan within 90 calendar days after the [Agency] receives 
the complete draft plan and other materials required pursuant to 
paragraph (f) of this section. If the [Agency] does not act within this 
time period, the [Agency] will communicate to the bank the rationale 
for the delay and an expected timeframe for a decision on the draft 
plan.
    (2) Public participation. In evaluating the draft plan, the 
[Agency] considers:
    (i) The public's involvement in formulating the draft plan, 
including specific information regarding the members of the public and 
organizations the bank contacted and how the bank collected information 
relevant to the draft plan;
    (ii) Written public comments and other public input on the draft 
plan;
    (iii) Any response by the bank to public input on the draft plan; 
and
    (iv) Whether to solicit additional public input or require the bank 
to provide any additional response to public input already received.
    (3) Criteria for evaluating plan for approval. (i) The [Agency] 
evaluates all plans using the following criteria:
    (A) The extent to which the plan meets the standards set forth in 
this section; and
    (B) The extent to which the plan has adequately justified the need 
for a plan and each aspect of the plan as required in paragraph (d) of 
this section.
    (ii) The [Agency] evaluates a plan under the following criteria, as 
applicable, considering performance context information pursuant to 
Sec.  __.21(d):
    (A) The extent and breadth of retail lending or retail lending-
related activities to address credit needs, including the distribution 
of loans among census tracts of different income levels, businesses and 
farms of different sizes, and individuals of different income levels, 
pursuant to Sec. Sec.  __.22, and__.29, as applicable;
    (B) The effectiveness of the bank's systems for delivering retail 
banking services and the availability and responsiveness of the bank's 
retail banking products, pursuant to Sec.  __.23, as applicable;
    (C) The extent, breadth, impact, and responsiveness of the bank's 
community development loans and community development investments, 
pursuant to Sec. Sec.  __.24, __.26, and __.30, as applicable; and
    (D) The number, hours, and types of community development services 
performed and the extent to which the bank's community development 
services are impactful and responsive, pursuant to Sec. Sec.  __.25 and 
__.30, as applicable.
    (4) Plan decisions--(i) Approval. The [Agency] may approve a plan 
after considering the criteria in paragraph (h)(3) of this section and 
if it determines that the bank has provided adequate justification for 
the plan and each aspect of the plan as required in paragraph (d) of 
this section.
    (ii) Denial. The [Agency] may deny a bank's request to be evaluated 
under a plan for any of the following reasons:

[[Page 7129]]

    (A) The Agency determines that the bank has not provided adequate 
justification for the plan and each aspect of the plan as required 
pursuant to paragraph (d) of this section;
    (B) The [Agency] determines that evaluation under the plan would 
not provide a more meaningful reflection of the bank's record of 
helping to meet the credit needs of the bank's community;
    (C) The plan is not responsive to public comment received pursuant 
to paragraph (e) of this section;
    (D) The [Agency] determines that the plan otherwise fails to meet 
the requirements of this section; or
    (E) The bank fails to provide information requested by the [Agency] 
that is necessary for the [Agency] to make an informed decision.
    (5) Publication of approved plan. The [Agency] will publish an 
approved plan on the [Agency]'s website.
    (i) Plan amendment--(1) Mandatory plan amendment. During the term 
of a plan, a bank must submit to the [Agency] for approval an amendment 
to its plan if a material change in circumstances:
    (i) Impedes its ability to perform at a satisfactory level under 
the plan, such as financial constraints caused by significant events 
that impact the local or national economy; or
    (ii) Significantly increases its financial capacity and ability to 
engage in retail lending, retail banking services, retail banking 
products, community development loans, community development 
investments, or community development services referenced in an 
approved plan, such as a merger or consolidation.
    (2) Elective plan amendment. During the term of a plan, a bank may 
request the [Agency] to approve an amendment to the plan in the absence 
of a material change in circumstances.
    (3) Requirements for plan amendments--(i) Amendment explanation. 
When submitting a plan amendment for approval, a bank must explain:
    (A) The material change in circumstances necessitating the 
amendment; or
    (B) Why it is necessary and appropriate to amend its plan in the 
absence of a material change in circumstances.
    (ii) Compliance requirement. An amendment to a plan must comply 
with all relevant requirements of this section, unless the [Agency] 
waives a requirement as not applicable.
    (j) Performance evaluation under a plan--(1) In general. The 
[Agency] evaluates a bank's performance under an approved plan based on 
the performance tests that would apply in the absence of an approved 
plan and any optional evaluation components or eligible modifications 
and additions to the applicable performance tests set forth in the 
bank's approved plan.
    (2) Goal considerations. If a bank established annual measurable 
goals and does not meet one or more of its satisfactory goals, the 
[Agency] will consider the following factors to determine the effect on 
a bank's CRA performance evaluation:
    (i) The degree to which the goal was not met;
    (ii) The importance of the unmet goals to the plan as a whole; and
    (iii) Any circumstances beyond the control of the bank, such as 
economic conditions or other market factors or events, that have 
adversely impacted the bank's ability to perform.
    (3) Ratings. The [Agency] rates the performance of a bank under 
this section pursuant to appendix D to this part.


Sec.  __.28  Assigned conclusions and ratings.

    (a) Conclusions--(1) State, multistate MSA, and institution test 
conclusions and performance scores--(i) In general. For each of the 
applicable performance tests pursuant to Sec. Sec.  __.22 through __.26 
and __.30, the [Agency] assigns conclusions and associated test 
performance scores of ``Outstanding,'' ``High Satisfactory,'' ``Low 
Satisfactory,'' ``Needs to Improve,'' or ``Substantial Noncompliance'' 
for the performance of a bank in each State and multistate MSA, as 
applicable pursuant to paragraph (c) of this section, and for the 
institution.
    (ii) Small banks. The [Agency] assigns conclusions of 
``Outstanding,'' ``Satisfactory,'' ``Needs to Improve,'' or 
``Substantial Noncompliance'' for the performance of a small bank 
evaluated under the Small Bank Lending Test in Sec.  __.29(a)(2) in 
each State and multistate MSA, as applicable pursuant to paragraph (c) 
of this section, and for the institution pursuant to Sec.  __.29 and 
appendix E to this part.
    (iii) Banks operating under a strategic plan. The [Agency] assigns 
conclusions for the performance of a bank operating under a strategic 
plan pursuant to Sec.  __.27 in each State and multistate MSA, as 
applicable pursuant to paragraph (c) of this section, and for the 
institution in accordance with the methodology of the plan and appendix 
C to this part.
    (2) Bank performance in metropolitan and nonmetropolitan areas. 
Pursuant to 12 U.S.C. 2906, the [Agency] provides conclusions derived 
under this part separately for metropolitan areas in which a bank 
maintains one or more domestic branch offices and for the 
nonmetropolitan area of a State if a bank maintains one or more 
domestic branch offices in such nonmetropolitan area.
    (b) Ratings--(1) In general. The [Agency] assigns a rating for a 
bank's overall CRA performance of ``Outstanding,'' ``Satisfactory,'' 
``Needs to Improve,'' or ``Substantial Noncompliance'' in each State 
and multistate MSA, as applicable pursuant to paragraph (c) of this 
section, and for the institution, as provided in this section and 
appendices D and E to this part. The ratings assigned by the [Agency] 
reflect the bank's record of helping to meet the credit needs of its 
entire community, including low- and moderate-income neighborhoods, 
consistent with the safe and sound operation of the bank.
    (2) State, multistate MSA, and institution ratings and overall 
performance scores. (i) For large banks, intermediate banks, small 
banks that opt into the Retail Lending Test in Sec.  __.22, and limited 
purpose banks, the [Agency] calculates and discloses the bank's overall 
performance score for each State and multistate MSA, as applicable, and 
for the institution. The [Agency] uses a bank's overall performance 
scores described in this section to assign a rating for the bank's 
overall performance in each State and multistate MSA, as applicable, 
and for the institution, subject to paragraphs (d) and (e) of this 
section.
    (ii) Overall performance scores are based on the bank's performance 
score for each applicable performance test and derived as provided in 
paragraph (b)(3) of this section, as applicable, and appendix D to this 
part.
    (3) Weighting of performance scores. In calculating a large bank's 
or intermediate bank's overall performance score for each State and 
multistate MSA, as applicable, and the institution, the [Agency] 
weights the performance scores for the bank for each applicable 
performance test as provided in paragraphs (b)(3)(i) and (ii) of this 
section.
    (i) Large bank performance test weights. The [Agency] weights the 
bank's performance score for the performance tests applicable to a 
large bank as follows:
    (A) Retail Lending Test, 40 percent;
    (B) Retail Services and Products Test, 10 percent;
    (C) Community Development Financing Test, 40 percent; and
    (D) Community Development Services Test, 10 percent.

[[Page 7130]]

    (ii) Intermediate bank performance test weights. The [Agency] 
weights the bank's performance score for the performance tests 
applicable to an intermediate bank as follows:
    (A) Retail Lending Test, 50 percent; and
    (B) Intermediate Bank Community Development Test or Community 
Development Financing Test, as applicable, 50 percent.
    (4) Minimum conclusion requirements--(i) Retail Lending Test 
minimum conclusion. An intermediate bank or a large bank must receive 
at least a ``Low Satisfactory'' Retail Lending Test conclusion for the 
State, multistate MSA, or institution to receive, respectively, a 
State, multistate MSA, or institution rating of ``Satisfactory'' or 
``Outstanding.''
    (ii) Minimum of ``Low Satisfactory'' overall facility-based 
assessment area and retail lending assessment area conclusion. (A) For 
purposes of this paragraph (b)(4)(ii)(A), the [Agency] assigns a large 
bank an overall conclusion for each facility-based assessment area and, 
as applicable, each retail lending assessment area, as provided in 
paragraph g.2.ii of appendix D to this part.
    (B) Except as provided in Sec.  __.51(e), a large bank with a 
combined total of 10 or more facility-based assessment areas and retail 
lending assessment areas in any State or multistate MSA, as applicable, 
or for the institution may not receive a rating of ``Satisfactory'' or 
``Outstanding'' in that State or multistate MSA, as applicable, or for 
the institution, unless the bank receives an overall conclusion of at 
least ``Low Satisfactory'' in 60 percent or more of the total number of 
its facility-based assessment areas and retail lending assessment areas 
in that State or multistate MSA, as applicable, or for the institution.
    (c) Conclusions and ratings for States and multistate MSAs--(1) 
States--(i) In general. Except as provided in paragraph (c)(1)(ii) of 
this section, the [Agency] evaluates a bank and assigns conclusions and 
ratings for any State in which the bank maintains a main office, 
branch, or deposit-taking remote service facility.
    (ii) States with rated multistate MSAs. The [Agency] evaluates a 
bank and assigns conclusions and ratings for a State only if the bank 
maintains a main office, branch, or deposit-taking remote service 
facility outside the portion of the State comprising any multistate MSA 
identified in paragraph (c)(2) of this section. In evaluating a bank 
and assigning conclusions and ratings for a State, the [Agency] does 
not consider activities to be in the State if those activities take 
place in the portion of the State comprising any multistate MSA 
identified in paragraph (c)(2) of this section.
    (iii) States with non-rated multistate MSAs. If a facility-based 
assessment area of a bank comprises a geographic area spanning two or 
more States within a multistate MSA that is not identified in paragraph 
(c)(2) of this section, the [Agency] considers activities in the entire 
facility-based assessment area to be in the State in which the bank 
maintains, within the multistate MSA, a main office, branch, or 
deposit-taking remote service facility. In evaluating a bank and 
assigning conclusions and ratings for a State, the [Agency] does not 
consider activities to be in the State if those activities take place 
in any facility-based assessment area that is considered to be in 
another State pursuant to this paragraph (c)(1)(iii).
    (iv) States with multistate retail lending assessment areas. In 
assigning Retail Lending Test conclusions for a State pursuant to Sec.  
__.22(h), the [Agency] does not consider a bank's activities to be in 
the State if those activities take place in a retail lending assessment 
area consisting of counties in more than one State.
    (2) Rated multistate MSAs. The [Agency] evaluates a bank and 
assigns conclusions and ratings under this part in any multistate MSA 
in which the bank maintains a main office, a branch, or a deposit-
taking remote service facility in two or more States within that 
multistate MSA.
    (d) Effect of evidence of discriminatory or other illegal credit 
practices--(1) Scope. For each State and multistate MSA, as applicable, 
and the institution, the [Agency]'s evaluation of a bank's performance 
under this part is adversely affected by evidence of discriminatory or 
other illegal credit practices, as provided in paragraph (d)(2) of this 
section. The [Agency] considers evidence of discriminatory or other 
illegal credit practices described in this section by:
    (i) The bank, including by an [operations subsidiary or operating 
subsidiary] of the bank; or
    (ii) Any other affiliate related to any activities considered in 
the evaluation of the bank.
    (2) Discriminatory or other illegal credit practices. For purposes 
of paragraph (d)(1) of this section, discriminatory or other illegal 
credit practices consist of the following:
    (i) Discrimination on a prohibited basis, including in violation of 
the Equal Credit Opportunity Act (15 U.S.C. 1691 et seq.) or the Fair 
Housing Act (42 U.S.C. 3601 et seq.);
    (ii) Violations of the Home Ownership and Equity Protection Act (15 
U.S.C. 1639);
    (iii) Violations of section 5 of the Federal Trade Commission Act 
(15 U.S.C. 45);
    (iv) Violations of section 1031 of the Dodd-Frank Wall Street 
Reform and Consumer Protection Act (12 U.S.C. 5531, 5536);
    (v) Violations of section 8 of the Real Estate Settlement 
Procedures Act (12 U.S.C. 2601 et seq.);
    (vi) Violations of the Truth in Lending Act (15 U.S.C. 1601 et 
seq.);
    (vii) Violations of the Military Lending Act (10 U.S.C. 987);
    (viii) Violations of the Servicemembers Civil Relief Act (50 U.S.C. 
3901 et seq.); and
    (ix) Any other violation of a law, rule, or regulation consistent 
with the types of violations in paragraphs (d)(2)(i) through (viii) of 
this section, as determined by the [Agency].
    (3) Agency considerations. In determining the effect of evidence of 
discriminatory or other illegal credit practices described in paragraph 
(d)(1) of this section on the bank's assigned State, multistate MSA, 
and institution ratings, the [Agency] will consider:
    (i) The root cause or causes of any such violations of law, rule, 
or regulation;
    (ii) The severity of any harm to any communities, individuals, 
small businesses, and small farms resulting from such violations;
    (iii) The duration of time over which the violations occurred;
    (iv) The pervasiveness of the violations;
    (v) The degree to which the bank, [operations subsidiary or 
operating subsidiary], or affiliate, as applicable, has established an 
effective compliance management system across the institution to self-
identify risks and to take the necessary actions to reduce the risk of 
noncompliance and harm to communities, individuals, small businesses, 
and small farms; and
    (vi) Any other relevant information.
    (e) Consideration of past performance. When assigning ratings, the 
[Agency] considers a bank's past performance. If a bank's prior rating 
was ``Needs to Improve,'' the [Agency] may determine that a 
``Substantial Noncompliance'' rating is appropriate where the bank 
failed to improve its performance since the previous evaluation period, 
with no acceptable basis for such failure.

[[Page 7131]]

Sec.  __.29  Small bank performance evaluation.

    (a) Small bank performance evaluation--(1) In general. The [Agency] 
evaluates a small bank's record of helping to meet the credit needs of 
its entire community pursuant to the Small Bank Lending Test as 
provided in paragraph (a)(2) of this section, unless the small bank 
opts to be evaluated pursuant to the Retail Lending Test in Sec.  
__.22.
    (2) Small Bank Lending Test. A small bank's retail lending 
performance is evaluated pursuant to the following criteria:
    (i) The bank's loan-to-deposit ratio, adjusted for seasonal 
variation, and, as appropriate, other retail and community development 
lending-related activities, such as loan originations for sale to the 
secondary markets, community development loans, or community 
development investments;
    (ii) The percentage of loans and, as appropriate, other retail and 
community development lending-related activities located in the bank's 
facility-based assessment areas;
    (iii) The bank's record of lending to and, as appropriate, engaging 
in other retail and community development lending-related activities 
for borrowers of different income levels and businesses and farms of 
different sizes;
    (iv) The geographic distribution of the bank's loans; and
    (v) The bank's record of taking action, if warranted, in response 
to written complaints about its performance in helping to meet credit 
needs in its facility-based assessment areas.
    (b) Additional consideration--(1) Small banks evaluated pursuant to 
the Small Bank Lending Test. The [Agency] may adjust a small bank 
rating from ``Satisfactory'' to ``Outstanding'' at the institution 
level where the bank requests and receives additional consideration for 
the following activities, without regard to whether the activity is in 
one or more of the bank's facility-based assessment areas, as 
applicable:
    (i) Making community development investments;
    (ii) Providing community development services; and
    (iii) Providing branches and other services, digital delivery 
systems and other delivery systems, and deposit products responsive to 
the needs of low- and moderate-income individuals, families, or 
households, residents of low- and moderate-income census tracts, small 
businesses, and small farms.
    (2) Small banks that opt to be evaluated pursuant to the Retail 
Lending Test in Sec.  __.22. The [Agency] may adjust a small bank 
rating from ``Satisfactory'' to ``Outstanding'' at the institution 
level where the bank requests and receives additional consideration for 
activities that would qualify pursuant to the Retail Services and 
Products Test in Sec.  __.23, the Community Development Financing Test 
in Sec.  __.24, or the Community Development Services Test in Sec.  
__.25.
    (3) Additional consideration for activities with MDIs, WDIs, and 
LICUs, and for providing low-cost education loans. Notwithstanding 
paragraphs (b)(1) and (2) of this section, a small bank may request and 
receive additional consideration at the institution level for 
activities with MDIs, WDIs, and LICUs pursuant to 12 U.S.C. 2903(b) and 
2907(a) and for providing low-cost education loans to low-income 
borrowers pursuant to 12 U.S.C. 2903(d), regardless of the small bank's 
overall institution rating.
    (c) Small bank performance conclusions and ratings--(1) 
Conclusions. Except for a small bank that opts to be evaluated pursuant 
to the Retail Lending Test in Sec.  __.22, the [Agency] assigns 
conclusions for the performance of a small bank evaluated under this 
section as provided in appendix E to this part. If a bank opts to be 
evaluated pursuant to the Retail Lending Test, the [Agency] assigns 
conclusions for the bank's Retail Lending Test performance as provided 
in appendix C to this part. In assigning conclusions for a small bank, 
the [Agency] may consider performance context information as provided 
in Sec.  __.21(d).
    (2) Ratings. For a small bank evaluated under the Small Bank 
Lending Test, the [Agency] rates the bank's performance under this 
section as provided in appendix E to this part. If a small bank opts to 
be evaluated under the Retail Lending Test in Sec.  __.22, the [Agency] 
rates the performance of a small bank as provided in appendix D to this 
part.


Sec.  __.30  Intermediate bank performance evaluation.

    (a) Intermediate bank performance evaluation--(1) In general. The 
[Agency] evaluates an intermediate bank's record of helping to meet the 
credit needs of its entire community pursuant to the Retail Lending 
Test in Sec.  __.22 and the Intermediate Bank Community Development 
Test as provided in paragraph (a)(2) of this section, unless an 
intermediate bank opts to be evaluated pursuant to the Community 
Development Financing Test in Sec.  __.24.
    (2) Intermediate Bank Community Development Test. (i) An 
intermediate bank's community development performance is evaluated 
pursuant to the following criteria:
    (A) The number and dollar amount of community development loans;
    (B) The number and dollar amount of community development 
investments;
    (C) The extent to which the bank provides community development 
services; and
    (D) The bank's responsiveness through such community development 
loans, community development investments, and community development 
services to community development needs. The [Agency]'s evaluation of 
the responsiveness of the bank's activities is informed by information 
provided by the bank, and may be informed by the impact and 
responsiveness review factors described in Sec.  __.15(b).
    (ii) The [Agency] considers an intermediate bank's community 
development loans, community development investments, and community 
development services without regard to whether the activity is made in 
one or more of the bank's facility-based assessment areas. The extent 
of the [Agency]'s consideration of community development loans, 
community development investments, and community development services 
outside of the bank's facility-based assessment areas will depend on 
the adequacy of the bank's responsiveness to community development 
needs and opportunities within the bank's facility-based assessment 
areas and applicable performance context information.
    (b) Additional consideration--(1) Intermediate banks evaluated 
pursuant to the Intermediate Bank Community Development Test. The 
[Agency] may adjust the rating of an intermediate bank evaluated as 
provided in paragraph (a)(2) of this section from ``Satisfactory'' to 
``Outstanding'' at the institution level where the bank requests and 
receives additional consideration for activities that would qualify 
pursuant to the Retail Services and Products Test in Sec.  __.23.
    (2) Intermediate banks evaluated pursuant to the Community 
Development Financing Test. The [Agency] may adjust the rating of an 
intermediate bank that opts to be evaluated pursuant to the Community 
Development Financing Test in Sec.  __.24 from ``Satisfactory'' to 
``Outstanding'' at the institution level where the bank requests and 
receives additional consideration for activities that would qualify 
pursuant to the Retail Services and Products Test in

[[Page 7132]]

Sec.  __.23, the Community Development Services Test in Sec.  __.25, or 
both.
    (3) Additional consideration for low-cost education loans. 
Notwithstanding paragraphs (b)(1) and (2) of this section, an 
intermediate bank may request and receive additional consideration at 
the institution level for providing low-cost education loans to low-
income borrowers pursuant to 12 U.S.C. 2903(d), regardless of the 
intermediate bank's overall institution rating.
    (c) Intermediate bank performance conclusions and ratings--(1) 
Conclusions. The [Agency] assigns a conclusion for the performance of 
an intermediate bank evaluated pursuant to this section as provided in 
appendices C and E to this part. In assigning conclusions for an 
intermediate bank, the [Agency] may consider performance context 
information as provided in Sec.  __.21(d).
    (2) Ratings. The [Agency] rates the performance of an intermediate 
bank evaluated under this section as provided in appendix D to this 
part.


Sec.  __.31  [Reserved]

Subpart D--Records, Reporting, Disclosure, and Public Engagement 
Requirements


Sec.  __.42  Data collection, reporting, and disclosure.

    (a) Information required to be collected and maintained--(1) Small 
business loans and small farm loans data. A large bank must collect and 
maintain in electronic form, as prescribed by the [Agency], until the 
completion of the bank's next CRA examination in which the data are 
evaluated, the following data for each small business loan or small 
farm loan originated or purchased by the bank during the evaluation 
period:
    (i) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (ii) An indicator for the loan type as reported on the bank's Call 
Report or Report of Assets and Liabilities of U.S. Branches and 
Agencies of Foreign Banks, as applicable.
    (iii) The date of the loan origination or purchase;
    (iv) The loan amount at origination or purchase;
    (v) The loan location, including State, county, and census tract;
    (vi) An indicator for whether the loan was originated or purchased 
by the bank;
    (vii) An indicator for whether the loan was to a business or farm 
with gross annual revenues of $250,000 or less;
    (viii) An indicator for whether the loan was to a business or farm 
with gross annual revenues greater than $250,000 but less than or equal 
to $1 million;
    (ix) An indicator for whether the loan was to a business or farm 
with gross annual revenues greater than $1 million; and
    (x) An indicator for whether the loan was to a business or farm for 
which gross annual revenues are not known by the bank.
    (2) Consumer loans data--automobile loans--(i) Large banks. A large 
bank for which automobile loans are a product line must collect and 
maintain in electronic form, as prescribed by the [Agency], until the 
completion of the bank's next CRA examination in which the data is 
evaluated, the data described in paragraphs (a)(2)(iii)(A) through (F) 
of this section for each automobile loan originated or purchased by the 
bank during the evaluation period.
    (ii) Intermediate or small banks. An intermediate bank or a small 
bank for which automobile loans are a product line may collect and 
maintain in a format of the bank's choosing, including in an electronic 
form prescribed by the [Agency], until the completion of the bank's 
next CRA examination in which the data are evaluated, the data 
described in paragraphs (a)(2)(iii)(A) through (F) of this section for 
each automobile loan originated or purchased by the bank during the 
evaluation period.
    (iii) Data collected and maintained. Data collected and maintained 
pursuant to paragraph (a)(2)(i) or (ii) of this section include the 
following:
    (A) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (B) The date of the loan origination or purchase;
    (C) The loan amount at origination or purchase;
    (D) The loan location, including State, county, and census tract;
    (E) An indicator for whether the loan was originated or purchased 
by the bank; and
    (F) The gross annual income relied on in making the credit 
decision.
    (3) Home mortgage loans. (i) If a large bank is subject to 
reporting under 12 CFR part 1003, the bank must collect and maintain, 
in electronic form, as prescribed by the [Agency], until the completion 
of the bank's next CRA examination in which the data are evaluated, the 
location of each home mortgage loan application, origination, or 
purchase outside the MSAs in which the bank has a home or branch office 
(or outside any MSA) pursuant to the requirements in 12 CFR 1003.4(e).
    (ii) If a large bank is not subject to reporting under 12 CFR part 
1003 due to the location of its branches, but would otherwise meet the 
Home Mortgage Disclosure Act (HMDA) size and lending activity 
requirements pursuant to 12 CFR part 1003, the bank must collect and 
maintain, in electronic form, as prescribed by the [Agency], until the 
completion of the bank's next CRA examination in which the data are 
evaluated, the following data, for each closed-end home mortgage loan, 
excluding multifamily loans, originated or purchased during the 
evaluation period:
    (A) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (B) The date of the loan origination or purchase;
    (C) The loan amount at origination or purchase;
    (D) The location of each home mortgage loan origination or 
purchase, including State, county, and census tract;
    (E) The gross annual income relied on in making the credit 
decision; and
    (F) An indicator for whether the loan was originated or purchased 
by the bank.
    (4) Retail banking services and retail banking products data--(i) 
Branches and remote service facilities. A large bank must collect and 
maintain in electronic form, as prescribed by the [Agency], until 
completion of the bank's next CRA examination in which the data are 
evaluated, the following data with respect to retail banking services 
and retail banking products offered and provided by the bank during 
each calendar year:
    (A) Location of branches, main offices described in Sec.  
__.23(a)(2), and remote service facilities. Location information must 
include:
    (1) Street address;
    (2) City;
    (3) County;
    (4) State;
    (5) Zip code; and
    (6) Census tract;
    (B) An indicator for whether each branch is full-service or 
limited-service, and for each remote service facility whether it is 
deposit-taking, cash-advancing, or both;
    (C) Locations and dates of branch, main office described in Sec.  
__.23(a)(2), and remote service facility openings and closings, as 
applicable;
    (D) Hours of operation of each branch, main office described in 
Sec.  __.23(a)(2), and remote service facility, as applicable; and
    (E) Services offered at each branch or main office described in 
Sec.  __.23(a)(2)

[[Page 7133]]

that are responsive to low- and moderate-income individuals, families, 
or households and low- and moderate-income census tracts.
    (ii) Digital delivery systems and other delivery systems data--(A) 
In general. A large bank that had assets greater than $10 billion as of 
December 31 in both of the prior two calendar years, a large bank that 
had assets less than or equal to $10 billion as of December 31 in 
either of the prior two calendar years that does not operate any 
branches or a main office described in Sec.  __.23(a)(2), and a large 
bank that had assets less than or equal to $10 billion as of December 
31 in either of the prior two calendar years that requests additional 
consideration for digital delivery systems and other delivery systems 
pursuant to Sec.  __.23(b)(4), must collect and maintain in electronic 
form, as prescribed by the [Agency], until the completion of the bank's 
next CRA examination in which the data are evaluated, the data 
described in paragraph (a)(4)(ii)(B) of this section. A bank may opt to 
collect and maintain additional data pursuant to paragraph 
(a)(4)(ii)(C) of this section in a format of the bank's own choosing.
    (B) Required data. Pursuant to paragraph (a)(4)(ii)(A) of this 
section, a bank must collect and maintain the following data:
    (1) The range of retail banking services and retail banking 
products offered through digital delivery systems and other delivery 
systems; and
    (2) The digital delivery systems and other delivery systems 
activity by individuals, families, or households in low-, moderate-, 
middle-, and upper-income census tracts, as evidenced by:
    (i) The number of checking and savings accounts opened digitally 
and through other delivery systems by census tract income level for 
each calendar year; and
    (ii) The number of checking and savings accounts opened digitally 
and through other delivery systems that are active at the end of each 
calendar year by census tract income level for each calendar year.
    (C) Optional data. Pursuant to paragraph (a)(4)(ii)(A) of this 
section, a bank may collect and maintain any additional information not 
required in paragraph (a)(4)(ii)(B) of this section that demonstrates 
that digital delivery systems and other delivery systems serve low- and 
moderate-income individuals, families, or households and low- and 
moderate-income census tracts.
    (iii) Data for deposit products responsive to the needs of low- and 
moderate-income individuals, families, or households--(A) In general. A 
large bank that had assets greater than $10 billion as of December 31 
in both of the prior two calendar years and a large bank that had 
assets less than or equal to $10 billion as of December 31 in either of 
the prior two calendar years that requests additional consideration for 
deposit products responsive to the needs of low- and moderate-income 
individuals, families, or households pursuant to Sec.  __.23(c)(3), 
must collect and maintain in electronic form, as prescribed by the 
[Agency], until the completion of the bank's next CRA examination in 
which the data are evaluated, the data described in paragraph 
(a)(4)(iii)(B) of this section. A bank may opt to collect and maintain 
additional data pursuant to paragraph (a)(4)(iii)(C) of this section in 
a format of the bank's choosing.
    (B) Required data. Pursuant to paragraph (a)(4)(iii)(A) of this 
section, a bank must collect and maintain the following data:
    (1) The number of responsive deposit accounts opened and closed 
during each year of the evaluation period in low-, moderate-, middle-, 
and upper-income census tracts; and
    (2) In connection with paragraph (a)(4)(iii)(B)(1) of this section, 
the percentage of responsive deposit accounts compared to total deposit 
accounts for each year of the evaluation period.
    (C) Optional data. Pursuant to paragraph (a)(4)(iii)(A) of this 
section, a bank may collect and maintain any other information that 
demonstrates the availability and usage of the bank's deposit products 
responsive to the needs of low- and moderate-income individuals, 
families, or households and low- and moderate-income census tracts.
    (5) Community development loans and community development 
investments data. (i)(A) A large bank and a limited purpose bank that 
would be a large bank based on the asset size described in the 
definition of a large bank, must collect and maintain in electronic 
form, as prescribed by the [Agency], until the completion of the bank's 
next CRA examination in which the data are evaluated, the data listed 
in paragraph (a)(5)(ii) of this section for community development loans 
and community development investments originated, purchased, 
refinanced, renewed, or modified by the bank during the evaluation 
period.
    (B) An intermediate bank that opts to be evaluated under the 
Community Development Financing Test in Sec.  __.24 must collect and 
maintain in the format used by the bank in the normal course of 
business, until the completion of the bank's next CRA examination in 
which the data are evaluated, the data listed in paragraph (a)(5)(ii) 
of this section for community development loans and community 
development investments originated, purchased, refinanced, renewed, or 
modified by the bank during the evaluation period.
    (ii) Pursuant to paragraphs (a)(5)(i)(A) and (B) of this section, a 
bank must collect and maintain, on an annual basis, the following data 
for community development loans and community development investments:
    (A) General information on the loan or investment:
    (1) A unique number or alpha-numeric symbol that can be used to 
identify the loan or investment;
    (2) Date of origination, purchase, refinance, or renewal of the 
loan or investment;
    (3) Date the loan or investment was sold or paid off; and
    (4) The dollar amount of:
    (i) A community development loan originated or purchased, or a 
community development investment made, including a legally binding 
commitment to extend credit or a legally binding commitment to invest, 
in the calendar year, as described in paragraph I.a.1.i of appendix B 
to this part;
    (ii) Any increase in the calendar year to an existing community 
development loan that is refinanced or renewed or to an existing 
community development investment that is renewed;
    (iii) The outstanding balance of a community development loan 
originated, purchased, refinanced, or renewed in previous years or 
community development investment made or renewed in previous years, as 
of December 31 for each year that the loan or investment remains on the 
bank's balance sheet; or
    (iv) The outstanding balance, less any increase reported in 
paragraph (a)(5)(ii)(A)(4)(ii) of this section in the same calendar 
year, of a community development loan refinanced or renewed in a year 
subsequent to the year of origination or purchase, as of December 31 of 
the calendar year for each year that the loan remains on the bank's 
balance sheet; or an existing community development investment renewed 
in a year subsequent to the year the investment was made as of December 
31 for each year that the investment remains on the bank's balance 
sheet.
    (B) Community development loan or community development investment 
information:
    (1) Name of organization or entity;

[[Page 7134]]

    (2) Activity type (loan or investment);
    (3) The type of community development described in Sec.  __.13(b) 
through (l); and
    (4) Community development loan or community development investment 
detail, such as the specific type of financing and type of entity 
supported (e.g., LIHTC, NMTC, Small Business Investment Company, 
multifamily mortgage, private business, or mission-driven nonprofit 
organization, mortgage-backed security, or other).
    (C) Indicators of the impact and responsiveness, including whether 
the community development loan or community development investment:
    (1) Benefits or serves one or more persistent poverty counties;
    (2) Benefits or serves one or more census tracts with a poverty 
rate of 40 percent or higher;
    (3) Benefits or serves one or more geographic areas with low levels 
of community development financing;
    (4) Supports an MDI, WDI, LICU, or CDFI, excluding certificates of 
deposit with a term of less than one year;
    (5) Benefits or serves low-income individuals, families, or 
households;
    (6) Supports small businesses or small farms with gross annual 
revenues of $250,000 or less;
    (7) Directly facilitates the acquisition, construction, 
development, preservation, or improvement of affordable housing in High 
Opportunity Areas;
    (8) Benefits or serves residents of Native Land Areas;
    (9) Is a grant or donation;
    (10) Is an investment in a project financed with LIHTCs or NMTCs;
    (11) Reflects bank leadership through multi-faceted or instrumental 
support; or
    (12) Is a new community development financing product that 
addresses community development needs for low- or moderate-income 
individuals, families, or households.
    (D) Specific location information, if applicable:
    (1) Street address;
    (2) City;
    (3) County;
    (4) State;
    (5) Zip code; and
    (6) Census tract.
    (E) Allocation of the dollar amount of the community development 
loan or community development investment to geographic areas served by 
the loan or investment:
    (1) A list of the geographic areas served by the community 
development loan or community development investment, specifying any 
county, State, multistate MSA, or nationwide area served; and
    (2) Specific information about the dollar amount of the community 
development loan or community development investment that was allocated 
to each county served by the loan or investment, if available.
    (F) Other information relevant to determining that the community 
development loan or community development investment meets the 
standards pursuant to Sec.  __.13.
    (6) Community development services data. A large bank must collect 
and maintain, in a format of the bank's choosing or in a standardized 
format, as provided by the [Agency], until the completion of the bank's 
next CRA examination in which the data are evaluated, the following 
community development services data:
    (i) Community development services information as follows:
    (A) Date of service;
    (B) Number of board member or employee service hours;
    (C) Name of organization or entity;
    (D) The type of community development described in Sec.  __.13(b) 
through (l);
    (E) Capacity in which a bank's or its affiliate's board member or 
employee serves (e.g., board member of a nonprofit organization, 
technical assistance, financial education, general volunteer); and
    (F) Indicators of the impact and responsiveness, including whether 
the community development service:
    (1) Benefits or serves one or more persistent poverty counties;
    (2) Benefits or serves one or more census tracts with a poverty 
rate of 40 percent or higher;
    (3) Benefits or serves one or more geographic areas with low levels 
of community development financing;
    (4) Supports an MDI, WDI, LICU, or CDFI, excluding certificates of 
deposit with a term of less than one year;
    (5) Benefits or serves low-income individuals, families, or 
households;
    (6) Supports small businesses or small farms with gross annual 
revenues of $250,000 or less;
    (7) Directly facilitates the acquisition, construction, 
development, preservation, or improvement of affordable housing in High 
Opportunity Areas;
    (8) Benefits or serves residents of Native Land Areas;
    (9) Reflects bank leadership through multi-faceted or instrumental 
support; or
    (10) Is a new community development service that addresses 
community development needs for low- or moderate-income individuals, 
families, or households.
    (ii) Location information as follows:
    (A) Location list. A list of the geographic areas served by the 
activity, specifying any census tracts, counties, States, or nationwide 
area served; and
    (B) Geographic-level. Whether the bank is seeking consideration in 
a facility-based assessment area, State, multistate MSA, or nationwide 
area.
    (7) Deposits data. A large bank that had assets greater than $10 
billion as of December 31 in both of the prior two calendar years must 
collect and maintain annually, in electronic form, as prescribed by the 
[Agency], until the completion of the bank's next CRA examination in 
which the data are evaluated, the dollar amount of its deposits at the 
county level based on deposit location. The bank allocates the deposits 
for which a deposit location is not available to the nationwide area. 
Annual deposits must be calculated based on average daily balances as 
provided in statements such as monthly or quarterly statements. Any 
other bank that opts to collect and maintain the data in this paragraph 
(a)(7) must do so in the same form and for the same duration as 
described in this paragraph (a)(7).
    (b) Information required to be reported--(1) Small business loan 
and small farm loan data. A large bank must report annually by April 1 
to the [Agency] in electronic form, as prescribed by the [Agency], the 
small business loan and small farm loan data described in paragraphs 
(b)(1)(i) through (vii) of this section for the prior calendar year. 
For each census tract in which the bank originated or purchased a small 
business loan or small farm loan, the bank must report the aggregate 
number and dollar amount of small business loans and small farm loans:
    (i) With an amount at origination of $100,000 or less;
    (ii) With an amount at origination of greater than $100,000 but 
less than or equal to $250,000;
    (iii) With an amount at origination of greater than $250,000;
    (iv) To businesses and farms with gross annual revenues of $250,000 
or less (using the revenues relied on in making the credit decision);
    (v) To businesses and farms with gross annual revenues greater than 
$250,000 but less than or equal to $1 million (using the revenues 
relied on in making the credit decision);
    (vi) To businesses and farms with gross annual revenues greater 
than $1 million; and
    (vii) To businesses and farms for which gross annual revenues are 
not known by the bank.

[[Page 7135]]

    (2) Community development loans and community development 
investments data. A large bank and a limited purpose bank that would be 
a large bank based on the asset size described in the definition of a 
large bank must report annually by April 1 to the [Agency] in 
electronic form, as prescribed by the [Agency], the community 
development loan and community development investment data described in 
paragraph (a)(5)(ii) of this section for the prior calendar year, 
except for the data described in paragraph (a)(5)(ii)(B)(1) of this 
section and paragraphs (a)(5)(ii)(D)(1) through (5) of this section.
    (3) Deposits data. (i) A large bank that had assets greater than 
$10 billion as of December 31 in both of the prior two calendar years 
must report annually by April 1 to the [Agency] in electronic form, as 
prescribed by the [Agency], the deposits data for the prior calendar 
year collected and maintained pursuant to paragraph (a)(7) of this 
section. This reporting must include, for each county, State, and 
multistate MSA, and for the institution overall, the average annual 
deposit balances (calculated based on average daily balances as 
provided in statements such as monthly or quarterly statements, as 
applicable), in aggregate, of deposit accounts with associated 
addresses located in such county, State, or multistate MSA, where 
available, and for the institution overall. Any other bank that opts to 
collect and maintain the data in paragraph (a)(7) of this section must 
report these data in the same form and for the same duration as 
described in this paragraph (b)(3)(i).
    (ii) A bank that reports deposits data pursuant to paragraph 
(b)(3)(i) of this section for which a deposit location is not available 
must report these deposits at the nationwide area.
    (c) Data on [operations subsidiaries or operating subsidiaries]. To 
the extent that its [operations subsidiaries or operating subsidiaries] 
engage in retail banking services, retail banking products, community 
development lending, community development investments, or community 
development services, a bank must collect, maintain, and report these 
loans, investments, services, and products of its [operations 
subsidiaries or operating subsidiaries] pursuant to paragraphs (a) and 
(b) of this section, as applicable, for purposes of evaluating the 
bank's performance. For home mortgage loans, the bank must identify the 
home mortgage loans reported by its [operations subsidiary or operating 
subsidiary] under 12 CFR part 1003, if applicable, or collect and 
maintain data on home mortgage loans by its [operations subsidiary or 
operating subsidiary] that the bank would have collected and maintained 
pursuant to paragraph (a)(3) of this section had the bank originated or 
purchased the loans.
    (d) Data on other affiliates. A bank that elects to have the 
[Agency] consider retail banking services, retail banking products, 
community development lending, community development investments, or 
community development services engaged in by affiliates of a bank 
(other than an [operations subsidiary or operating subsidiary]), for 
purposes of this part must collect, maintain, and report the data that 
the bank would have collected, maintained, and reported pursuant to 
paragraphs (a) and (b) of this section had the loans, investments, 
services, or products been engaged in by the bank. For home mortgage 
loans, the bank must identify the home mortgage loans reported by bank 
affiliates under 12 CFR part 1003, if applicable, or collect and 
maintain data on home mortgage loans by the affiliate that the bank 
would have collected and maintained pursuant to paragraphs (a)(3) of 
this section had the loans been originated or purchased by the bank.
    (e) Data on community development loans and community development 
investments by a consortium or a third party. A bank that elects to 
have the [Agency] consider community development loans and community 
development investments by a consortium or third party for purposes of 
this part must collect, maintain, and report the loans and investments 
data that the bank would have collected, maintained, and reported 
pursuant to paragraphs (a)(5) and (b)(2) of this section had the bank 
originated, purchased, refinanced, or renewed the loans or investments.
    (f) Assessment area data--(1) Facility-based assessment areas. A 
large bank and a limited purpose bank that would be a large bank based 
on the asset size described in the definition of a large bank must 
collect and report to the [Agency] annually by April 1 a list of each 
facility-based assessment area showing the States, MSAs, and counties 
in the facility-based assessment area, as of December 31 of the prior 
calendar year or the last date the facility-based assessment area was 
in effect, provided the facility-based assessment area was delineated 
for at least six months of the prior calendar year.
    (2) Retail lending assessment areas. A large bank must collect and 
report to the [Agency] annually by April 1 a list of each retail 
lending assessment area showing the States, MSAs, and counties in the 
retail lending assessment area for the prior calendar year.
    (g) CRA Disclosure Statement. The [Agency] or its appointed agent, 
prepares annually, for each bank that reports data pursuant to this 
section, a CRA Disclosure Statement that contains, on a State-by-State 
basis:
    (1) For each county with a population of 500,000 persons or fewer 
in which the bank reported a small business loan or a small farm loan:
    (i) The number and dollar volume of small business loans and small 
farm loans reported as originated or purchased located in low-, 
moderate-, middle-, and upper-income census tracts;
    (ii) A list grouping each census tract according to whether the 
census tract is low-, moderate-, middle-, or upper-income;
    (iii) A list showing each census tract in which the bank reported a 
small business loan or a small farm loan;
    (iv) The number and dollar volume of small business loans and small 
farm loans to businesses and farms with gross annual revenues of 
$250,000 or less; and
    (v) The number and dollar volume of small business loans and small 
farm loans to businesses and farms with gross annual revenues greater 
than $250,000 but less than or equal to $1 million;
    (2) For each county with a population in excess of 500,000 persons 
in which the bank reported a small business loan or a small farm loan:
    (i) The number and dollar volume of small business loans and small 
farm loans reported as originated or purchased located in census tracts 
with median income relative to the area median income of less than 10 
percent, equal to or greater than 10 percent but less than 20 percent, 
equal to or greater than 20 percent but less than 30 percent, equal to 
or greater than 30 percent but less than 40 percent, equal to or 
greater than 40 percent but less than 50 percent, equal to or greater 
than 50 percent but less than 60 percent, equal to or greater than 60 
percent but less than 70 percent, equal to or greater than 70 percent 
but less than 80 percent, equal to or greater than 80 percent but less 
than 90 percent, equal to or greater than 90 percent but less than 100 
percent, equal to or greater than 100 percent but less than 110 
percent, equal to or greater than 110 percent but less than 120 
percent, and equal to or greater than 120 percent;
    (ii) A list grouping each census tract in the county, facility-
based assessment area, or retail lending assessment area according to 
whether the median income in the census tract relative to the area 
median income is less than 10 percent, equal to or greater than 10

[[Page 7136]]

percent but less than 20 percent, equal to or greater than 20 percent 
but less than 30 percent, equal to or greater than 30 percent but less 
than 40 percent, equal to or greater than 40 percent but less than 50 
percent, equal to or greater than 50 percent but less than 60 percent, 
equal to or greater than 60 percent but less than 70 percent, equal to 
or greater than 70 percent but less than 80 percent, equal to or 
greater than 80 percent but less than 90 percent, equal to or greater 
than 90 percent but less than 100 percent, equal to or greater than 100 
percent but less than 110 percent, equal to or greater than 110 percent 
but less than 120 percent, and equal to or greater than 120 percent; 
and
    (iii) A list showing each census tract in which the bank reported a 
small business loan or a small farm loan;
    (3) The number and dollar volume of small business loans and small 
farm loans located inside each facility-based assessment area and 
retail lending assessment area reported by the bank and the number and 
dollar volume of small business loans and small farm loans located 
outside of the facility-based assessment areas and retail lending 
assessment areas reported by the bank; and
    (4) The number and dollar volume of community development loans and 
community development investments reported as originated or purchased 
inside each facility-based assessment area, each State in which the 
bank has a branch, each multistate MSA in which a bank has a branch in 
two or more States of the multistate MSA, and nationwide area outside 
of these States and multistate MSAs.
    (h) Aggregate disclosure statements. The [Agency] or its appointed 
agent, prepares annually, for each MSA or metropolitan division 
(including an MSA or metropolitan division that crosses a State 
boundary) and the nonmetropolitan portion of each State, an aggregate 
disclosure statement of reported small business lending, small farm 
lending, community development lending, and community development 
investments by all depository institutions subject to reporting under 
12 CFR part 25, 228, or 345. These disclosure statements indicate the 
number and dollar amount of all small business loans and small farm 
loans originated or purchased for each census tract and the number and 
dollar amount of all community development loans and community 
development investments for each county by reporting banks, except that 
the [Agency] may adjust the form of the disclosure if necessary, 
because of special circumstances, to protect the privacy of a borrower 
or the competitive position of a bank.
    (i) Availability of disclosure statements. The [Agency] makes the 
individual bank CRA Disclosure Statements, described in paragraph (g) 
of this section, and the aggregate disclosure statements, described in 
paragraph (h) of this section, available on the FFIEC's website at: 
https://www.ffiec.gov.
    (j) HMDA data disclosure--(1) In general. For a large bank required 
to report home mortgage loan data pursuant to 12 CFR part 1003, the 
[Agency] will publish on the [Agency]'s website the data required by 
paragraph (j)(2) of this section concerning the distribution of a large 
bank's originations and applications of home mortgage loans by borrower 
or applicant income level, race, and ethnicity in each of the bank's 
facility-based assessment areas, and as applicable, its retail lending 
assessment areas. This information is published annually based on data 
reported pursuant to 12 CFR part 1003.
    (2) Data to be published on the [Agency]'s website. For each of the 
large bank's facility-based assessment areas, and as applicable, its 
retail lending assessment areas, the [Agency] publishes on the 
[Agency]'s website:
    (i) The number and percentage of originations and applications of 
the large bank's home mortgage loans by borrower or applicant income 
level, race, and ethnicity;
    (ii) The number and percentage of originations and applications of 
aggregate mortgage lending of all lenders reporting HMDA data in the 
facility-based assessment area and as applicable, the retail lending 
assessment area; and
    (iii) Demographic data of the geographic area.
    (3) Announcement of data publication. Upon publishing the data 
required pursuant to paragraphs (j)(1) and (2) of this section, the 
[Agency] will publicly announce that the information is available on 
the [Agency]'s public website.
    (4) Effect on CRA conclusions and ratings. The race and ethnicity 
information published pursuant to paragraphs (j)(1) and (2) of this 
section does not impact the conclusions or ratings of the large bank.



Sec.  __.43  Content and availability of public file.

    (a) Information available to the public. A bank must maintain a 
public file, in either paper or digital format, that includes the 
following information:
    (1) All written comments received from the public for the current 
year (updated on a quarterly basis for the prior quarter by March 31, 
June 30, September 30, and December 31) and each of the prior two 
calendar years that specifically relate to the bank's performance in 
helping to meet community credit needs, and any response to the 
comments by the bank, if neither the comments nor the responses contain 
statements that reflect adversely on the good name or reputation of any 
persons other than the bank or publication of which would violate 
specific provisions of law;
    (2) A copy of the public section of the bank's most recent CRA 
performance evaluation prepared by the [Agency]. The bank must include 
this copy in the public file within 30 business days after its receipt 
from the [Agency];
    (3) A list of the bank's branches, their street addresses, and 
census tracts;
    (4) A list of branches opened or closed by the bank during the 
current year (updated on a quarterly basis for the prior quarter by 
March 31, June 30, September 30, and December 31) and each of the prior 
two calendar years, their street addresses, and census tracts;
    (5) A list of retail banking services (including hours of 
operation, available loan and deposit products, and transaction fees) 
generally offered at the bank's branches and descriptions of material 
differences in the availability or cost of services at particular 
branches, if any. A bank may elect to include information regarding the 
availability of other systems for delivering retail banking services 
(for example, mobile or online banking, loan production offices, and 
bank-at-work or mobile branch programs);
    (6) A map of each facility-based assessment area and, as 
applicable, each retail lending assessment area showing the boundaries 
of the area and identifying the census tracts contained in the area, 
either on the map or in a separate list; and
    (7) Any other information the bank chooses.
    (b) Additional information available to the public--(1) Banks 
subject to data reporting requirements pursuant to Sec.  __.42. A bank 
subject to data reporting requirements pursuant to Sec.  __.42 must 
include in its public file a written notice that the CRA Disclosure 
Statement pertaining to the bank, its [operations subsidiaries or 
operating subsidiaries], and its other affiliates, if applicable, may 
be obtained on the FFIEC's website at: https://www.ffiec.gov. The bank 
must include the written notice in the public file within three 
business days after

[[Page 7137]]

receiving notification from the FFIEC of the availability of the 
disclosure statement.
    (2) Banks required to report HMDA data--(i) HMDA Disclosure 
Statement. A bank required to report home mortgage loan data pursuant 
to 12 CFR part 1003 must include in its public file a written notice 
that the bank's HMDA Disclosure Statement may be obtained on the 
Consumer Financial Protection Bureau's (CFPB's) website at: https://www.consumerfinance.gov/hmda. In addition, if the [Agency] considered 
the home mortgage lending of a bank's [operations subsidiaries or 
operating subsidiaries] or, at a bank's election, the [Agency] 
considered the home mortgage lending of other bank affiliates, the bank 
must include in its public file the names of the [operations 
subsidiaries or operating subsidiaries] and the names of the affiliates 
and a written notice that the [operations subsidiaries' or operating 
subsidiaries'] and other affiliates' HMDA Disclosure Statements may be 
obtained at the CFPB's website. The bank must include the written 
notices in the public file within three business days after receiving 
notification from the FFIEC of the availability of the disclosure 
statements.
    (ii) Availability of bank HMDA data. A large bank required to 
report home mortgage loan data pursuant to 12 CFR part 1003 must 
include in its public file a written notice that the home mortgage loan 
data published by the [Agency] under Sec.  __.42(j) are available at 
the [Agency]'s website.
    (3) Small banks. A small bank, or a bank that was a small bank 
during the prior calendar year, must include in its public file the 
bank's loan-to-deposit ratio for each quarter of the prior calendar 
year and, at its option, additional data on its loan-to-deposit ratio.
    (4) Banks with strategic plans. A bank that has been approved to be 
evaluated under a strategic plan must include in its public file a copy 
of that plan while it is in effect. A bank need not include information 
submitted to the [Agency] on a confidential basis in conjunction with 
the plan.
    (5) Banks with less than ``Satisfactory'' ratings. A bank that 
received a less than ``Satisfactory'' institution rating during its 
most recent examination must include in its public file a description 
of its current efforts to improve its performance in helping to meet 
the credit needs of its entire community. The bank must update the 
description quarterly by March 31, June 30, September 30, and December 
31, respectively.
    (c) Location of public information. A bank must make available to 
the public for inspection, upon request and at no cost, the information 
required in this section as follows:
    (1) For banks that maintain a website, all information required for 
the bank's public file under this section must be maintained on the 
bank's website.
    (2) For banks that do not maintain a website:
    (i) All the information required for the bank's public file must be 
maintained at the main office and, if an interstate bank, at one branch 
office in each State; and
    (ii) At each branch, the following must be maintained:
    (A) A copy of the public section of the bank's most recent CRA 
performance evaluation and a list of services provided by the branch; 
and
    (B) Within five calendar days of the request, all the information 
that the bank is required to maintain under this section in the public 
file relating to the facility-based assessment area in which the branch 
is located.
    (d) Copies. Upon request, a bank must provide copies, either on 
paper or in digital form acceptable to the person making the request, 
of the information in its public file. The bank may charge a reasonable 
fee not to exceed the cost of copying and mailing (if not provided in 
digital form).
    (e) Timing requirements. Except as otherwise provided in this 
section, a bank must ensure that its public file contains the 
information required by this section for each of the previous three 
calendar years, with the most recent calendar year included in its file 
annually by April 1 of the current calendar year.



Sec.  __.44  Public notice by banks.

    A bank must provide in the public area of its main office and each 
of its branches the appropriate public notice set forth in appendix F 
to this part. Only a branch of a bank having more than one facility-
based assessment area must include the bracketed material in the notice 
for branch offices. Only a bank that is an affiliate of a holding 
company must include the next to the last sentence of the notices. A 
bank must include the last sentence of the notices only if it is an 
affiliate of a holding company that is not prevented by statute from 
acquiring additional depository institutions.


Sec.  __.45  Publication of planned examination schedule.

    The [Agency] publishes on its public website, at least 30 days in 
advance of the beginning of each calendar quarter, a list of banks 
scheduled for CRA examinations for the next two quarters.


Sec.  __.46  Public engagement.

    (a) In general. The [Agency] encourages communication between 
members of the public and banks, including through members of the 
public submitting written public comments regarding community credit 
needs and opportunities as well as a bank's record of helping to meet 
community credit needs. The [Agency] will take these comments into 
account in connection with the bank's next scheduled CRA examination.
    (b) Submission of public comments. Members of the public may submit 
public comments regarding community credit needs and a bank's CRA 
performance by submitting comments to the [Agency] at [Agency contact 
information].
    (c) Timing of public comments. If the [Agency] receives a public 
comment before the close date of a bank's CRA examination, the public 
comment will be considered in connection with that CRA examination. If 
the [Agency] receives a public comment after the close date of a bank's 
CRA examination, it will be considered in connection with the bank's 
subsequent CRA examination.
    (d) Distribution of public comments. The [Agency] will forward all 
public comments received regarding a bank's CRA performance to the 
bank.

Subpart E--Transition Rules


Sec.  __.51  Applicability dates and transition provisions.

    (a) Applicability dates--(1) In general. Except as provided in 
paragraphs (a)(2), (b), and (d) of this section, this part is 
applicable, beginning on April 1, 2024.
    (2) Specific applicability dates. The following sections are 
applicable as follows:
    (i) On January 1, 2026, Sec. Sec.  __.12 through __.15, __.17 
through __.30, and __.42(a); the data collection and maintenance 
requirements in Sec.  __.42(c) through (f); and appendices A through F 
to this part become applicable.
    (ii) On January 1, 2027, Sec.  __.42(b) and (g) through (i) and the 
reporting requirements in Sec.  __.42(c) through (f) become applicable.
    (iii) Rules during transition period. Prior to the applicability 
dates in paragraphs (a)(2)(i) and (ii) of this section, banks must 
comply with the relevant provisions of this part in effect on March 31, 
2024, as set forth in appendix G to this part. The relevant

[[Page 7138]]

provisions set forth in appendix G to this part are applicable to CRA 
performance evaluations pursuant to 12 U.S.C. 2903(a)(1) that assess 
activities that a bank conducted prior to the dates set forth in 
paragraphs (a)(2)(i) and (ii) of this section, as applicable, except as 
provided in paragraphs (c) and (d) of this section.
    (b) HMDA data disclosures. The [Agency] will publish the data 
pursuant to Sec.  __.42(j) beginning January 1, 2027.
    (c) Consideration of bank activities. (1) In assessing a bank's CRA 
performance, the [Agency] will consider any loan, investment, service, 
or product that was eligible for CRA consideration at the time the bank 
conducted the activity.
    (2) Notwithstanding paragraph (c)(1) of this section, in assessing 
a bank's CRA performance, the [Agency] will consider any loan or 
investment that was eligible for CRA consideration at the time that the 
bank entered into a legally binding commitment to make the loan or 
investment.
    (d) Strategic plans--(1) New and replaced strategic plans. The CRA 
regulatory requirements in effect on March 31, 2024, as set forth in 
appendix G to this part, apply to any new strategic plan, including a 
plan that replaces an expired strategic plan, submitted to the [Agency] 
for approval on or after April 1, 2024, but before November 1, 2025, 
and that the agency has determined is a complete plan consistent with 
the requirements under 12 CFR __.27 in effect on March 31, 2024, as set 
forth in appendix G to this part. These strategic plans remain in 
effect until the expiration date of the plan. The [Agency] will not 
accept any strategic plan submitted on or after November 1, 2025, and 
before January 1, 2026.
    (2) Existing strategic plans. A strategic plan in effect as of 
April 1, 2024, remains in effect until the expiration date of the plan.
    (e) First evaluation under this part on or after February 1, 2024. 
In its first performance evaluation under this part on or after 
February 1, 2024, a large bank that has a total of 10 or more facility-
based assessment areas in any State or multistate MSA, or nationwide, 
as applicable, and that was a bank subject to evaluation under this 
part or [other Agencies' regulations] prior to February 1, 2024, may 
not receive a rating of ``Satisfactory'' or ``Outstanding'' in that 
State or multistate MSA, or for the institution, unless the bank 
received an overall facility-based assessment area conclusion, 
calculated as described in paragraph g.2.ii of appendix D to this part, 
of at least ``Low Satisfactory'' in 60 percent or more of the total 
number of its facility-based assessment areas in that State or 
multistate MSA, or nationwide, as applicable.

Appendix A to Part __--Calculations for the Retail Lending Test

    This appendix, based on requirements described in Sec. Sec.  
__.22 and __.28, includes the following sections:

I. Retail Lending Volume Screen
II. Retail Lending Test Distribution Metrics--Scope of Evaluation
III. Geographic Distribution Metrics and Benchmarks
IV. Borrower Distribution Metrics and Benchmarks
V. Supporting Conclusions for Major Product Lines Other Than 
Automobile Lending
VI. Supporting Conclusions for Automobile Lending
VII. Retail Lending Test Conclusions--All Major Product Lines
VIII. Retail Lending Test Weighting and Conclusions for States, 
Multistate MSAs, and the Institution

I. Retail Lending Volume Screen

    The [Agency] calculates the Bank Volume Metric and the Market 
Volume Benchmark for a facility-based assessment area and determines 
whether the bank has met or surpassed the Retail Lending Volume 
Threshold in that facility-based assessment area.
    a. Bank Volume Metric. The [Agency] calculates the Bank Volume 
Metric for each facility-based assessment area by:
    1. Summing, over the years in the evaluation period, the bank's 
annual dollar volume of loans included in the Bank Volume Metric 
(i.e., volume metric loans). The bank's annual dollar volume of 
volume metric loans is the total dollar amount of all home mortgage 
loans, multifamily loans, small business loans, small farm loans, 
and automobile loans originated or purchased by the bank in the 
facility-based assessment area in that year. Automobile loans are 
included in the bank's annual dollar amount of volume metric loans 
only if automobile loans are a product line for the bank.
    2. Summing, over the years in the evaluation period, the bank's 
annual dollar volume of deposits in the facility-based assessment 
area. For a bank that reports deposits data pursuant to Sec.  
__.42(b)(3), the bank's annual dollar volume of deposits in a 
facility-based assessment area is the total of annual average daily 
balances of deposits reported by the bank in counties in the 
facility-based assessment area for that year. For a bank that does 
not report deposits data pursuant to Sec.  __.42(b)(3), the bank's 
annual dollar volume of deposits in a facility-based assessment area 
is the total of deposits assigned to facilities reported by the bank 
in the facility-based assessment area in the FDIC's Summary of 
Deposits for that year.
    3. Dividing the result of paragraph I.a.1 of this appendix by 
the result of paragraph I.a.2 of this appendix.
    Example A-1: The bank has a three-year evaluation period. The 
bank's annual dollar amounts of volume metric loans are $300,000 
(year 1), $300,000 (year 2), and $400,000 (year 3). The sum of the 
bank's annual dollar amount of volume metric loans in a facility-
based assessment area, over the years in the evaluation period, is 
therefore $1 million. The annual dollar volumes of deposits in the 
bank located in the facility-based assessment area are $1.7 million 
(year 1), $1.6 million (year 2), and $1.7 million (year 3). The sum 
of the annual dollar volume of deposits in the facility-based 
assessment area, over the years in the evaluation period, is 
therefore $5 million. The Bank Volume Metric for the facility-based 
assessment area would be $1 million divided by $5 million, or 0.2 
(equivalently, 20 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.064

    b. Market Volume Benchmark. The [Agency] calculates the Market 
Volume Benchmark for the facility-based assessment area. For 
purposes of calculating the Market Volume Benchmark, a benchmark 
depository institution for a particular year is a depository 
institution that, in that year, was subject to reporting pursuant to 
12 CFR 25.42(b)(1), 228.42(b)(1), or 345.42(b)(1) or 12 CFR part 
1003, and operated a facility included in the FDIC's Summary of 
Deposits data in the facility-based assessment area. The [Agency] 
calculates the Market Volume Benchmark by:
    1. Summing, over the years in the evaluation period, the annual 
dollar volume of volume benchmark loans. The annual dollar volume of 
volume benchmark loans is the total dollar volume of all home 
mortgage loans, multifamily loans, small business loans, and small 
farm loans in the facility-based assessment area in that year that 
are reported loans originated by benchmark depository institutions.
    2. Summing, over the years in the evaluation period, the annual 
dollar volume of deposits for benchmark depository institutions in 
the facility-based assessment area. The annual dollar volume of 
deposits for benchmark depository institutions in the facility-based 
assessment area is the sum across benchmark depository institutions 
of: (i) for a benchmark depository institution that reports data 
pursuant to 12 CFR 25.42(b)(3), 228.42(b)(3), or 345.42(b)(3), the 
total of annual average daily balances of

[[Page 7139]]

deposits reported by that depository institution in counties in the 
facility-based assessment area for that year; and (ii) for a 
benchmark depository institution that does not report data pursuant 
to 12 CFR 25.42(b)(3), 228.42(b)(3), or 345.42(b)(3), the total of 
deposits assigned to facilities reported by that depository 
institution in counties in the facility-based assessment area in the 
FDIC's Summary of Deposits for that year.
    3. Dividing the result of paragraph I.b.1 of this appendix by 
the result of paragraph I.b.2 of this appendix.
    Example A-2: With reference to example A-1 to this appendix, the 
annual dollar volume of volume benchmark loans is $6 million (year 
1), $7 million (year 2), and $7 million (year 3). The sum of the 
annual dollar volume of volume benchmark loans, over the years in 
the evaluation period, is therefore $20 million. The annual dollar 
volume of deposits for benchmark depository institutions is $17 
million (year 1), $15 million (year 2), and $18 million (year 3). 
The sum of the annual dollar volume of deposits for benchmark 
depository institutions, over the years in the evaluation period, is 
therefore $50 million. The Market Volume Benchmark for that 
facility-based assessment area would be $20 million divided by $50 
million, or 0.4 (equivalently, 40 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.065

    c. Retail Lending Volume Threshold. For each facility-based 
assessment area, the [Agency] calculates a Retail Lending Volume 
Threshold by multiplying the Market Volume Benchmark for that 
facility-based assessment area by 0.3 (equivalently, 30 percent). A 
bank meets or surpasses the Retail Lending Volume Threshold in a 
facility-based assessment area if the Bank Volume Metric is equal to 
or greater than the Retail Lending Volume Threshold.
    Example A-3: Based on examples A-1 and A-2 to this appendix, the 
[Agency] calculates the Retail Lending Volume Threshold by 
multiplying the Market Volume Benchmark of 40 percent by 0.3, equal 
to 0.12 (equivalently, 12 percent). The Bank Volume Metric, 0.2 
(equivalently, 20 percent), is greater than the Retail Lending 
Volume Threshold. Accordingly, the bank surpasses the Retail Lending 
Volume Threshold.

Bank Volume Metric (20%)  Retail Lending Volume Threshold 
[(40%) x 0.3 = 12%]

II. Retail Lending Distribution Metrics--Scope Of Evaluation

    a. Retail Lending Test Areas evaluated. A bank's major product 
lines are evaluated in its Retail Lending Test Areas, as provided in 
Sec.  __.22(d) and as described in paragraphs II.a.1 and 2 of this 
appendix.
    1. Large banks exempt from evaluation in retail lending 
assessment areas. Pursuant to Sec.  __.17(a)(2), a large bank is not 
required to delineate retail lending assessment areas in a 
particular calendar year if the following ratio exceeds 80 percent, 
based on the combination of loan dollars and loan count as defined 
in Sec.  __.12:
    i. The sum, over the prior two calendar years, of the large 
bank's home mortgage loans, multifamily loans, small business loans, 
small farm loans, and automobile loans if automobile loans are a 
product line for the large bank, originated or purchased in its 
facility-based assessment areas; divided by
    ii. The sum, over the prior two calendar years, of the large 
bank's home mortgage loans, multifamily loans, small business loans, 
small farm loans, and automobile loans if automobile loans are a 
product line for the large bank, originated or purchased overall.
    Example A-4: A large bank (for which automobile loans are not a 
product line) originated or purchased 20,000 closed-end home 
mortgage loans, small business loans, and small farm loans in the 
prior two calendar years, representing $6 billion in loan dollars. 
Of these loans, 18,000 loans, representing $4.5 billion in loan 
dollars, were originated or purchased in the large bank's facility-
based assessment areas. As such, the large bank originated or 
purchased 75 percent of closed-end home mortgage loans, small 
business loans, and small farm loans ($4.5 billion/$6 billion) by 
loan dollars and 90 percent (18,000/20,000) of these loans by loan 
count within its facility-based assessment areas. The combination of 
loan dollars and loan count is 82.5 percent, or (75 + 90)/2. Thus, 
this large bank is not required to delineate retail lending 
assessment areas pursuant to Sec.  __.17(a)(2) in the current 
calendar year because the 82.5 percent exceeds the 80 percent 
threshold.
    2. Small banks and intermediate banks evaluated in outside 
retail lending areas. Pursuant to Sec.  __.18(a)(2), the [Agency] 
evaluates the geographic and borrower distributions of the major 
product lines of an intermediate bank, or a small bank that opts to 
be evaluated under the Retail Lending Test, in the bank's outside 
retail lending area if either:
    i. The bank opts to have its major product lines evaluated in 
its outside retail lending area; or
    ii. The following ratio exceeds 50 percent, based on the 
combination of loan dollars and loan count as defined in Sec.  
__.12:
    A. The sum, over the prior two calendar years, of the bank's 
home mortgage loans, multifamily loans, small business loans, small 
farm loans, and automobile loans if automobile loans are a product 
line for the bank, originated or purchased outside of its facility-
based assessment areas; divided by
    B. The sum, over the prior two calendar years, of the bank's 
home mortgage loans, multifamily loans, small business loans, small 
farm loans, and automobile loans if automobile loans are a product 
line for the bank, originated or purchased overall.
    b. Product lines and major product lines. In each of a bank's 
Retail Lending Test Areas, the [Agency] evaluates each of a bank's 
major product lines, as provided in Sec.  __.22(d)(2) and as 
described in paragraphs II.b.1 through 3 of this appendix.
    1. Major product line standard for facility-based assessment 
areas and outside retail lending areas. Except as provided in 
paragraph II.b.1.iii of this appendix, a product line is a major 
product line in a facility-based assessment area or outside retail 
lending area if the following ratio is 15 percent or more, based on 
the combination of loan dollars and loan count as defined in Sec.  
__.12:
    i. The sum, over the years of the evaluation period, of the 
bank's loans in the product line originated or purchased in the 
facility-based assessment area or outside retail lending area; 
divided by
    ii. The sum, over the years of the evaluation period, of the 
bank's loans in all product lines originated or purchased in the 
facility-based assessment area or outside retail lending area.
    iii. If a bank has not collected, maintained, or reported loan 
data on a product line in a facility-based assessment area or 
outside retail lending area for one or more years of an evaluation 
period, the product line is a major product line if the [Agency] 
determines that the product line is material to the bank's business 
in the facility-based assessment area or outside retail lending 
area.
    2. Major product line standard for retail lending assessment 
areas. In a retail lending assessment area:
    (i) Closed-end home mortgage loans are a major product line in 
any calendar year in the evaluation period in which the bank 
delineates a retail lending assessment area based on its closed-end 
home mortgage loans as determined by the standard in Sec.  
__.17(c)(1); and
    (ii) Small business loans are a major product line in any 
calendar year in the evaluation period in which the bank delineates 
a retail lending assessment area based on its small business loans 
as determined by the standard in Sec.  __.17(c)(2).
    3. Banks for which automobile loans are a product line.
    i. If a bank's automobile loans are a product line (either 
because the bank is a majority automobile lender or opts to have its 
automobile loans evaluated pursuant to Sec.  __.22), automobile 
loans are a product line for the bank for the entire evaluation 
period.
    ii. A bank is a majority automobile lender if the following 
ratio, calculated at the institution level, exceeds 50 percent, 
based on the combination of loan dollars and loan count as defined 
in Sec.  __.12:
    A. The sum, over the two calendar years preceding the first year 
of the evaluation period, of the bank's automobile loans originated 
or purchased overall; divided by

[[Page 7140]]

    B. The sum, over the two calendar years preceding the first year 
of the evaluation period, of the bank's automobile loans, home 
mortgage loans, multifamily loans, small business loans, and small 
farm loans originated or purchased overall.

III. Geographic Distribution Metrics and Benchmarks

    The [Agency] calculates the Geographic Bank Metric, the 
Geographic Market Benchmark, and the Geographic Community Benchmark 
for low-income census tracts and for moderate-income census tracts, 
respectively, as set forth in this section. For each facility-based 
assessment area, retail lending assessment area, and component 
geographic area of the bank's outside retail lending area, the 
[Agency] includes either low-income census tracts or moderate-income 
census tracts (i.e., designated census tracts) in the numerator of 
the metrics and benchmarks calculations for a particular year. To 
evaluate small banks and intermediate banks without data collection, 
maintenance and reporting requirements, the [Agency] will use data 
collected by the bank in the ordinary course of business or through 
sampling of bank loan data.
    a. Calculation of Geographic Bank Metric. The [Agency] 
calculates the Geographic Bank Metric for low-income census tracts 
and for moderate-income census tracts, respectively, for each major 
product line in each Retail Lending Test Area. The [Agency] 
calculates the Geographic Bank Metric by:
    1. Summing, over the years in the evaluation period, the bank's 
annual number of originated and purchased loans in the major product 
line in designated census tracts in the Retail Lending Test Area.
    2. Summing, over the years in the evaluation period, the bank's 
annual number of originated and purchased loans in the major product 
line in the Retail Lending Test Area.
    3. Dividing the result of paragraph III.a.1 of this appendix by 
the result of paragraph III.a.2 of this appendix.
    Example A-5: The bank has a three-year evaluation period, and 
small farm loans are a major product line for the bank in a 
facility-based assessment area (FBAA-1). The bank's annual numbers 
of originated and purchased small farm loans (i.e., the bank's 
originated and purchased small farm loans) are 100 (year 1), 75 
(year 2), and 75 (year 3) in FBAA-1. The sum of the annual numbers 
of originated and purchased small farm loans is therefore 250 in the 
evaluation period. In the low-income census tracts within FBAA-1, 
the bank originated and purchased 25 small farm loans (year 1), 15 
small farm loans (year 2), and 10 small farm loans (year 3) (a total 
of 50 small farm loans). In FBAA-1, the Geographic Bank Metric for 
small farm loans in low-income census tracts would be 50 divided by 
250, or 0.2 (equivalently, 20 percent).
    In the moderate-income census tracts within FBAA-1, the bank 
originated and purchased 30 small farm loans (year 1), 20 small farm 
loans (year 2), and 10 small farm loans (year 3) (a total of 60 
small farm loans). In FBAA-1, the Geographic Bank Metric for small 
farm loans in moderate-income census tracts would be 60 divided by 
250, or 0.24 (equivalently, 24 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.066

    b. Calculation of Geographic Market Benchmarks for facility-
based assessment areas and retail lending assessment areas. For each 
facility-based assessment area and retail lending assessment area, 
the [Agency] calculates the Geographic Market Benchmark for 
designated census tracts for each major product line, excluding 
automobile loans. The [Agency] calculates the Geographic Market 
Benchmark by:
    1. Summing, over the years in the evaluation period, the annual 
number of reported loans in the major product line in designated 
census tracts in the facility-based assessment area or retail 
lending assessment area originated by all lenders.
    2. Summing, over the years in the evaluation period, the annual 
number of reported loans in the major product line in the facility-
based assessment area or retail lending assessment area originated 
by all lenders.
    3. Dividing the result of paragraph III.b.1 of this appendix by 
the result of paragraph III.b.2 of this appendix.
    Example A-6: The Geographic Market Benchmarks for small farm 
loans in FBAA-1 use a three-year evaluation period. Lenders that 
report small farm loan data originated 500 small farm loans (year 
1), 250 small farm loans (year 2), and 250 small farm loans (year 3) 
within FBAA-1. The sum of the annual numbers of originated small 
farm loans is therefore 1,000 in the evaluation period. Lenders that 
report small farm loan data originated 200 small farm loans (year 
1), 100 small farm loans (year 2) and 100 small farm loans (year 3) 
in low-income census tracts within FBAA-1. The sum of the annual 
numbers of originated small farm loans in low-income census tracts 
within FBAA-1 is therefore 400. The Geographic Market Benchmark for 
small farm loans in low-income census tracts within FBAA-1 would be 
400 divided by 1,000, or 0.4 (equivalently, 40 percent).
    Lenders that report small farm loan data originated 100 small 
farm loans (year 1), 100 small farm loans (year 2), and 100 small 
farm loans (year 3) in moderate-income census tracts within FBAA-1. 
The sum of the annual numbers of originated small farm loans in 
moderate-income census tracts within FBAA-1 is therefore 300. The 
Geographic Market Benchmark for small farm loans in moderate-income 
census tracts within FBAA-1 would be 300 divided by 1,000, or 0.3 
(equivalently, 30 percent).

[[Page 7141]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.067

    c. Calculation of Geographic Community Benchmarks for facility-
based assessment areas and retail lending assessment areas. The 
[Agency] calculates the Geographic Community Benchmark for 
designated census tracts for each major product line in each 
facility-based assessment area or retail lending assessment area.
    1. For closed-end home mortgage loans, the [Agency] calculates a 
Geographic Community Benchmark for low-income census tracts by:
    i. Summing, over the years in the evaluation period, the annual 
number of owner-occupied housing units in low-income census tracts 
in the facility-based assessment area or retail lending assessment 
area.
    ii. Summing, over the years in the evaluation period, the annual 
number of owner-occupied housing units in the facility-based 
assessment area or retail lending assessment area.
    iii. Dividing the result of paragraph III.c.1.i of this appendix 
by the result of paragraph III.c.1.ii of this appendix.
    2. For closed-end home mortgage loans, the [Agency] calculates a 
Geographic Community Benchmark for moderate-income census tracts by:
    i. Summing, over the years in the evaluation period, the annual 
number of owner-occupied housing units in moderate-income census 
tracts in the facility-based assessment area or retail lending 
assessment area.
    ii. Summing, over the years in the evaluation period, the annual 
number of owner-occupied housing units in the facility-based 
assessment area or retail lending assessment area.
    iii. Dividing the result of paragraph III.c.2.i of this appendix 
by the result of paragraph III.c.2.ii of this appendix.
    3. For small business loans, the [Agency] calculates a 
Geographic Community Benchmark for low-income census tracts by:
    i. Summing, over the years in the evaluation period, the annual 
number of non-farm businesses in low-income census tracts in the 
facility-based assessment area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the annual 
number of non-farm businesses in the facility-based assessment area 
or retail lending assessment area.
    iii. Dividing the result of paragraph III.c.3.i of this appendix 
by the result of paragraph III.c.3.ii of this appendix.
    4. For small business loans, the [Agency] calculates a 
Geographic Community Benchmark for moderate-income census tracts by:
    i. Summing, over the years in the evaluation period, the annual 
number of non-farm businesses in moderate-income census tracts in 
the facility-based assessment area or retail lending assessment 
area.
    ii. Summing, over the years in the evaluation period, the annual 
number of non-farm businesses in the facility-based assessment area 
or retail lending assessment area.
    iii. Dividing the result of paragraph III.c.4.i of this appendix 
by the result of paragraph III.c.4.ii of this appendix.
    5. For small farm loans, the [Agency] calculates a Geographic 
Community Benchmark for low-income census tracts by:
    i. Summing, over the years in the evaluation period, the annual 
number of farms in low-income census tracts in the facility-based 
assessment area.
    ii. Summing, over the years in the evaluation period, the annual 
number of farms in the facility-based assessment area.
    iii. Dividing the result of paragraph III.c.5.i of this appendix 
by the result of paragraph III.c.5.ii of this appendix.
    6. For small farm loans, the [Agency] calculates a Geographic 
Community Benchmark for moderate-income census tracts by:
    i. Summing, over the years in the evaluation period, the annual 
number of farms in moderate-income census tracts in the facility-
based assessment area.
    ii. Summing, over the years in the evaluation period, the annual 
number of farms in the facility-based assessment area.
    iii. Dividing the result of paragraph III.c.6.i of this appendix 
by the result of paragraph III.c.6.ii of this appendix.
    7. For automobile loans, the [Agency] calculates a Geographic 
Community Benchmark for low-income census tracts by:
    i. Summing, over the years in the evaluation period, the annual 
number of households in low-income census tracts in the facility-
based assessment area.
    ii. Summing, over the years in the evaluation period, the annual 
number of households in the facility-based assessment area.
    iii. Dividing the result of paragraph III.c.7.i of this appendix 
by the result of paragraph III.c.7.ii of this appendix.
    8. For automobile loans, the [Agency] calculates a Geographic 
Community Benchmark for moderate-income census tracts by:
    i. Summing, over the years in the evaluation period, the annual 
number of households in moderate-income census tracts in the 
facility-based assessment area.
    ii. Summing, over the years in the evaluation period, the annual 
number of households in the facility-based assessment area.
    iii. Dividing the result of paragraph III.c.8.i of this appendix 
by the result of paragraph III.c.8.ii of this appendix.
    Example A-7: The Geographic Community Benchmarks for small 
business loans in FBAA-1 use a three-year evaluation period. There 
were 1,300 non-farm businesses (year 1), 1,300 non-farm businesses 
(year 2), and 1,400 non-farm businesses (year 3) in FBAA-1. The sum 
of the number of non-farm businesses in FBAA-1 is therefore 4,000 in 
the evaluation period. In low-income census tracts within FBAA-1, 
there were 200 non-farm businesses (year 1), 150 non-farm businesses 
(year 2), and 150 non-farm businesses (year 3) (a total of 500 non-
farm businesses). The Geographic Community Benchmark for small 
business loans in low-income census tracts within FBAA-1 would be 
500 divided by 4,000, or 0.125 (equivalently, 12.5 percent).
    In moderate-income census tracts within FBAA-1, there were 400 
non-farm businesses (year 1), 300 non-farm businesses (year 2), and 
300 non-farm businesses (year 3) (a total of 1,000 non-farm 
businesses). The Geographic Community Benchmark for small business 
loans in moderate-income census tracts within FBAA-1 would be 1,000 
divided by 4,000, or 0.25 (equivalently, 25 percent).

[[Page 7142]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.068

    d. Calculation of Geographic Market Benchmarks for the outside 
retail lending area. For a bank's outside retail lending area, the 
[Agency] calculates the Geographic Market Benchmark for each major 
product line, excluding automobile loans, and for each category of 
designated census tracts by taking a weighted average of benchmarks 
for each component geographic area as follows:
    1. Calculating a benchmark for each category of designated 
census tracts and each major product line within each component 
geographic area as described in Sec.  __.18(b) using the formula for 
the Geographic Market Benchmark described in paragraph III.b of this 
appendix with the component geographic area in place of the 
facility-based assessment area or retail lending assessment area, as 
applicable.
    2. Calculating the weighting for each component geographic area 
and major product line as the percentage of the bank's loans in the 
major product line originated or purchased in the outside retail 
lending area that are within the component geographic area, based on 
loan count.
    3. Calculating the weighted average benchmark for the outside 
retail lending area using the component geographic area benchmarks 
in paragraph III.d.1 of this appendix and associated weightings in 
paragraph III.d.2 of this appendix.
    e. Calculation of Geographic Community Benchmarks for the 
outside retail lending area. For a bank's outside retail lending 
area, the [Agency] calculates the Geographic Community Benchmark for 
each category of designated census tract and for each major product 
line by taking a weighted average of benchmarks for each component 
geographic area as follows:
    1. Calculating a benchmark for each category of designated 
census tracts and each major product line within each component 
geographic area as described in Sec.  __.18(b) using the formula for 
the Geographic Community Benchmark described in paragraph III.c of 
this appendix with the component geographic area in place of the 
facility-based assessment area or retail lending assessment area, as 
applicable.
    2. Calculating the weighting for each component geographic area 
and major product line as the percentage of the bank's loans in the 
major product line originated or purchased in the outside retail 
lending area that are within the component geographic area, based on 
loan count.
    3. Calculating the weighted average benchmark for the outside 
retail lending area using the component geographic area benchmarks 
in paragraph III.e.1 of this appendix and associated weightings in 
paragraph III.e.2 of this appendix.

IV. Borrower Distribution Metrics and Benchmarks

    The [Agency] calculates the Borrower Bank Metric, the Borrower 
Market Benchmark, and the Borrower Community Benchmark for each 
category of borrowers (i.e., designated borrowers), as set forth in 
this section.
    For closed-end home mortgage loans, the [Agency] calculates 
these metrics and benchmarks for each of the following designated 
borrowers: (i) low-income borrowers; and (ii) moderate-income 
borrowers.
    For small business loans, the [Agency] calculates these metrics 
and benchmarks for each of the following designated borrowers: (i) 
businesses with gross annual revenues of $250,000 or less; and (ii) 
businesses with gross annual revenues greater than $250,000 but less 
than or equal to $1 million.
    For small farm loans, the [Agency] calculates these metrics and 
benchmarks for each of the following designated borrowers: (i) farms 
with gross annual revenues of $250,000 or less; and (ii) farms with 
gross annual revenues greater than $250,000 but less than or equal 
to $1 million.
    For automobile loans, the [Agency] calculates these metrics and 
benchmarks for each of the following designated borrowers: (i) low-
income borrowers; and (ii) moderate income borrowers.
    To evaluate small banks and intermediate banks without data 
collection, maintenance and reporting requirements, the [Agency] 
will use data collected by the bank in the ordinary course of 
business or through sampling of bank loan data.
    a. Calculation of Borrower Bank Metric. The [Agency] calculates 
the Borrower Bank Metric for each major product line and category of 
designated borrowers in each Retail Lending Test Area by:
    1. Summing, over the years in the evaluation period, the bank's 
annual number of originated and purchased loans in the major product 
line to designated borrowers in the Retail Lending Test Area.
    2. Summing, over the years in the evaluation period, the bank's 
annual number of originated and purchased loans in the major product 
line in the Retail Lending Test Area.
    3. Dividing the result of paragraph IV.a.1 of this appendix by 
the result of paragraph IV.a.2 of this appendix.
    Example A-8: The bank has a three-year evaluation period, and 
closed-end home mortgage loans are a major product line for the bank 
in FBAA-1. The bank's annual numbers of originated and purchased 
closed-end home mortgage loans (i.e., the bank's originated and 
purchased closed-end home mortgage loans) are 30 (year 1), 40 (year 
2), and 30 (year 3) in FBAA-1. The sum of the annual numbers of 
originated and purchased closed-end home mortgage loans is therefore 
100 in the evaluation period. In FBAA-1, the bank originated and 
purchased 10 closed-end home mortgage loans to low-income borrowers 
(year 1), 3 closed-end home mortgage loans to low-income borrowers 
(year 2), and 7 closed-end home mortgage loans to low-income 
borrowers (year 3) (a total of 20 closed-end home mortgage loans to 
low-income borrowers). In FBAA-1, the Borrower Bank Metric for 
closed-end home mortgage loans to low-income borrowers would be 20 
divided by 100, or 0.2 (equivalently, 20 percent).
    In FBAA-1, the bank also originated and purchased 12 closed-end 
home mortgage loans to moderate-income borrowers (year 1), 5 closed-
end home mortgage loans to moderate-income borrowers (year 2), and 
13 closed-end home mortgage loans to moderate-income borrowers (year 
3) (a total of 30 closed-end home mortgage loans to moderate-income 
borrowers). In FBAA-1, the Borrower Bank Metric for closed-end home 
mortgage loans to moderate-income borrowers would be 30 divided by 
100, or 0.3 (equivalently, 30 percent).

[[Page 7143]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.069

    b. Calculation of Borrower Market Benchmarks for facility-based 
assessment areas and retail lending assessment areas. For each 
facility-based assessment area and retail lending assessment area, 
the [Agency] calculates the Borrower Market Metric for each major 
product line, excluding automobile loans, and for each category of 
designated borrowers by:
    1. Summing, over the years in the evaluation period, the annual 
number of reported loans in the major product line to designated 
borrowers in the facility-based assessment area or retail lending 
assessment area originated by all lenders.
    2. Summing, over the years in the evaluation period, the annual 
number of reported loans in the major product line in the facility-
based assessment area or retail lending assessment area originated 
by all lenders.
    3. Dividing the result of paragraph IV.b.1 of this appendix by 
the result of paragraph IV.b.2 of this appendix.
    Example A-9: The Borrower Market Benchmarks for closed-end home 
mortgage loans use a three-year evaluation period. Lenders that 
report closed-end home mortgage loans originated 500 closed-end home 
mortgage loans (year 1), 275 closed-end home mortgage loans (year 
2), and 225 closed-end home mortgage loans (year 3). The sum of the 
annual numbers of originated closed-end home mortgage loans is 
therefore 1,000 in the evaluation period. Lenders that report 
closed-end home mortgage loans originated 50 closed-end home 
mortgage loans to low-income borrowers (year 1), 20 closed-end home 
mortgage loans to low-income borrowers (year 2), and 30 closed-end 
home mortgage loans to low-income borrowers (year 3) in FBAA-1. The 
sum of the annual numbers of originated closed-end home mortgage 
loans to low-income borrowers within FBAA-1 is therefore 100. The 
Borrower Market Benchmark for closed-end home mortgage loans to low-
income borrowers would be 100 divided by 1,000, or 0.1 
(equivalently, 10 percent).
    Lenders that report closed-end home mortgage loans originated 
100 loans (year 1), 75 loans (year 2), and 25 loans (year 3) to 
moderate-income borrowers. The sum of the annual numbers of 
originated closed-end home mortgage loans to moderate-income 
borrowers within FBAA-1 is therefore 200. The Borrower Market 
Benchmark for closed-end home mortgage loans to moderate-income 
borrowers in FBAA-1 would be 200 divided by 1,000, or 0.2 
(equivalently, 20 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.070

    c. Calculation of Borrower Community Benchmarks for facility-
based assessment areas and retail lending assessment areas. The 
[Agency] calculates the Borrower Community Benchmark for each 
category of designated borrowers for each major product line in each 
facility-based assessment area or retail lending assessment area.
    1. For closed-end home mortgage loans, the [Agency] calculates a 
Borrower Community Benchmark for low-income borrowers by:
    i. Summing, over the years in the evaluation period, the annual 
number of low-income families in the facility-based assessment area 
or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the annual 
number of families in the facility-based assessment area or retail 
lending assessment area.
    iii. Dividing the result of paragraph IV.c.1.i of this appendix 
by the result of paragraph IV.c.1.ii of this appendix.
    2. For closed-end home mortgage loans, the [Agency] calculates a 
Borrower Community Benchmark for moderate-income borrowers by:
    i. Summing, over the years in the evaluation period, the annual 
number of moderate-income families in the facility-based assessment 
area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the annual 
number of families in the facility-based assessment area or retail 
lending assessment area.
    iii. Dividing the result of paragraph IV.c.2.i of this appendix 
by the result of paragraph IV.c.2.ii of this appendix.
    3. For small business loans, the [Agency] calculates a Borrower 
Community Benchmark for non-farm businesses with gross annual 
revenues of $250,000 or less by:
    i. Summing, over the years in the evaluation period, the annual 
number of non-farm businesses with gross annual revenues of $250,000 
or less in the facility-based assessment area or retail lending 
assessment area.
    ii. Summing, over the years in the evaluation period, the annual 
number of non-farm businesses in the facility-based assessment area 
or retail lending assessment area.
    iii. Dividing the result of paragraph IV.c.3.i of this appendix 
by the result of paragraph IV.c.3.ii of this appendix.
    4. For small business loans, the [Agency] calculates a Borrower 
Community Benchmark for non-farm businesses with gross annual 
revenues greater than $250,000 but less than or equal to $1 million 
by:
    i. Summing, over the years in the evaluation period, the annual 
number of non-farm businesses with gross annual revenues greater 
than $250,000 but less than or equal to $1 million in the facility-
based assessment area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the annual 
number of non-farm businesses in the facility-based assessment area 
or retail lending assessment area.

[[Page 7144]]

    iii. Dividing the result of paragraph IV.c.4.i of this appendix 
by the result of paragraph IV.c.1.ii of this appendix.
    5. For small farm loans, the [Agency] calculates a Borrower 
Community Benchmark for farms with gross annual revenues of $250,000 
or less by:
    i. Summing, over the years in the evaluation period, the annual 
number of farms with gross annual revenues of $250,000 or less in 
the facility-based assessment area.
    ii. Summing, over the years in the evaluation period, the annual 
number of farms in the facility-based assessment area.
    iii. Dividing the result of paragraph IV.c.5.i of this appendix 
by the result of paragraph IV.c.5.ii of this appendix.
    6. For small farm loans, the [Agency] calculates a Borrower 
Community Benchmark for farms with gross annual revenues greater 
than $250,000 but less than or equal to $1 million:
    i. Summing, over the years in the evaluation period, the annual 
number of farms with gross annual revenues greater than $250,000 but 
less than or equal to $1 million in the facility-based assessment 
area.
    ii. Summing, over the years in the evaluation period, the annual 
number of farms in the facility-based assessment area.
    iii. Dividing the result of paragraph IV.c.6.i of this appendix 
by the result of paragraph IV.c.6.ii of this appendix.
    7. For automobile loans, the [Agency] calculates a Borrower 
Community Benchmark for low-income borrowers by:
    i. Summing, over the years in the evaluation period, the annual 
number of low-income households in the facility-based assessment 
area.
    ii. Summing, over the years in the evaluation period, the annual 
number of households in the facility-based assessment area.
    iii. Dividing the result of paragraph IV.c.7.i of this appendix 
by the result of paragraph IV.c.7.ii of this appendix.
    8. For automobile loans, the [Agency] calculates a Borrower 
Community Benchmark for moderate-income borrowers by:
    i. Summing, over the years in the evaluation period, the annual 
number of moderate-income households in the facility-based 
assessment area.
    ii. Summing, over the years in the evaluation period, the annual 
number of households in the facility-based assessment area.
    iii. Dividing the result of paragraph IV.c.8.i of this appendix 
by the result of paragraph IV.c.8.ii of this appendix.
    Example A-10: The Borrower Community Benchmarks for closed-end 
home mortgage loans use a three-year evaluation period. There were 
1,300 families (year 1), 1,300 families (year 2), and 1,400 families 
(year 3) in FBAA-1. The sum of the number of families in FBAA-1 is 
therefore 4,000 in the evaluation period. There were 300 low-income 
families (year 1), 300 low-income families (year 2), and 400 low-
income families (year 3) (a total of 1,000 low-income families). The 
Borrower Community Benchmark for closed-end home mortgage loans to 
low-income families within the FBAA-1 would be 1,000 divided by 
4,000, or 0.25 (equivalently, 25 percent).
    There were 350 moderate-income families (year 1), 400 moderate-
income families (year 2), and 450 moderate-income families (year 3) 
(a total of 1,200 moderate-income families). The Borrower Community 
Benchmark for closed-end home mortgage loans to moderate-income 
families in FBAA-1 would be 1,200 divided by 4,000, or 0.3 
(equivalently, 30 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.071

    d. Calculation of Borrower Market Benchmark for the outside 
retail lending area. For a bank's outside retail lending area, the 
[Agency] calculates the Borrower Market Benchmark for each major 
product line, excluding automobile loans, and for each category of 
designated borrowers by taking a weighted average of benchmarks for 
each component geographic area as follows:
    1. Calculating a benchmark for each category of designated 
borrowers and each major product line within each component 
geographic area as described in Sec.  __.18(b) using the formula for 
the Borrower Market Benchmark described in section IV.b of this 
appendix with the component geographic area in place of the 
facility-based assessment area or retail lending assessment area, as 
applicable.
    2. Calculating the weighting for each component geographic area 
and major product line as the percentage of the bank's loans in the 
major product line originated or purchased in the outside retail 
lending area that are within the component geographic area, based on 
loan count.
    3. Calculating the weighted average benchmark for the outside 
retail lending area using the component geographic area benchmarks 
in paragraph IV.d.1 of this appendix and associated weightings in 
paragraph IV.d.2 of this appendix.
    e. Calculation of Borrower Community Benchmarks for the outside 
retail lending area. For a bank's outside retail lending area, the 
[Agency] calculates the Borrower Community Benchmark for each major 
product line and for each category of designated borrowers in the 
bank's outside retail lending area by taking a weighted average of 
benchmarks for each component geographic area as follows:
    1. Calculating the benchmark for each category of designated 
borrowers and each major product line within each component 
geographic area as described in Sec.  __.18(b) using the formula for 
the Borrower Community Benchmark described in paragraph IV.c of this 
appendix with the component geographic area in place of the 
facility-based assessment area or retail lending assessment area, as 
applicable.
    2. Calculating the weighting for each component geographic area 
and major product line as the percentage of the bank's loans in the 
major product line originated or purchased in the outside retail 
lending area that are within the component geographic area, based on 
loan count.
    3. Calculating the weighted average benchmark for the outside 
retail lending area using the component geographic area benchmarks 
in paragraph IV.e.1 of this appendix and associated weightings 
calculated in paragraph IV.e.2 of this appendix.

V. Supporting Conclusions for Major Product Lines Other Than Automobile 
Lending

    The [Agency] evaluates a bank's Retail Lending Test performance 
in each Retail Lending Test Area by comparing the bank's 
distribution metrics to sets of performance ranges determined by, as 
applicable, the market and community benchmarks, as described in 
this section.
    a. Supporting conclusions for categories of designated census 
tracts and designated borrowers. For each major product line, 
excluding automobile lending, the [Agency] develops separate 
supporting conclusions for each of the categories outlined in table 
1 to this appendix.

[[Page 7145]]



   Table 1 to Appendix A--Retail Lending Test Categories of Designated
                 Census Tracts and Designated Borrowers
------------------------------------------------------------------------
                                Designated census
     Major product line              tracts         Designated borrowers
------------------------------------------------------------------------
Closed-End Home Mortgage      Low-Income Census     Low-Income
 Loans.                        Tracts.               Borrowers.
                              Moderate-Income       Moderate-Income
                               Census Tracts.        Borrowers.
Small Business Loans........  Low-Income Census     Non-farm businesses
                               Tracts.               with Gross Annual
                                                     Revenues of
                                                     $250,000 or Less.
                              Moderate-Income       Non-farm businesses
                               Census Tracts.        with Gross Annual
                                                     Revenues Greater
                                                     than $250,000 but
                                                     Less Than or Equal
                                                     to $1 million.
Small Farm Loans............  Low-Income Census     Farms with Gross
                               Tracts.               Annual Revenues of
                                                     $250,000 or Less.
                              Moderate-Income       Farms with Gross
                               Census Tracts.        Annual Revenues
                                                     Greater than
                                                     $250,000 but Less
                                                     Than or Equal to $1
                                                     million.
------------------------------------------------------------------------

    b. Geographic distribution performance ranges. To evaluate a 
bank's geographic distributions for each major product line, 
excluding automobile lending, the [Agency] compares the relevant 
Geographic Bank Metric for each category of designated census tracts 
to the applicable set of performance ranges. The performance ranges 
are determined by the values of the Geographic Market Benchmark and 
the Geographic Community Benchmark, as well as the multipliers 
associated with each supporting conclusion category, as follows:
    1. The performance threshold for an ``Outstanding'' supporting 
conclusion is the lesser of either:
    i. The product of 1.0 times the Geographic Community Benchmark; 
or
    ii. The product of 1.15 times the Geographic Market Benchmark.
    The ``Outstanding'' performance range is all potential values of 
the Geographic Bank Metric equal to or above the ``Outstanding'' 
performance threshold.
    2. The performance threshold for a ``High Satisfactory'' Retail 
Lending Test supporting conclusion is the lesser of either:
    i. The product of 0.8 times the Geographic Community Benchmark; 
or
    ii. The product of 1.05 times the Geographic Market Benchmark.
    The ``High Satisfactory'' performance range is all potential 
values of the Geographic Bank Metric equal to or above the ``High 
Satisfactory'' performance threshold but below the Outstanding 
performance threshold.
    3. The performance threshold for a ``Low Satisfactory'' 
supporting conclusion is the lesser of either:
    i. The product of 0.6 times the Geographic Community Benchmark; 
or
    ii. The product of the 0.8 times the Geographic Market 
Benchmark.
    The ``Low Satisfactory'' performance range is all potential 
values of the Geographic Bank Metric equal to or above the ``Low 
Satisfactory'' performance threshold but below the High Satisfactory 
performance threshold.
    4. The performance threshold for a ``Needs to Improve'' 
supporting conclusion is the lesser of either:
    i. The product of 0.3 times the Geographic Community Benchmark; 
or
    ii. The product of 0.33 times the Geographic Market Benchmark.
    The ``Needs to Improve'' performance range is all potential 
values of the Geographic Bank Metric equal to or above the ``Needs 
to Improve'' performance threshold but below the ``Low 
Satisfactory'' performance threshold.
    5. The ``Substantial Noncompliance'' performance range is all 
potential values of the Geographic Bank Metric below the ``Needs to 
Improve'' performance threshold.
    c. Geographic distribution supporting conclusions and 
performance scores. The [Agency] compares each Geographic Bank 
Metric to the performance ranges provided in paragraphs V.b.1 
through V.b.5 of this appendix. The geographic distribution 
supporting conclusion for each category of designated census tracts 
is determined by the performance range within which the Geographic 
Bank Metric falls. Each supporting conclusion is assigned a 
numerical performance score using the following corresponding points 
values:

------------------------------------------------------------------------
                                                            Performance
                       Conclusion                              score
------------------------------------------------------------------------
Outstanding.............................................              10
High Satisfactory.......................................               7
Low Satisfactory........................................               6
Needs to Improve........................................               3
Substantial Noncompliance...............................               0
------------------------------------------------------------------------

    d. Borrower distribution performance ranges. To evaluate a 
bank's borrower distributions for each major product line, excluding 
automobile lending, the [Agency] compares the relevant Borrower Bank 
Metric for each category of designated borrowers to the applicable 
set of performance ranges. The performance ranges are determined by 
the values of the Borrower Market Benchmark and Borrower Community 
Benchmark, as well as the multipliers associated with each 
supporting conclusion category, as follows:
    1. The performance threshold for an ``Outstanding'' supporting 
conclusion is the lesser of either:
    i. The product of 1.0 times the Borrower Community Benchmark; or
    ii. The product of 1.15 times the Borrower Market Benchmark.
    The ``Outstanding'' performance range is all potential values of 
the Borrower Bank Metric equal to or above the ``Outstanding'' 
performance threshold.
    2. The performance threshold for a ``High Satisfactory'' 
supporting conclusion is the lesser of either:
    i. The product of 0.8 times the Borrower Community Benchmark; or
    ii. The product of 1.05 times the Borrower Market Benchmark.
    The ``High Satisfactory'' performance range is all potential 
values of the Borrower Bank Metric equal to or above the ``High 
Satisfactory'' performance threshold but below the Outstanding 
performance threshold.
    3. The performance threshold for a ``Low Satisfactory'' 
supporting conclusion is the lesser of either:
    i. The product of 0.6 times the Borrower Community Benchmark; or
    ii. The product of 0.8 times the Borrower Market Benchmark.
    The ``Low Satisfactory'' performance range is all potential 
values of the Borrower Bank Metric equal to or above the ``Low 
Satisfactory'' performance threshold but below the High Satisfactory 
performance threshold.
    4. The performance threshold for a ``Needs to Improve'' 
supporting conclusion is the lesser of either:
    i. The product of 0.3 times the Borrower Community Benchmark; or
    ii. The product of 0.33 times the Borrower Market Benchmark.
    The ``Needs to Improve'' performance range is all potential 
values of the Borrower Bank Metric equal to or above the ``Needs to 
Improve'' performance threshold but below the ``Low Satisfactory'' 
performance threshold.
    5. The ``Substantial Noncompliance'' performance range is all 
potential values of the Borrower Bank Metric below the ``Needs to 
Improve'' performance threshold.
    e. Borrower distribution supporting conclusions and performance 
scores. The [Agency] compares each Borrower Bank Metric to the 
performance ranges provided in paragraphs V.d.1 through V.d.5 of 
this appendix. The borrower distribution supporting conclusion for 
each category of designated borrowers is determined by the 
performance range within which the Borrower Bank Metric falls. Each 
supporting conclusion is assigned a numerical performance score 
using the following corresponding point values:

[[Page 7146]]



------------------------------------------------------------------------
                                                            Performance
                       Conclusion                              score
------------------------------------------------------------------------
Outstanding.............................................              10
High Satisfactory.......................................               7
Low Satisfactory........................................               6
Needs to Improve........................................               3
Substantial Noncompliance...............................               0
------------------------------------------------------------------------

VI. Supporting Conclusions for Automobile Lending

    a. Supporting conclusions for categories of designated census 
tracts and designated borrowers. For any bank for which automobile 
lending is evaluated under Sec.  __.22, the [Agency] develops 
separate supporting conclusions for each of the categories outlined 
in table 2 to this appendix.

Table 2 to Appendix A--Automobile Loans: Categories of Designated Census
                     Tracts and Designated Borrowers
------------------------------------------------------------------------
                                   Designated census      Designated
       Major product line               tracts             borrowers
------------------------------------------------------------------------
Automobile Lending..............  Low-Income Census   Low-Income
                                   Tracts.             Borrowers.
                                  Moderate-Income     Moderate-Income
                                   Census Tracts.      Borrowers.
------------------------------------------------------------------------

    b. Geographic distribution. The [Agency] develops the supporting 
conclusion for a bank's geographic distribution for automobile 
lending based on a comparison of the Geographic Bank Metric for 
automobile lending in each category of designated census tracts to 
the corresponding Geographic Community Benchmark.
    c. Borrower distribution. The [Agency] develops the supporting 
conclusion for a bank's borrower distribution for automobile lending 
based on a comparison of the Borrower Bank Metric for automobile 
lending in each category of designated borrowers to the 
corresponding Borrower Community Benchmark.
    d. Performance scores. Each supporting conclusion is assigned a 
numerical performance score using the following corresponding point 
values:

------------------------------------------------------------------------
                                                            Performance
                       Conclusion                              score
------------------------------------------------------------------------
Outstanding.............................................              10
High Satisfactory.......................................               7
Low Satisfactory........................................               6
Needs to Improve........................................               3
Substantial Noncompliance...............................               0
------------------------------------------------------------------------

VII. Retail Lending Test Conclusions--All Major Product Lines

    a. The [Agency] determines a bank's Retail Lending Test 
performance conclusion for a major product line in a Retail Lending 
Test Area by calculating a weighted performance score for each major 
product line:
    1. The [Agency] develops a weighted average performance score 
for each major product line in each Retail Lending Test Area as 
follows:
    i. The [Agency] creates a weighted average performance score 
across the categories of designated census tracts (i.e., geographic 
distribution average) and a weighted average performance score 
across the categories of designated borrowers (i.e., borrower 
distribution average).
    ii. For the geographic distribution average of each major 
product line, the weighting assigned to each category of designated 
census tracts is based on the demographics of the Retail Testing 
Area as outlined in the following table:

   Table 3 to Appendix A--Retail Lending, Test Geographic Distribution
                            Average--Weights
------------------------------------------------------------------------
                                   Category of
      Major product line        designated census          Weight
                                      tracts
------------------------------------------------------------------------
Closed-End Home Mortgage Loans  Low-Income Census  Percentage of total
                                 Tracts.            number of owner-
                                                    occupied housing
                                                    units in low- and
                                                    moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in low-
                                                    income census
                                                    tracts.
                                Moderate-Income    Percentage of total
                                 Census Tracts.     number of owner-
                                                    occupied housing
                                                    units in low- and
                                                    moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in moderate-
                                                    income census
                                                    tracts.
Small Business Loans..........  Low-Income Census  Percentage of total
                                 Tracts.            number of non-farm
                                                    businesses in low-
                                                    and moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in low-
                                                    income census
                                                    tracts.
                                Moderate-Income    Percentage of total
                                 Census Tracts.     number of non-farm
                                                    businesses in low-
                                                    and moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in moderate-
                                                    income census
                                                    tracts.
Small Farm Loans..............  Low-Income Census  Percentage of total
                                 Tracts.            number of farms in
                                                    low- and moderate-
                                                    income census tracts
                                                    in the applicable
                                                    Retail Lending Test
                                                    Area that are in low-
                                                    income census
                                                    tracts.
                                Moderate-Income    Percentage of total
                                 Census Tracts.     number of farms in
                                                    low- and moderate-
                                                    income census tracts
                                                    in the applicable
                                                    Retail Lending Test
                                                    Area that are in
                                                    moderate-income
                                                    census tracts.
Automobile Loans..............  Low-Income Census  Percentage of total
                                 Tracts.            number of households
                                                    in low- and moderate-
                                                    income census tracts
                                                    in the applicable
                                                    Retail Lending Test
                                                    Area that are in low-
                                                    income census
                                                    tracts.
                                Moderate-Income    Percentage of total
                                 Census Tracts.     number of households
                                                    in low- and moderate-
                                                    income census tracts
                                                    in the applicable
                                                    Retail Lending Test
                                                    Area that are in
                                                    moderate-income
                                                    census tracts.
------------------------------------------------------------------------

    In the case of a Retail Lending Test Area that contains no low-
income census tracts and no moderate-income census tracts, the bank 
will not receive a geographic distribution average for that 
assessment area.
    Example A-11: A large bank's closed-end home mortgage loans 
constitute a major product line for the bank in a facility-based 
assessment area. The bank's geographic distribution supporting 
conclusions for closed-end home mortgage loans in this

[[Page 7147]]

facility-based assessment area are ``High Satisfactory'' 
(performance score of 7 points) for low-income census tracts and 
``Needs to Improve'' (performance score of 3 points) for moderate-
income census tracts. Owner-occupied housing units in moderate-
income census tracts represents 20 percent of all owner-occupied 
housing units in the facility-based assessment area, and owner-
occupied housing units in low-income census tracts represents 5 
percent of all owner-occupied housing units in the facility-based 
assessment area. Accordingly, the weight assigned to the moderate-
income geographic distribution performance score is 80 percent [20 
percent/(20 percent + 5 percent) = 80 percent] and the weight 
assigned to the low-income geographic distribution performance score 
is 20 percent [5 percent/(20 percent + 5 percent) = 20 percent]. The 
bank's geographic distribution average for closed-end home mortgage 
loans in this facility-based assessment area is 3.8 [(7 points x 0.2 
weight = 1.4) + (3 points x 0.8 weight = 2.4)].
    iii. For the borrower distribution average of each major product 
line, the weighting assigned to each category of designated 
borrowers is based on the demographics of the Retail Lending Test 
Area as outlined in the following table:

    Table 4 to Appendix A--Retail Lending Test, Borrower Distribution
                            Average--Weights
------------------------------------------------------------------------
                                     Categories of
       Major product line             designated            Weight
                                       borrowers
------------------------------------------------------------------------
Closed-End Home Mortgage Loans..  Low-Income          Percentage of
                                   Borrowers.          total number of
                                                       low-income and
                                                       moderate-income
                                                       families in the
                                                       applicable Retail
                                                       Lending Test Area
                                                       that are low-
                                                       income families.
                                  Moderate-Income     Percentage of
                                   Borrowers.          total number of
                                                       low-income and
                                                       moderate-income
                                                       families in the
                                                       applicable Retail
                                                       Lending Test Area
                                                       that are moderate-
                                                       income families.
Small Business Loans............  Non-farm            Percentage of
                                   businesses with     total number of
                                   gross annual        non-farm
                                   revenues of         businesses with
                                   $250,000 or less.   gross annual
                                                       revenues of
                                                       $250,000 or less
                                                       and non-farm
                                                       businesses with
                                                       gross annual
                                                       revenues greater
                                                       than $250,000 but
                                                       less than or
                                                       equal to $1
                                                       million in the
                                                       applicable Retail
                                                       Lending Test Area
                                                       that are non-farm
                                                       businesses with
                                                       gross annual
                                                       revenues of
                                                       $250,000 or less.
                                  Non-farm            Percentage of
                                   businesses with     total number of
                                   gross annual        non-farm
                                   revenues greater    businesses with
                                   than $250,000 and   gross annual
                                   less than or        revenues of
                                   equal to $1         $250,000 or less
                                   million.            and non-farm
                                                       businesses with
                                                       gross annual
                                                       revenues greater
                                                       than $250,000 but
                                                       less than or
                                                       equal to $1
                                                       million in the
                                                       applicable Retail
                                                       Lending Test Area
                                                       that are non-farm
                                                       businesses with
                                                       gross annual
                                                       revenues greater
                                                       than $250,00 but
                                                       less than or
                                                       equal to $1
                                                       million.
Small Farm Loans................  Farms with gross    Percentage of
                                   annual revenues     total number of
                                   of $250,000 or      farms with gross
                                   less.               annual revenues
                                                       of $250,000 or
                                                       less and farms
                                                       with gross annual
                                                       revenues greater
                                                       than $250,000 but
                                                       less than or
                                                       equal to $1
                                                       million in the
                                                       applicable Retail
                                                       Lending Test Area
                                                       that are farms
                                                       with gross annual
                                                       revenues of
                                                       $250,000 or less.
                                  Farms with gross    Percentage of
                                   annual revenues     total number of
                                   greater than        farms with gross
                                   $250,000 and less   annual revenues
                                   than or equal to    of $250,000 or
                                   $1 million.         less and farms
                                                       with gross annual
                                                       revenues greater
                                                       than $250,000 but
                                                       less than or
                                                       equal to $1
                                                       million in the
                                                       applicable Retail
                                                       Lending Test Area
                                                       that are farms
                                                       with gross annual
                                                       revenues greater
                                                       than $250,000 but
                                                       less than or
                                                       equal to $1
                                                       million.
Automobile Loans................  Low-Income          Percentage of
                                   Borrowers.          total number of
                                                       low-income and
                                                       moderate-income
                                                       households in the
                                                       applicable Retail
                                                       Lending Test Area
                                                       that are low-
                                                       income
                                                       households.
                                  Moderate-Income     Percentage of
                                   Borrowers.          total number of
                                                       low-income and
                                                       moderate-income
                                                       households in the
                                                       applicable Retail
                                                       Lending Test Area
                                                       that are moderate-
                                                       income
                                                       households.
------------------------------------------------------------------------

    Example A-12: Building on example A-11 to this appendix, the 
bank's borrower distribution supporting conclusions for closed-end 
home mortgage loans in this facility-based assessment area are 
``Outstanding'' (performance score of 10 points) for low-income 
borrowers and ``Low Satisfactory'' (performance score of 6 points) 
for moderate-income borrowers. Low-income families represent 14 
percent of all families in the facility-based assessment area and 
moderate-income families represent 6 percent of all families in the 
facility-based assessment area. Accordingly, the weight assigned to 
the low-income borrower distribution performance score is 70 percent 
[14 percent/(14 percent + 6 percent) = 70 percent] and the weight 
assigned to the moderate-income borrower distribution performance 
score is 30 percent [6 percent/(14 percent + 6 percent) = 30 
percent]. The bank's borrower distribution average for closed-end 
home mortgage loans in this facility-based assessment area is 8.8 
[(10 points x 0.7 weight = 7.0) + (6 points x 0.3 weight = 1.8)].
    2. For each major product line, the [Agency] calculates the 
average of the geographic distribution average and the borrower 
distribution average (i.e., product

[[Page 7148]]

line score). If a bank has no geographic distribution average for a 
product (due to the absence of both low-income census tracts and 
moderate-income census tracts in the geographic area), the product 
line score is the borrower distribution average.
    Example A-13: Based on examples A-11 and A-12 to this appendix, 
the bank's product line score for closed-end home mortgage loans is 
6.3 [(3.8 geographic distribution average x 0.5 weight = 1.9) + (8.8 
borrower distribution average x 0.5 weight = 4.4)].
    b. For each Retail Lending Test Area, the [Agency] calculates a 
weighted average of product line scores across all major product 
lines (i.e., Retail Lending Test Area Score). For each Retail 
Lending Test Area, the [Agency] uses a ratio of the bank's loan 
originations and purchases in each major product line to its loan 
originations and purchases in all major product lines during the 
evaluation period, based on the combination of loan dollars and loan 
count as defined in Sec.  __.12, as weights in the weighted average.
    Example A-14: In addition to the product line score of 6.3 for 
closed-end home mortgage loans in example A-13 to this appendix, the 
bank has a product line score of 4.2 for small business lending in 
the same facility-based assessment area. Among major product lines, 
60 percent of the bank's loans in the facility-based assessment area 
are closed-end home mortgages and 40 percent are small business 
loans based upon the combination of loan dollars and loan count. 
Accordingly, the weight assigned to the closed-end home mortgage 
product line score is 60 percent and the weight assigned to the 
small business product line score is 40 percent. The bank's Retail 
Lending Test Area Score for this facility-based assessment area is 
5.46 [(6.3 closed-end home mortgage loan product line score x 0.6 
weight = 3.78) + (4.2 small business loan product line score x 0.4 
weight = 1.68)].
    c. The [Agency] then develops a Retail Lending Test recommended 
conclusion corresponding with the conclusion category that is 
nearest to the Retail Lending Test Area Score, as follows:

------------------------------------------------------------------------
                                              Retail lending test area
          Recommended  conclusion                       score
------------------------------------------------------------------------
Outstanding...............................  8.5 or more.
High Satisfactory.........................  6.5 or more but less than
                                             8.5.
Low Satisfactory..........................  4.5 or more but less than
                                             6.5.
Needs to Improve..........................  1.5 or more but less than
                                             4.5.
Substantial Noncompliance.................  less than 1.5.
------------------------------------------------------------------------

    Example A-15: Based on example A-14 to this appendix, the bank's 
Retail Lending Test Area Score is associated with a ``Low 
Satisfactory'' conclusion, so the bank's Retail Lending Test 
recommended conclusion for this facility-based assessment area is 
``Low Satisfactory.''
    d. Once a recommended conclusion is determined for a Retail 
Lending Test Area, the performance context information provided in 
Sec.  __.21(d) and the additional factors provided in Sec.  __.22(g) 
inform the [Agency]'s determination of the Retail Lending Test 
conclusion for the Retail Lending Test Area. The agency assigns a 
Retail Lending Test conclusion for the Retail Lending Test Area of 
``Outstanding,'' ``High Satisfactory,'' ``Low Satisfactory,'' 
``Needs to Improve,'' or ``Substantial Noncompliance.''

VIII. Retail Lending Test Weighting and Conclusions for States, 
Multistate MSAs, and the Institution

    The [Agency] develops the Retail Lending Test conclusions for 
States, multistate MSAs, and the institution as described in this 
section.
    a. The [Agency] translates Retail Lending Test conclusions for 
facility-based assessment areas, retail lending assessment areas, 
and as applicable, the outside retail lending area into numerical 
performance scores, as follows:

------------------------------------------------------------------------
                                                            Performance
                       Conclusion                              score
------------------------------------------------------------------------
Outstanding.............................................              10
High Satisfactory.......................................               7
Low Satisfactory........................................               6
Needs to Improve........................................               3
Substantial Noncompliance...............................               0
------------------------------------------------------------------------

    b. The [Agency] calculates the weighted average of Retail 
Lending Test Area performance scores for a State or multistate MSA, 
as applicable, and for the institution (i.e., performance score for 
the Retail Lending Test). For the weighted average for a State or 
multistate MSA, the [Agency] considers facility-based assessment 
areas and retail lending assessment areas in the State or multistate 
MSA pursuant to Sec.  __.28(c). For the weighted average for the 
institution, the [Agency] considers all of the bank's facility-based 
assessment areas and retail lending assessment areas and, as 
applicable, the bank's outside retail lending area. Each Retail 
Lending Test Area performance score is weighted by the average of 
the following two ratios:
    1. The ratio measuring the share of the bank's deposits in the 
Retail Lending Test Area, calculated by:
    i. Summing, over the years in the evaluation period, the bank's 
annual dollar volume of deposits in the Retail Lending Test Area.
    ii. Summing, over the years in the evaluation period, the bank's 
annual dollar volume of deposits in all Retail Lending Test Areas in 
the State, in the multistate MSA, or for the institution, as 
applicable.
    iii. Dividing the result of paragraph VIII.b.1.i of this 
appendix by the result of paragraph VIII.b.1.ii of this appendix.
    For a bank that reports deposits data pursuant to Sec.  
__.42(b)(3), the bank's annual dollar volume of deposits in a Retail 
Lending Test Area is the total of annual average daily balances of 
deposits reported by the bank in counties in the Retail Lending Test 
Area for that year. For a bank that does not report deposits data 
pursuant to Sec.  __.42(b)(3), the bank's annual dollar volume of 
deposits in a Retail Lending Test Area is the total of deposits 
assigned to facilities reported by the bank in the Retail Lending 
Test Area in the FDIC's Summary of Deposits for that year.
    2. The ratio measuring the share of the bank's loans in the 
Retail Lending Test Area, based on the combination of loan dollars 
and loan count, as defined in Sec.  __.12, calculated by dividing:
    i. The bank's closed-end home mortgage loans, small business 
loans, small farm loans, and, if a product line for the bank, 
automobile loans in the Retail Lending Test Area originated or 
purchased during the evaluation period; by
    ii. The bank's closed-end home mortgage loans, small business 
loans, small farm loans, and, if a product line for the bank, 
automobile loans in all Retail Lending Test Areas in the State, in 
the multistate MSA, or for the institution, as applicable, 
originated or purchased during the evaluation period.
    c. The [Agency] develops a conclusion corresponding to the 
conclusion category that is nearest to the performance score for the 
Retail Lending Test for the State, the multistate MSA, or the 
institution, as applicable, as follows:

------------------------------------------------------------------------
                                                 Retail lending test
                Conclusion                        performance score
------------------------------------------------------------------------
Outstanding...............................  8.5 or more.
High Satisfactory.........................  6.5 or more but less than
                                             8.5.
Low Satisfactory..........................  4.5 or more but less than
                                             6.5.
Needs to Improve..........................  1.5 or more but less than
                                             4.5.
Substantial Noncompliance.................  Less than 1.5.
------------------------------------------------------------------------

    d. The agency considers relevant performance context information 
provided in Sec.  __.21(d) to inform the [Agency]'s determination of 
the bank's Retail Lending Test conclusion for the State, the 
multistate MSA, or the institution, as applicable.
    Example A-16: A large bank operates in one State only, and has 
two facility-based assessment areas and one retail lending 
assessment area in that state and also engages in closed-end home 
mortgage lending, small business lending, and small farm lending 
(but not automobile lending, as it is not a product line for the 
bank) in its outside retail lending area.
    Additionally:
    i. Facility-based assessment area 1 (FBAA-1) is associated with 
75 percent of the deposits in all of the Retail Lending Test Areas 
of the bank (based on dollar amount) and 10 percent of the bank's 
closed-end home mortgage loans, small business loans, and small farm 
loans (based on the combination of loan dollars and loan count as 
defined in Sec.  __.12). The bank received a ``Needs to Improve'' (3 
points) Retail Lending Test conclusion in FBAA-1;
    ii. Facility-based assessment area 2 (FBAA-2) is associated with 
15 percent of the deposits in all of the Retail Lending Test Areas 
of the bank and 20 percent of the bank's closed-end home mortgage 
loans, small business loans, and small farm loans (based on the 
combination of loan dollars and loan count as defined in Sec.  
__.12). The

[[Page 7149]]

bank received a ``Low Satisfactory'' (6 points) Retail Lending Test 
conclusion in FBAA-2;
    iii. The Retail lending assessment area is associated with 8 
percent of the deposits in all of the Retail Lending Test Areas of 
the bank and 68 percent of the bank's closed-end home mortgage 
loans, small business loans, and small farm loans (based on the 
combination of loan dollars and loan count as defined in Sec.  
__.12). The bank received an ``Outstanding'' (10 points) Retail 
Lending Test conclusion in the retail lending assessment area; and
    iv. The bank's outside retail lending area, is associated with 2 
percent of the deposits in all of the Retail Lending Test Areas of 
the bank and 2 percent of the bank's closed-end home mortgage loans, 
small business loans, and small farm loans (based on the combination 
of loan dollars and loan count as defined in Sec.  __.12). The bank 
received a ``High Satisfactory'' (7 points) Retail Lending Test 
conclusion in the outside retail lending area.
    Calculating weights:
    i. For facility-based assessment area 1: weight = 42.5 percent 
[(75 percent of deposits + 10 percent of closed-end home mortgage 
loans, small business loans, and small farm loans)/2];
    ii. For facility-based assessment area 2: weight = 17.5 percent 
[(15 percent of deposits + 20 percent of closed-end home mortgage 
loans, small business loans, and small farm loans)/2];
    iii. For the retail lending assessment area: weight = 38 percent 
[(8 percent of deposits + 68 percent of closed-end home mortgage 
loans, small business loans, and small farm loans)/2]; and
    iv. For the outside retail lending area: weight = 2 percent [(2 
percent of deposits + 2 percent of closed-end home mortgage loans, 
small business loans, and small farm loans)/2].
    Institution Retail Lending Test Performance Score and 
Conclusion: Using the relevant points values--``Outstanding'' (10 
points); ``High Satisfactory'' (7 points); ``Low Satisfactory'' (6 
points); ``Needs to Improve'' (3 points); ``Substantial 
Noncompliance'' (0 points)--and based on the illustration in this 
example A-16, the bank's Retail Lending Test performance score for 
the institution is 6.3 [(0.425 weight x 3 points in facility-based 
assessment area 1) + (0.175 weight x 6 points in facility-based 
assessment area 2) + (0.38 weight x 10 points in retail lending 
assessment area) + (0.02 weight x 7 points in the outside retail 
lending area)].
    A performance score of 6.3 corresponds with the conclusion 
category ``Low Satisfactory,'' so the bank's Retail Lending Test 
recommended conclusion at the institution level is ``Low 
Satisfactory.'' Relevant performance context information provided in 
Sec.  __.21(d) may inform the [Agency]'s determination of the bank's 
conclusion at the institution level.
    Example A-17: An intermediate bank operates in a single State, 
has two facility-based assessment areas, and also engages in closed-
end home mortgage lending, small business lending, and small farm 
lending (but not automobile lending, as automobile lending is not a 
product line for the bank) in its outside retail lending area.
    Additionally:
    i. Facility-based assessment area 1 (FBAA-1) is associated with 
60 percent of the deposits in all of the Retail Lending Test Areas 
of the bank and 30 percent of the bank's closed-end home mortgage 
loans, small business loans, and small farm loans. The bank received 
an ``Outstanding'' (10 points) Retail Lending Test conclusion in 
FBAA-1;
    ii. Facility-based assessment area 2 (FBAA-2 is) associated with 
40 percent of the deposits in all of the Retail Lending Test Areas 
of the bank and 10 percent of the bank's closed-end home mortgage 
loans, small business loans, and small farm loans. The bank received 
a ``High Satisfactory'' (7 points) Retail Lending Test conclusion in 
FBAA-2; and
    iii. The bank's outside retail lending area is associated with 0 
percent of the deposits in all of the Retail Lending Test Areas of 
the bank (the bank did not voluntarily collect and maintain 
depositor location data, so all deposits in the bank are attributed 
to its branches within facility-based assessment areas) and 60 
percent of the bank's closed-end home mortgage loans, small business 
loans, and small farm loans. The bank received a ``Needs to 
Improve'' (3 points) Retail Lending Test conclusion in the outside 
retail lending area.
    Calculating weights:
    i. For FBAA-1: weight = 45 percent [(60 percent of deposits + 30 
percent of closed-end home mortgage loans, small business loans, and 
small farm loans)/2];
    ii. For FBAA-2: weight = 25 percent [(40 percent of deposits + 
10 percent of closed-end home mortgage loans, small business loans, 
and small farm loans)/2]; and
    iii. For the outside retail lending area: weight = 30 percent 
[(0 percent of deposits + 60 percent of closed-end home mortgage 
loans, small business loans, and small farm loans)/2].
    Institution Retail Lending Test Performance Score and 
Conclusion: Using the relevant points values--``Outstanding'' (10 
points); ``High Satisfactory'' (7 points); ``Low Satisfactory'' (6 
points); ``Needs to Improve'' (3 points); ``Substantial 
Noncompliance'' (0 points)--and based on the illustration in this 
example A-17, the bank's recommended Retail Lending Test performance 
score at the institution level is 7.2 [(0.45 weight x 10 points in 
FBAA-1) + (0.25 weight x 7 points in FBAA-2) + (0.3 weight x 3 
points in the outside retail lending area)].
    A performance score of 7.2 corresponds with the conclusion 
category ``High Satisfactory,'' so the bank's Retail Lending Test 
recommended conclusion at the institution level is ``High 
Satisfactory.'' Relevant performance context information provided in 
Sec.  __.21(d) may inform the [Agency]'s determination of the bank's 
conclusion at the institution level.

Appendix B to Part __--Calculations for the Community Development Tests

    This appendix, based on requirements described in Sec. Sec.  
__.24 through __.26 and __.28, includes the following sections:
I. Community Development Financing Tests--Calculation Components and 
Allocation of Community Development Loans and Community Development 
Investments
II. Community Development Financing Test in Sec.  __.24--
Calculations for Metrics, Benchmarks, and Combining Performance 
Scores
III. Community Development Financing Test for Limited Purpose Banks 
in Sec.  __.26--Calculations for Metrics and Benchmarks
IV. Weighting of Conclusions

I. Community Development Financing Tests--Calculation Components and 
Allocation of Community Development Loans and Community Development 
Investments

    For purposes of the Community Development Financing Test in 
Sec.  __.24 and Community Development Financing Test for Limited 
Purpose Banks in Sec.  __.26, the [Agency] identifies the community 
development loans and community development investments included in 
the numerator of the metrics and benchmarks and the deposits or 
assets included in the denominator of the metrics and benchmarks, as 
applicable, pursuant to paragraph I.a of this appendix. The [Agency] 
determines whether to include a community development loan or 
community development investment in the numerator for a particular 
metric or benchmark pursuant to the allocation provisions in 
paragraph I.b of this appendix.
    a. Community development loans and community development 
investments, deposits, and assets included in the community 
development financing metrics and benchmarks--in general. The 
[Agency] calculates the community development financing metrics and 
benchmarks in Sec. Sec.  __.24 and __.26 using community development 
loans and community development investments and deposits or assets, 
as follows:
    1. Numerator--i. Community development loans and community 
development investments considered. The [Agency] includes community 
development loans and community development investments originated, 
purchased, refinanced, or renewed by a depository institution or 
attributed to a depository institution pursuant to Sec.  __.21(b) 
and (c) (e.g., an affiliate community development loan) in the 
numerator of the metrics and benchmarks. The [Agency] calculates the 
annual dollar volume of community development loans and community 
development investments by summing the dollar volume of the 
following community development loans and community development 
investments for each calendar year in an evaluation period (i.e., 
annual dollar volume of community development loans and community 
development investments):
    A. The dollar volume of all community development loans 
originated or purchased and community development investments made, 
including legally binding commitments to extend credit or legally

[[Page 7150]]

binding commitments to invest,\1\ in that calendar year;
---------------------------------------------------------------------------

    \1\ The dollar volume of a legally binding commitment to extend 
credit or legally binding commitment to invest in any given year is: 
(1) the full dollar volume committed; or (2) if drawn upon, the 
combined dollar volume of the outstanding commitment and any drawn 
portion of the commitment.
---------------------------------------------------------------------------

    B. The dollar volume of any increase in the calendar year to an 
existing community development loan that is refinanced or renewed 
and in an existing community development investment that is renewed;
    C. The outstanding dollar volume of community development loans 
originated or purchased in previous calendar years and community 
development investments made in previous calendar years, as of 
December 31 for each calendar year that the loan or investment 
remains on the depository institution's balance sheet; and
    D. The outstanding dollar volume, less any increase reported in 
paragraph I.a.1.B of this appendix in the same calendar year, of a 
community development loan the depository institution refinanced or 
renewed in a calendar year subsequent to the calendar year of 
origination or purchase, as of December 31 for each calendar year 
that the loan remains on the depository institution's balance sheet, 
and an existing community development investment renewed in a 
calendar year subsequent to the calendar year of the investment, as 
of December 31 for each calendar year that the investment remains on 
the depository institution's balance sheet.
    ii. Community development loan and community development 
investment allocation. To calculate the metrics and benchmarks 
provided in Sec. Sec.  __.24 and _.26, the [Agency] includes all 
community development loans and community development investments 
that are allocated to the specific facility-based assessment area, 
State, multistate MSA, or nationwide area, respectively, in the 
numerator for the metric and benchmarks applicable to that 
geographic area. See paragraph I.b of this appendix for the 
community development financing allocation provisions.
    2. Denominator. i. Annual dollar volume of deposits. For 
purposes of metrics and benchmarks in Sec.  __.24, the [Agency] 
calculates an annual dollar volume of deposits in a depository 
institution that is specific to each metric or benchmark for each 
calendar year in the evaluation period (i.e., annual dollar volume 
of deposits). For a depository institution that collects, maintains, 
and reports deposits data as provided in 12 CFR 25.42, 228.42, or 
345.42, the annual dollar volume of deposits is determined using the 
annual average daily balance of deposits in the depository 
institution as provided in statements (e.g., monthly or quarterly 
statements) based on the deposit location. For a depository 
institution that does not collect, maintain, and report deposits 
data as provided in 12 CFR 25.42, 228.42, or 345.42, the annual 
dollar volume of deposits is determined using the deposits assigned 
to each facility pursuant to the FDIC's Summary of Deposits.
    ii. Annual dollar volume of assets. For purposes of the metrics 
and benchmarks in Sec.  ___.26, the [Agency] calculates an annual 
dollar volume of assets for each calendar year in the evaluation 
period (i.e., the annual dollar volume of assets). The annual dollar 
volume of assets is calculated by averaging the assets for each 
quarter end in the calendar year.
    b. Allocation of community development loans and community 
development investments. 1. In general. For the Community 
Development Financing Test in Sec.  __.24 and the Community 
Development Financing Test for Limited Purpose Banks in Sec.  __.26, 
the [Agency] considers community development loans and community 
development investments in the evaluation of a bank's performance in 
a facility-based assessment area, State and multistate MSA, as 
applicable, and the nationwide area, based on the data provided by 
the bank pursuant to Sec.  __.42(a)(5)(ii)(E) and the specific 
location, if available, pursuant to Sec.  __.42(a)(5)(ii)(D). As 
appropriate, the [Agency] may also consider publicly available 
information and information provided by government or community 
sources that demonstrates that a community development loan or 
community development investment benefits or serves a facility-based 
assessment area, State, or multistate MSA, or the nationwide area.
    2. A bank may allocate a community development loan or community 
development investment as follows:
    i. A community development loan or community development 
investment that benefits or serves only one county, and not any 
areas beyond that one county, would have the full dollar amount of 
the activity allocated to that county.
    ii. A community development loan or community development 
investment that benefits or serves multiple counties, a State, a 
multistate MSA, multiple States, multiple multistate MSAs, or the 
nationwide area is allocated according to either specific 
documentation that the bank can provide regarding the dollar amount 
allocated to each county or based on the geographic scope of the 
activity, as follows:
    A. Allocation approach if specific documentation is available. A 
bank may allocate a community development loan or community 
development investment or portion of a loan or investment based on 
documentation that specifies the appropriate dollar volume to assign 
to each county, such as specific addresses and dollar volumes 
associated with each address, or other information that indicates 
the specific dollar volume of the loan or investment that benefits 
or serves each county.
    B. Allocation approach based on geographic scope of a community 
development loan or community development investment.\2\ In the 
absence of specific documentation, the [Agency] will allocate a 
community development loan or community development investment based 
on the geographic scope of the loan or investment as follows:
---------------------------------------------------------------------------

    \2\ For the purposes of allocating community development loans 
and community development investments, the [Agency] considers low- 
or moderate-income families to be located in a State or multistate 
MSA, as applicable, consistent with Sec.  __.28(c).
---------------------------------------------------------------------------

    1. Allocate at the county level for a loan or investment with a 
geographic scope of one county;
    2. Allocate at the county level based on the proportion of low- 
and moderate-income families in each county for a loan or investment 
with a geographic scope of less than an entire State or multistate 
MSA;
    3. Allocate at the State or multistate MSA level for a loan or 
investment with a geographic scope of the entire State or multistate 
MSA, as applicable;
    4. Allocate at the State or multistate MSA level, as applicable, 
based on the proportion of low- and moderate-income families in each 
State or multistate MSA for a loan or investment with a geographic 
scope of one or more State(s) or multistate MSA(s), but not the 
entire nation; and
    5. Allocate at the nationwide area level for a loan or 
investment with a geographic scope of the entire Nation.

     Table 1 to Appendix B--Community Development Loan or Community
                    Development Investment Allocation
------------------------------------------------------------------------
                                      Allocation
  Community development loan or       approach if         Allocation
community development investment       specific        approach based on
       benefits or serves          documentation is    geographic scope
                                       available          of activity
------------------------------------------------------------------------
One county......................  Allocate to county  NA.
Multiple counties that are part   Allocate to         Allocate to
 of one State or multistate MSA.   counties.           counties in
                                                       proportions
                                                       equivalent to the
                                                       distribution of
                                                       low- and moderate-
                                                       income families.
One State or multistate MSA.....  Allocate to         Allocate to the
                                   counties.           State or
                                                       multistate MSA.
Multiple States or multistate     Allocate to         Allocate to the
 MSAs, less than the entire        counties.           States or
 nation.                                               multistate MSAs,
                                                       as applicable,
                                                       based on the
                                                       proportion of low-
                                                        and moderate-
                                                       income families
                                                       in each State or
                                                       multistate MSA.

[[Page 7151]]

 
Nationwide area.................  Allocate to         Allocate to
                                   counties.           nationwide area.
------------------------------------------------------------------------

II. Community Development Financing Test in Sec.  __.24--Calculations 
for Metrics, Benchmarks, and Combining Performance Scores

    The calculations for metrics, benchmarks, and combination of 
performance scores for Community Development Financing Test in Sec.  
__.24 are provided in this section. Additional information regarding 
relevant calculation components is set forth in paragraph I.a of 
this appendix.
    a. Bank Assessment Area Community Development Financing Metric. 
The [Agency] calculates the Bank Assessment Area Community 
Development Financing Metric in Sec.  __.24(b)(1) by:
    1. Summing the bank's annual dollar volume of community 
development loans and community development investments that benefit 
or serve the facility-based assessment area for each year in the 
evaluation period.
    2. Summing the bank's annual dollar volume of deposits located 
in the facility-based assessment area for each year in the 
evaluation period.
    3. Dividing the result of paragraph II.a.1 of this appendix by 
the result of paragraph II.a.2 of this appendix.
    Example B-1: The bank has a three-year evaluation period. The 
bank's annual dollar volumes of community development loans and 
community development investments that benefit or serve a facility-
based assessment area are $35,000 (year 1), $25,000 (year 2), and 
$40,000 (year 3). The sum of the bank's annual dollar volumes of 
community development loans and community development investments 
that benefit or serve a facility-based assessment area is therefore 
$100,000. The bank's annual dollar volumes of deposits located in 
the facility-based assessment area are $3.1 million (year 1), $3.3 
million (year 2), and $3.6 million (year 3). The sum of the bank's 
annual dollar volumes of deposits located in the facility-based 
assessment is therefore $10 million. For the evaluation period, the 
Bank Assessment Area Community Development Financing Metric would be 
$100,000 divided by $10 million, or 0.01 (equivalently, 1 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.072

    b. Assessment Area Community Development Financing Benchmark. 
The [Agency] calculates the Assessment Area Community Development 
Financing Benchmark in Sec.  __.24(b)(2)(i) for each facility-based 
assessment area by:
    1. Summing all large depository institutions' annual dollar 
volume of community development loans and community development 
investments that benefit or serve the facility-based assessment area 
for each year in the evaluation period.
    2. Summing all large depository institutions' annual dollar 
volume of deposits located in the facility-based assessment area for 
each year in the evaluation period.
    3. Dividing the result of paragraph II.b.1 of this appendix by 
the result of paragraph II.b.2 of this appendix.
    Example B-2: The applicable benchmark uses a three-year 
evaluation period. The annual dollar volumes of community 
development loans and community development investments that benefit 
or serve a facility-based assessment area for all large depository 
institutions are $3.25 million (year 1), $3 million (year 2), and 
$3.75 million (year 3). The sum of the annual dollar volumes of 
community development loans and community development investments 
that benefit or serve the facility-based assessment area conducted 
by all large depository institutions is therefore $10 million. The 
annual dollar volumes of deposits located in the facility-based 
assessment area in all large depository institutions are $330 
million (year 1), $330 million (year 2), and $340 million (year 3). 
The sum of the annual dollar volumes of deposits located in the 
facility-based assessment area in all large depository institutions 
is therefore $1 billion. For the evaluation period, the Assessment 
Area Community Development Financing Benchmark for the facility-
based assessment area would be $10 million divided by $1 billion, or 
0.01 (equivalently, 1 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.073

    c. MSA and Nonmetropolitan Nationwide Community Development 
Financing Benchmarks. The [Agency] calculates an MSA Nationwide 
Community Development Financing Benchmark to be used for each MSA in 
which the bank has a facility-based assessment area in the MSA. The 
[Agency] calculates a Nonmetropolitan Nationwide Community 
Development Financing Benchmark to be used for each nonmetropolitan 
area in which the bank has a facility-based assessment area in the 
nonmetropolitan area.
    1. MSA Nationwide Community Development Financing Benchmark. The 
[Agency] calculates the MSA Nationwide Community Development 
Financing Benchmark in Sec.  __.24(b)(2)(ii)(A) by:
    i. Summing all large depository institutions' annual dollar 
volume of community development loans and community development 
investments that benefit or serve metropolitan areas in the 
nationwide area for each year in the evaluation period.
    ii. Summing all large depository institutions' annual dollar 
volume of deposits located in metropolitan areas in the nationwide 
area for each year in the evaluation period.
    iii. Dividing the result of paragraph II.c.1.i of this appendix 
by the result of paragraph II.c.1.ii of this appendix.

[[Page 7152]]

    Example B-3: The applicable benchmark uses a three-year 
evaluation period. The annual dollar volumes of community 
development loans and community development investments that benefit 
or serve metropolitan areas in the nationwide area conducted by all 
large depository institutions are $98 billion (year 1), $100 billion 
(year 2), and $102 billion (year 3). The sum of the annual dollar 
volumes of community development loans and community development 
investments that benefit or serve metropolitan areas in the 
nationwide area conducted by all large depository institutions is 
therefore $300 billion. The annual dollar volumes of deposits 
located in metropolitan areas in the nationwide area in all large 
depository institutions are $14.9 trillion (year 1), $15 trillion 
(year 2), and $15.1 trillion (year 3). The sum of the annual dollar 
volumes of deposits located in metropolitan areas in the nationwide 
area in all large depository institutions is therefore $45 trillion. 
For the evaluation period, the Metropolitan Nationwide Community 
Development Financing Benchmark would be $300 billion divided by $45 
trillion, or 0.007 (equivalently, 0.7 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.074

    2. Nonmetropolitan Nationwide Community Development Financing 
Benchmark. The [Agency] calculates the Nonmetropolitan Nationwide 
Community Development Financing Benchmark in Sec.  
__.24(b)(2)(ii)(B) by:
    i. Summing all large depository institutions' annual dollar 
volume of community development loans and community development 
investments that benefit or serve nonmetropolitan areas in the 
nationwide area for each year in the evaluation period.
    ii. Summing all large depository institutions' annual dollar 
volume of deposits located in nonmetropolitan areas in the 
nationwide area for each year in the evaluation period.
    iii. Dividing the result of paragraph II.c.2.i of this appendix 
by the result of paragraph II.c.2.ii of this appendix.
    Example B-4: The applicable benchmark uses a three-year 
evaluation period. The annual dollar volumes of community 
development loans and community development investments that benefit 
or serve nonmetropolitan areas in the nationwide area conducted by 
all large depository institutions are $3 billion (year 1), $3.2 
billion (year 2), and $3.8 billion (year 3). The sum of the annual 
dollar volumes of community development loans and community 
development investments that benefit or serve nonmetropolitan areas 
in the nationwide area conducted by all large depository 
institutions is therefore $10 billion. The annual dollar volumes of 
deposits located in nonmetropolitan areas in all large depository 
institutions are $330 billion (year 1), $334 billion (year 2), and 
$336 billion (year 3). The sum of the annual dollar volumes of 
deposits located in nonmetropolitan areas in the nationwide area in 
all large depository institutions is therefore $1 trillion. For the 
evaluation period, the Nonmetropolitan Nationwide Community 
Development Financing Benchmark would be $10 billion divided by $1 
trillion, or 0.01 (equivalently, 1 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.075

    d. Bank State Community Development Financing Metric. The 
[Agency] calculates the Bank State Community Development Financing 
Metric in Sec.  __.24(c)(2)(i) for each State in which the bank has 
a facility-based assessment area by:
    1. Summing the bank's annual dollar volume of community 
development loans and community development investments that benefit 
or serve a State (which includes all activities within the bank's 
facility-based assessment areas and outside of its facility-based 
assessment areas but within the State) for each year in the 
evaluation period.
    2. Summing the bank's annual dollar volume of deposits located 
in a State for each year in the evaluation period.
    3. Dividing the result of paragraphs II.d.1 of this appendix by 
the result of paragraph II.d.2 of this appendix.
    Example B-5: The bank has a three-year evaluation period. The 
bank's annual dollar volumes of community development loans and 
community development investments that benefit or serve the State 
are $15 million (year 1), $17 million (year 2), and $18 million 
(year 3). The sum of the bank's annual dollar volumes of community 
development loans and community development investments that benefit 
or serve the State conducted by a bank is therefore $50 million. The 
bank's annual dollar volumes of deposits located in the State are 
$1.5 billion (year 1), $1.6 billion (year 2), and $1.9 billion (year 
3). The sum of the bank's annual dollar volumes of deposits located 
in the State is therefore $5 billion. For the evaluation period, the 
Bank State Community Development Financing Metric would be $50 
million divided by $5 billion, or 0.01 (equivalently, 1 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.076

    e. State Community Development Financing Benchmark. The [Agency] 
calculates the State Community Development Financing Benchmark in 
Sec.  __.24(c)(2)(ii)(A) by:
    1. Summing all large depository institutions' annual dollar 
volume of community development loans and

[[Page 7153]]

community development investments that benefit or serve all or part 
of a State for each year in the evaluation period.
    2. Summing all large depository institutions' annual dollar 
volume of deposits located in the State for each year in the 
evaluation period.
    3. Dividing the result of paragraph II.e.1 of this appendix by 
the result of paragraph II.e.2 of this appendix.
    Example B-6: The applicable benchmark uses a three-year 
evaluation period. The annual dollar volumes of community 
development loans and community development investments that benefit 
or serve the State conducted by all large depository institutions 
are $2.3 billion (year 1), $2.5 billion (year 2), and $2.7 billion 
(year 3). The sum of the annual dollar volumes of community 
development loans and community development investments that benefit 
or serve the State conducted by all large depository institutions is 
therefore $7.5 billion. The annual dollar volumes of deposits 
located in the State in all large depository institutions are $160 
billion (year 1), $170 billion (year 2), and $170 billion (year 3). 
The sum of the annual dollar volumes of deposits located in the 
State in all large depository institutions is therefore $500 
billion. For the evaluation period, the State Community Development 
Financing Benchmark would be $7.5 billion divided by $500 billion, 
or 0.015 (equivalently, 1.5 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.077

    f. State Weighted Assessment Area Community Development 
Financing Benchmark. The [Agency] calculates the State Weighted 
Assessment Area Community Development Financing Benchmark in Sec.  
__.24(c)(2)(ii)(B) by averaging all of the applicable Assessment 
Area Community Development Financing Benchmarks (see paragraph II.b 
of this appendix) in a State for the evaluation period, after 
weighting each pursuant to paragraph II.o of this appendix.
    Example B-7: The bank has two facility-based assessment areas 
(FBAAs) in a State (FBAA-1 and FBAA-2). The [Agency] does not 
evaluate the bank's automobile lending.
     In FBAA-1, the Assessment Area Community Development 
Financing Benchmark is 3.0 percent. FBAA-1 represents 70 percent of 
the combined dollar volume of the deposits in the bank in FBAA-1 and 
FBAA-2. FBAA-1 represents 65 percent of the bank's combined dollar 
volume of originated and purchased closed-end home mortgage loans, 
small business loans, and small farm loans in FBAA-1 and FBAA-2. 
FBAA-1 represents 55 percent of the bank's number of originated and 
purchased closed-end home mortgage loans, small business loans, and 
small farm loans in FBAA-1 and FBAA-2;
     In FBAA-2, the Assessment Area Community Development 
Financing Benchmark is 5.0 percent. FBAA-2 represents 30 percent of 
the combined dollar volume of the deposits in the bank in FBAA-1 and 
FBAA-2. FBAA-2 represents 35 percent of the bank's combined dollar 
volume of originated and purchased closed-end home mortgage loans, 
small business loans, and small farm loans in FBAA-1 and FBAA-2. 
FBAA-2 represents 45 percent of the bank's number of originated and 
purchased closed-end home mortgage loans, small business loans, and 
small farm loans in FBAA-1 and FBAA-2.

------------------------------------------------------------------------
                                              FBAA-1          FBAA-2
------------------------------------------------------------------------
Benchmark...............................             3.0             5.0
% of deposits...........................             70%             30%
% of lending dollar volume..............             65%             35%
% of number of loans....................             55%             45%
------------------------------------------------------------------------

     Calculating weights for FBAA-1:
    [cir] The percent of originated and purchased closed-end home 
mortgage lending, small business lending, and small farm lending, 
based on the combination of loan dollars and loan count, as defined 
in Sec.  __.12, for FBAA-1 is 60 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.078

    [cir] The weight for FBAA-1 is 65 percent.
    [GRAPHIC] [TIFF OMITTED] TR01FE24.079
    
     Calculating weights for FBAA-2:
    [cir] The percent of originated and purchased closed-end home 
mortgage lending, small business lending, and small farm lending, 
based on the combination of loan dollars and loan count, for FBAA-2 
is 40 percent.

[[Page 7154]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.080

    [cir] The weight for FBAA-2 is 35 percent.
    [GRAPHIC] [TIFF OMITTED] TR01FE24.081
    
     Applying the calculated weights for FBAA-1 and FBAA-2:
    o The bank's State Weighted Assessment Area Community 
Development Financing Benchmark is 3.7 percent.
    (Weight for FBAA-1 (0.65) x Benchmark in FBAA-1 (3%)) + (Weight 
for FBAA-2 (0.35) x Benchmark in FBAA-2 (5%)) = State Weighted 
Assessment Area Community Development Financing Benchmark (3.7%)
    g. Bank Multistate MSA Community Development Financing Metric. 
The [Agency] calculates the Bank Multistate MSA Community 
Development Financing Metric in Sec.  __.24(d)(2)(i) for each 
multistate MSA in which the bank has a facility-based assessment 
area by:
    1. Summing the bank's annual dollar volume of community 
development loans and community development investments that benefit 
or serve a multistate MSA (which includes all activities within the 
bank's facility-based assessment areas and outside of its facility-
based assessment areas but within the multistate MSA) for each year 
in the evaluation period.
    2. Summing the bank's annual dollar volume of deposits located 
in the multistate MSA for each year in the evaluation period.
    3. Dividing the result of paragraph II.g.1 of this appendix by 
the result of paragraph II.g.2 of this appendix.
    Example B-8: The bank has a three-year evaluation period. The 
bank's annual dollar volumes of community development loans and 
community development investments that benefit or serve a multistate 
MSA are $47 million (year 1), $51 million (year 2), and $52 million 
(year 3). The sum of the bank's annual dollar volumes of community 
development loans and community development investments that benefit 
or serve a multistate MSA conducted by the bank is therefore $150 
million. The bank's annual dollar volumes of deposits located in the 
multistate MSA are $3.1 billion (year 1), $3.3 billion (year 2), and 
$3.6 billion (year 3). The sum of the bank's annual dollar volumes 
of deposits located in the multistate MSA is therefore $10 billion. 
For the evaluation period, the Bank Multistate MSA Community 
Development Financing Metric would be $150 million divided by $10 
billion, or 0.015 (equivalently, 1.5 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.082

    h. Multistate MSA Community Development Financing Benchmark. The 
[Agency] calculates the Multistate MSA Community Development 
Financing Benchmark in Sec.  __.24(d)(2)(ii)(A) by:
    1. Summing all large depository institutions' annual dollar 
volume of community development loans and community development 
investments that benefit or serve all or part of a multistate MSA 
for each year in the evaluation period.
    2. Summing all large depository institutions' annual dollar 
volume of deposits located in the multistate MSA for each year in 
the evaluation period.
    3. Dividing the result of paragraph II.h.1 of this appendix by 
the result of paragraph II.h.2 of this appendix.
    Example B-9: The applicable benchmark uses a three-year 
evaluation period. The annual dollar volumes of community 
development loans and community development investments that benefit 
or serve a multistate MSA for all large depository institutions are 
$135 million (year 1), $140 million (year 2), and $145 million (year 
3). The sum of the annual dollar volumes of community development 
loans and community development investments that benefit or serve a 
multistate MSA conducted by all large depository institutions is 
therefore $420 million. The annual dollar volumes of deposits 
located in the multistate MSA in all large depository institutions 
are $4 billion (year 1), $5 billion (year 2), and $6 billion (year 
3). The sum of the annual dollar volume of deposits located in the 
multistate MSA in all large depository institutions is therefore $15 
billion. For the evaluation period, the Multistate MSA Community 
Development Financing Benchmark would be $420 million divided by $15 
billion, or 0.028 (equivalently, 2.8 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.083

    i. Multistate MSA Weighted Assessment Area Community Development 
Financing Benchmark. The [Agency] calculates the Multistate MSA 
Weighted Assessment Area Community Development Financing Benchmark 
in Sec.  __.24(c)(3)(ii)(B)(2) by averaging all of the bank's 
Assessment Area Community Development Financing Benchmarks (see 
paragraph II.b of this appendix) in a multistate MSA for the 
evaluation period, after weighting each pursuant to paragraph II.o 
of this appendix.
    Example B-10: The bank has two facility-based assessment areas 
in a multistate MSA (FBAA-1 and FBAA-2). The [Agency] does not 
evaluate the bank's automobile lending.
     In FBAA-1, the bank's Assessment Area Community 
Development Financing

[[Page 7155]]

Benchmark is 3.0 percent. FBAA-1 represents 70 percent of the total 
dollar volume of the deposits in the bank in FBAA-1 and FBAA-2. 
FBAA-1 represents 65 percent of the bank's combined dollar volume of 
originated and purchased closed-end home mortgage loans, small 
business loans, and small farm loans in FBAA-1 and FBAA-2. FBAA-1 
represents 55 percent of the bank's number of originated and 
purchased closed-end home mortgage loans, small business loans, and 
small farm loans in FBAA-1 and FBAA-2;
     In FBAA-2, the bank's Assessment Area Community 
Development Financing Benchmark is 5.0 percent. FBAA-2 represents 30 
percent of the total dollar volume of the deposits in the bank in 
FBAA-1 and FBAA-2. FBAA-2 represents 35 percent of the bank's 
combined dollar volume of originated and purchased closed-end home 
mortgage loans, small business loans, and small farm loans in FBAA-1 
and FBAA-2. FBAA-2 represents 45 percent of the bank's number of 
originated and purchased closed-end home mortgage loans, small 
business loans, and small farm loans in FBAA-1 and FBAA-2.

------------------------------------------------------------------------
                                              FBAA-1          FBAA-2
------------------------------------------------------------------------
Benchmark...............................             3.0             5.0
% of deposits...........................             70%             30%
% of lending dollar volume..............             65%             35%
% of loans..............................             55%             45%
------------------------------------------------------------------------

     Calculating weights for FBAA-1:
    [cir] The percent of originated and purchased closed-end home 
mortgage lending, small business lending, and small farm lending, 
based on the combination of loan dollars and loan count, as defined 
in Sec.  __.12, for FBAA-1 is 60 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.084

    [cir] The weight for FBAA-1 is 65 percent.
    [GRAPHIC] [TIFF OMITTED] TR01FE24.085
    
     Calculating weights for FBAA-2:
    [cir] The percent of originated and purchased closed-end home 
mortgage lending, small business lending, and small farm lending, 
based on the combination of loan dollars and loan count, as defined 
in Sec.  __.12, for FBAA-2 is 40 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.086

    [cir] The weight for FBAA-2 is 35 percent.
    [GRAPHIC] [TIFF OMITTED] TR01FE24.087
    
     Applying the calculated weights from FBAA-1 and FBAA-2:
    [cir] The bank's Multistate MSA Weighted Assessment Area 
Community Development Financing Benchmark is 3.7 percent.
    (Weight of FBAA-1 (0.65) x Benchmark in FBAA-1 (3%)) + (weight 
of FBAA-2 (0.35) x benchmark in FBAA-2 (5%)) = Multistate MSA 
Weighted Assessment Area Community Development Financing Benchmark 
(3.7%)
    j. Bank Nationwide Community Development Financing Metric. The 
[Agency] calculates the Bank Nationwide Community Development 
Financing Metric in Sec.  __.24(e)(2)(i) for the nationwide area by:
    1. Summing the bank's annual dollar volume of community 
development loans and community development investments that benefit 
or serve the nationwide area (which includes all activities within 
the bank's facility-based assessment areas and outside of its 
facility-based assessment areas within the nationwide area) for each 
year in the evaluation period.
    2. Summing the bank's annual dollar volume of deposits located 
in the nationwide area for each year in the evaluation period.
    3. Dividing the results of paragraph II.j.1 of this appendix by 
the results of paragraph II.j.2 of this appendix.
    Example B-11: The bank has a three-year evaluation period. The 
bank's annual dollar volumes of community development loans and 
community development investments that benefit or serve the 
nationwide area are $60 million (year 1), $65 million (year 2), and 
$75 million (year 3). The sum of the bank's annual dollar volumes of 
community development loans and community development investments 
that benefit or serve the nationwide area conducted by the bank is 
therefore $200 million. The bank's annual dollar volumes of deposits 
located in the nationwide area are $2.5 billion (year 1), $2.7 
billion (year 2), and $2.8 billion (year 3). The sum of the bank's 
annual dollar volumes

[[Page 7156]]

of deposits located in the nationwide area is therefore $8 billion. 
For the evaluation period, the Bank Nationwide Community Development 
Financing Metric would be $200 million divided by $8 billion, or 
0.025 (equivalently, 2.5 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.088

    k. Nationwide Community Development Financing Benchmark. The 
[Agency] calculates the Nationwide Community Development Financing 
Benchmark in Sec.  __.24(e)(2)(ii)(A) by:
    1. Summing all large depository institutions' annual dollar 
volume of community development loans and community development 
investments that benefit or serve all or part of the nationwide area 
for each year in the evaluation period.
    2. Summing all depository institutions' annual dollar volume of 
deposits located in the nationwide area for each year in the 
evaluation period.
    3. Dividing the result of paragraph II.k.1 of this appendix by 
the result of paragraph II.k.2 of this appendix.
    Example B-12: The applicable benchmark uses a three-year 
evaluation period. The annual dollar volumes of community 
development loans and community development investments that benefit 
or serve the nationwide area for all large depository institutions 
are $100 billion (year 1), $103 billion (year 2), and $107 billion 
(year 3). The sum of the annual dollar volumes of community 
development loans and community development investments that benefit 
or serve the nationwide area conducted by all large depository 
institutions is therefore $310 billion. The annual dollar volumes of 
deposits located in the nationwide area in all large depository 
institutions are $15.2 trillion (year 1), $15.3 trillion (year 2), 
and $15.5 trillion (year 3). The sum of the annual dollar volumes of 
deposits located in the nationwide area in all large depository 
institutions is $46 trillion. For the evaluation period, the 
Nationwide Community Development Financing Benchmark would be $310 
billion divided by $46 trillion, or 0.0067 (equivalently, 0.67 
percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.089

    l. Nationwide Weighted Assessment Area Community Development 
Financing Benchmark. The [Agency] calculates the Nationwide Weighted 
Assessment Area Community Development Financing Benchmark in Sec.  
__.24(e)(2)(ii)(B) by averaging all of the bank's Assessment Area 
Community Development Financing Benchmarks (see paragraph II.b of 
this appendix) in the nationwide area, after weighting each pursuant 
to paragraph II.o of this appendix.
    Example B-13: The bank has three facility-based assessment areas 
in the nationwide area (FBAA-1, FBAA-2, and FBAA-3).
     In FBAA-1, the bank's Assessment Area Community 
Development Financing Benchmark is 2.0 percent. FBAA-1 represents 60 
percent of the combined dollar volume of the deposits in the bank in 
FBAA-1, FBAA-2, and FBAA-3. FBAA-1 represents 40 percent of the 
bank's combined dollar volume of originated and purchased closed-end 
home mortgage loans, small business loans, and small farm loans in 
FBAA-1, FBAA-2, and FBAA-3. FBAA-1 represents 60 percent of the 
bank's number of originated and purchased closed-end home mortgage 
loans, small business loans, and small farm loans in FBAA-1, FBAA-2, 
and FBAA-3.
     In FBAA-2, the bank's Assessment Area Community 
Development Financing Benchmark is 3.0 percent. FBAA-2 represents 30 
percent of the combined dollar volume of the deposits in the bank in 
FBAA-1, FBAA-2, and FBAA-3. FBAA-2 represents 45 percent of the 
bank's combined dollar volume of originated and purchased closed-end 
home mortgage loans, small business loans, and small farm loans in 
FBAA-1, FBAA-2, and FBAA-3. FBAA-2 represents 35 percent of the 
bank's number of originated and purchased closed-end home mortgage 
loans, small business loans, and small farm loans in FBAA-1, FBAA-2, 
and FBAA-3.
     In FBAA-3, the bank's Assessment Area Community 
Development Financing Benchmark is 4.0 percent. FBAA-3 represents 10 
percent of the combined dollar volume of the deposits in the bank in 
FBAA-1, FBAA-2, and FBAA-3. FBAA-3 represents 15 percent of the 
bank's combined dollar volume of originated and purchased closed-end 
home mortgage loans, small business loans, and small farm loans in 
FBAA-1, FBAA-2, and FBAA-3. FBAA-3 represents 5 percent of the 
bank's number of originated and purchased closed-end home mortgage 
loans, small business loans, and small farm loans in FBAA-1, FBAA-2, 
and FBAA-3.

----------------------------------------------------------------------------------------------------------------
                                                                      FBAA-1          FBAA-2          FBAA-3
----------------------------------------------------------------------------------------------------------------
Benchmark.......................................................             2.0             3.0             4.0
% of deposits...................................................             60%             30%             10%
% of lending dollar volume......................................             40%             45%             15%
% of loans......................................................             60%             35%              5%
----------------------------------------------------------------------------------------------------------------

     Calculating weights for FBAA-1:
    [cir] The percent of originated and purchased closed-end home 
mortgage lending, small business lending, and small farm lending, 
based on the combination of loan dollars and loan count, as defined 
in Sec.  __.12, for FBAA-1 is 50 percent.

[[Page 7157]]

[GRAPHIC] [TIFF OMITTED] TR01FE24.090

    [cir] The weight for FBAA-1 is 55 percent.
    [GRAPHIC] [TIFF OMITTED] TR01FE24.091
    
     Calculating weights for FBAA-2:
    [cir] The percent of originated and purchased closed-end home 
mortgage lending, small business lending, and small farm lending, 
based on the combination of loan dollars and loan count, as defined 
in Sec.  __.12, for FBAA-2 is 40 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.092

    [cir] The weight for FBAA-2 is 35 percent.
    [GRAPHIC] [TIFF OMITTED] TR01FE24.093
    
     Calculating weights for FBAA-3:
    [cir] The percent of originated and purchased closed-end home 
mortgage lending, small business lending, and small farm lending, 
based on the combination of loan dollars and loan count, as defined 
in Sec.  __.12, for FBAA-3 is 10 percent.
[GRAPHIC] [TIFF OMITTED] TR01FE24.094

    [cir] The weight for FBAA-3 is 10 percent.
    [GRAPHIC] [TIFF OMITTED] TR01FE24.095
    
     Applying the calculated weights from FBAA-1, FBAA-2, 
and FBAA-3:
    [cir] The bank's Nationwide Weighted Assessment Area Community 
Development Financing Benchmark is 2.55 percent.
    (Weight of FBAA-1(0.55) x Benchmark in FBAA-1 (2%)) + (Weight of 
FBAA-2 (0.35) x Benchmark FBAA-2 (3%)) + (Weight of FBAA-3 (0.10) x 
Benchmark in FBAA-3 (4%)) = Nationwide Weighted Assessment Area 
Community Development Financing Benchmark (2.55%)
    m. Bank Nationwide Community Development Investment Metric. The 
[Agency] calculates the Bank Nationwide Community Development 
Investment Metric in Sec.  __.24(e)(2)(iii) for the nationwide area 
by:
    1. Summing the bank's annual dollar volume of community 
development investments, excluding mortgage-backed securities, that 
benefit or serve the nationwide area (which includes all activities 
within the bank's facility-based assessment areas and outside of its 
facility-based assessment areas within the nationwide area) for each 
year in the evaluation period.

[[Page 7158]]

    2. Summing the bank's annual dollar volume of deposits located 
in the nationwide area for each year in the evaluation period.
    3. Dividing the results of paragraph II.m.1 of this appendix by 
the results of paragraph II.m.2 of this appendix.
    Example B-14: The bank has a three-year evaluation period. The 
bank's annual dollar volumes of community development investments 
(excluding mortgage-backed securities) that benefit or serve the 
nationwide area are $600 million (year 1), $680 million (year 2), 
and $720 million (year 3). The sum of the bank's annual dollar 
volumes of community development investments (excluding mortgage-
backed securities) that benefit or serve the nationwide area 
conducted by the bank is therefore $2 billion. The bank's annual 
dollar volumes of deposits located in the nationwide area are $24 
billion (year 1), $27 billion (year 2), and $29 billion (year 3). 
The sum of the bank's annual dollar volumes of deposits located in 
the nationwide area is therefore $80 billion. For the evaluation 
period, the Bank Nationwide Community Development Investment Metric 
would be $2 billion divided by $80 billion, or 0.025 (equivalently, 
2.5 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.096

    n. Nationwide Community Development Investment Benchmark. The 
[Agency] calculates the Nationwide Community Development Investment 
Benchmark in Sec.  __.24(e)(2)(iv) by:
    1. Summing the annual dollar volume of community development 
investments that benefit or serve all or part of the nationwide 
area, excluding mortgage-backed securities, for each year in the 
evaluation period for all large depository institutions that had 
assets greater than $10 billion as of December 31 in both of the 
prior two calendar years.
    2. Summing the annual dollar volume of deposits in the 
nationwide area for each year in the evaluation period for all large 
depository institutions that had assets greater than $10 billion as 
of December 31 in both of the prior two calendar years.
    3. Dividing the result of paragraph II.n.1 of this appendix by 
the result of paragraph II.n.2 of this appendix.
    Example B-15: The applicable benchmark uses a three-year 
evaluation period. The annual dollar volumes of community 
development investments (excluding mortgage-backed securities) that 
benefit or serve the nationwide area for all large depository 
institutions are $350 billion (year 1), $360 billion (year 2), and 
$390 billion (year 3). The sum of the annual dollar volumes of 
community development investments (excluding mortgage-backed 
securities) that benefit or serve the nationwide area conducted by 
all large depository institutions is therefore $1.1 trillion. The 
annual dollar volumes of deposits located in the nationwide area in 
all large depository institutions are $21.9 trillion (year 1), $22 
trillion (year 2), and $22.1 trillion (year 3). The sum of the 
annual dollar volumes of deposits located in the nationwide area in 
all large depository institutions is therefore $66 trillion. For the 
evaluation period, the Nationwide Community Development Investment 
Benchmark would be $1.1 trillion divided by $66 trillion, or 0.0167 
(equivalently, 1.67 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.097

    o. Weighting of benchmarks. The [Agency] calculates a weighted 
average of the Assessment Area Community Development Financing 
Benchmarks for a bank's facility-based assessment areas in each 
State or multistate MSA, as applicable, or the nationwide area. For 
the weighted average for a State or multistate MSA, the [Agency] 
considers Assessment Area Community Development Financing Benchmarks 
for facility-based assessment areas in the State or multistate MSA 
pursuant to Sec.  __.28(c). For the weighted average for the 
nationwide area, the [Agency] considers Assessment Area Community 
Development Financing Benchmarks for all of the bank's facility-
based assessment areas. Each Assessment Area Community Development 
Financing Benchmark is weighted by the average of the following two 
ratios:
    1. The ratio measuring the share of the deposits in the bank in 
the facility-based assessment area, calculated by:
    i. Summing, over the years in the evaluation period, the bank's 
annual dollar volume of deposits in the facility-based assessment 
area.
    ii. Summing, over the years in the evaluation period, the bank's 
annual dollar volume of deposits in all facility-based assessment 
areas in the State, multistate MSA, or nationwide area, as 
applicable.
    iii. Dividing the result of paragraph II.o.1.i of this appendix 
by the result of paragraph II.o.1.ii of this appendix.
    For a bank that reports deposits data pursuant to Sec.  
__.42(b)(3), the bank's annual dollar volume of deposits in a 
facility-based assessment area is the total of annual average daily 
balances of deposits reported by the bank in counties in the 
facility-based assessment area for that year. For a bank that does 
not report deposits data pursuant to Sec.  __.42(b)(3), the bank's 
annual dollar volume of deposits in a facility-based assessment area 
is the total of deposits assigned to facilities reported by the bank 
in the facility-based assessment area in the FDIC's Summary of 
Deposits for that year.
    2. The ratio measuring the share of the bank's loans in the 
facility-based assessment area, based on the combination of loan 
dollars and loan count, as defined in Sec.  __.12, calculated by 
dividing:
    i. The bank's closed-end home mortgage loans, small business 
loans, small farm loans, and, if a product line for the bank, 
automobile loans in the facility-based assessment area originated or 
purchased during the evaluation period; by
    ii. The bank's closed-end home mortgage loans, small business 
loans, small farm loans, and, if a product line for the bank, 
automobile loans in all facility-based assessment areas in the 
State, multistate MSA, or nationwide area, as applicable, originated 
or purchased during the evaluation period.
    p. Combined score for facility-based assessment area conclusions 
and the metrics and benchmarks analyses and the impact and 
responsiveness reviews. 1. As described in Sec.  __.24(c) through 
(e), the [Agency] assigns a conclusion corresponding to the 
conclusion category that is nearest to the performance score 
calculated in paragraph p.2.iii of this appendix for a bank's 
performance under the Community Development Financing Test in each 
State or multistate MSA, as applicable pursuant to Sec.  __.28(c), 
and for the institution as follows:

------------------------------------------------------------------------
             Performance score                       Conclusion
------------------------------------------------------------------------
8.5 or more...............................  Outstanding.
6.5 or more but less than 8.5.............  High Satisfactory.
4.5 or more but less than 6.5.............  Low Satisfactory.

[[Page 7159]]

 
1.5 or more but less than 4.5.............  Needs to Improve.
Less than 1.5.............................  Substantial Noncompliance.
------------------------------------------------------------------------

    2. The [Agency] bases a Community Development Financing Test 
combined performance score on the following:
    i. Component one--Weighted average of the bank's performance 
scores corresponding to facility-based assessment area conclusions. 
The [Agency] derives a performance score based on a weighted average 
of the performance scores corresponding to conclusions for facility-
based assessment areas in each State or multistate MSA, as 
applicable, and the nationwide area, calculated pursuant to section 
IV of this appendix.
    ii. Component two--Bank score for metric and benchmarks analyses 
and the impact and responsiveness reviews. For each State or 
multistate MSA, as applicable, and the nationwide area, the [Agency] 
determines a performance score (as shown in paragraph IV.a of this 
appendix) corresponding to a conclusion category by considering the 
relevant metric and benchmarks and a review of the impact and 
responsiveness of the bank's community development loans and 
community development investments. In the nationwide area, for large 
banks that had assets greater than $10 billion as of December 31 in 
both of the prior two calendar years, the [Agency] also considers 
whether the bank's performance under the Nationwide Community 
Development Investment Metric, compared to the Community Development 
Investment Benchmark, contributes positively to the bank's Community 
Development Financing Test conclusion.
    iii. Combined score. The [Agency] associates the performance 
score calculated pursuant to this paragraph II.p.2.iii with a 
conclusion category. The [Agency] derives the combined performance 
score corresponding to a conclusion category as follows:
    A. The [Agency] calculates the average of two components to 
determine weighting:
    1. The percentage, calculated using the combination of loan 
dollars and loan count, as defined in Sec.  __.12, of the bank's 
total originated and purchased closed-end home mortgage lending, 
small business lending, small farm lending, and automobile lending, 
as applicable, in its facility-based assessment areas out of all of 
the bank's originated and purchased closed-end home mortgage 
lending, small business lending, small farm lending, and automobile 
lending, as applicable, in the State or multistate MSA, as 
applicable, or the nationwide area during the evaluation period; and
    2. The percentage of the total dollar volume of deposits in its 
facility-based assessment areas out of all of the deposits in the 
bank in the State or multistate MSA, as applicable, or the 
nationwide area during the evaluation period. For purposes of this 
paragraph II.p.2.iii.A.2, ``deposits'' excludes deposits reported 
under Sec.  __.42(b)(3)(ii).
    B. If the average is:
    1. At least 80 percent, then component one receives a 50 percent 
weight and component two receives a 50 percent weight.
    2. At least 60 percent but less than 80 percent, then component 
one receives a 40 percent weight and component two receives a 60 
percent weight.
    3. At least 40 percent but less than 60 percent, then component 
one receives a 30 percent weight and component two receives a 70 
percent weight.
    4. At least 20 percent but less than 40 percent, then component 
one receives a 20 percent weight and component two receives an 80 
percent weight.
    5. Below 20 percent, then component one receives a 10 percent 
weight and component two receives a 90 percent weight.

 Table 2 to Appendix B--Component Weights for Combined Performance Score
------------------------------------------------------------------------
                                             Weight on       Weight on
  Average of the percentage of deposits     component 1     component 2
         and percentage of loans             (percent)       (percent)
------------------------------------------------------------------------
Greater than or equal to 80%............              50              50
Greater than or equal to 60% but less                 40              60
 than 80%...............................
Greater than or equal to 40% but less                 30              70
 than 60%...............................
Greater than or equal to 20% but less                 20              80
 than 40%...............................
Below 20%...............................              10              90
------------------------------------------------------------------------

    Example B-16:
     Assume that the weighted average of the bank's 
performance scores corresponding to its facility-based assessment 
area conclusions nationwide is 7.5. Assume further that the bank 
score for the metrics and benchmarks analysis and the review of the 
impact and responsiveness of the bank's community development loans 
and community development investments nationwide is 6.
     Assume further that 95 percent of the deposits in the 
bank and 75 percent of the bank's originated and purchased closed-
end home mortgage lending, small business lending, small farm 
lending, and automobile loans (calculated using the combination of 
loan dollars and loan count, as defined in Sec.  __.12) during the 
evaluation period are associated with its facility-based assessment 
areas.
     The [Agency] assigns weights for component one and 
component two based on the share of deposits in the bank and the 
share of the bank's originated and purchased closed-end home 
mortgage lending, small business lending, small farm lending, and 
automobile lending, calculated using the combination of loan dollars 
and loan count, as defined in Sec.  __.12, associated with its 
facility-based assessment areas: (95 percent of deposits + 75 
percent of originated and purchased closed-end home mortgage 
lending, small business lending, small farm lending, and automobile 
lending, based on the combination of loan dollars and loan count)/2 
= 85 percent, which is between 80 percent and 100 percent.
     Thus, the weighted average of the bank's facility-based 
assessment area conclusions in the nationwide area (component one--
paragraph II.p.2.i of this appendix) receives a weight of 50 
percent, and the metrics and benchmarks analysis and the review of 
the impact and responsiveness of the bank's community development 
loans and community development investments in the nationwide area 
(component two--paragraph II.p.2.ii of this appendix) receives a 
weight of 50 percent.
     Using the point values--``Outstanding'' (10 points); 
``High Satisfactory'' (7 points); ``Low Satisfactory'' (6 points); 
``Needs to Improve'' (3 points); ``Substantial Noncompliance'' (0 
points)--the bank's Community Development Financing Test conclusion 
at the institution level is a ``High Satisfactory'': (0.50 weight x 
7.5 points for the weighted average of the performance scores 
corresponding to the bank's facility-based assessment area 
conclusions nationwide) + (0.50 weight x 6 points for the bank score 
for metrics and benchmarks analysis and review of the impact and 
responsiveness of the bank's community development loans and 
community development investments nationwide) results in a 
performance score of 6.75, which is closest to the point value (7) 
associated with ``High Satisfactory.''

III. Community Development Financing Test for Limited Purpose Banks in 
Sec.  __.26--Calculations for Metrics and Benchmarks

    The calculations for metrics and benchmarks for Community 
Development Financing Test for Limited Purpose Banks in Sec.  __.26 
are provided in this section. Additional information regarding 
relevant calculation components is set forth in paragraph I.a of 
this appendix.
    a. Limited Purpose Bank Community Development Financing Metric. 
The [Agency] calculates the Limited Purpose Bank Community 
Development Financing Metric provided in Sec.  __.26 by:
    1. Summing the bank's annual dollar volume of community 
development loans and community development investments that benefit 
or serve the nationwide area for each year in the evaluation period.
    2. Summing the bank's annual dollar volume of the assets for 
each year in the evaluation period.

[[Page 7160]]

    3. Dividing the result of paragraph III.a.1 of this appendix by 
the result of paragraph III.a.2 of this appendix.
    b. Nationwide Limited Purpose Bank Community Development 
Financing Benchmark. The [Agency] calculates the Nationwide Limited 
Purpose Bank Community Development Financing Benchmark by:
    1. Summing the annual dollar volume of community development 
loans and community development investments of depository 
institutions designated as limited purpose banks or savings 
associations pursuant to 12 CFR 25.26(a) or designated as limited 
purpose banks pursuant to 12 CFR 228.26(a) or 345.26(a) reported 
pursuant to 12 CFR 25.42(b), 228.42(b), or 345.42(b) that benefit or 
serve all or part of the nationwide area for each year in the 
evaluation period.
    2. Summing the annual dollar volume of assets of depository 
institutions designated as limited purpose banks or savings 
associations pursuant to 12 CFR 25.26(a) or designated as limited 
purpose banks pursuant to 12 CFR 228.26(a) or 345.26(a) that 
reported community development loans and community development 
investments pursuant to 12 CFR 25.42(b), 228.42(b), or 345.42(b) for 
each year in the evaluation period.
    3. Dividing the result of paragraph III.b.1 of this appendix by 
the result of paragraph III.b.2 of this appendix.
    c. Nationwide Asset-Based Community Development Financing 
Benchmark. The [Agency] calculates the Nationwide Asset-Based 
Community Development Financing Benchmark by:
    1. Summing the annual dollar volume of community development 
loans and community development investments of all depository 
institutions that reported pursuant to 12 CFR 25.42(b), 228.42(b), 
or 345.42(b) that benefit or serve all or part of the nationwide 
area for each year in the evaluation period.
    2. Summing the annual dollar volume of assets of all depository 
institutions that reported community development loans and community 
development investments pursuant to 12 CFR 25.42(b), 228. 42(b), or 
345.42(b) for each year in the evaluation period.
    3. Dividing the result of paragraph III.c.1 of this appendix by 
the result of paragraph III.c.2 of this appendix.
    d. Limited Purpose Bank Community Development Investment Metric. 
The [Agency] calculates the Limited Purpose Bank Nationwide 
Community Development Investment Metric, provided in Sec.  
__.26(f)(2)(iii), for the nationwide area by:
    1. Summing the bank's annual dollar volume of community 
development investments, excluding mortgage-backed securities, that 
benefit or serve the nationwide area for each year in the evaluation 
period.
    2. Summing the bank's annual dollar volume of assets for each 
year in the evaluation period.
    3. Dividing the results of paragraph III.d.1 of this appendix by 
the results of paragraph III.d.2 of this appendix.
    Example B-17: The bank has a three-year evaluation period. The 
bank's annual dollar volumes of community development investments 
(excluding mortgage-backed securities) that benefit or serve the 
nationwide area are $62 million (year 1), $65 million (year 2), and 
$73 million (year 3). The sum of the bank's annual dollar volumes of 
community development investments that benefit or serve the 
nationwide area conducted by the bank is therefore $200 million. The 
bank's annual dollar volumes of assets in the bank are $2.4 billion 
(year 1), $2.7 billion (year 2), and $2.9 billion (year 3). The sum 
of the bank's annual dollar volumes of assets in the bank over the 
evaluation period is therefore $8 billion. For the evaluation 
period, the Bank Nationwide Community Development Investment Metric 
would be $200 million divided by $8 billion, or 0.025 (equivalently, 
2.5 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.098

    e. Nationwide Asset-Based Community Development Investment 
Benchmark. The [Agency] calculates the Nationwide Asset-Based 
Community Development Investment Benchmark, provided in Sec.  
__.26(f)(2)(iv), by:
    1. Summing the annual dollar volume of community development 
investments, excluding mortgage-backed securities, of all depository 
institutions that had assets greater than $10 billion, as of 
December 31 in both of the prior two calendar years, that benefit or 
serve all or part of the nationwide area for each year in the 
evaluation period.
    2. Summing the annual dollar volume of assets of all depository 
institutions that had assets greater than $10 billion, as of 
December 31 in both of the prior two calendar years, for each year 
in the evaluation period.
    3. Dividing the result of paragraph III.e.1 of this appendix by 
the result of paragraph III.e.2 of this appendix.
    Example B-18: The applicable benchmark uses a three-year 
evaluation period. The annual dollar volumes of community 
development investments (excluding mortgage-backed securities) that 
benefit or serve the nationwide area for all depository institutions 
that had assets greater than $10 billion are $35 billion (year 1), 
$37 million (year 2), and $38 billion (year 3). The sum of the 
annual dollar volumes of community development investments that 
benefit or serve the nationwide area conducted by all depository 
institutions that had assets greater than $10 billion is therefore 
$110 billion. The annual dollar volumes of assets in all depository 
institutions that had assets greater than $10 billion are $1.8 
trillion (year 1), $2.1 trillion (year 2), and $2.1 trillion (year 
3). The sum of the annual dollar volumes of assets in all depository 
institutions that had assets greater than $10 billion is therefore 
$6 trillion. For the evaluation period, the Nationwide Asset-Based 
Community Development Investment Benchmark would be $110 billion 
divided by $6 trillion, or 0.0183 (equivalently, 1.83 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.099


[[Page 7161]]



IV. Weighting of Conclusions

    The [Agency] calculates component one of the combined 
performance score, as set forth in paragraph II.p.2.i of this 
appendix, for the Community Development Financing Test in Sec.  
__.24 and a performance score for the Community Development Services 
Test in Sec.  __.25 in each State, multistate MSA, and the 
nationwide area, as applicable, as described in this section.
    a. The [Agency] translates the Community Development Financing 
Test and the Community Development Services Test conclusions for 
facility-based assessment areas into numerical performance scores, 
as follows:

------------------------------------------------------------------------
                                                            Performance
                       Conclusion                              score
------------------------------------------------------------------------
Outstanding.............................................              10
High Satisfactory.......................................               7
Low Satisfactory........................................               6
Needs to Improve........................................               3
Substantial Noncompliance...............................               0
------------------------------------------------------------------------

    b. The [Agency] calculates the weighted average of facility-
based assessment area performance scores for a State or multistate 
MSA, as applicable, and for the institution. For the weighted 
average for a State or multistate MSA, the [Agency] considers 
facility-based assessment areas in the State or multistate MSA 
pursuant to Sec.  __.28(c). For the weighted average for the 
institution, the [Agency] considers all of the bank's facility-based 
assessment areas. Each facility-based assessment area performance 
score is weighted by the average the following two ratios:
    1. The ratio measuring the share of the deposits in the bank in 
the facility-based assessment area, calculated by:
    i. Summing, over the years in the evaluation period, the bank's 
annual dollar volume of deposits in the facility-based assessment 
area.
    ii. Summing, over the years in the evaluation period, the bank's 
annual dollar volume of deposits in all facility-based assessment 
areas in the State, in the multistate MSA, or for the nationwide 
area, as applicable.
    iii. Dividing the result of paragraph IV.b.1.i of this appendix 
by the result of paragraph IV.b.1.ii of this appendix.
    For a bank that reports deposits data pursuant to Sec.  
__.42(b)(3), the bank's annual dollar volume of deposits in a 
facility-based assessment area is the total of annual average daily 
balances of deposits reported by the bank in counties in the 
facility-based assessment area for that year. For a bank that does 
not report deposits data pursuant to Sec.  __.42(b)(3), the bank's 
annual dollar volume of deposits in a facility-based assessment area 
is the total of deposits assigned to facilities reported by the bank 
in the facility-based assessment area in the FDIC's Summary of 
Deposits for that year.
    2. The ratio measuring the share of the bank's loans in the 
facility-based assessment area, based on the combination of loan 
dollars and loan count, as defined in Sec.  __.12, calculated by 
dividing:
    i. The bank's closed-end home mortgage loans, small business 
loans, small farm loans, and, if a product line for the bank, 
automobile loans in the facility-based assessment area originated or 
purchased during the evaluation period; by
    ii. The bank's closed-end home mortgage loans, small business 
loans, small farm loans, and, if a product line for the bank, 
automobile loans in all facility-based assessment areas in the 
State, in the multistate MSA, or for the nationwide area, as 
applicable, originated or purchased during the evaluation period.

Appendix C to Part __--Performance Test Conclusions

    a. Performance test conclusions, in general. For a bank 
evaluated under, as applicable, the Retail Lending Test in Sec.  
__.22, the Retail Services and Products Test in Sec.  __.23, the 
Community Development Financing Test in Sec.  __.24, the Community 
Development Services Test in Sec.  __.25, and the Community 
Development Financing Test for Limited Purpose Banks in Sec.  __.26, 
the [Agency] assigns conclusions for the bank's CRA performance 
pursuant to these tests and this appendix. In assigning conclusions, 
the [Agency] may consider performance context information as 
provided in Sec.  __.21(d).
    b. Retail Lending Test conclusions. The [Agency] assigns Retail 
Lending Test conclusions for each applicable Retail Lending Test 
Area, each State or multistate MSA, as applicable pursuant to Sec.  
__.28(c), and for the institution.
    1. Retail Lending Test Area. For each applicable Retail Lending 
Test Area, the [Agency] assigns a Retail Lending Test conclusion and 
corresponding performance score pursuant to Sec.  __.22(h)(1), as 
follows:

------------------------------------------------------------------------
                                                            Performance
                       Conclusion                              score
------------------------------------------------------------------------
Outstanding.............................................              10
High Satisfactory.......................................               7
Low Satisfactory........................................               6
Needs to Improve........................................               3
Substantial Noncompliance...............................               0
------------------------------------------------------------------------

    2. State, multistate MSA, and institution. The [Agency] assigns 
the Retail Lending Test conclusions for a bank's performance in each 
State or multistate MSA, as applicable, and for the institution, as 
set forth in section VIII of appendix A to this part.
    c. Retail Services and Products Test conclusions. The [Agency] 
assigns Retail Services and Products Test conclusions for each 
facility-based assessment area, for each State or multistate MSA, as 
applicable pursuant to Sec.  __.28(c), and for the institution. For 
a bank that does not operate any branches, a main office described 
in Sec.  __.23(a)(2), or remote service facilities, the [Agency] 
assigns the bank's digital delivery systems and other delivery 
systems conclusion as the Retail Services and Product Test 
conclusion for the State or multistate MSA, as applicable.
    1. Facility-based assessment area. The [Agency] assigns a Retail 
Services and Products Test conclusion for a bank's performance in a 
facility-based assessment area based on an evaluation of the bank's 
branch availability and services and remote services facilities 
availability, if applicable, pursuant to Sec.  __.23(b)(2) and (3), 
respectively.
    2. State, multistate MSA, and institution. The [Agency] develops 
the Retail Services and Products Test conclusions for States, 
multistate MSAs, and the institution as described in this paragraph 
c.2.
    i. The [Agency] translates Retail Services and Products Test 
conclusions for facility-based assessment areas into numerical 
performance scores as follows:

------------------------------------------------------------------------
                                                            Performance
                       Conclusion                              score
------------------------------------------------------------------------
Outstanding.............................................              10
High Satisfactory.......................................               7
Low Satisfactory........................................               6
Needs to Improve........................................               3
Substantial Noncompliance...............................               0
------------------------------------------------------------------------

    ii. The [Agency] calculates the weighted average of facility-
based assessment area performance scores for a State or multistate 
MSA, as applicable, and for the institution. For the weighted 
average for a State or multistate MSA, the [Agency] considers 
facility-based assessment areas in the State or multistate MSA 
pursuant to Sec.  __.28(c). For the weighted average for the 
institution, the [Agency] considers all of the bank's facility-based 
assessment areas. Each facility-based assessment area performance 
score is weighted by the average the following two ratios:
    A. The ratio measuring the share of the bank's deposits in the 
facility-based assessment area, calculated by:
    1. Summing, over the years in the evaluation period, the bank's 
annual dollar volume of deposits in the facility-based assessment 
area.
    2. Summing, over the years in the evaluation period, the bank's 
annual dollar volume of deposits in all facility-based assessment 
areas in the State, in the multistate MSA, or for the institution, 
as applicable.
    3. Dividing the result of paragraph c.2.ii.A.1 of this appendix 
by the result of paragraph c.2.ii.A.2 of this appendix.
    For a bank that reports deposits data pursuant to Sec.  
__.42(b)(3), the bank's annual dollar volume of deposits in a 
facility-based assessment area is the total of annual average daily 
balances of deposits reported by the bank in counties in the 
facility-based assessment area for that year. For a bank that does 
not report deposits data pursuant to Sec.  __.42(b)(3), the bank's 
annual dollar volume of deposits in a facility-based assessment area 
is the total of deposits assigned to facilities reported by the bank 
in the facility-based assessment area in the FDIC's Summary of 
Deposits for that year.
    B. The ratio measuring the share of the bank's loans in the 
facility-based assessment area, based on the combination of loan 
dollars and loan count, as defined in Sec.  __.12, calculated by 
dividing:
    1. The bank's closed-end home mortgage loans, small business 
loans, small farm loans, and, if a product line for the bank, 
automobile loans in the facility-based assessment area originated or 
purchased during the evaluation period; by

[[Page 7162]]

    2. The bank's closed-end home mortgage loans, small business 
loans, small farm loans, and, if a product line for the bank, 
automobile loans in all facility-based assessment areas in the 
State, in the multistate MSA, or for the institution, as applicable, 
originated or purchased during the evaluation period.
    iii. For a State or multistate MSA, as applicable, the [Agency] 
assigns a Retail Services and Products Test conclusion corresponding 
to the conclusion category that is nearest to the weighted average 
for the State or multistate MSA calculated pursuant to paragraph 
c.2.ii of this appendix (i.e., the performance score for the Retail 
Services and Products Test for the State or multistate MSA).

------------------------------------------------------------------------
 Performance score for the retail services
             and products test                       Conclusion
------------------------------------------------------------------------
8.5 or more...............................  Outstanding.
6.5 or more but less than 8.5.............  High Satisfactory.
4.5 or more but less than 6.5.............  Low Satisfactory.
1.5 or more but less than 4.5.............  Needs to Improve.
less than 1.5.............................  Substantial Noncompliance.
------------------------------------------------------------------------

    iv. For the institution, the [Agency] assigns a Retail Services 
and Products Test conclusion based on the bank's combined retail 
banking services conclusion, developed pursuant to paragraph 
c.2.iv.A of this appendix, and an evaluation of the bank's retail 
banking products, pursuant to paragraph c.2.iv.B of this appendix. 
The [Agency] translates the Retail Services and Products Test 
conclusion for the institution into a numerical performance score, 
as follows:

------------------------------------------------------------------------
                                                            Performance
                       Conclusion                              score
------------------------------------------------------------------------
Outstanding.............................................              10
High Satisfactory.......................................               7
Low Satisfactory........................................               6
Needs to Improve........................................               3
Substantial Noncompliance...............................               0
------------------------------------------------------------------------

    A. Combined retail banking services conclusion. 1. In general. 
The [Agency] evaluates the bank's retail banking services, as 
applicable, and assigns a combined retail banking services 
conclusion based the weighted average for the institution calculated 
pursuant to paragraph c.2.ii of this appendix and a digital and 
other delivery systems conclusion, assigned pursuant to paragraph 
c.2.iv.A.1 of this appendix. For a large bank without branches, a 
main office described in Sec.  __.23(a)(2), or remote service 
facilities, the [Agency] assigns a combined retail banking services 
conclusion based only on a digital delivery systems and other 
delivery systems conclusion, assigned pursuant to paragraph 
c.2.iv.A.1 of this appendix.
    2. Digital delivery systems and other delivery systems 
conclusion. The [Agency] assigns a digital delivery systems and 
other delivery systems conclusion based on an evaluation of a bank's 
digital delivery systems and other delivery systems pursuant to 
Sec.  __.23(b)(4).
    B. Retail banking products evaluation. The [Agency] evaluates 
the bank's retail banking products offered in the bank's facility-
based assessment areas and nationwide, as applicable, as follows:
    1. Credit products and programs. The [Agency] evaluates the 
bank's performance regarding its credit products and programs 
pursuant to Sec.  __.23(c)(2) and determines whether the bank's 
performance contributes positively to the bank's Retail Services and 
Products Test conclusion that would have resulted based solely on 
the retail banking services conclusion pursuant to paragraph 
c.2.iv.A of this appendix.
    2. Deposit products. The [Agency] evaluates the bank's 
performance regarding its deposit products pursuant to Sec.  
__.23(c)(3), as applicable, and determines whether the bank's 
performance contributes positively to the bank's Retail Services and 
Products Test conclusion that would have resulted based solely on 
the combined retail banking services conclusion pursuant to 
paragraph c.2.iv.A of this appendix.
    3. Impact of retail banking products on Retail Services and 
Products Test conclusion. The bank's retail banking products 
evaluated pursuant to Sec.  __.23(c) may positively impact the 
bank's Retail Services and Products Test conclusion. The bank's lack 
of responsive retail banking products does not adversely affect the 
bank's Retail Services and Products Test performance conclusion.
    d. Community Development Financing Test conclusions. The 
[Agency] assigns Community Development Financing Test conclusions 
for each facility-based assessment area, each State or multistate 
MSA, as applicable pursuant to Sec.  __.28(c), and for the 
institution.
    1. Facility-based assessment area. For each facility-based 
assessment area, the [Agency] assigns a Community Development 
Financing Test conclusion and corresponding performance score based 
on the metric and benchmarks as provided in Sec.  __.24 and a review 
of the impact and responsiveness of a bank's activities as provided 
in Sec.  __.15 as follows:

------------------------------------------------------------------------
                                                            Performance
                       Conclusion                              score
------------------------------------------------------------------------
Outstanding.............................................              10
High Satisfactory.......................................               7
Low Satisfactory........................................               6
Needs to Improve........................................               3
Substantial Noncompliance...............................               0
------------------------------------------------------------------------

    2. State, multistate MSA, and institution. The [Agency] assigns 
Community Development Financing Test conclusions for a bank's 
performance in each State and multistate MSA, as applicable pursuant 
to Sec.  __.28(c), and for the institution as set forth in paragraph 
II.p of appendix B to this part.
    e. Community Development Services Test conclusions. The [Agency] 
assigns Community Development Services Test conclusions for each 
facility-based assessment area, each State or multistate MSA, as 
applicable pursuant to Sec.  __.28(c), and for the institution.
    1. Facility-based assessment area. For each facility-based 
assessment area, the [Agency] develops a Community Development 
Services Test conclusion based on the extent to which a bank 
provided community development services, considering the factors in 
Sec.  __.25(b). The [Agency] translates the conclusion for each 
facility-based assessment area into a numerical performance score as 
follows:

------------------------------------------------------------------------
                                                            Performance
                       Conclusion                              score
------------------------------------------------------------------------
Outstanding.............................................              10
High Satisfactory.......................................               7
Low Satisfactory........................................               6
Needs to Improve........................................               3
Substantial Noncompliance...............................               0
------------------------------------------------------------------------

    2. State, multistate MSA, or nationwide area. For each State or 
multistate MSA, as applicable pursuant to Sec.  __.28(c), and the 
nationwide area, the [Agency] develops a Community Development 
Services Test conclusion as follows:
    i. The [Agency] calculates a weighted average of the performance 
scores corresponding to the performance test conclusions pursuant to 
section IV of appendix B to this part. The resulting number is the 
Community Development Services Test performance score for a State, 
multistate MSA, or the institution. Subject to paragraph e.2.ii of 
this appendix, the [Agency] assigns a Community Development Services 
Test conclusion corresponding to the conclusion category that is 
nearest to the performance score for the Community Development 
Services Test as follows:

------------------------------------------------------------------------
    Performance score for the community
         development services test                   Conclusion
------------------------------------------------------------------------
8.5 or more...............................  Outstanding.
6.5 or more but less than 8.5.............  High Satisfactory.
4.5 or more but less than 6.5.............  Low Satisfactory.
1.5 or more but less than 4.5.............  Needs to Improve.
Less than 1.5.............................  Substantial Noncompliance.
------------------------------------------------------------------------

    ii. The [Agency] may adjust upwards the Community Development 
Services Test conclusion assigned under paragraph e.2.i of this 
appendix, based on Community Development Services Test activities 
performed outside of facility-based assessment areas as provided in 
Sec.  __.19. If there is no upward adjustment, the performance score 
used for the ratings calculations described in paragraph b.1 of 
appendix D to this part is the Community Development Services Test 
performance score discussed in paragraph e.2.i of this appendix. If 
there is an upward adjustment, the [Agency] translates the Community 
Development Services Test conclusion into a numerical performance 
score, which will be

[[Page 7163]]

used for the ratings calculations described in paragraph b.1 of 
appendix D to this part, as follows:

------------------------------------------------------------------------
                                                            Performance
                       Conclusion                              score
------------------------------------------------------------------------
Outstanding.............................................              10
High Satisfactory.......................................               7
Low Satisfactory........................................               6
Needs to Improve........................................               3
Substantial Noncompliance...............................               0
------------------------------------------------------------------------

    f. Community Development Financing Test for Limited Purpose 
Banks conclusions. The [Agency] assigns conclusions for each 
facility-based assessment area, each State or multistate MSA, as 
applicable pursuant to Sec.  __.28(c), and for the institution.
    1. Facility-based assessment area. For each facility-based 
assessment area, the [Agency] assigns one of the following Community 
Development Financing Test for Limited Purpose Banks conclusions 
based on consideration of the dollar volume of a bank's community 
development loans and community development investments that benefit 
or serve the facility-based assessment area over the evaluation 
period, and a review of the impact and responsiveness of the bank's 
activities in the facility-based assessment area as provided in 
Sec.  __.15: ``Outstanding''; ``High Satisfactory''; ``Low 
Satisfactory''; ``Needs to Improve''; or ``Substantial 
Noncompliance.''
    2. State or multistate MSA. For each State or multistate MSA, as 
applicable pursuant to Sec.  __.28(c), the [Agency] assigns a 
Community Development Financing Test for Limited Purpose Banks 
conclusion of ``Outstanding,'' ``High Satisfactory,'' ``Low 
Satisfactory,'' ``Needs to Improve,'' or ``Substantial 
Noncompliance'' based on the following:
    i. The bank's facility-based assessment area performance test 
conclusions in each State or multistate MSA, as applicable;
    ii. The dollar volume of a bank's community development loans 
and community development investments that benefit or serve the 
State or multistate MSAs, as applicable, over the evaluation period; 
and
    iii. A review of the impact and responsiveness of the bank's 
activities in the State or multistate MSAs, as provided in Sec.  
__.15.
    3. Institution. For the institution, the [Agency] assigns a 
Community Development Financing Test for Limited Purpose Banks 
conclusion of ``Outstanding,'' ``High Satisfactory,'' ``Low 
Satisfactory,'' ``Needs to Improve,'' or ``Substantial 
Noncompliance'' based on the following:
    i. The bank's community development financing performance in all 
of its facility-based assessment areas;
    ii. The [Agency]'s comparison of the bank's Limited Purpose Bank 
Community Development Financing Metric to both the Nationwide 
Limited Purpose Bank Community Development Financing Benchmark and 
the Nationwide Asset-Based Community Development Financing 
Benchmark;
    iii. The [Agency]'s comparison of the bank's Limited Purpose 
Bank Community Development Investment Metric to the Nationwide 
Asset-Based Community Development Investment Benchmark; and
    iv. A review of the impact and responsiveness of the bank's 
activities in a nationwide area as provided in Sec.  __.15.
    g. Strategic Plan conclusions. The [Agency] assigns conclusions 
for a bank that operates under an approved plan in facility-based 
assessment areas, retail lending assessment areas, outside retail 
lending areas, State or multistate MSA, as applicable pursuant to 
Sec.  __.28(c), and for the institution. The [Agency] assigns 
conclusions consistent with the methodology set forth by the bank in 
its plan. For elements of the plan that correspond to performance 
tests that would apply to the bank in the absence of an approved 
plan, the plan should include a conclusion methodology that is 
generally consistent with paragraphs b through f of this appendix.

Appendix D to Part__--Ratings

    a. Ratings, in general. In assigning a rating, the [Agency] 
evaluates a bank's performance under the applicable performance 
criteria in this part, pursuant to Sec. Sec.  __.21 and __.28. The 
agency calculates an overall performance score for each State and 
multistate MSA, as applicable pursuant to Sec.  __.28(c), and for 
the institution. The [Agency] assigns a rating of ``Outstanding,'' 
``Satisfactory,'' ``Needs to Improve,'' or ``Substantial 
Noncompliance'' for the bank's performance in each State and 
multistate MSA, as applicable pursuant to Sec.  __.28(c), and for 
the institution that is nearest to the overall performance score, as 
follows:

------------------------------------------------------------------------
             Performance score                         Rating
------------------------------------------------------------------------
8.5 or more...............................  Outstanding.
4.5 or more but less than 8.5.............  Satisfactory.
1.5 or more but less than 4.5.............  Needs to Improve.
Less than 1.5.............................  Substantial Noncompliance.
------------------------------------------------------------------------

    The [Agency] also considers any evidence of discriminatory or 
other illegal credit practices pursuant to Sec.  __.28(d) and the 
bank's past performance pursuant to Sec.  __.28(e).
    b. Large bank ratings at the State, multistate MSA, and 
institution levels. Subject to paragraph g of this appendix, the 
[Agency] combines a large bank's performance scores for its State, 
multistate MSA, or institution-level performance under the Retail 
Lending Test in Sec.  __.22, Retail Services and Products Test in 
Sec.  __.23, Community Development Financing Test in Sec.  __.24, 
and Community Development Services Test in Sec.  __.25 to determine 
the bank's rating in each State or multistate MSA, as applicable 
pursuant to Sec.  __.28(c), and for the institution.
    1. The [Agency] weights the performance scores as follows: 
Retail Lending Test (40 percent); Retail Services and Products Test 
(10 percent); Community Development Financing Test (40 percent); and 
Community Development Services Test (10 percent). The [Agency] 
multiplies each of these weights by the bank's performance score on 
the respective performance test, and then adds the resulting values 
together to develop a State, multistate MSA, or institution-level 
performance score.
    2. The [Agency] assigns a rating corresponding with the rating 
category that is nearest to the State, multistate MSA, or 
institution performance score using the table in paragraph a of this 
appendix.
    Example D-1: A large bank received the following performance 
scores and conclusions in a State:
     On the Retail Lending Test, the bank received a 7.3 
performance score and a corresponding conclusion of ``High 
Satisfactory;''
     On the Retail Services and Products Test, the bank 
received a 6.0 performance score and a corresponding conclusion of 
``Low Satisfactory;''
     On the Community Development Financing Test, the bank 
received a 5.7 performance score and a corresponding conclusion of 
``Low Satisfactory;'' and
     On the Community Development Services Test, the bank 
received a 3.0 performance score and a corresponding conclusion of 
``Needs to Improve.''
    Calculating weights:
     For the Retail Lending Test, the weight is 40 percent 
(or 0.4);
     For the Retail Services and Products Test, the weight 
is 10 percent (or 0.1);
     For the Community Development Financing Test, the 
weight is 40 percent (or 0.4); and
     For the Community Development Services Test, the weight 
is 10 percent (or 0.1).
    State Performance Score: Based on the illustration in this 
example D-1, the bank's State performance score is 6.1.

(0.4 weight x 7.3 performance score on the Retail Lending Test = 
2.92) + (0.1 weight x 6.0 performance score on the Retail Services 
and Products Test = 0.6) + (0.4 weight x 5.7 performance score on 
the Community Development Financing Test = 2.28) + (0.1 weight x 3.0 
performance score on the Community Development Services Test = 0.3).

    State Rating: A State performance score of 6.1 is greater than 
4.5 but less than 8.5, resulting in a rating of ``Satisfactory.''
    c. Intermediate bank ratings. 1. Intermediate banks evaluated 
pursuant to the Retail Lending Test and the Community Development 
Financing Test. Subject to paragraph g of this appendix, the 
[Agency] combines an intermediate bank's performance scores for its 
State, multistate MSA, or institution performance under the Retail 
Lending Test and the Community Development Financing Test to 
determine the bank's rating in each State or multistate MSA, as 
applicable pursuant to Sec.  __.28(c), and for the institution.
    i. The [Agency] weights the performance scores as follows: 
Retail Lending Test (50 percent) and Community Development Financing 
Test (50 percent). The [Agency] multiplies each of these weights by 
the bank's corresponding performance score on the respective 
performance test, and then adds the resulting values together to 
develop

[[Page 7164]]

a State, multistate MSA, or institution performance score.
    ii. The [Agency] assigns a rating corresponding with the rating 
category that is nearest to the State, multistate MSA, or 
institution performance score, using the table in paragraph a of 
this appendix.
    iii. The [Agency] may adjust an intermediate bank's institution 
rating where the bank has requested and received sufficient 
additional consideration pursuant to Sec.  __.30(b)(2) and (3).
    2. Intermediate banks evaluated pursuant to the Retail Lending 
Test and the Intermediate Bank Community Development Test in Sec.  
__.30(a)(2). The [Agency] combines an intermediate bank's 
performance scores for its State, multistate MSA, or institution 
conclusions under the Retail Lending Test and the Intermediate Bank 
Community Development Test in Sec.  __.30(a)(2) to determine the 
bank's rating in each State or multistate MSA, as applicable 
pursuant to Sec.  __.28(c), and for the institution.
    i. The [Agency] weights the performance scores as follows: 
Retail Lending Test (50 percent) and Intermediate Bank Community 
Development Test (50 percent). The [Agency] multiplies each of these 
weights by the bank's corresponding performance score on the 
respective performance test, and then adds the resulting values 
together to develop a State, multistate MSA, or institution 
performance score. For purposes of this paragraph c.2.i, the 
performance score for the Intermediate Bank Community Development 
Test corresponds to the conclusion assigned, as follows:

------------------------------------------------------------------------
                                                            Performance
                       Conclusion                              score
------------------------------------------------------------------------
Outstanding.............................................              10
High Satisfactory.......................................               7
Low Satisfactory........................................               6
Needs to Improve........................................               3
Substantial Noncompliance...............................               0
------------------------------------------------------------------------

    ii. The [Agency] assigns a rating corresponding with the rating 
category that is nearest to the State, multistate MSA, or 
institution performance score using the table in paragraph a of this 
appendix.
    iii. The [Agency] may adjust an intermediate bank's institution 
rating where the bank has requested and received sufficient 
additional consideration pursuant to Sec.  __.30(b)(1) and (3).
    d. Small bank ratings. 1. Ratings for small banks that opt to be 
evaluated pursuant to the Retail Lending Test in Sec.  __.22. The 
[Agency] determines a small bank's rating for each State or 
multistate MSA, as applicable pursuant to Sec.  __.28(c), and for 
the institution based on the performance score for its Retail 
Lending Test conclusions for the State, multistate MSA or 
institution, respectively.
    i. The [Agency] assigns a rating corresponding with the rating 
category that is nearest to the State, multistate MSA, or 
institution performance score using the table in paragraph a of this 
appendix.
    ii. The [Agency] may adjust a small bank's institution rating 
where the bank has requested and received sufficient additional 
consideration pursuant to Sec.  __.29(b)(2) and (3).
    2. Ratings for small banks evaluated under the Small Bank 
Lending Test pursuant to Sec.  __.29(a)(2). The [Agency] assigns a 
rating for small banks evaluated under the Small Bank Lending Test 
pursuant to Sec.  __.29(a)(2) as provided in appendix E to this 
part.
    e. Limited purpose banks. The [Agency] determines a limited 
purpose bank's rating for each State or multistate MSA, as 
applicable pursuant to Sec.  __.28(c), and for the institution based 
on the performance score for its Community Development Financing 
Test for Limited Purpose Banks conclusion for the State, multistate 
MSA, or the institution, respectively.
    1. The [Agency] assigns a rating corresponding with the rating 
category that is nearest to the State, multistate MSA, or 
institution performance score, respectively, using the table in 
paragraph a of this appendix.
    2. The [Agency] may adjust a limited purpose bank's institution 
rating where the bank has requested and received sufficient 
additional consideration pursuant to Sec.  __.26(b)(2).
    f. Ratings for banks operating under an approved strategic plan. 
The [Agency] evaluates the performance of a bank operating under an 
approved plan consistent with the rating methodology that is 
specified in the plan pursuant to Sec.  __.27(g)(6). The [Agency] 
assigns a rating according to the category assigned under the rating 
methodology specified in the plan: ``Outstanding,'' 
``Satisfactory,'' ``Needs to Improve,'' or ``Substantial 
Noncompliance.''
    g. Minimum performance test conclusion requirements. 1. Retail 
Lending Test minimum conclusion. An intermediate bank or a large 
bank must receive at least a ``Low Satisfactory'' Retail Lending 
Test conclusion at, respectively, the State, multistate MSA, or 
institution level to receive an overall State, multistate MSA, or 
institution rating of ``Satisfactory'' or ``Outstanding.''
    2. Minimum of ``low satisfactory'' overall conclusion for 60 
percent of facility-based assessment areas and retail lending 
assessment areas. i. Except as provided in Sec.  __.51(e), a large 
bank with a combined total of 10 or more facility-based assessment 
areas and retail lending assessment areas in any State, multistate 
MSA, or for the institution, as applicable, may not receive a rating 
of ``Satisfactory'' or ``Outstanding'' in that State, multistate 
MSA, or for the institution unless the bank received an overall 
conclusion of at least ``Low Satisfactory'' in 60 percent or more of 
the total number of its facility-based assessment areas and retail 
lending assessment areas in that State or multistate MSA or for the 
institution, as applicable.
    ii. Overall conclusion in facility-based assessment areas and 
retail lending assessment areas. For purposes of the requirement in 
paragraph g.2 of this appendix:
    A. The [Agency] calculates an overall conclusion in a facility-
based assessment area by combining a large bank's performance scores 
for its conclusions in the facility-based assessment area pursuant 
to the Retail Lending Test in Sec.  __.22, Retail Services and 
Products Test in Sec.  __.23, Community Development Financing Test 
in Sec.  __.24, and Community Development Services Test in Sec.  
__.25.
    The [Agency] weights the performance scores as follows: Retail 
Lending Test (40 percent); Retail Services and Products Test (10 
percent); Community Development Financing Test (40 percent); and 
Community Development Services Test (10 percent). The [Agency] 
multiplies each of these weights by the bank's performance score on 
the respective performance test, and then adds the resulting values 
together to develop a facility-based assessment area performance 
score.
    The [Agency] assigns a conclusion corresponding with the 
conclusion category that is nearest to the performance score, as 
follows:

------------------------------------------------------------------------
             Performance score                       Conclusion
------------------------------------------------------------------------
8.5 or more...............................  Outstanding.
6.5 or more but less than 8.5.............  High Satisfactory.
4.5 or more but less than 6.5.............  Low Satisfactory.
1.5 or more but less than 4.5.............  Needs to Improve.
Less than 1.5.............................  Substantial Noncompliance.
------------------------------------------------------------------------

    B. An overall conclusion in a retail lending assessment area is 
the retail lending assessment area conclusion assigned pursuant to 
the Retail Lending Test in Sec.  __.22 as provided in appendix C to 
this part.

Appendix E to Part __--Small Bank and Intermediate Bank Performance 
Evaluation Conclusions and Ratings

    a. Small banks evaluated under the small bank performance 
evaluation. 1. Small Bank Lending Test conclusions. Unless a small 
bank opts to be evaluated pursuant to the Retail Lending Test in 
Sec.  __.22, the [Agency] assigns conclusions for a small bank's 
performance pursuant to the Small Bank Lending Test in Sec.  
__.29(a)(2) for each facility-based assessment area, in each State 
or multistate MSA, as applicable pursuant to Sec.  __.28(c), and for 
the institution of ``Outstanding,'' ``Satisfactory,'' ``Needs to 
Improve,'' or ``Substantial Noncompliance.''
    i. Eligibility for a ``Satisfactory'' Small Bank Lending Test 
conclusion. The [Agency] assigns a small bank's performance pursuant 
to the Small Bank Lending Test a conclusion of ``Satisfactory'' if, 
in general, the bank demonstrates:
    A. A reasonable loan-to-deposit ratio (considering seasonal 
variations) given the bank's size, financial condition, the credit 
needs of its facility-based assessment areas, and taking into 
account, as appropriate, other lending-related activities such as 
loan originations for sale to the secondary markets, community 
development loans, and community development investments;
    B. A majority of its loans and, as appropriate, other lending-
related activities, are in its facility-based assessment areas;

[[Page 7165]]

    C. A distribution of retail lending to and, as appropriate, 
other lending-related activities for individuals of different income 
levels (including low- and moderate-income individuals) and 
businesses and farms of different sizes that is reasonable given the 
demographics of the bank's facility-based assessment areas;
    D. A reasonable geographic distribution of loans among census 
tracts of different income levels in the bank's facility-based 
assessment areas; and
    E. A record of taking appropriate action, when warranted, in 
response to written complaints, if any, about the bank's performance 
in helping to meet the credit needs of its facility-based assessment 
areas.
    ii. Eligibility for an ``Outstanding'' Small Bank Lending Test 
conclusion. A small bank that meets each of the standards for a 
``Satisfactory'' conclusion under this paragraph a.1.ii. and exceeds 
some or all of those standards may warrant consideration for a 
lending evaluation conclusion of ``Outstanding.''
    iii. ``Needs to Improve'' or ``Substantial Noncompliance'' Small 
Bank Lending Test conclusions. A small bank may also receive a 
lending evaluation conclusion of ``Needs to Improve'' or 
``Substantial Noncompliance'' depending on the degree to which its 
performance has failed to meet the standard for a ``Satisfactory'' 
conclusion.
    2. Small bank ratings. Unless a small bank opts to be evaluated 
pursuant to the Retail Lending Test in Sec.  __.22, the [Agency] 
determines a small bank's rating for each State and multistate MSA, 
as applicable pursuant to Sec.  __.28(c), and for the institution 
based on its Small Bank Lending Test conclusions at the State, 
multistate MSA, and institution level, respectively.
    i. The [Agency] assigns a rating based on the lending evaluation 
conclusion according to the category of the conclusion assigned: 
``Outstanding,'' ``Satisfactory,'' ``Needs to Improve,'' or 
``Substantial Noncompliance.''
    ii. The [Agency] may adjust a small bank's institution rating 
where the bank has requested and received sufficient additional 
consideration pursuant to Sec.  __.29(b)(1) and (3).
    iii. The [Agency] also considers any evidence of discriminatory 
or other illegal credit practices pursuant to Sec.  __.28(d) and the 
bank's past performance pursuant to Sec.  __.28(e).
    3. The [Agency] assigns a rating for small banks evaluated 
pursuant to the Retail Lending Test in Sec.  __.22 as provided in 
appendix D to this part.
    b. Intermediate banks evaluated pursuant to the Intermediate 
Bank Community Development Test in Sec.  __.30. Unless an 
intermediate bank opts to be evaluated pursuant to the Community 
Development Financing Test in Sec.  __.24, the [Agency] assigns 
conclusions for an intermediate bank's performance pursuant to the 
Intermediate Bank Community Development Test in Sec.  __.30 for each 
State and multistate MSA, as applicable pursuant to Sec.  __.28(c), 
and for the institution of ``Outstanding,'' ``High Satisfactory,'' 
``Low Satisfactory,'' ``Needs to Improve,'' or ``Substantial 
Noncompliance.''
    1. Intermediate Bank Community Development Test conclusions. i. 
Eligibility for a ``Satisfactory'' Intermediate Bank Community 
Development Test conclusion. The [Agency] assigns an intermediate 
bank's community development performance a ``Low Satisfactory'' 
conclusion if the bank demonstrates adequate responsiveness, and a 
``High Satisfactory'' conclusion if the bank demonstrates good 
responsiveness, to the community development needs of its facility-
based assessment areas and, as applicable, nationwide area through 
community development loans, community development investments, and 
community development services. The adequacy of the bank's response 
will depend on its capacity for such community development 
activities, the need for such community development activities, and 
the availability of community development opportunities.
    ii. Eligibility for an ``Outstanding'' Intermediate Bank 
Community Development Test conclusion. The [Agency] assigns an 
intermediate bank's community development performance an 
``Outstanding'' conclusion if the bank demonstrates excellent 
responsiveness to community development needs in its facility-based 
assessment areas and, as applicable, nationwide area through 
community development loans, community development investments, and 
community development services. The adequacy of the bank's response 
will depend on its capacity for such community development 
activities, the need for such community development activities, and 
the availability of community development opportunities.
    iii. ``Needs to Improve'' or ``Substantial Noncompliance'' 
Intermediate Bank Community Development Test conclusions. The 
[Agency] assigns an intermediate bank's community development 
performance a ``Needs to Improve'' or ``Substantial Noncompliance'' 
conclusion depending on the degree to which its performance has 
failed to meet the standards for a ``Satisfactory'' conclusion.
    2. Intermediate bank ratings. The [Agency] rates an intermediate 
bank's performance as provided in appendix D to this part.

Appendix F to Part __[Reserved]

END OF COMMON RULE TEXT

List of Subjects

12 CFR Part 25

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

12 CFR Part 228

    Banks, banking, Community development, Credit, Investments, 
Reporting and recordkeeping requirements.

12 CFR Part 345

    Banks, Banking, Community development, Credit, Investments, 
Reporting and recordkeeping requirements.

Adoption of Common Rule

    The adoption of the common rule by the agencies, as modified by the 
agency-specific text, is set forth below:

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Chapter I

Authority and Issuance

    For the reasons set forth in the common preamble and under the 
authority of 12 U.S.C. 93a and 2905, the Office of the Comptroller of 
the Currency amends part 25 of chapter I of title 12, Code of Federal 
Regulations as follows:

PART 25--COMMUNITY REINVESTMENT ACT AND INTERSTATE DEPOSIT 
PRODUCTION REGULATIONS

0
1. The authority citation for part 25 continues to read as follows:

    Authority: 12 U.S.C. 21, 22, 26, 27, 30, 36, 93a, 161, 215, 
215a, 481, 1462a, 1463, 1464, 1814, 1816, 1828(c), 1835a, 2901 
through 2908, 3101 through 3111, and 5412(b)(2)(B).

Subpart E--[Redesignated as Subpart F]

0
2. Redesignate subpart E as subpart F.

0
3. Revise subparts A though D, add a new subpart E, revise appendices A 
and B, and add appendices C through F as set forth at the end of the 
common preamble.

0
4. Further amend part 25 by:
0
a. Removing ``[Agency]'' and ``[Agency]'s'' wherever they appear and 
adding ``appropriate Federal banking agency'' and ``appropriate Federal 
banking agency's'' in their places, respectively;
0
b. Except in examples A-1, A-3 through A-5, A-8, and A-11 through A-17 
in appendix A, examples B-1, B-5, B-7, B-8, B-10, B-11, B-13, B-14, B-
16, and B-17 in appendix B, and example D-1 in appendix D:
0
i. Removing ``bank'' and ``bank'' wherever they appear and adding 
``bank or savings association'' and ``bank or savings association'' in 
their places, respectively;
0
ii. Except in the definition of ``large depository institution'' in 
Sec.  25.12, removing ``banks'' and ``banks'' wherever they appear and 
adding ``banks or savings associations'' and ``banks or savings 
associations'' in their places, respectively; and
0
iii. Removing ``bank's'' and ``bank's'' wherever they appear and adding 
``bank's or savings association's'' and

[[Page 7166]]

``bank's or savings association's'' in their places, respectively;
0
c. Except in examples A-1, A-3, A-5, and A-8 in appendix A and example 
B-1 in appendix B, removing ``Bank'' and ``Banks'' wherever they appear 
and adding ``Bank and savings association'' and ``Banks and savings 
associations'' in their places, respectively;
0
d. Removing ``[operations subsidiary or operating subsidiary]'' 
wherever it appears and adding ``operating subsidiary'' in its place;
0
e. Removing ``[operations subsidiaries or operating subsidiaries]'' and 
``[operations subsidiaries or operating subsidiaries]'' wherever they 
appear and adding ``operating subsidiaries'' and ``operating 
subsidiaries'' in their places, respectively;
0
f. Removing ``Bank and savings association Volume Metric'', 
``Geographic Bank and savings association Metric'', and ``Borrower Bank 
and savings association Metric'' wherever they appear and adding ``Bank 
Volume Metric,'' ``Geographic Bank Metric,'' and ``Borrower Bank 
Metric'' in their places, respectively;
0
g. Removing ``Community Development Financing Test for Limited Purpose 
Banks'' wherever it appears and adding ``Community Development 
Financing Test for Limited Purpose Banks and Savings Associations'' in 
its place;
0
h. Removing ``Community Development Financing Test for Limited Purpose 
Banks and savings associations'' wherever it appears and adding 
``Community Development Financing Test for Limited Purpose Banks and 
Savings Associations'' in its place;
0
i. Removing ``Intermediate Bank Community Development Test'' wherever 
it appears and adding ``Intermediate Bank and Savings Association 
Community Development Test'' in its place;
0
j. Removing ``Intermediate Bank and savings association Community 
Development Test'' wherever it appears and adding ``Intermediate Bank 
and Savings Association Community Development Test'' in its place;
0
k. Removing ``Small Bank Lending Test'' wherever it appears and adding 
``Small Bank and Savings Association Lending Test'' in its place;
0
l. Removing ``Small Bank and savings association Lending Test'' 
wherever it appears and adding ``Small Bank and Savings Association 
Lending Test'' in its place;
0
m. Removing ``Limited Purpose Bank and savings association Community 
Development Financing Metric'' wherever it appears and adding ``Limited 
Purpose Bank Community Development Financing Metric'' in its place; and
0
n. Removing ``Nationwide Limited Purpose Bank and savings association 
Community Development Financing Benchmark'' wherever it appears and 
adding ``Nationwide Limited Purpose Bank Community Development 
Financing Benchmark'' in each place.

0
5. Amend Sec.  25.11 by adding paragraphs (a) and (c) to read as 
follows:


Sec.  25.11  Authority, purposes, and scope.

    (a) Authority. The authority for this part is 12 U.S.C. 21, 22, 26, 
27, 30, 36, 93a, 161, 215, 215a, 481, 1462a, 1463, 1464, 1814, 1816, 
1828(c), 1835a, 2901 through 2908, 3101 through 3111, and 
5412(b)(2)(B).
* * * * *
    (c) Scope--(1) General. (i) This subpart, subparts B through E of 
this part, and appendices A through G to this part apply to all banks 
and savings associations except as provided in paragraphs (c)(2) and 
(3) of this section. Subpart F of this part only applies to banks.
    (ii) With respect to this subpart, subparts B through E of this 
part, and appendices A through F to this part:
    (A) The Office of the Comptroller of the Currency (OCC) has the 
authority to prescribe the regulations in this part for national banks, 
Federal savings associations, Federal branches of foreign banks, and 
State savings associations and has the authority to enforce the 
regulations in this part for national banks, Federal branches of 
foreign banks, and Federal savings associations; and
    (B) The Federal Deposit Insurance Corporation (FDIC) has the 
authority to enforce the regulations in this part for State savings 
associations.
    (2) Federal branches and agencies. (i) This part applies to all 
insured Federal branches and to any Federal branch that is uninsured 
that results from an acquisition described in section 5(a)(8) of the 
International Banking Act of 1978 (12 U.S.C. 3103(a)(8)).
    (ii) Except as provided in paragraph (c)(2)(i) of this section, 
this part does not apply to uninsured Federal branches, limited Federal 
branches, or Federal agencies, as those terms are defined or used in 
part 28 of this chapter.
    (3) Certain special purpose banks and savings associations. This 
part does not apply to special purpose banks or special purpose savings 
associations that do not perform commercial or retail banking services 
by granting credit to the public in the ordinary course of business, 
other than as incident to their specialized operations. These banks or 
savings associations include banker's banks, as defined in 12 U.S.C. 
24(Seventh), and banks or savings associations that engage only in one 
or more of the following activities: providing cash management 
controlled disbursement services or serving as correspondent banks or 
savings associations, trust companies, or clearing agents.

0
6. Amend Sec.  25.12 by:
0
a. Adding the definitions of ``Appropriate Federal banking agency'' and 
``Bank'' in alphabetical order;
0
b. In the definition of ``Depository institution'', removing ``12 CFR 
25.11, 228.11, and 345.11'' and adding ``Sec.  25.11 and 12 CFR 228.11 
and 345.11'' in its place;
0
c. In the definition of ``Deposits'', in paragraph (1):
0
i. Removing ``commercial banks or savings associations'' and adding 
``commercial banks'' in its place; and
0
ii. Removing ``foreign banks or savings associations'' and adding 
``foreign banks'' in its place;
0
d. In the definition of ``Distressed or underserved nonmetropolitan 
middle-income census tract'', removing ``the Federal Deposit Insurance 
Corporation (FDIC), and the Office of the Comptroller of the Currency 
(OCC)'' and adding ``the FDIC, and the OCC'' in its place;
0
e. In the definitions of ``Intermediate bank or savings association'' 
and ``Large bank or savings association'', removing ``appropriate 
Federal banking agency'' and adding ``OCC'' in its place;
0
f. In the definition of ``Large Depository Institution'', removing ``12 
CFR 25.26(a)'' and adding ``Sec.  25.26(a)'' in its place;
0
g. Adding the definitions of ``Operating subsidiary'' and ``Savings 
association'' in alphabetical order; and
0
h. In the definition of ``Small bank and savings association'', 
removing ``appropriate Federal banking agency'' and adding ``OCC''.
    The additions read as follows:


Sec.  25.12  Definitions.

* * * * *
    Appropriate Federal banking agency means, with respect to this 
subpart (except in the definition of minority depository institution in 
this section), subparts B through E of this part, and appendices A 
through E to this part:
    (1) The OCC when the institution is a bank or Federal savings 
association; and
    (2) The FDIC when the institution is a State savings association.
* * * * *

[[Page 7167]]

    Bank means a national bank (including a Federal branch as defined 
in part 28 of this chapter) with federally insured deposits, except as 
provided in Sec.  25.11(c).
* * * * *
    Operating subsidiary means an operating subsidiary as described in 
12 CFR 5.34 in the case of an operating subsidiary of a national bank 
or an operating subsidiary as described in 12 CFR 5.38 in the case of a 
savings association.
* * * * *
    Savings association means a Federal savings association or a State 
savings association.
* * * * *

0
7. Delayed indefinitely, further amend Sec.  25.12 by:
0
a. In the definition of ``Loan location'', revising paragraph (3);
0
b. In the definition of ``Reported loan'', revising paragraph (2); and
0
c. Revising the definitions of ``Small business'', ``Small business 
loan'', ``Small farm'', and ``Small farm loan''.
    The revisions read as follows:


Sec.  25.12  Definitions.

* * * * *
    Loan location * * *
    (3) A small business loan or small farm loan is located in the 
census tract reported pursuant to subpart B of 12 CFR part 1002.
* * * * *
    Reported loan * * *
    (2) A small business loan or small farm loan reported by a bank 
pursuant to subpart B of 12 CFR part 1002.
* * * * *
    Small business means a small business, other than a small farm, as 
defined in section 704B of the Equal Credit Opportunity Act (15 U.S.C. 
1691c-2) and implemented by 12 CFR 1002.106.
    Small business loan means a loan to a small business as defined in 
this section.
    Small farm means a small business, as defined in section 704B of 
the Equal Credit Opportunity Act (15 U.S.C. 1691c-2) and implemented by 
12 CFR 1002.106, and that is identified with one of the 3-digit North 
American Industry Classification System (NAICS) codes 111-115.
    Small farm loan means a loan to a small farm as defined in this 
section.
* * * * *


Sec.  25.13  [Amended]

0
8. Amend Sec.  25.13 in paragraph (k) by:
0
a. Removing ``CDFI bank or savings associations'' wherever it appears 
and adding ``CDFI bank'' in its place; and
0
b. Removing ``part 25, 228, or 345 of this title'' and adding ``this 
part or 12 CFR part 228 or 345'' in its place.


Sec.  25.14  [Amended]

0
9. Amend Sec.  25.14 in paragraphs (b)(2)(ii) and (b)(3) by removing 
``[other Agencies]'' and adding ``Board and the FDIC or the Board and 
the OCC, as appropriate,'' in its place.


Sec.  25.21  [Amended]

0
10. Amend Sec.  25.21 by:
0
a. In paragraph (b)(1), removing ``12 CFR part 25, 228, or 345'' and 
adding ``this part or 12 CFR part 228 or 345'' in its place; and
0
b. In paragraph (f), removing ``Banks'' and adding ``Banks and savings 
associations'' in its place.


Sec.  25.22  [Amended]

0
11. Delayed indefinitely, amend Sec.  25.22 by:
0
a. Removing the term ``Businesses'' in paragraphs (e)(2)(ii)(C) and (D) 
and adding ``Small businesses'' in its place; and
0
b. Removing the term ``Farms'' in paragraphs (e)(2)(ii)(E) and (F) and 
adding ``Small farms'' in its place.


Sec.  25.24  [Amended]

0
12. Amend Sec.  25.24 by:
0
a. In paragraph (b)(1), removing ``Bank and savings association 
Assessment Area Community Development Financing Metric'' and adding 
``Bank Assessment Area Community Development Financing Metric'' in its 
place;
0
b. In paragraph (c)(2)(i), removing ``Bank and savings association 
State Community Development Financing Metric'' and adding ``Bank State 
Community Development Financing Metric'' in its place;
0
c. In paragraph (d)(2)(i), removing ``Bank and savings association 
Multistate MSA Community Development Financing Metric'' and adding 
``Bank Multistate MSA Community Development Financing Metric'' in its 
place;
0
d. In paragraph (e)(2)(i), removing ``Bank and savings association 
Nationwide Community Development Financing Metric'' and adding ``Bank 
Nationwide Community Development Financing Metric'' in its place; and
0
e. In paragraph (e)(2)(iii), removing ``Bank and savings association 
Nationwide Community Development Investment Metric'' and adding ``Bank 
Nationwide Community Development Investment Metric'' in its place.


Sec.  25.26  [Amended]

0
13. Amend Sec.  25.26 by:
0
a. In the section heading, removing ``banks or savings associations'' 
and adding ``banks and savings associations'' in its place;
0
b. In paragraph (f)(2)(ii)(A), removing ``12 CFR 25.26(a)'' and ``12 
CFR 25.42(b), 228.42(b), or 345.42(b)'' and adding ``paragraph (a) of 
this section'' and ``Sec.  25.42(b) or 12 CFR 228.42(b) or 345.42(b)'' 
in their places, respectively; and
0
c. In paragraph (f)(2)(ii)(B), removing ``12 CFR 25.42(b), 228.42(b), 
or 345.42(b)'' and adding ``Sec.  25.42(b) or 12 CFR 228.42(b) or 
345.42(b)'' in its place.


Sec.  25.29  [Amended]

0
14. Amend Sec.  25.29 in the section heading by removing ``bank or 
savings association'' and adding ``bank and savings association'' in 
its place.


Sec.  25.30  [Amended]

0
15. Amend Sec.  25.30 in the section heading by removing ``bank or 
savings association'' and adding ``bank and savings association'' in 
its place.

0
16. Add Sec.  25.31 to read as follows:


Sec.  25.31  Effect of CRA performance on applications.

    (a) CRA performance. Among other factors, the appropriate Federal 
banking agency takes into account the record of performance under the 
CRA of each applicant bank or savings association, and for applications 
under 10(e) of the Home Owners' Loan Act (12 U.S.C. 1467a(e)), of each 
proposed subsidiary savings association, in considering an application 
for:
    (1) The establishment of:
    (i) A domestic branch for insured banks; or
    (ii) A domestic branch or other facility that would be authorized 
to take deposits for savings associations;
    (2) The relocation of the main office or a branch;
    (3) The merger or consolidation with or the acquisition of assets 
or assumption of liabilities of an insured depository institution 
requiring approval under the Bank Merger Act (12 U.S.C. 1828(c));
    (4) The conversion of an insured depository institution to a 
national bank or Federal savings association charter; and
    (5) Acquisitions subject to section 10(e) of the Home Owners' Loan 
Act (12 U.S.C. 1467a(e)).
    (b) Charter application. (1) An applicant (other than an insured 
depository institution) for a national bank charter must submit with 
its application a description of how it will meet its CRA objectives. 
The OCC takes the description into account in

[[Page 7168]]

considering the application and may deny or condition approval on that 
basis.
    (2) An applicant for a Federal savings association charter must 
submit with its application a description of how it will meet its CRA 
objectives. The appropriate Federal banking agency takes the 
description into account in considering the application and may deny or 
condition approval on that basis.
    (c) Interested parties. The appropriate Federal banking agency 
takes into account any views expressed by interested parties that are 
submitted in accordance with the applicable comment procedures in 
considering CRA performance in an application listed in paragraphs (a) 
and (b) of this section.
    (d) Denial or conditional approval of application. A bank's or 
savings association's record of performance may be the basis for 
denying or conditioning approval of an application listed in paragraph 
(a) of this section.
    (e) Insured depository institution. For purposes of this section, 
the term ``insured depository institution'' has the meaning given to 
that term in 12 U.S.C. 1813.


Sec.  25.42  [Amended]

0
17. Amend Sec.  25.42 by:
0
a. In paragraph (h), removing ``12 CFR part 25, 228, or 345'' and 
adding ``this part or 12 CFR part 228 or 345'' in its place; and
0
b. In paragraph (j)(2), removing ``[Agency]'s'' and adding 
``appropriate Federal banking agency's'' in its place.

0
18. Delayed indefinitely, further amend Sec.  25.42 by:
0
a. Revising paragraph (a)(1);
0
b. Removing and reserving paragraph (b)(1); and
0
c. Removing the phrase ``small business loans and small farm loans 
reported as originated or purchased'' in paragraphs (g)(1)(i) and 
(g)(2)(i) and adding ``small business loans and small farm loans 
reported as originated'' in its place.
    The revision reads as follows:


Sec.  25.42  Data collection, reporting, and disclosure.

    (a) * * *
    (1) Purchases of small business loans and small farm loans data. A 
bank that opts to have the OCC consider its purchases of small business 
loans and small farm loans must collect and maintain in electronic 
form, as prescribed by the OCC, until the completion of the bank's next 
CRA examination in which the data are evaluated, the following data for 
each small business loan or small farm loan purchased by the bank 
during the evaluation period:
    (i) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (ii) An indicator for the loan type as reported on the bank's Call 
Report or Report of Assets and Liabilities of U.S. Branches and 
Agencies of Foreign Banks, as applicable;
    (iii) The date of the loan purchase;
    (iv) The loan amount at purchase;
    (v) The loan location, including State, county, and census tract;
    (vi) An indicator for whether the purchased loan was to a business 
or farm with gross annual revenues of $250,000 or less;
    (vii) An indicator for whether the purchased loan was to a business 
or farm with gross annual revenues greater than $250,000 but less than 
or equal to $1 million;
    (viii) An indicator for whether the purchased loan was to a 
business or farm with gross annual revenues greater than $1 million; 
and
    (ix) An indicator for whether the purchased loan was to a business 
or farm for which gross annual revenues are not known by the bank.
* * * * *


Sec.  25.43  [Amended]

0
19. Amend Sec.  25.43 in paragraph (b)(2)(i) by removing ``[operations 
subsidiaries' or operating subsidiaries']'' and adding ``operating 
subsidiaries''' in its place.

0
20. Delayed indefinitely, further amend Sec.  25.43 by:
0
a. Revising the heading of paragraph (b)(2); and
0
b. Adding paragraph (b)(2)(iii).
    The revision and addition read as follows:


Sec.  25.43  Content and availability of public file.

* * * * *
    (b) * * *
    (2) Banks required to report HMDA data and small business lending 
data. * * *
    (iii) Small business lending data notice. A bank required to report 
small business loan or small farm loan data pursuant to 12 CFR part 
1002 must include in its public file a written notice that the bank's 
small business loan and small farm loan data may be obtained on the 
CFPB's website at: https://www.consumerfinance.gov/data-research/small-business-lending/.
* * * * *


Sec.  25.44  [Amended]

0
21. Amend Sec.  25.44 in the section heading by removing ``banks or 
savings associations'' and adding ``banks and savings associations'' in 
its place.


Sec.  25.46  [Amended]

0
22. Amend Sec.  25.46 in paragraph (b) by removing ``[Agency contact 
information]'' and adding ``[email protected], or by mailing 
comments to: Compliance Risk Policy Division, Bank Supervision Policy, 
OCC, Washington, DC 20219, for banks and Federal savings associations; 
or [email protected], or by mailing comments to the address 
of the appropriate FDIC regional office found at https://www.fdic.gov/resources/bankers/community-reinvestment-act/cra-regional-contacts-list.html, for State savings associations'' in its place.

0
23. Amend Sec.  25.51 by:
0
a. In paragraph (a)(2)(iii), in the first sentence, removing ``banks or 
savings associations'' and adding ``banks and savings associations'' in 
its place;
0
b. Revising paragraph (d)(2); and
0
c. In paragraph (e), removing ``[other Agencies' CRA regulations]'' and 
adding ``12 CFR part 228 or 345'' in its place.
    The revision reads as follows:


Sec.  25.51  Applicability dates and transition provisions.

* * * * *
    (d) * * *
    (2) Existing strategic plans. A strategic plan in effect as of 
February 1, 2024, remains in effect until the expiration date of the 
plan except for provisions that were not permissible under this part as 
of January 1, 2022.
* * * * *

Appendix A to Part 25 [Amended]

0
24. Amend appendix A by:
0
a. In paragraph I.b introductory text, removing ``12 CFR 25.42(b)(1), 
228.42(b)(1), or 345.42(b)(1) or 12 CFR part 1003'' and adding ``Sec.  
25.42(b)(1), 12 CFR 228.42(b)(1) or 345.42(b)(1), or 12 CFR part 1003'' 
in its place; and
0
b. In paragraph I.b.2, removing ``12 CFR 25.42(b)(3), 228.42(b)(3), or 
345.42(b)(3)'' and adding ``Sec.  25.42(b)(3) or 12 CFR 228.42(b)(3) or 
345.42(b)(3)'' in its place.

0
25. Delayed indefinitely, further amend appendix A by:
0
a. Adding a sentence at the end of paragraph I.a.1;
0
b. Removing the text ``subject to reporting pursuant to Sec.  
25.42(b)(1), 12 CFR 228.42(b)(1) or 345.42(b)(1),'' in paragraph I.b 
introductory text and adding in its place the text ``subject to

[[Page 7169]]

reporting pursuant to subpart B of 12 CFR part 1002'';
0
c. Adding a sentence at the end of paragraph III.a.1;
0
d. Revising paragraphs III.c.3.i and ii, III.c.4.i and ii, III.c.5.i 
and ii, and III.c.6.i and ii;
0
e. In paragraph III.c.8.iii, revising Example A-7;
0
f. Revising the third and fourth introductory paragraphs to section IV;
0
g. Adding a sentence at the end of paragraph IV.a.1;
0
h. Revising the introductory paragraph to IV.c.3 and paragraphs 
IV.c.3.i and ii;
0
i. Revising the introductory paragraph to IV.c.4 and paragraphs 
IV.c.4.i and ii;
0
j. Revising the introductory paragraph to IV.c.5 and paragraphs 
IV.c.5.i and ii;
0
k. Revising the introductory paragraph to IV.c.6 and paragraphs 
IV.c.6.i and ii;
0
l. In section V, in paragraph a, in table 1, revising the entries for 
``Small Business Loans'' and ``Small Farm Loans''; and
0
m. In section VII:
0
i. In paragraph a.1.ii, in table 3, revising the entries for ``Small 
Business Loans'' and ``Small Farm Loans'';
0
ii. In paragraph a.1.iii, in table 4, revising the entries for ``Small 
Business Loans'' and ``Small Farm Loans''.
    The additions and revisions read as follows:

Appendix A to Part 25--Calculations for the Retail Lending Test

* * * * *
    I. * * *
    a. * * *
    1. * * * A bank's loan purchases that otherwise meet the 
definition of a covered credit transaction to a small business, as 
those terms are defined in 12 CFR 1002.104 and 1002.106(b), may be 
included in the numerator of the Bank Volume Metric at the bank's 
option.
* * * * *
    III. * * *
    a. * * *
    1. * * * A bank's loan purchases that otherwise meet the 
definition of a covered credit transaction to a small business, as 
provided in 12 CFR 1002.104 and 1002.106(b), may be included in the 
numerator of the Geographic Bank Metric at the bank's option.
* * * * *
    c. * * *
    3. * * *
    i. Summing, over the years in the evaluation period, the numbers 
of small businesses in low-income census tracts in the facility-
based assessment area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small businesses in the facility-based assessment area or 
retail lending assessment area.
* * * * *
    4. * * *
    i. Summing, over the years in the evaluation period, the numbers 
of small businesses in moderate-income census tracts in the 
facility-based assessment area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small businesses in the facility-based assessment area or 
retail lending assessment area.
* * * * *
    5. * * *
    i. Summing, over the years in the evaluation period, the numbers 
of small farms in low-income census tracts in the facility-based 
assessment area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small farms in the facility-based assessment area or 
retail lending assessment area.
* * * * *
    6. * * *
    i. Summing, over the years in the evaluation period, the numbers 
of small farms in moderate-income census tracts in the facility-
based assessment area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small farms in the facility-based assessment area or 
retail lending assessment area.
* * * * *
    8. * * *
    iii. * * *
    Example A-7: The applicable benchmark uses a three-year 
evaluation period. There were 4,000 small business establishments, 
based upon the sum of the numbers of small business establishments 
over the years in the evaluation period (1,300 small business 
establishments in year 1, 1,300 small business establishments in 
year 2, and 1,400 small business establishments in year 3), in a 
bank's facility-based assessment area. Of these small business 
establishments, 500 small business establishments were in low-income 
census tracts, based upon the sum of the numbers of small business 
establishments in low-income census tracts over the years in the 
evaluation period (200 small business establishments in year 1,150 
small business in year 2, and 150 small business establishments in 
year 3). The Geographic Community Benchmark for small business loans 
in low-income census tracts would be 500 divided by 4,000, or 0.125 
(equivalently, 12.5 percent). In addition, 1,000 small business 
establishments in that facility-based assessment area were in 
moderate-income census tracts, over the years in the evaluation 
period (400 small business establishments in year 1,300 small 
business establishments in year 2, and 300 small business 
establishments in year 3). The Geographic Community Benchmark for 
small business loans in moderate-income census tracts would be 1,000 
divided by 4,000, or 0.25 (equivalently, 25 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.100

* * * * *
    IV. * * *
    For small business loans, the appropriate Federal banking agency 
calculates these metrics and benchmarks for each of the following 
designated borrowers: (i) small businesses with gross annual 
revenues of $250,000 or less; and (ii) small businesses with gross 
annual revenues of more than $250,000 but less than or equal to $1 
million.
    For small farm loans, the appropriate Federal banking agency 
calculates these metrics and benchmarks for each of the following 
designated borrowers: (i) small farms with gross annual revenues of 
$250,000 or less; and (ii) small farms with gross annual revenues of 
more than $250,000 but less than or equal to $1 million.
* * * * *
    a. * * *
    1. * * * A bank's loan purchases that otherwise meet the 
definition of a covered credit transaction to a small business, as 
provided in 12 CFR 1002.104 and

[[Page 7170]]

1002.106(b), may be included in the numerator of the Borrower Bank 
Metric at the bank's option.
* * * * *
    c. * * *
    3. For small business loans, the appropriate Federal banking 
agency calculates a Borrower Community Benchmark for small 
businesses with gross annual revenues of $250,000 or less by:
    i. Summing, over the years in the evaluation period, the numbers 
of small businesses with gross annual revenues of $250,000 or less 
in the facility-based lending area or retail lending assessment 
area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small businesses in the facility-based lending area or 
retail lending assessment area.
* * * * *
    4. For small business loans, the appropriate Federal banking 
agency calculates a Borrower Community Benchmark for small 
businesses with gross annual revenues of more than $250,000 but less 
than or equal to $1 million by:
    i. Summing, over the years in the evaluation period, the numbers 
of small businesses with gross annual revenues of more than $250,000 
but less than or equal to $1 million in the facility-based lending 
area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small businesses in the facility-based lending area or 
retail lending assessment area.
* * * * *
    5. For small farm loans, the appropriate Federal banking agency 
calculates a Borrower Community Benchmark for small farms with gross 
annual revenues of $250,000 or less by:
    i. Summing, over the years in the evaluation period, the numbers 
of small farms with gross annual revenues of $250,000 or less in the 
facility-based lending area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small farms in the facility-based lending area or retail 
lending assessment area.
* * * * *
    6. For small farm loans, the appropriate Federal banking agency 
calculates a Borrower Community Benchmark for small farms with gross 
annual revenues of more than $250,000 but less than or equal to $1 
million by:
    i. Summing, over the years in the evaluation period, the numbers 
of small farms with gross annual revenues of more than $250,000 but 
less than or equal to $1 million in the facility-based lending area 
or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small farms in the facility-based lending area or retail 
lending assessment area.
* * * * *
    V. * * *
    a. * * *

   Table 1 to Appendix A--Retail Lending Test Categories of Designated
                 Census Tracts and Designated Borrowers
------------------------------------------------------------------------
                                Designated census
      Major product line              tracts        Designated borrowers
------------------------------------------------------------------------
 
                              * * * * * * *
Small Business Loans..........  Low-Income Census  Small businesses with
                                 Tracts.            Gross Annual
                                                    Revenues of $250,000
                                                    or Less.
                                Moderate-Income    Small businesses with
                                 Census Tracts.     Gross Annual
                                                    Revenues Greater
                                                    than $250,000 but
                                                    Less Than or Equal
                                                    to $1 million.
Small Farm Loans..............  Low-Income Census  Small farms with
                                 Tracts.            Gross Annual
                                                    Revenues of $250,000
                                                    or Less.
                                Moderate-Income    Small farms with
                                 Census Tracts.     Gross Annual
                                                    Revenues Greater
                                                    than $250,000 but
                                                    Less Than or Equal
                                                    to $1 million.
------------------------------------------------------------------------

* * * * *
    VII. * * *
    a. * * *
    1. * * *
    ii. * * *

   Table 3 to Appendix A--Retail Lending Test, Geographic Distribution
                            Average--Weights
------------------------------------------------------------------------
                                   Category of
      Major product line        designated census          Weight
                                      tracts
------------------------------------------------------------------------
 
                              * * * * * * *
Small Business Loans..........  Low-Income Census  Percentage of total
                                 Tracts.            number of small
                                                    businesses in low-
                                                    and moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in low-
                                                    income census
                                                    tracts.
                                Moderate-Income    Percentage of total
                                 Census Tracts.     number of small
                                                    businesses in low-
                                                    and moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in moderate-
                                                    income census
                                                    tracts.
Small Farm Loans..............  Low-Income Census  Percentage of total
                                 Tracts.            number of small
                                                    farms in low- and
                                                    moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in low-
                                                    income census
                                                    tracts.
                                Moderate-Income    Percentage of total
                                 Census Tracts.     number of small
                                                    farms in low- and
                                                    moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in moderate-
                                                    income census
                                                    tracts.
 
                              * * * * * * *
------------------------------------------------------------------------

* * * * *
    iii. * * *

[[Page 7171]]



    Table 4 to Appendix A--Retail Lending Test, Borrower Distribution
                            Average--Weights
------------------------------------------------------------------------
                                  Categories of
      Major product line            designated             Weight
                                    borrowers
------------------------------------------------------------------------
 
                              * * * * * * *
Small Business Loans..........  Small businesses   Percentage of total
                                 with gross         number of small
                                 annual revenues    businesses with
                                 of $250,000 or     gross annual
                                 less.              revenues of $250,000
                                                    or less and small
                                                    businesses with
                                                    gross annual
                                                    revenues greater
                                                    than $250,000 but
                                                    less than or equal
                                                    to $1 million in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are small
                                                    businesses with
                                                    gross annual
                                                    revenues of $250,000
                                                    or less.
                                Small businesses   Percentage of total
                                 with gross         number of small
                                 annual revenues    businesses with
                                 greater than       gross annual
                                 $250,000 and       revenues of $250,000
                                 less than or       or less and small
                                 equal to $1        businesses with
                                 million.           gross annual
                                                    revenues greater
                                                    than $250,000 but
                                                    less than or equal
                                                    to $1 million in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are small
                                                    businesses with
                                                    gross annual
                                                    revenues greater
                                                    than $250,00 but
                                                    less than or equal
                                                    to $1 million.
Small Farm Loans..............  Small farms with   Percentage of total
                                 gross annual       number of small
                                 revenues of        farms with gross
                                 $250,000 or less.  annual revenues of
                                                    $250,000 or less and
                                                    small farms with
                                                    gross annual
                                                    revenues greater
                                                    than $250,000 but
                                                    less than or equal
                                                    to $1 million in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are small farms
                                                    with gross annual
                                                    revenues of $250,000
                                                    or less.
                                Small farms with   Percentage of total
                                 gross annual       number of small
                                 revenues greater   farms with gross
                                 than $250,000      annual revenues of
                                 and less than or   $250,000 or less and
                                 equal to $1        small farms with
                                 million.           gross annual
                                                    revenues greater
                                                    than $250,000 but
                                                    less than or equal
                                                    to $1 million in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are small farms
                                                    with gross annual
                                                    revenues greater
                                                    than $250,000 but
                                                    less than or equal
                                                    to $1 million.
 
                              * * * * * * *
------------------------------------------------------------------------

* * * * *

Appendix B to Part 25 [Amended]

0
26. Amend appendix B by:
0
a. In paragraph I.a.2.i, removing ``12 CFR 25.42, 228.42, or 345.42'' 
and adding ``Sec.  25.42 or 12 CFR 228.42 or 345.42'' in its place;
0
b. In section II:
0
i. In paragraph a heading, removing ``Bank and savings association 
Assessment Area Community Development Financing Metric'' and adding 
``Bank Assessment Area Community Development Financing Metric'' in its 
place;
0
ii. In paragraph d heading, removing ``Bank and savings association 
State Community Development Financing Metric'' and adding ``Bank State 
Community Development Financing Metric'' in its place;
0
iii. In paragraph g heading, removing ``Bank and savings association 
Multistate MSA Community Development Financing Metric'' and adding 
``Bank Multistate MSA Community Development Financing Metric'' in its 
place;
0
iv. In paragraph j heading, removing ``Bank and savings association 
Nationwide Community Development Financing Metric'' and adding ``Bank 
Nationwide Community Development Financing Metric'' in its place; and
0
v. In paragraph m heading, removing ``Bank and savings association 
Nationwide Community Development Investment Metric'' and adding ``Bank 
Nationwide Community Development Investment Metric'' in its place; and
0
c. In section III:
0
i. In the heading, removing ``BANKS'' and adding ``BANKS AND SAVINGS 
ASSOCIATIONS'' in its place;
0
ii. In paragraphs b.1 and 2, removing ``12 CFR 25.26(a)'' and ``12 CFR 
25.42(b), 228.42(b), or 345.42(b)'' and adding ``Sec.  25.26(a)'' and 
``Sec.  25.42(b) or 12 CFR 228.42(b) or 345.42(b)'' in their places, 
respectively; and
0
iii. In paragraphs c.1 and 2, removing ``12 CFR 25.42(b), 228.42(b), or 
345.42(b)'' and adding ``Sec.  25.42(b) or 12 CFR 228.42(b) or 
345.42(b)'' in its place.

0
27. Amend appendix E by revising the heading to read as follows:

Appendix E to Part 25--Small Bank and Savings Association and 
Intermediate Bank and Savings Association Performance Evaluation 
Conclusions and Ratings

0
28. Add appendix F to read as follows:

Appendix F to Part 25--CRA Notice

    (a) Notice for main offices and, if an interstate bank, one 
branch office in each State.

Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the [Office 
of the Comptroller of the Currency (OCC) or Federal Deposit 
Insurance Corporation (FDIC), as appropriate] evaluates our record 
of helping to meet the credit needs of this community consistent 
with safe and sound operations. The [OCC or FDIC, as appropriate] 
also takes this record into account when deciding on certain 
applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and 
our performance under the CRA, including, for example, information 
about our branches, such as their location and services provided at 
them; the public section of our most recent CRA Performance 
Evaluation, prepared by the [OCC or FDIC, as appropriate]; and 
comments received from the public relating to our performance in 
helping to meet community credit needs, as well as our responses to 
those comments. You may review this information today.
    At least 30 days before the beginning of each calendar quarter, 
the [OCC or FDIC, as appropriate] publishes a list of the banks that 
are scheduled for CRA examination by the [OCC or FDIC, as 
appropriate] for the next two quarters. This list is available 
through the [OCC's or FDIC's, as appropriate] website at [OCC.gov or 
FDIC.gov, as appropriate].
    You may send written comments about our performance in helping 
to meet community credit needs to (name and address of official at 
bank), (title of responsible official), to the [OCC or FDIC Regional 
Director, as appropriate, (address)]. You may also submit comments 
electronically to the [OCC at [email protected] or FDIC 
through the FDIC's website at FDIC.gov/regulations/cra, as 
appropriate]. Your written comments, together with any response by 
us, will be considered by the [OCC or FDIC, as appropriate] in 
evaluating our CRA performance and may be made public.
    You may ask to look at any comments received by the [OCC or FDIC 
Regional Director, as appropriate]. You may also

[[Page 7172]]

request from the [OCC or FDIC Regional Director, as appropriate] an 
announcement of our applications covered by the CRA filed with the 
[OCC or FDIC, as appropriate]. [We are an affiliate of (name of 
holding company), a bank holding company. You may request from 
(title of responsible official), Federal Reserve Bank of 
____(address) an announcement of applications covered by the CRA 
filed by bank holding companies.]
    (b) Notice for branch offices.

Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the [Office 
of the Comptroller of the Currency (OCC) or Federal Deposit 
Insurance Corporation (FDIC), as appropriate] evaluates our record 
of helping to meet the credit needs of this community consistent 
with safe and sound operations. The [OCC or FDIC, as appropriate] 
also takes this record into account when deciding on certain 
applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and 
our performance under the CRA. You may review today the public 
section of our most recent CRA Performance Evaluation, prepared by 
the [OCC or FDIC, as appropriate], and a list of services provided 
at this branch. You may also have access to the following additional 
information, which we will make available to you at this branch 
within five calendar days after you make a request to us:
    (1) A map showing the facility-based assessment area containing 
this branch, which is the area in which the [OCC or FDIC, as 
appropriate] evaluates our CRA performance in this community;
    (2) Information about our branches in this facility-based 
assessment area;
    (3) A list of services we provide at those locations;
    (4) Data on our lending performance in this facility-based 
assessment area; and
    (5) Copies of all written comments received by us that 
specifically relate to our CRA performance in this facility-based 
assessment area, and any responses we have made to those comments. 
If we are operating under an approved strategic plan, you may also 
have access to a copy of the plan.
    [If you would like to review information about our CRA 
performance in other communities served by us, the public file for 
our entire bank is available on our website (website address) and at 
(name of office located in State), located at (address).]
    At least 30 days before the beginning of each calendar quarter, 
the [OCC or FDIC, as appropriate] publishes a list of the banks that 
are scheduled for CRA examination by the [OCC or FDIC, as 
appropriate] for the next two quarters. This list is available 
through the [OCC's or FDIC's, as appropriate] website at [OCC.gov or 
FDIC.gov, as appropriate].
    You may send written comments about our performance in helping 
to meet community credit needs to (name and address of official at 
bank), (title of responsible official), to the [OCC or FDIC Regional 
Director, as appropriate (address)]. You may also submit comments 
electronically to the [OCC at [email protected] or FDIC 
through the FDIC's website at FDIC.gov/regulations/cra, as 
appropriate]. Your written comment, together with any response by 
us, will be considered by the [OCC or FDIC, as appropriate] in 
evaluating our CRA performance and may be made public.
    You may ask to look at any comments received by the [OCC or FDIC 
Regional Director, as appropriate]. You may also request from the 
[OCC or FDIC Regional Director, as appropriate] an announcement of 
our applications covered by the CRA filed with the [OCC or FDIC, as 
appropriate]. [We are an affiliate of (name of holding company), a 
bank holding company. You may request from (title of responsible 
official), Federal Reserve Bank of ____(address) an announcement of 
applications covered by the CRA filed by bank holding companies.]

0
29. Effective April 1, 2024, through January 1, 2031, add appendix G to 
read as follows:

Appendix G to Part 25--Community Reinvestment Act and Interstate 
Deposit Production Regulations

    Note:  The content of this appendix reproduces part 25 
implementing the Community Reinvestment Act as of March 31, 2024. 
Cross-references to CFR parts (as well as to included sections, 
subparts, and appendices) in this appendix are to those provisions 
as contained within this appendix and the CFR as of March 31, 2024.

Subpart A--General


Sec.  25.11  Authority, purposes, and scope.

    (a) Authority and OMB control number--(1) Authority. The authority 
for subparts A, B, C, D, and E is 12 U.S.C. 21, 22, 26, 27, 30, 36, 
93a, 161, 215, 215a, 481, 1462a, 1463, 1464, 1814, 1816, 1828(c), 
1835a, 2901 through 2908, 3101 through 3111, and 5412(b)(2)(B).
    (2) OMB control number. The information collection requirements 
contained in this part were approved by the Office of Management and 
Budget under the provisions of 44 U.S.C. 3501 et seq. and have been 
assigned OMB control number 1557-0160.
    (b) Purposes. In enacting the Community Reinvestment Act (CRA), the 
Congress required each appropriate Federal financial supervisory agency 
to assess an institution's record of helping to meet the credit needs 
of the local communities in which the institution is chartered, 
consistent with the safe and sound operation of the institution, and to 
take this record into account in the agency's evaluation of an 
application for a deposit facility by the institution. This part is 
intended to carry out the purposes of the CRA by:
    (1) Establishing the framework and criteria by which the Office of 
the Comptroller of the Currency (OCC) or the Federal Deposit Insurance 
Corporation (FDIC), as appropriate, assesses a bank's or savings 
association's record of helping to meet the credit needs of its entire 
community, including low- and moderate-income neighborhoods, consistent 
with the safe and sound operation of the bank or savings association; 
and
    (2) Providing that the OCC takes that record into account in 
considering certain applications.
    (c) Scope--(1) General. (i) Subparts A, B, C, and D, and Appendices 
A and B, apply to all banks and savings associations except as provided 
in paragraphs (c)(2) and (3) of this section. Subpart E only applies to 
banks.
    (ii) With respect to subparts A, B, C, and D, and Appendices A and 
B--
    (A) The OCC has the authority to prescribe these regulations for 
national banks, Federal savings associations, and State savings 
associations and has the authority to enforce these regulations for 
national banks and Federal savings associations.
    (B) The FDIC has the authority to enforce these regulations for 
State savings associations.
    (iii) With respect to subparts A, B, C, and D, and appendix A, 
references to appropriate Federal banking agency will mean the OCC when 
the institution is a national bank or Federal savings association and 
the FDIC when the institution is a State savings association.
    (2) Federal branches and agencies. (i) This part applies to all 
insured Federal branches and to any Federal branch that is uninsured 
that results from an acquisition described in section 5(a)(8) of the 
International Banking Act of 1978 (12 U.S.C. 3103(a)(8)).
    (ii) Except as provided in paragraph (c)(2)(i) of this section, 
this part does not apply to Federal branches that are uninsured, 
limited Federal branches, or Federal agencies, as those terms are 
defined in part 28 of this chapter.
    (3) Certain special purpose banks and savings associations. This 
part does not apply to special purpose banks or special purpose savings 
associations that do not perform commercial or retail banking services 
by granting credit to the public in the ordinary course of business, 
other than as incident to their specialized operations. These banks or 
savings associations include banker's banks, as defined in 12 U.S.C. 
24(Seventh), and banks or savings associations that engage only in one 
or more of the following activities: Providing cash management 
controlled disbursement services or serving as correspondent banks or 
savings associations, trust companies, or clearing agents.

[[Page 7173]]

Sec.  25.12  Definitions.

    For purposes of subparts A, B, C, and D, and appendices A and B, of 
this part, the following definitions apply:
    (a) Affiliate means any company that controls, is controlled by, or 
is under common control with another company. The term ``control'' has 
the meaning given to that term in 12 U.S.C. 1841(a)(2), and a company 
is under common control with another company if both companies are 
directly or indirectly controlled by the same company.
    (b) Area median income means:
    (1) The median family income for the MSA, if a person or geography 
is located in an MSA, or for the metropolitan division, if a person or 
geography is located in an MSA that has been subdivided into 
metropolitan divisions; or
    (2) The statewide nonmetropolitan median family income, if a person 
or geography is located outside an MSA.
    (c) Assessment area means a geographic area delineated in 
accordance with Sec.  25.41.
    (d) Automated teller machine (ATM) means an automated, unstaffed 
banking facility owned or operated by, or operated exclusively for, the 
bank or savings association at which deposits are received, cash 
dispersed, or money lent.
    (e)(1) Bank or savings association means, except as provided in 
Sec.  25.11(c), a national bank (including a Federal branch as defined 
in part 28 of this chapter) with Federally insured deposits or a 
savings association;
    (2) Bank and savings association means, except as provided in Sec.  
25.11(c), a national bank (including a Federal branch as defined in 
part 28 of this chapter) with Federally insured deposits and a savings 
association.
    (f) Branch means a staffed banking facility authorized as a branch, 
whether shared or unshared, including, for example, a mini-branch in a 
grocery store or a branch operated in conjunction with any other local 
business or nonprofit organization.
    (g) Community development means:
    (1) Affordable housing (including multifamily rental housing) for 
low- or moderate-income individuals;
    (2) Community services targeted to low- or moderate-income 
individuals;
    (3) Activities that promote economic development by financing 
businesses or farms that meet the size eligibility standards of the 
Small Business Administration's Development Company or Small Business 
Investment Company programs (13 CFR 121.301) or have gross annual 
revenues of $1 million or less; or
    (4) Activities that revitalize or stabilize--
    (i) Low-or moderate-income geographies;
    (ii) Designated disaster areas; or
    (iii) Distressed or underserved nonmetropolitan middle-income 
geographies designated by the Board of Governors of the Federal Reserve 
System, FDIC, and the OCC, based on--
    (A) Rates of poverty, unemployment, and population loss; or
    (B) Population size, density, and dispersion. Activities revitalize 
and stabilize geographies designated based on population size, density, 
and dispersion if they help to meet essential community needs, 
including needs of low- and moderate-income individuals.
    (h) Community development loan means a loan that:
    (1) Has as its primary purpose community development; and
    (2) Except in the case of a wholesale or limited purpose bank or 
savings association:
    (i) Has not been reported or collected by the bank or savings 
association or an affiliate for consideration in the bank's or savings 
association's assessment as a home mortgage, small business, small 
farm, or consumer loan, unless the loan is for a multifamily dwelling 
(as defined in Sec.  1003.2(n) of this title); and
    (ii) Benefits the bank's or savings association's assessment 
area(s) or a broader statewide or regional area(s) that includes the 
bank's or savings association's assessment area(s).
    (i) Community development service means a service that:
    (1) Has as its primary purpose community development;
    (2) Is related to the provision of financial services; and
    (3) Has not been considered in the evaluation of the bank's or 
savings association's retail banking services under Sec.  25.24(d).
    (j) Consumer loan means a loan to one or more individuals for 
household, family, or other personal expenditures. A consumer loan does 
not include a home mortgage, small business, or small farm loan. 
Consumer loans include the following categories of loans:
    (1) Motor vehicle loan, which is a consumer loan extended for the 
purchase of and secured by a motor vehicle;
    (2) Credit card loan, which is a line of credit for household, 
family, or other personal expenditures that is accessed by a borrower's 
use of a ``credit card,'' as this term is defined in Sec.  1026.2 of 
this title;
    (3) Other secured consumer loan, which is a secured consumer loan 
that is not included in one of the other categories of consumer loans; 
and
    (4) Other unsecured consumer loan, which is an unsecured consumer 
loan that is not included in one of the other categories of consumer 
loans.
    (k) Geography means a census tract delineated by the United States 
Bureau of the Census in the most recent decennial census.
    (l) Home mortgage loan means a closed-end mortgage loan or an open-
end line of credit as these terms are defined under Sec.  1003.2 of 
this title, and that is not an excluded transaction under Sec.  
1003.3(c)(1) through (10) and (13) of this title.
    (m) Income level includes:
    (1) Low-income, which means an individual income that is less than 
50 percent of the area median income, or a median family income that is 
less than 50 percent, in the case of a geography.
    (2) Moderate-income, which means an individual income that is at 
least 50 percent and less than 80 percent of the area median income, or 
a median family income that is at least 50 and less than 80 percent, in 
the case of a geography.
    (3) Middle-income, which means an individual income that is at 
least 80 percent and less than 120 percent of the area median income, 
or a median family income that is at least 80 and less than 120 
percent, in the case of a geography.
    (4) Upper-income, which means an individual income that is 120 
percent or more of the area median income, or a median family income 
that is 120 percent or more, in the case of a geography.
    (n) Limited purpose bank or savings association means a bank or 
savings association that offers only a narrow product line (such as 
credit card or motor vehicle loans) to a regional or broader market and 
for which a designation as a limited purpose bank or savings 
association is in effect, in accordance with Sec.  25.25(b).
    (o) Loan location. A loan is located as follows:
    (1) A consumer loan is located in the geography where the borrower 
resides;
    (2) A home mortgage loan is located in the geography where the 
property to which the loan relates is located; and
    (3) A small business or small farm loan is located in the geography 
where the main business facility or farm is located or where the loan 
proceeds otherwise will be applied, as indicated by the borrower.
    (p) Loan production office means a staffed facility, other than a 
branch, that is open to the public and that provides lending-related 
services, such as loan information and applications.
    (q) Metropolitan division means a metropolitan division as defined 
by the

[[Page 7174]]

Director of the Office of Management and Budget.
    (r) MSA means a metropolitan statistical area as defined by the 
Director of the Office of Management and Budget.
    (s) Nonmetropolitan area means any area that is not located in an 
MSA.
    (t) Qualified investment means a lawful investment, deposit, 
membership share, or grant that has as its primary purpose community 
development.
    (u) Small bank or savings association--(1) Definition. Small bank 
or savings association means a bank or savings association that, as of 
December 31 of either of the prior two calendar years, had assets of 
less than $1.322 billion. Intermediate small bank or savings 
association means a small bank or savings association with assets of at 
least $330 million as of December 31 of both of the prior two calendar 
years and less than $1.322 billion as of December 31 of either of the 
prior two calendar years.
    (2) Adjustment. The dollar figures in paragraph (u)(1) of this 
section shall be adjusted annually and published by the appropriate 
Federal banking agency, based on the year-to-year change in the average 
of the Consumer Price Index for Urban Wage Earners and Clerical 
Workers, not seasonally adjusted, for each twelve-month period ending 
in November, with rounding to the nearest million.
    (v) Small business loan means a loan included in ``loans to small 
businesses'' as defined in the instructions for preparation of the 
Consolidated Report of Condition and Income.
    (w) Small farm loan means a loan included in ``loans to small 
farms'' as defined in the instructions for preparation of the 
Consolidated Report of Condition and Income.
    (x) Wholesale bank or savings association means a bank or savings 
association that is not in the business of extending home mortgage, 
small business, small farm, or consumer loans to retail customers, and 
for which a designation as a wholesale bank or savings association is 
in effect, in accordance with Sec.  25.25(b).

Subpart B--Standards for Assessing Performance


Sec.  25.21  Performance tests, standards, and ratings, in general.

    (a) Performance tests and standards. The appropriate Federal 
banking agency assesses the CRA performance of a bank or savings 
association in an examination as follows:
    (1) Lending, investment, and service tests. The appropriate Federal 
banking agency applies the lending, investment, and service tests, as 
provided in Sec. Sec.  25.22 through 25.24, in evaluating the 
performance of a bank or savings association, except as provided in 
paragraphs (a)(2), (3), and (4) of this section.
    (2) Community development test for wholesale or limited purpose 
banks and savings associations. The appropriate Federal banking agency 
applies the community development test for a wholesale or limited 
purpose bank or savings association, as provided in Sec.  25.25, except 
as provided in paragraph (a)(4) of this section.
    (3) Small bank and savings association performance standards. The 
appropriate Federal banking agency applies the small bank or savings 
association performance standards as provided in Sec.  25.26 in 
evaluating the performance of a small bank or savings association or a 
bank or savings association that was a small bank or savings 
association during the prior calendar year, unless the bank or savings 
association elects to be assessed as provided in paragraphs (a)(1), 
(2), or (4) of this section. The bank or savings association may elect 
to be assessed as provided in paragraph (a)(1) of this section only if 
it collects and reports the data required for other banks or savings 
associations under Sec.  25.42.
    (4) Strategic plan. The appropriate Federal banking agency 
evaluates the performance of a bank or savings association under a 
strategic plan if the bank or savings association submits, and the 
appropriate Federal banking agency approves, a strategic plan as 
provided in Sec.  25.27.
    (b) Performance context. The appropriate Federal banking agency 
applies the tests and standards in paragraph (a) of this section and 
also considers whether to approve a proposed strategic plan in the 
context of:
    (1) Demographic data on median income levels, distribution of 
household income, nature of housing stock, housing costs, and other 
relevant data pertaining to a bank's or savings association's 
assessment area(s);
    (2) Any information about lending, investment, and service 
opportunities in the bank's or savings association's assessment area(s) 
maintained by the bank or savings association or obtained from 
community organizations, state, local, and tribal governments, economic 
development agencies, or other sources;
    (3) The bank's or savings association's product offerings and 
business strategy as determined from data provided by the bank or 
savings association;
    (4) Institutional capacity and constraints, including the size and 
financial condition of the bank or savings association, the economic 
climate (national, regional, and local), safety and soundness 
limitations, and any other factors that significantly affect the bank's 
or savings association's ability to provide lending, investments, or 
services in its assessment area(s);
    (5) The bank's or savings association's past performance and the 
performance of similarly situated lenders;
    (6) The bank's or savings association's public file, as described 
in Sec.  25.43, and any written comments about the bank's or savings 
association's CRA performance submitted to the bank or savings 
association or the appropriate Federal banking agency; and
    (7) Any other information deemed relevant by the appropriate 
Federal banking agency.
    (c) Assigned ratings. The appropriate Federal banking agency 
assigns to a bank or savings association one of the following four 
ratings pursuant to Sec.  25.28 and appendix A of this part: 
``outstanding''; ``satisfactory''; ``needs to improve''; or 
``substantial noncompliance'' as provided in 12 U.S.C. 2906(b)(2). The 
rating assigned by the appropriate Federal banking agency reflects the 
bank's or savings association's record of helping to meet the credit 
needs of its entire community, including low- and moderate-income 
neighborhoods, consistent with the safe and sound operation of the bank 
or savings association.
    (d) Safe and sound operations. This part and the CRA do not require 
a bank or savings association to make loans or investments or to 
provide services that are inconsistent with safe and sound operations. 
To the contrary, the appropriate Federal banking agency anticipates 
banks and savings associations can meet the standards of this part with 
safe and sound loans, investments, and services on which the banks and 
savings associations expect to make a profit. Banks and savings 
associations are permitted and encouraged to develop and apply flexible 
underwriting standards for loans that benefit low- or moderate-income 
geographies or individuals, only if consistent with safe and sound 
operations.
    (e) Low-cost education loans provided to low-income borrowers. In 
assessing and taking into account the record of a bank or savings 
association under this part, the appropriate Federal banking agency 
considers, as a factor, low-cost education loans originated by the bank 
or savings association to borrowers, particularly in its assessment 
area(s),

[[Page 7175]]

who have an individual income that is less than 50 percent of the area 
median income. For purposes of this paragraph, ``low-cost education 
loans'' means any education loan, as defined in section 140(a)(7) of 
the Truth in Lending Act (15 U.S.C. 1650(a)(7)) (including a loan under 
a State or local education loan program), originated by the bank or 
savings association for a student at an ``institution of higher 
education,'' as that term is generally defined in sections 101 and 102 
of the Higher Education Act of 1965 (20 U.S.C. 1001 and 1002) and the 
implementing regulations published by the U.S. Department of Education, 
with interest rates and fees no greater than those of comparable 
education loans offered directly by the U.S. Department of Education. 
Such rates and fees are specified in section 455 of the Higher 
Education Act of 1965 (20 U.S.C. 1087e).
    (f) Activities in cooperation with minority- or women-owned 
financial institutions and low-income credit unions. In assessing and 
taking into account the record of a nonminority-owned and nonwomen-
owned bank or savings association under this part, the appropriate 
Federal banking agency considers as a factor capital investment, loan 
participation, and other ventures undertaken by the bank or savings 
association in cooperation with minority- and women-owned financial 
institutions and low-income credit unions. Such activities must help 
meet the credit needs of local communities in which the minority- and 
women-owned financial institutions and low-income credit unions are 
chartered. To be considered, such activities need not also benefit the 
bank's or savings association's assessment area(s) or the broader 
statewide or regional area(s) that includes the bank's or savings 
association's assessment area(s).


Sec.  25.22  Lending test.

    (a) Scope of test. (1) The lending test evaluates a bank's or 
savings association's record of helping to meet the credit needs of its 
assessment area(s) through its lending activities by considering a 
bank's or savings association's home mortgage, small business, small 
farm, and community development lending. If consumer lending 
constitutes a substantial majority of a bank's or savings association's 
business, the appropriate Federal banking agency will evaluate the 
bank's or savings association's consumer lending in one or more of the 
following categories: motor vehicle, credit card, other secured, and 
other unsecured loans. In addition, at a bank's or savings 
association's option, the appropriate Federal banking agency will 
evaluate one or more categories of consumer lending, if the bank or 
savings association has collected and maintained, as required in Sec.  
25.42(c)(1), the data for each category that the bank or savings 
association elects to have the appropriate Federal banking agency 
evaluate.
    (2) The appropriate Federal banking agency considers originations 
and purchases of loans. The appropriate Federal banking agency will 
also consider any other loan data the bank or savings association may 
choose to provide, including data on loans outstanding, commitments and 
letters of credit.
    (3) A bank or savings association may ask the appropriate Federal 
banking agency to consider loans originated or purchased by consortia 
in which the bank or savings association participates or by third 
parties in which the bank or savings association has invested only if 
the loans meet the definition of community development loans and only 
in accordance with paragraph (d) of this section. The appropriate 
Federal banking agency will not consider these loans under any 
criterion of the lending test except the community development lending 
criterion.
    (b) Performance criteria. The appropriate Federal banking agency 
evaluates a bank's or savings association's lending performance 
pursuant to the following criteria:
    (1) Lending activity. The number and amount of the bank's or 
savings association's home mortgage, small business, small farm, and 
consumer loans, if applicable, in the bank's or savings association's 
assessment area(s);
    (2) Geographic distribution. The geographic distribution of the 
bank's or savings association's home mortgage, small business, small 
farm, and consumer loans, if applicable, based on the loan location, 
including:
    (i) The proportion of the bank's or savings association's lending 
in the bank's or savings association's assessment area(s);
    (ii) The dispersion of lending in the bank's or savings 
association's assessment area(s); and
    (iii) The number and amount of loans in low-, moderate-, middle-, 
and upper-income geographies in the bank's or savings association's 
assessment area(s);
    (3) Borrower characteristics. The distribution, particularly in the 
bank's or savings association's assessment area(s), of the bank's or 
savings association's home mortgage, small business, small farm, and 
consumer loans, if applicable, based on borrower characteristics, 
including the number and amount of:
    (i) Home mortgage loans to low-, moderate-, middle-, and upper-
income individuals;
    (ii) Small business and small farm loans to businesses and farms 
with gross annual revenues of $1 million or less;
    (iii) Small business and small farm loans by loan amount at 
origination; and
    (iv) Consumer loans, if applicable, to low-, moderate-, middle-, 
and upper-income individuals;
    (4) Community development lending. The bank's or savings 
association's community development lending, including the number and 
amount of community development loans, and their complexity and 
innovativeness; and
    (5) Innovative or flexible lending practices. The bank's or savings 
association's use of innovative or flexible lending practices in a safe 
and sound manner to address the credit needs of low- or moderate-income 
individuals or geographies.
    (c) Affiliate lending. (1) At a bank's or savings association's 
option, the appropriate Federal banking agency will consider loans by 
an affiliate of the bank or savings association, if the bank or savings 
association provides data on the affiliate's loans pursuant to Sec.  
25.42.
    (2) The appropriate Federal banking agency considers affiliate 
lending subject to the following constraints:
    (i) No affiliate may claim a loan origination or loan purchase if 
another institution claims the same loan origination or purchase; and
    (ii) If a bank or savings association elects to have the 
appropriate Federal banking agency consider loans within a particular 
lending category made by one or more of the bank's or savings 
association's affiliates in a particular assessment area, the bank or 
savings association shall elect to have the appropriate Federal banking 
agency consider, in accordance with paragraph (c)(1) of this section, 
all the loans within that lending category in that particular 
assessment area made by all of the bank's or savings association's 
affiliates.
    (3) The appropriate Federal banking agency does not consider 
affiliate lending in assessing a bank's or savings association's 
performance under paragraph (b)(2)(i) of this section.
    (d) Lending by a consortium or a third party. Community development 
loans originated or purchased by a consortium in which the bank or 
savings association participates or by a third party in which the bank 
or savings association has invested:
    (1) Will be considered, at the bank's or savings association's 
option, if the

[[Page 7176]]

bank or savings association reports the data pertaining to these loans 
under Sec.  25.42(b)(2); and
    (2) May be allocated among participants or investors, as they 
choose, for purposes of the lending test, except that no participant or 
investor:
    (i) May claim a loan origination or loan purchase if another 
participant or investor claims the same loan origination or purchase; 
or
    (ii) May claim loans accounting for more than its percentage share 
(based on the level of its participation or investment) of the total 
loans originated by the consortium or third party.
    (e) Lending performance rating. The appropriate Federal banking 
agency rates a bank's or savings association's lending performance as 
provided in appendix A of this part.


Sec.  25.23  Investment test.

    (a) Scope of test. The investment test evaluates a bank's or 
savings association's record of helping to meet the credit needs of its 
assessment area(s) through qualified investments that benefit its 
assessment area(s) or a broader statewide or regional area that 
includes the bank's or savings association's assessment area(s).
    (b) Exclusion. Activities considered under the lending or service 
tests may not be considered under the investment test.
    (c) Affiliate investment. At a bank's or savings association's 
option, the appropriate Federal banking agency will consider, in its 
assessment of a bank's or savings association's investment performance, 
a qualified investment made by an affiliate of the bank or savings 
association, if the qualified investment is not claimed by any other 
institution.
    (d) Disposition of branch premises. Donating, selling on favorable 
terms, or making available on a rent-free basis a branch of the bank or 
savings association that is located in a predominantly minority 
neighborhood to a minority depository institution or women's depository 
institution (as these terms are defined in 12 U.S.C. 2907(b)) will be 
considered as a qualified investment.
    (e) Performance criteria. The appropriate Federal banking agency 
evaluates the investment performance of a bank or savings association 
pursuant to the following criteria:
    (1) The dollar amount of qualified investments;
    (2) The innovativeness or complexity of qualified investments;
    (3) The responsiveness of qualified investments to credit and 
community development needs; and
    (4) The degree to which the qualified investments are not routinely 
provided by private investors.
    (f) Investment performance rating. The appropriate Federal banking 
agency rates a bank's or savings association's investment performance 
as provided in appendix A of this part.


Sec.  25.24  Service test.

    (a) Scope of test. The service test evaluates a bank's or savings 
association's record of helping to meet the credit needs of its 
assessment area(s) by analyzing both the availability and effectiveness 
of a bank's or savings association's systems for delivering retail 
banking services and the extent and innovativeness of its community 
development services.
    (b) Area(s) benefitted. Community development services must benefit 
a bank's or savings association's assessment area(s) or a broader 
statewide or regional area that includes the bank's or savings 
association's assessment area(s).
    (c) Affiliate service. At a bank's or savings association's option, 
the appropriate Federal banking agency will consider, in its assessment 
of a bank's or savings association's service performance, a community 
development service provided by an affiliate of the bank or savings 
association, if the community development service is not claimed by any 
other institution.
    (d) Performance criteria--retail banking services. The appropriate 
Federal banking agency evaluates the availability and effectiveness of 
a bank's or savings association's systems for delivering retail banking 
services, pursuant to the following criteria:
    (1) The current distribution of the bank's or savings association's 
branches among low-, moderate-, middle-, and upper-income geographies;
    (2) In the context of its current distribution of the bank's or 
savings association's branches, the bank's or savings association's 
record of opening and closing branches, particularly branches located 
in low- or moderate-income geographies or primarily serving low- or 
moderate-income individuals;
    (3) The availability and effectiveness of alternative systems for 
delivering retail banking services (e.g., ATMs, ATMs not owned or 
operated by or exclusively for the bank or savings association, banking 
by telephone or computer, loan production offices, and bank-at-work or 
bank-by-mail programs) in low- and moderate-income geographies and to 
low- and moderate-income individuals; and
    (4) The range of services provided in low-, moderate-, middle-, and 
upper-income geographies and the degree to which the services are 
tailored to meet the needs of those geographies.
    (e) Performance criteria--community development services. The 
appropriate Federal banking agency evaluates community development 
services pursuant to the following criteria:
    (1) The extent to which the bank or savings association provides 
community development services; and
    (2) The innovativeness and responsiveness of community development 
services.
    (f) Service performance rating. The appropriate Federal banking 
agency rates a bank's or savings association's service performance as 
provided in appendix A of this part.


Sec.  25.25  Community development test for wholesale or limited 
purpose banks and savings associations.

    (a) Scope of test. The appropriate Federal banking agency assesses 
a wholesale or limited purpose bank's or savings association's record 
of helping to meet the credit needs of its assessment area(s) under the 
community development test through its community development lending, 
qualified investments, or community development services.
    (b) Designation as a wholesale or limited purpose bank or savings 
association. In order to receive a designation as a wholesale or 
limited purpose bank or savings association, a bank or savings 
association shall file a request, in writing, with the appropriate 
Federal banking agency, at least three months prior to the proposed 
effective date of the designation. If the appropriate Federal banking 
agency approves the designation, it remains in effect until the bank or 
savings association requests revocation of the designation or until one 
year after the appropriate Federal banking agency notifies the bank or 
savings association that it has revoked the designation on its own 
initiative.
    (c) Performance criteria. The appropriate Federal banking agency 
evaluates the community development performance of a wholesale or 
limited purpose bank or savings association pursuant to the following 
criteria:
    (1) The number and amount of community development loans (including 
originations and purchases of loans and other community development 
loan data provided by the bank or savings association, such as data on 
loans outstanding, commitments, and letters of credit), qualified 
investments, or community development services;

[[Page 7177]]

    (2) The use of innovative or complex qualified investments, 
community development loans, or community development services and the 
extent to which the investments are not routinely provided by private 
investors; and
    (3) The bank's or savings association's responsiveness to credit 
and community development needs.
    (d) Indirect activities. At a bank's or savings association's 
option, the appropriate Federal banking agency will consider in its 
community development performance assessment:
    (1) Qualified investments or community development services 
provided by an affiliate of the bank or savings association, if the 
investments or services are not claimed by any other institution; and
    (2) Community development lending by affiliates, consortia and 
third parties, subject to the requirements and limitations in Sec.  
25.22(c) and (d).
    (e) Benefit to assessment area(s)--(1) Benefit inside assessment 
area(s). The appropriate Federal banking agency considers all qualified 
investments, community development loans, and community development 
services that benefit areas within the bank's or savings association's 
assessment area(s) or a broader statewide or regional area that 
includes the bank's or savings association's assessment area(s).
    (2) Benefit outside assessment area(s). The appropriate Federal 
banking agency considers the qualified investments, community 
development loans, and community development services that benefit 
areas outside the bank's or savings association's assessment area(s), 
if the bank or savings association has adequately addressed the needs 
of its assessment area(s).
    (f) Community development performance rating. The appropriate 
Federal banking agency rates a bank's or savings association's 
community development performance as provided in appendix A of this 
part.


Sec.  25.26  Small bank and savings association performance standards.

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


Sec.  25.27  Strategic plan.

    (a) Alternative election. The appropriate Federal banking agency 
will assess a bank's or savings association's record of helping to meet 
the credit needs of its assessment area(s) under a strategic plan if:
    (1) The bank or savings association has submitted the plan to the 
appropriate Federal banking agency as provided for in this section;
    (2) The appropriate Federal banking agency has approved the plan;
    (3) The plan is in effect; and
    (4) The bank or savings association has been operating under an 
approved plan for at least one year.
    (b) Data reporting. The appropriate Federal banking agency's 
approval of a plan does not affect the bank's or savings association's 
obligation, if any, to report data as required by Sec.  25.42.
    (c) Plans in general--(1) Term. A plan may have a term of no more 
than five years, and any multi-year plan must include annual interim 
measurable goals under which the appropriate Federal banking agency 
will evaluate the bank's or savings association's performance.
    (2) Multiple assessment areas. A bank or savings association with 
more than one assessment area may prepare a single plan for all of its 
assessment areas or one or more plans for one or more of its assessment 
areas.
    (3) Treatment of affiliates. Affiliated institutions may prepare a 
joint plan if the plan provides measurable goals for each institution. 
Activities may be allocated among institutions at the institutions' 
option, provided that the same activities are not considered for more 
than one institution.
    (d) Public participation in plan development. Before submitting a 
plan to the appropriate Federal banking agency for approval, a bank or 
savings association shall:
    (1) Informally seek suggestions from members of the public in its 
assessment area(s) covered by the plan while developing the plan;
    (2) Once the bank or savings association has developed a plan, 
formally solicit public comment on the plan for at least 30 days by 
publishing notice in at least one newspaper of general circulation in 
each assessment area covered by the plan; and
    (3) During the period of formal public comment, make copies of the 
plan available for review by the public at no cost at all offices of 
the bank or savings association in any assessment area covered by the 
plan and provide copies of the plan upon request for a reasonable fee 
to cover copying and mailing, if applicable.
    (e) Submission of plan. The bank or savings association shall 
submit its plan to the appropriate Federal banking agency at least 
three months prior to the proposed effective date of the plan. The bank 
or savings association shall also submit with its plan a description of 
its

[[Page 7178]]

informal efforts to seek suggestions from members of the public, any 
written public comment received, and, if the plan was revised in light 
of the comment received, the initial plan as released for public 
comment.
    (f) Plan content--(1) Measurable goals. (i) A bank or savings 
association shall specify in its plan measurable goals for helping to 
meet the credit needs of each assessment area covered by the plan, 
particularly the needs of low- and moderate-income geographies and low- 
and moderate-income individuals, through lending, investment, and 
services, as appropriate.
    (ii) A bank or savings association shall address in its plan all 
three performance categories and, unless the bank or savings 
association has been designated as a wholesale or limited purpose bank 
or savings association, shall emphasize lending and lending-related 
activities. Nevertheless, a different emphasis, including a focus on 
one or more performance categories, may be appropriate if responsive to 
the characteristics and credit needs of its assessment area(s), 
considering public comment and the bank's or savings association's 
capacity and constraints, product offerings, and business strategy.
    (2) Confidential information. A bank or savings association may 
submit additional information to the appropriate Federal banking agency 
on a confidential basis, but the goals stated in the plan must be 
sufficiently specific to enable the public and the appropriate Federal 
banking agency to judge the merits of the plan.
    (3) Satisfactory and outstanding goals. A bank or savings 
association shall specify in its plan measurable goals that constitute 
``satisfactory'' performance. A plan may specify measurable goals that 
constitute ``outstanding'' performance. If a bank or savings 
association submits, and the appropriate Federal banking agency 
approves, both ``satisfactory'' and ``outstanding'' performance goals, 
the appropriate Federal banking agency will consider the bank or 
savings association eligible for an ``outstanding'' performance rating.
    (4) Election if satisfactory goals not substantially met. A bank or 
savings association may elect in its plan that, if the bank or savings 
association fails to meet substantially its plan goals for a 
satisfactory rating, the appropriate Federal banking agency will 
evaluate the bank's or savings association's performance under the 
lending, investment, and service tests, the community development test, 
or the small bank or savings association performance standards, as 
appropriate.
    (g) Plan approval--(1) Timing. The appropriate Federal banking 
agency will act upon a plan within 60 calendar days after the 
appropriate Federal banking agency receives the complete plan and other 
material required under paragraph (e) of this section. If the 
appropriate Federal banking agency fails to act within this time 
period, the plan shall be deemed approved unless the appropriate 
Federal banking agency extends the review period for good cause.
    (2) Public participation. In evaluating the plan's goals, the 
appropriate Federal banking agency considers the public's involvement 
in formulating the plan, written public comment on the plan, and any 
response by the bank or savings association to public comment on the 
plan.
    (3) Criteria for evaluating plan. The appropriate Federal banking 
agency evaluates a plan's measurable goals using the following 
criteria, as appropriate:
    (i) The extent and breadth of lending or lending-related 
activities, including, as appropriate, the distribution of loans among 
different geographies, businesses and farms of different sizes, and 
individuals of different income levels, the extent of community 
development lending, and the use of innovative or flexible lending 
practices to address credit needs;
    (ii) The amount and innovativeness, complexity, and responsiveness 
of the bank's or savings association's qualified investments; and
    (iii) The availability and effectiveness of the bank's or savings 
association's systems for delivering retail banking services and the 
extent and innovativeness of the bank's or savings association's 
community development services.
    (h) Plan amendment. During the term of a plan, a bank or savings 
association may request the appropriate Federal banking agency to 
approve an amendment to the plan on grounds that there has been a 
material change in circumstances. The bank or savings association shall 
develop an amendment to a previously approved plan in accordance with 
the public participation requirements of paragraph (d) of this section.
    (i) Plan assessment. The appropriate Federal banking agency 
approves the goals and assesses performance under a plan as provided 
for in appendix A of this part.


Sec.  25.28  Assigned ratings.

    (a) Ratings in general. Subject to paragraphs (b) and (c) of this 
section, the appropriate Federal banking agency assigns to a bank or 
savings association a rating of ``outstanding,'' ``satisfactory,'' 
``needs to improve,'' or ``substantial noncompliance'' based on the 
bank's or savings association's performance under the lending, 
investment and service tests, the community development test, the small 
bank or savings association performance standards, or an approved 
strategic plan, as applicable.
    (b) Lending, investment, and service tests. The appropriate Federal 
banking agency assigns a rating for a bank or savings association 
assessed under the lending, investment, and service tests in accordance 
with the following principles:
    (1) A bank or savings association that receives an ``outstanding'' 
rating on the lending test receives an assigned rating of at least 
``satisfactory'';
    (2) A bank or savings association that receives an ``outstanding'' 
rating on both the service test and the investment test and a rating of 
at least ``high satisfactory'' on the lending test receives an assigned 
rating of ``outstanding''; and
    (3) No bank or savings association may receive an assigned rating 
of ``satisfactory'' or higher unless it receives a rating of at least 
``low satisfactory'' on the lending test.
    (c) Effect of evidence of discriminatory or other illegal credit 
practices. (1) The appropriate Federal banking agency's evaluation of a 
bank's or savings association's CRA performance is adversely affected 
by evidence of discriminatory or other illegal credit practices in any 
geography by the bank or savings association or in any assessment area 
by any affiliate whose loans have been considered as part of the bank's 
or savings association's lending performance. In connection with any 
type of lending activity described in Sec.  25.22(a), evidence of 
discriminatory or other credit practices that violate an applicable 
law, rule, or regulation includes, but is not limited to:
    (i) Discrimination against applicants on a prohibited basis in 
violation, for example, of the Equal Credit Opportunity Act or the Fair 
Housing Act;
    (ii) Violations of the Home Ownership and Equity Protection Act;
    (iii) Violations of section 5 of the Federal Trade Commission Act;
    (iv) Violations of section 8 of the Real Estate Settlement 
Procedures Act; and
    (v) Violations of the Truth in Lending Act provisions regarding a 
consumer's right of rescission.
    (2) In determining the effect of evidence of practices described in 
paragraph (c)(1) of this section on the bank's or savings association's 
assigned

[[Page 7179]]

rating, the appropriate Federal banking agency considers the nature, 
extent, and strength of the evidence of the practices; the policies and 
procedures that the bank or savings association (or affiliate, as 
applicable) has in place to prevent the practices; any corrective 
action that the bank or savings association (or affiliate, as 
applicable) has taken or has committed to take, including voluntary 
corrective action resulting from self-assessment; and any other 
relevant information.


Sec.  25.29  Effect of CRA performance on applications.

    (a) CRA performance. Among other factors, the appropriate Federal 
banking agency takes into account the record of performance under the 
CRA of each applicant bank or savings association, and for applications 
under 10(e) of the Home Owners' Loan Act (12 U.S.C. 1467a(e)), of each 
proposed subsidiary savings association, in considering an application 
for:
    (1) The establishment of:
    (i) A domestic branch for insured national banks; or
    (ii) A domestic branch or other facility that would be authorized 
to take deposits for savings associations;
    (2) The relocation of the main office or a branch;
    (3) The merger or consolidation with or the acquisition of assets 
or assumption of liabilities of an insured depository institution 
requiring approval under the Bank Merger Act (12 U.S.C. 1828(c)); and
    (4) The conversion of an insured depository institution to a 
national bank or Federal savings association charter; and
    (5) Acquisitions subject to section 10(e) of the Home Owners' Loan 
Act (12 U.S.C. 1467a(e)).
    (b) Charter application. (1) An applicant (other than an insured 
depository institution) for a national bank charter shall submit with 
its application a description of how it will meet its CRA objectives. 
The OCC takes the description into account in considering the 
application and may deny or condition approval on that basis.
    (2) An applicant for a Federal savings association charter shall 
submit with its application a description of how it will meet its CRA 
objectives. The appropriate Federal banking agency takes the 
description into account in considering the application and may deny or 
condition approval on that basis.
    (c) Interested parties. The appropriate Federal banking agency 
takes into account any views expressed by interested parties that are 
submitted in accordance with the applicable comment procedures in 
considering CRA performance in an application listed in paragraphs (a) 
and (b) of this section.
    (d) Denial or conditional approval of application. A bank's or 
savings association's record of performance may be the basis for 
denying or conditioning approval of an application listed in paragraph 
(a) of this section.
    (e) Insured depository institution. For purposes of this section, 
the term ``insured depository institution'' has the meaning given to 
that term in 12 U.S.C. 1813.

Subpart C--Records, Reporting, and Disclosure Requirements


Sec.  25.41  Assessment area delineation.

    (a) In general. A bank or savings association shall delineate one 
or more assessment areas within which the appropriate Federal banking 
agency evaluates the bank's or savings association's record of helping 
to meet the credit needs of its community. The appropriate Federal 
banking agency does not evaluate the bank's or savings association's 
delineation of its assessment area(s) as a separate performance 
criterion, but the appropriate Federal banking agency reviews the 
delineation for compliance with the requirements of this section.
    (b) Geographic area(s) for wholesale or limited purpose banks or 
savings associations. The assessment area(s) for a wholesale or limited 
purpose bank or savings association must consist generally of one or 
more MSAs or metropolitan divisions (using the MSA or metropolitan 
division boundaries that were in effect as of January 1 of the calendar 
year in which the delineation is made) or one or more contiguous 
political subdivisions, such as counties, cities, or towns, in which 
the bank or savings association has its main office, branches, and 
deposit-taking ATMs.
    (c) Geographic area(s) for other banks and savings association. The 
assessment area(s) for a bank or savings association other than a 
wholesale or limited purpose bank or savings association must:
    (1) Consist generally of one or more MSAs or metropolitan divisions 
(using the MSA or metropolitan division boundaries that were in effect 
as of January 1 of the calendar year in which the delineation is made) 
or one or more contiguous political subdivisions, such as counties, 
cities, or towns; and
    (2) Include the geographies in which the bank or savings 
association has its main office, its branches, and its deposit-taking 
ATMs, as well as the surrounding geographies in which the bank or 
savings association has originated or purchased a substantial portion 
of its loans (including home mortgage loans, small business and small 
farm loans, and any other loans the bank or savings association 
chooses, such as those consumer loans on which the bank or savings 
association elects to have its performance assessed).
    (d) Adjustments to geographic area(s). A bank or savings 
association may adjust the boundaries of its assessment area(s) to 
include only the portion of a political subdivision that it reasonably 
can be expected to serve. An adjustment is particularly appropriate in 
the case of an assessment area that otherwise would be extremely large, 
of unusual configuration, or divided by significant geographic 
barriers.
    (e) Limitations on the delineation of an assessment area. Each 
bank's or savings associations assessment area(s):
    (1) Must consist only of whole geographies;
    (2) May not reflect illegal discrimination;
    (3) May not arbitrarily exclude low- or moderate-income 
geographies, taking into account the bank's or savings association's 
size and financial condition; and
    (4) May not extend substantially beyond an MSA boundary or beyond a 
state boundary unless the assessment area is located in a multistate 
MSA. If a bank or savings association serves a geographic area that 
extends substantially beyond a state boundary, the bank or savings 
association shall delineate separate assessment areas for the areas in 
each state. If a bank or savings association serves a geographic area 
that extends substantially beyond an MSA boundary, the bank or savings 
association shall delineate separate assessment areas for the areas 
inside and outside the MSA.
    (f) Banks and savings association serving military personnel. 
Notwithstanding the requirements of this section, a bank or savings 
association whose business predominantly consists of serving the needs 
of military personnel or their dependents who are not located within a 
defined geographic area may delineate its entire deposit customer base 
as its assessment area.
    (g) Use of assessment area(s). The appropriate Federal banking 
agency uses the assessment area(s) delineated by a bank or savings 
association in its evaluation of the bank's or savings association's 
CRA performance unless the appropriate Federal banking agency 
determines that the assessment area(s)

[[Page 7180]]

do not comply with the requirements of this section.


Sec.  25.42  Data collection, reporting, and disclosure.

    (a) Loan information required to be collected and maintained. A 
bank or savings association, except a small bank or savings 
association, shall collect, and maintain in machine readable form (as 
prescribed by the appropriate Federal banking agency) until the 
completion of its next CRA examination, the following data for each 
small business or small farm loan originated or purchased by the bank 
or savings association:
    (1) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (2) The loan amount at origination;
    (3) The loan location; and
    (4) An indicator whether the loan was to a business or farm with 
gross annual revenues of $1 million or less.
    (b) Loan information required to be reported. A bank or savings 
association, except a small bank or savings association or a bank or 
savings association that was a small bank or savings association during 
the prior calendar year, shall report annually by March 1 to the 
appropriate Federal banking agency in machine readable form (as 
prescribed by the appropriate Federal banking agency) the following 
data for the prior calendar year:
    (1) Small business and small farm loan data. For each geography in 
which the bank or savings association originated or purchased a small 
business or small farm loan, the aggregate number and amount of loans:
    (i) With an amount at origination of $100,000 or less;
    (ii) With amount at origination of more than $100,000 but less than 
or equal to $250,000;
    (iii) With an amount at origination of more than $250,000; and
    (iv) To businesses and farms with gross annual revenues of $1 
million or less (using the revenues that the bank or savings 
association considered in making its credit decision);
    (2) Community development loan data. The aggregate number and 
aggregate amount of community development loans originated or 
purchased; and
    (3) Home mortgage loans. If the bank or savings association is 
subject to reporting under part 1003 of this title, the location of 
each home mortgage loan application, origination, or purchase outside 
the MSAs in which the bank or savings association has a home or branch 
office (or outside any MSA) in accordance with the requirements of part 
1003 of this title.
    (c) Optional data collection and maintenance--(1) Consumer loans. A 
bank or savings association may collect and maintain in machine 
readable form (as prescribed by the appropriate Federal banking agency) 
data for consumer loans originated or purchased by the bank or savings 
association for consideration under the lending test. A bank or savings 
association may maintain data for one or more of the following 
categories of consumer loans: Motor vehicle, credit card, other 
secured, and other unsecured. If the bank or savings association 
maintains data for loans in a certain category, it shall maintain data 
for all loans originated or purchased within that category. The bank or 
savings association shall maintain data separately for each category, 
including for each loan:
    (i) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (ii) The loan amount at origination or purchase;
    (iii) The loan location; and
    (iv) The gross annual income of the borrower that the bank or 
savings association considered in making its credit decision.
    (2) Other loan data. At its option, a bank or savings association 
may provide other information concerning its lending performance, 
including additional loan distribution data.
    (d) Data on affiliate lending. A bank or savings association that 
elects to have the appropriate Federal banking agency consider loans by 
an affiliate, for purposes of the lending or community development test 
or an approved strategic plan, shall collect, maintain, and report for 
those loans the data that the bank or savings association would have 
collected, maintained, and reported pursuant to paragraphs (a), (b), 
and (c) of this section had the loans been originated or purchased by 
the bank or savings association. For home mortgage loans, the bank or 
savings association shall also be prepared to identify the home 
mortgage loans reported under part 1003 of this title by the affiliate.
    (e) Data on lending by a consortium or a third party. A bank or 
savings association that elects to have the appropriate Federal banking 
agency consider community development loans by a consortium or third 
party, for purposes of the lending or community development tests or an 
approved strategic plan, shall report for those loans the data that the 
bank or savings association would have reported under paragraph (b)(2) 
of this section had the loans been originated or purchased by the bank 
or savings association.
    (f) Small banks and savings associations electing evaluation under 
the lending, investment, and service tests. A bank or savings 
association that qualifies for evaluation under the small bank or 
savings association performance standards but elects evaluation under 
the lending, investment, and service tests shall collect, maintain, and 
report the data required for other banks or savings association 
pursuant to paragraphs (a) and (b) of this section.
    (g) Assessment area data. A bank or savings association, except a 
small bank or savings association or a bank or savings association that 
was a small bank or savings association during the prior calendar year, 
shall collect and report to the appropriate Federal banking agency by 
March 1 of each year a list for each assessment area showing the 
geographies within the area.
    (h) CRA Disclosure Statement. The appropriate Federal banking 
agency prepares annually for each bank or savings association that 
reports data pursuant to this section a CRA Disclosure Statement that 
contains, on a state-by-state basis:
    (l) For each county (and for each assessment area smaller than a 
county) with a population of 500,000 persons or fewer in which the bank 
or savings association reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans 
reported as originated or purchased located in low-, moderate-, middle-
, and upper-income geographies;
    (ii) A list grouping each geography according to whether the 
geography is low-, moderate-, middle-, or upper-income;
    (iii) A list showing each geography in which the bank or savings 
association reported a small business or small farm loan; and
    (iv) The number and amount of small business and small farm loans 
to businesses and farms with gross annual revenues of $1 million or 
less;
    (2) For each county (and for each assessment area smaller than a 
county) with a population in excess of 500,000 persons in which the 
bank or savings association reported a small business or small farm 
loan:
    (i) The number and amount of small business and small farm loans 
reported as originated or purchased located in geographies with median 
income relative to the area median income of less than 10 percent, 10 
or more but less than 20 percent, 20 or more but less than 30 percent, 
30 or more but less than 40 percent, 40 or more but less

[[Page 7181]]

than 50 percent, 50 or more but less than 60 percent, 60 or more but 
less than 70 percent, 70 or more but less than 80 percent, 80 or more 
but less than 90 percent, 90 or more but less than 100 percent, 100 or 
more but less than 110 percent, 110 or more but less than 120 percent, 
and 120 percent or more;
    (ii) A list grouping each geography in the county or assessment 
area according to whether the median income in the geography relative 
to the area median income is less than 10 percent, 10 or more but less 
than 20 percent, 20 or more but less than 30 percent, 30 or more but 
less than 40 percent, 40 or more but less than 50 percent, 50 or more 
but less than 60 percent, 60 or more but less than 70 percent, 70 or 
more but less than 80 percent, 80 or more but less than 90 percent, 90 
or more but less than 100 percent, 100 or more but less than 110 
percent, 110 or more but less than 120 percent, and 120 percent or 
more;
    (iii) A list showing each geography in which the bank or savings 
association reported a small business or small farm loan; and
    (iv) The number and amount of small business and small farm loans 
to businesses and farms with gross annual revenues of $1 million or 
less;
    (3) The number and amount of small business and small farm loans 
located inside each assessment area reported by the bank or savings 
association and the number and amount of small business and small farm 
loans located outside the assessment area(s) reported by the bank or 
savings association; and
    (4) The number and amount of community development loans reported 
as originated or purchased.
    (i) Aggregate disclosure statements. The OCC, in conjunction with 
the Board of Governors of the Federal Reserve System and the FDIC, 
prepares annually, for each MSA or metropolitan division (including an 
MSA or metropolitan division that crosses a state boundary) and the 
nonmetropolitan portion of each state, an aggregate disclosure 
statement of small business and small farm lending by all institutions 
subject to reporting under this part or parts 228 or 345 of this title. 
These disclosure statements indicate, for each geography, the number 
and amount of all small business and small farm loans originated or 
purchased by reporting institutions, except that the appropriate 
Federal banking agency may adjust the form of the disclosure if 
necessary, because of special circumstances, to protect the privacy of 
a borrower or the competitive position of an institution.
    (j) Central data depositories. The appropriate Federal banking 
agency makes the aggregate disclosure statements, described in 
paragraph (i) of this section, and the individual bank or savings 
association CRA Disclosure Statements, described in paragraph (h) of 
this section, available to the public at central data depositories. The 
appropriate Federal banking agency publishes a list of the depositories 
at which the statements are available.


Sec.  25.43  Content and availability of public file.

    (a) Information available to the public. A bank or savings 
association shall maintain a public file that includes the following 
information:
    (1) All written comments received from the public for the current 
year and each of the prior two calendar years that specifically relate 
to the bank's or savings association's performance in helping to meet 
community credit needs, and any response to the comments by the bank or 
savings association, if neither the comments nor the responses contain 
statements that reflect adversely on the good name or reputation of any 
persons other than the bank or savings association or publication of 
which would violate specific provisions of law;
    (2) A copy of the public section of the bank's or savings 
association's most recent CRA Performance Evaluation prepared by the 
appropriate Federal banking agency. The bank or savings association 
shall place this copy in the public file within 30 business days after 
its receipt from the appropriate Federal banking agency;
    (3) A list of the bank's or savings association's branches, their 
street addresses, and geographies;
    (4) A list of branches opened or closed by the bank or savings 
association during the current year and each of the prior two calendar 
years, their street addresses, and geographies;
    (5) A list of services (including hours of operation, available 
loan and deposit products, and transaction fees) generally offered at 
the bank's or savings association's branches and descriptions of 
material differences in the availability or cost of services at 
particular branches, if any. At its option, a bank or savings 
association may include information regarding the availability of 
alternative systems for delivering retail banking services (e.g., ATMs, 
ATMs not owned or operated by or exclusively for the bank or savings 
association, banking by telephone or computer, loan production offices, 
and bank-at-work or bank-by-mail programs);
    (6) A map of each assessment area showing the boundaries of the 
area and identifying the geographies contained within the area, either 
on the map or in a separate list; and
    (7) Any other information the bank or savings association chooses.
    (b) Additional information available to the public--(1) Banks and 
savings associations other than small banks or savings associations. A 
bank or savings association, except a small bank or savings association 
or a bank or savings association that was a small bank or savings 
association during the prior calendar year, shall include in its public 
file the following information pertaining to the bank or savings 
association and its affiliates, if applicable, for each of the prior 
two calendar years:
    (i) If the bank or savings association has elected to have one or 
more categories of its consumer loans considered under the lending 
test, for each of these categories, the number and amount of loans:
    (A) To low-, moderate-, middle-, and upper-income individuals;
    (B) Located in low-, moderate-, middle-, and upper-income census 
tracts; and
    (C) Located inside the bank's or savings association's assessment 
area(s) and outside the bank's or savings association's assessment 
area(s); and
    (ii) The bank's or savings association's CRA Disclosure Statement. 
The bank or savings association shall place the statement in the public 
file within three business days of its receipt from the appropriate 
Federal banking agency.
    (2) Banks and savings associations required to report Home Mortgage 
Disclosure Act (HMDA) data. A bank or savings association required to 
report home mortgage loan data pursuant part 1003 of this title shall 
include in its public file a written notice that the institution's HMDA 
Disclosure Statement may be obtained on the Consumer Financial 
Protection Bureau's (Bureau's) website at www.consumerfinance.gov/hmda. 
In addition, a bank or savings association that elected to have the 
appropriate Federal banking agency consider the mortgage lending of an 
affiliate shall include in its public file the name of the affiliate 
and a written notice that the affiliate's HMDA Disclosure Statement may 
be obtained at the Bureau's website. The bank or savings association 
shall place the written notice(s) in the public file within three 
business days after receiving notification from the Federal Financial 
Institutions Examination Council of the availability of the disclosure 
statement(s).

[[Page 7182]]

    (3) Small banks and savings associations. A small bank or savings 
association or a bank or savings association that was a small bank or 
savings association during the prior calendar year shall include in its 
public file:
    (i) The bank's or savings association's loan-to-deposit ratio for 
each quarter of the prior calendar year and, at its option, additional 
data on its loan-to-deposit ratio; and
    (ii) The information required for other banks or savings 
associations by paragraph (b)(1) of this section, if the bank or 
savings association has elected to be evaluated under the lending, 
investment, and service tests.
    (4) Banks and savings associations with strategic plans. A bank or 
savings association that has been approved to be assessed under a 
strategic plan shall include in its public file a copy of that plan. A 
bank or savings association need not include information submitted to 
the appropriate Federal banking agency on a confidential basis in 
conjunction with the plan.
    (5) Banks and savings associations with less than satisfactory 
ratings. A bank or savings association that received a less than 
satisfactory rating during its most recent examination shall include in 
its public file a description of its current efforts to improve its 
performance in helping to meet the credit needs of its entire 
community. The bank or savings association shall update the description 
quarterly.
    (c) Location of public information. A bank or savings association 
shall make available to the public for inspection upon request and at 
no cost the information required in this section as follows:
    (1) At the main office and, if an interstate bank or savings 
association, at one branch office in each state, all information in the 
public file; and
    (2) At each branch:
    (i) A copy of the public section of the bank's or savings 
association's most recent CRA Performance Evaluation and a list of 
services provided by the branch; and
    (ii) Within five calendar days of the request, all the information 
in the public file relating to the assessment area in which the branch 
is located.
    (d) Copies. Upon request, a bank or savings association shall 
provide copies, either on paper or in another form acceptable to the 
person making the request, of the information in its public file. The 
bank or savings association may charge a reasonable fee not to exceed 
the cost of copying and mailing (if applicable).
    (e) Updating. Except as otherwise provided in this section, a bank 
or savings association shall ensure that the information required by 
this section is current as of April 1 of each year.


Sec.  25.44  Public notice by banks and savings associations.

    A bank or savings association shall provide in the public lobby of 
its main office and each of its branches the appropriate public notice 
set forth in appendix B of this part. Only a branch of a bank or 
savings association having more than one assessment area shall include 
the bracketed material in the notice for branch offices. Only an 
insured national bank that is an affiliate of a holding company shall 
include the next to the last sentence of the notices. An insured 
national bank shall include the last sentence of the notices only if it 
is an affiliate of a holding company that is not prevented by statute 
from acquiring additional banks. Only a savings association that is an 
affiliate of a holding company shall include the last two sentences of 
the notices.


Sec.  25.45  Publication of planned examination schedule.

    The appropriate Federal banking agency publishes at least 30 days 
in advance of the beginning of each calendar quarter a list of banks 
and savings associations scheduled for CRA examinations in that 
quarter.

Subpart D--Transition Provisions


Sec.  25.51  Consideration of Bank Activities.

    (a) In assessing a bank's CRA performance, the appropriate Federal 
banking agency will consider any loan, investment, or service that was 
eligible for CRA consideration at the time the bank conducted the 
activity.
    (b) Notwithstanding paragraph (a), in assessing a bank's CRA 
performance, the appropriate Federal banking agency will consider any 
loan or investment that was eligible for CRA consideration at the time 
the bank entered into a legally binding commitment to make the loan or 
investment.


Sec.  25.52  Strategic Plan Retention.

    A bank or savings association strategic plan approved by the 
appropriate Federal banking agency and in effect as of December 31, 
2021, remains in effect, except that provisions of the plan that are 
not consistent with this part in effect as of January 1, 2022, are 
void, unless amended pursuant to Sec.  25.27.

Subpart E--Prohibition Against Use of Interstate Branches Primarily 
for Deposit Production


Sec.  25.61  Purpose and scope.

    (a) Purpose. The purpose of this subpart is to implement section 
109 (12 U.S.C. 1835a) of the Riegle-Neal Interstate Banking and 
Branching Efficiency Act of 1994 (Interstate Act).
    (b) Scope. (1) This subpart applies to any national bank that has 
operated a covered interstate branch for a period of at least one year, 
and any foreign bank that has operated a covered interstate branch that 
is a Federal branch for a period of at least one year.
    (2) This subpart describes the requirements imposed under 12 U.S.C. 
1835a, which requires the appropriate Federal banking agencies (the 
OCC, the Board of Governors of the Federal Reserve System, and the 
FDIC) to prescribe uniform rules that prohibit a bank from using any 
authority to engage in interstate branching pursuant to the Interstate 
Act, or any amendment made by the Interstate Act to any other provision 
of law, primarily for the purpose of deposit production.


Sec.  25.62  Definitions.

    For purposes of this subpart, the following definitions apply:
    (a) Bank means, unless the context indicates otherwise:
    (1) A national bank; and
    (2) A foreign bank as that term is defined in 12 U.S.C. 3101(7) and 
12 CFR 28.11(i).
    (b) Covered interstate branch means:
    (1) Any branch of a national bank, and any Federal branch of a 
foreign bank, that:
    (i) Is established or acquired outside the bank's home State 
pursuant to the interstate branching authority granted by the 
Interstate Act or by any amendment made by the Interstate Act to any 
other provision of law; or
    (ii) Could not have been established or acquired outside of the 
bank's home State but for the establishment or acquisition of a branch 
described in paragraph (b)(1)(i) of this section; and
    (2) Any bank or branch of a bank controlled by an out-of-State bank 
holding company.
    (c) Federal branch means Federal branch as that term is defined in 
12 U.S.C. 3101(6) and 12 CFR 28.11(h).
    (d) Home State means:
    (1) With respect to a State bank, the State that chartered the 
bank;
    (2) With respect to a national bank, the State in which the main 
office of the bank is located;
    (3) With respect to a bank holding company, the State in which the 
total

[[Page 7183]]

deposits of all banking subsidiaries of such company are the largest on 
the later of:
    (i) July 1, 1966; or
    (ii) The date on which the company becomes a bank holding company 
under the Bank Holding Company Act;
    (4) With respect to a foreign bank:
    (i) For purposes of determining whether a U.S. branch of a foreign 
bank is a covered interstate branch, the home State of the foreign bank 
as determined in accordance with 12 U.S.C. 3103(c) and 12 CFR 28.11(n); 
and
    (ii) For purposes of determining whether a branch of a U.S. bank 
controlled by a foreign bank is a covered interstate branch, the State 
in which the total deposits of all banking subsidiaries of such foreign 
bank are the largest on the later of:
    (A) July 1, 1966; or
    (B) The date on which the foreign bank becomes a bank holding 
company under the Bank Holding Company Act.
    (e) Host State means a State in which a covered interstate branch 
is established or acquired.
    (f) Host state loan-to-deposit ratio generally means, with respect 
to a particular host state, the ratio of total loans in the host state 
relative to total deposits from the host state for all banks (including 
institutions covered under the definition of ``bank'' in 12 U.S.C. 
1813(a)(1)) that have that state as their home state, as determined and 
updated periodically by the appropriate Federal banking agencies and 
made available to the public.
    (g) Out-of-State bank holding company means, with respect to any 
State, a bank holding company whose home State is another State.
    (h) State means state as that term is defined in 12 U.S.C. 
1813(a)(3).
    (i) Statewide loan-to-deposit ratio means, with respect to a bank, 
the ratio of the bank's loans to its deposits in a state in which the 
bank has one or more covered interstate branches, as determined by the 
OCC.


Sec.  25.63  Loan-to-deposit ratio screen.

    (a) Application of screen. Beginning no earlier than one year after 
a covered interstate branch is acquired or established, the OCC will 
consider whether the bank's statewide loan-to-deposit ratio is less 
than 50 percent of the relevant host State loan-to-deposit ratio.
    (b) Results of screen. (1) If the OCC determines that the bank's 
statewide loan-to-deposit ratio is 50 percent or more of the host state 
loan-to-deposit ratio, no further consideration under this subpart is 
required.
    (2) If the OCC determines that the bank's statewide loan-to-deposit 
ratio is less than 50 percent of the host state loan-to-deposit ratio, 
or if reasonably available data are insufficient to calculate the 
bank's statewide loan-to-deposit ratio, the OCC will make a credit 
needs determination for the bank as provided in Sec.  25.64.


Sec.  25.64  Credit needs determination.

    (a) In general. The OCC will review the loan portfolio of the bank 
and determine whether the bank is reasonably helping to meet the credit 
needs of the communities in the host state that are served by the bank.
    (b) Guidelines. The OCC will use the following considerations as 
guidelines when making the determination pursuant to paragraph (a) of 
this section:
    (1) Whether covered interstate branches were formerly part of a 
failed or failing depository institution;
    (2) Whether covered interstate branches were acquired under 
circumstances where there was a low loan-to-deposit ratio because of 
the nature of the acquired institution's business or loan portfolio;
    (3) Whether covered interstate branches have a high concentration 
of commercial or credit card lending, trust services, or other 
specialized activities, including the extent to which the covered 
interstate branches accept deposits in the host state;
    (4) The CRA ratings received by the bank, if any;
    (5) Economic conditions, including the level of loan demand, within 
the communities served by the covered interstate branches;
    (6) The safe and sound operation and condition of the bank; and
    (7) The OCC's CRA regulations (subparts A through D of this part) 
and interpretations of those regulations.


Sec.  25.65  Sanctions.

    (a) In general. If the OCC determines that a bank is not reasonably 
helping to meet the credit needs of the communities served by the bank 
in the host state, and that the bank's statewide loan-to-deposit ratio 
is less than 50 percent of the host state loan-to-deposit ratio, the 
OCC:
    (1) May order that a bank's covered interstate branch or branches 
be closed unless the bank provides reasonable assurances to the 
satisfaction of the OCC, after an opportunity for public comment, that 
the bank has an acceptable plan under which the bank will reasonably 
help to meet the credit needs of the communities served by the bank in 
the host state; and
    (2) Will not permit the bank to open a new branch in the host state 
that would be considered to be a covered interstate branch unless the 
bank provides reasonable assurances to the satisfaction of the OCC, 
after an opportunity for public comment, that the bank will reasonably 
help to meet the credit needs of the community that the new branch will 
serve.
    (b) Notice prior to closure of a covered interstate branch. Before 
exercising the OCC's authority to order the bank to close a covered 
interstate branch, the OCC will issue to the bank a notice of the OCC's 
intent to order the closure and will schedule a hearing within 60 days 
of issuing the notice.
    (c) Hearing. The OCC will conduct a hearing scheduled under 
paragraph (b) of this section in accordance with the provisions of 12 
U.S.C. 1818(h) and 12 CFR part 19.

Appendix A to Part 25--Ratings

    (a) Ratings in general. (1) In assigning a rating, the appropriate 
Federal banking agency evaluates a bank's or savings association's 
performance under the applicable performance criteria in this part, in 
accordance with Sec. Sec.  25.21 and 25.28. This includes consideration 
of low-cost education loans provided to low-income borrowers and 
activities in cooperation with minority- or women-owned financial 
institutions and low-income credit unions, as well as adjustments on 
the basis of evidence of discriminatory or other illegal credit 
practices.
    (2) A bank's or savings association's performance need not fit each 
aspect of a particular rating profile in order to receive that rating, 
and exceptionally strong performance with respect to some aspects may 
compensate for weak performance in others. The bank's or savings 
association's overall performance, however, must be consistent with 
safe and sound banking practices and generally with the appropriate 
rating profile as follows.
    (b) Banks and savings associations evaluated under the lending, 
investment, and service tests--(1) Lending performance rating. The 
appropriate Federal banking agency assigns each bank's or savings 
association's lending performance one of the five following ratings.
    (i) Outstanding. The appropriate Federal banking agency rates a 
bank's or savings association's lending performance ``outstanding'' if, 
in general, it demonstrates:
    (A) Excellent responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in its 
assessment area(s);

[[Page 7184]]

    (B) A substantial majority of its loans are made in its assessment 
area(s);
    (C) An excellent geographic distribution of loans in its assessment 
area(s);
    (D) An excellent distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product 
lines offered by the bank or savings association;
    (E) An excellent record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-income 
individuals, or businesses (including farms) with gross annual revenues 
of $1 million or less, consistent with safe and sound operations;
    (F) Extensive use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
    (G) It is a leader in making community development loans.
    (ii) High satisfactory. The appropriate Federal banking agency 
rates a bank's or savings association's lending performance ``high 
satisfactory'' if, in general, it demonstrates:
    (A) Good responsiveness to credit needs in its assessment area(s), 
taking into account the number and amount of home mortgage, small 
business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) A high percentage of its loans are made in its assessment 
area(s);
    (C) A good geographic distribution of loans in its assessment 
area(s);
    (D) A good distribution, particularly in its assessment area(s), of 
loans among individuals of different income levels and businesses 
(including farms) of different sizes, given the product lines offered 
by the bank or savings association;
    (E) A good record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-income 
individuals, or businesses (including farms) with gross annual revenues 
of $1 million or less, consistent with safe and sound operations;
    (F) Use of innovative or flexible lending practices in a safe and 
sound manner to address the credit needs of low- or moderate-income 
individuals or geographies; and
    (G) It has made a relatively high level of community development 
loans.
    (iii) Low satisfactory. The appropriate Federal banking agency 
rates a bank's or savings association's lending performance ``low 
satisfactory'' if, in general, it demonstrates:
    (A) Adequate responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) An adequate percentage of its loans are made in its assessment 
area(s);
    (C) An adequate geographic distribution of loans in its assessment 
area(s);
    (D) An adequate distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product 
lines offered by the bank or savings association;
    (E) An adequate record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-income 
individuals, or businesses (including farms) with gross annual revenues 
of $1 million or less, consistent with safe and sound operations;
    (F) Limited use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
    (G) It has made an adequate level of community development loans.
    (iv) Needs to improve. The appropriate Federal banking agency rates 
a bank's or savings association's lending performance ``needs to 
improve'' if, in general, it demonstrates:
    (A) Poor responsiveness to credit needs in its assessment area(s), 
taking into account the number and amount of home mortgage, small 
business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) A small percentage of its loans are made in its assessment 
area(s);
    (C) A poor geographic distribution of loans, particularly to low- 
or moderate-income geographies, in its assessment area(s);
    (D) A poor distribution, particularly in its assessment area(s), of 
loans among individuals of different income levels and businesses 
(including farms) of different sizes, given the product lines offered 
by the bank or savings association;
    (E) A poor record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-income 
individuals, or businesses (including farms) with gross annual revenues 
of $1 million or less, consistent with safe and sound operations;
    (F) Little use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
    (G) It has made a low level of community development loans.
    (v) Substantial noncompliance. The appropriate Federal banking 
agency rates a bank's or savings association's lending performance as 
being in ``substantial noncompliance'' if, in general, it demonstrates:
    (A) A very poor responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in its 
assessment area(s);
    (B) A very small percentage of its loans are made in its assessment 
area(s);
    (C) A very poor geographic distribution of loans, particularly to 
low- or moderate-income geographies, in its assessment area(s);
    (D) A very poor distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product 
lines offered by the bank or savings association;
    (E) A very poor record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-income 
individuals, or businesses (including farms) with gross annual revenues 
of $1 million or less, consistent with safe and sound operations;
    (F) No use of innovative or flexible lending practices in a safe 
and sound manner to address the credit needs of low- or moderate-income 
individuals or geographies; and
    (G) It has made few, if any, community development loans.
    (2) Investment performance rating. The appropriate Federal banking 
agency assigns each bank's or savings association's investment 
performance one of the five following ratings.
    (i) Outstanding. The appropriate Federal banking agency rates a 
bank's or savings association's investment performance ``outstanding'' 
if, in general, it demonstrates:
    (A) An excellent level of qualified investments, particularly those 
that are not routinely provided by private investors, often in a 
leadership position;
    (B) Extensive use of innovative or complex qualified investments; 
and
    (C) Excellent responsiveness to credit and community development 
needs.
    (ii) High satisfactory. The appropriate Federal banking agency 
rates a bank's or savings association's investment performance ``high 
satisfactory'' if, in general, it demonstrates:
    (A) A significant level of qualified investments, particularly 
those that are

[[Page 7185]]

not routinely provided by private investors, occasionally in a 
leadership position;
    (B) Significant use of innovative or complex qualified investments; 
and
    (C) Good responsiveness to credit and community development needs.
    (iii) Low satisfactory. The appropriate Federal banking agency 
rates a bank's or savings association's investment performance ``low 
satisfactory'' if, in general, it demonstrates:
    (A) An adequate level of qualified investments, particularly those 
that are not routinely provided by private investors, although rarely 
in a leadership position;
    (B) Occasional use of innovative or complex qualified investments; 
and
    (C) Adequate responsiveness to credit and community development 
needs.
    (iv) Needs to improve. The appropriate Federal banking agency rates 
a bank's or savings association's investment performance ``needs to 
improve'' if, in general, it demonstrates:
    (A) A poor level of qualified investments, particularly those that 
are not routinely provided by private investors;
    (B) Rare use of innovative or complex qualified investments; and
    (C) Poor responsiveness to credit and community development needs.
    (v) Substantial noncompliance. The appropriate Federal banking 
agency rates a bank's or savings association's investment performance 
as being in ``substantial noncompliance'' if, in general, it 
demonstrates:
    (A) Few, if any, qualified investments, particularly those that are 
not routinely provided by private investors;
    (B) No use of innovative or complex qualified investments; and
    (C) Very poor responsiveness to credit and community development 
needs.
    (3) Service performance rating. The appropriate Federal banking 
agency assigns each bank's or savings association's service performance 
one of the five following ratings.
    (i) Outstanding. The appropriate Federal banking agency rates a 
bank's or savings association's service performance ``outstanding'' if, 
in general, the bank or savings association demonstrates:
    (A) Its service delivery systems are readily accessible to 
geographies and individuals of different income levels in its 
assessment area(s);
    (B) To the extent changes have been made, its record of opening and 
closing branches has improved the accessibility of its delivery 
systems, particularly in low- or moderate-income geographies or to low- 
or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) are 
tailored to the convenience and needs of its assessment area(s), 
particularly low- or moderate-income geographies or low- or moderate-
income individuals; and
    (D) It is a leader in providing community development services.
    (ii) High satisfactory. The appropriate Federal banking agency 
rates a bank's or savings association's service performance ``high 
satisfactory'' if, in general, the bank or savings association 
demonstrates:
    (A) Its service delivery systems are accessible to geographies and 
individuals of different income levels in its assessment area(s);
    (B) To the extent changes have been made, its record of opening and 
closing branches has not adversely affected the accessibility of its 
delivery systems, particularly in low- and moderate-income geographies 
and to low- and moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) do 
not vary in a way that inconveniences its assessment area(s), 
particularly low- and moderate-income geographies and low- and 
moderate-income individuals; and
    (D) It provides a relatively high level of community development 
services.
    (iii) Low satisfactory. The appropriate Federal banking agency 
rates a bank's or savings association's service performance ``low 
satisfactory'' if, in general, the bank or savings association 
demonstrates:
    (A) Its service delivery systems are reasonably accessible to 
geographies and individuals of different income levels in its 
assessment area(s);
    (B) To the extent changes have been made, its record of opening and 
closing branches has generally not adversely affected the accessibility 
of its delivery systems, particularly in low- and moderate-income 
geographies and to low- and moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) do 
not vary in a way that inconveniences its assessment area(s), 
particularly low- and moderate-income geographies and low- and 
moderate-income individuals; and
    (D) It provides an adequate level of community development 
services.
    (iv) Needs to improve. The appropriate Federal banking agency rates 
a bank's or savings association's service performance ``needs to 
improve'' if, in general, the bank or savings association demonstrates:
    (A) Its service delivery systems are unreasonably inaccessible to 
portions of its assessment area(s), particularly to low- or moderate-
income geographies or to low- or moderate-income individuals;
    (B) To the extent changes have been made, its record of opening and 
closing branches has adversely affected the accessibility its delivery 
systems, particularly in low- or moderate-income geographies or to low- 
or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) 
vary in a way that inconveniences its assessment area(s), particularly 
low- or moderate-income geographies or low- or moderate-income 
individuals; and
    (D) It provides a limited level of community development services.
    (v) Substantial noncompliance. The appropriate Federal banking 
agency rates a bank's or savings association's service performance as 
being in ``substantial noncompliance'' if, in general, the bank or 
savings association demonstrates:
    (A) Its service delivery systems are unreasonably inaccessible to 
significant portions of its assessment area(s), particularly to low- or 
moderate-income geographies or to low- or moderate-income individuals;
    (B) To the extent changes have been made, its record of opening and 
closing branches has significantly adversely affected the accessibility 
of its delivery systems, particularly in low- or moderate-income 
geographies or to low- or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) 
vary in a way that significantly inconveniences its assessment area(s), 
particularly low- or moderate-income geographies or low- or moderate-
income individuals; and
    (D) It provides few, if any, community development services.
    (c) Wholesale or limited purpose banks. The appropriate Federal 
banking agency assigns each wholesale or limited purpose bank's or 
savings association's community development performance one of the four 
following ratings.
    (1) Outstanding. The appropriate Federal banking agency rates a 
wholesale or limited purpose bank's or savings association's community 
development performance ``outstanding'' if, in general, it 
demonstrates:
    (i) A high level of community development loans, community 
development services, or qualified investments, particularly 
investments that are not routinely provided by private investors;
    (ii) Extensive use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Excellent responsiveness to credit and community development 
needs in its assessment area(s).

[[Page 7186]]

    (2) Satisfactory. The appropriate Federal banking agency rates a 
wholesale or limited purpose bank's or savings association's community 
development performance ``satisfactory'' if, in general, it 
demonstrates:
    (i) An adequate level of community development loans, community 
development services, or qualified investments, particularly 
investments that are not routinely provided by private investors;
    (ii) Occasional use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Adequate responsiveness to credit and community development 
needs in its assessment area(s).
    (3) Needs to improve. The appropriate Federal banking agency rates 
a wholesale or limited purpose bank's or savings association's 
community development performance as ``needs to improve'' if, in 
general, it demonstrates:
    (i) A poor level of community development loans, community 
development services, or qualified investments, particularly 
investments that are not routinely provided by private investors;
    (ii) Rare use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Poor responsiveness to credit and community development needs 
in its assessment area(s).
    (4) Substantial noncompliance. The appropriate Federal banking 
agency rates a wholesale or limited purpose bank's or savings 
association's community development performance in ``substantial 
noncompliance'' if, in general, it demonstrates:
    (i) Few, if any, community development loans, community development 
services, or qualified investments, particularly investments that are 
not routinely provided by private investors;
    (ii) No use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Very poor responsiveness to credit and community development 
needs in its assessment area(s).
    (d) Banks and savings associations evaluated under the small bank 
and savings association performance standards--(1) Lending test 
ratings. (i) Eligibility for a satisfactory lending test rating. The 
appropriate Federal banking agency rates a small bank's or savings 
association's lending performance ``satisfactory'' if, in general, the 
bank or savings association demonstrates:
    (A) A reasonable loan-to-deposit ratio (considering seasonal 
variations) given the bank's or savings association's size, financial 
condition, the credit needs of its assessment area(s), and taking into 
account, as appropriate, other lending-related activities such as loan 
originations for sale to the secondary markets and community 
development loans and qualified investments;
    (B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
    (C) A distribution of loans to and, as appropriate, other lending-
related activities for individuals of different income levels 
(including low- and moderate-income individuals) and businesses and 
farms of different sizes that is reasonable given the demographics of 
the bank's or savings association's assessment area(s);
    (D) A record of taking appropriate action, when warranted, in 
response to written complaints, if any, about the bank's or savings 
association's performance in helping to meet the credit needs of its 
assessment area(s); and
    (E) A reasonable geographic distribution of loans given the bank's 
or savings association's assessment area(s).
    (ii) Eligibility for an ``outstanding'' lending test rating. A 
small bank or savings association that meets each of the standards for 
a ``satisfactory'' rating under this paragraph and exceeds some or all 
of those standards may warrant consideration for a lending test rating 
of ``outstanding.''
    (iii) Needs to improve or substantial noncompliance ratings. A 
small bank or savings association may also receive a lending test 
rating of ``needs to improve'' or ``substantial noncompliance'' 
depending on the degree to which its performance has failed to meet the 
standard for a ``satisfactory'' rating.
    (2) Community development test ratings for intermediate small banks 
and savings associations--(i) Eligibility for a satisfactory community 
development test rating. The appropriate Federal banking agency rates 
an intermediate small bank's or savings association's community 
development performance ``satisfactory'' if the bank or savings 
association demonstrates adequate responsiveness to the community 
development needs of its assessment area(s) through community 
development loans, qualified investments, and community development 
services. The adequacy of the bank's or savings association's response 
will depend on its capacity for such community development activities, 
its assessment area's need for such community development activities, 
and the availability of such opportunities for community development in 
the bank's or savings association's assessment area(s).
    (ii) Eligibility for an outstanding community development test 
rating. The appropriate Federal banking agency rates an intermediate 
small bank's or savings association's community development performance 
``outstanding'' if the bank or savings association demonstrates 
excellent responsiveness to community development needs in its 
assessment area(s) through community development loans, qualified 
investments, and community development services, as appropriate, 
considering the bank's or savings association's capacity and the need 
and availability of such opportunities for community development in the 
bank's or savings association's assessment area(s).
    (iii) Needs to improve or substantial noncompliance ratings. An 
intermediate small bank or savings association may also receive a 
community development test rating of ``needs to improve'' or 
``substantial noncompliance'' depending on the degree to which its 
performance has failed to meet the standards for a ``satisfactory'' 
rating.
    (3) Overall rating--(i) Eligibility for a satisfactory overall 
rating. No intermediate small bank or savings association may receive 
an assigned overall rating of ``satisfactory'' unless it receives a 
rating of at least ``satisfactory'' on both the lending test and the 
community development test.
    (ii) Eligibility for an outstanding overall rating. (A) An 
intermediate small bank or savings association that receives an 
``outstanding'' rating on one test and at least ``satisfactory'' on the 
other test may receive an assigned overall rating of ``outstanding.''
    (B) A small bank or savings association that is not an intermediate 
small bank or savings association that meets each of the standards for 
a ``satisfactory'' rating under the lending test and exceeds some or 
all of those standards may warrant consideration for an overall rating 
of ``outstanding.'' In assessing whether a bank's or savings 
association's performance is ``outstanding,'' the appropriate Federal 
banking agency considers the extent to which the bank or savings 
association exceeds each of the performance standards for a 
``satisfactory'' rating and its performance in making qualified 
investments and its performance in providing branches and other 
services and delivery systems that enhance

[[Page 7187]]

credit availability in its assessment area(s).
    (iii) Needs to improve or substantial noncompliance overall 
ratings. A small bank or savings association may also receive a rating 
of ``needs to improve'' or ``substantial noncompliance'' depending on 
the degree to which its performance has failed to meet the standards 
for a ``satisfactory'' rating.
    (e) Strategic plan assessment and rating--(1) Satisfactory goals. 
The appropriate Federal banking agency approves as ``satisfactory'' 
measurable goals that adequately help to meet the credit needs of the 
bank's or savings association's assessment area(s).
    (2) Outstanding goals. If the plan identifies a separate group of 
measurable goals that substantially exceed the levels approved as 
``satisfactory,'' the appropriate Federal banking agency will approve 
those goals as ``outstanding.''
    (3) Rating. The appropriate Federal banking agency assesses the 
performance of a bank or savings association operating under an 
approved plan to determine if the bank or savings association has met 
its plan goals:
    (i) If the bank or savings association substantially achieves its 
plan goals for a satisfactory rating, the appropriate Federal banking 
agency will rate the bank's or savings association's performance under 
the plan as ``satisfactory.''
    (ii) If the bank or savings association exceeds its plan goals for 
a satisfactory rating and substantially achieves its plan goals for an 
outstanding rating, the appropriate Federal banking agency will rate 
the bank's or savings association's performance under the plan as 
``outstanding.''
    (iii) If the bank or savings association fails to meet 
substantially its plan goals for a satisfactory rating, the appropriate 
Federal banking agency will rate the bank or savings association as 
either ``needs to improve'' or ``substantial noncompliance,'' depending 
on the extent to which it falls short of its plan goals, unless the 
bank or savings association elected in its plan to be rated otherwise, 
as provided in Sec.  25.27(f)(4).

Appendix B to Part 25--CRA Notice

    (a) Notice for main offices and, if an interstate bank and savings 
association, one branch office in each state.

Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the [Office of 
the Comptroller of the Currency (OCC) or Federal Deposit Insurance 
Corporation (FDIC), as appropriate] evaluates our record of helping to 
meet the credit needs of this community consistent with safe and sound 
operations. The [OCC or FDIC, as appropriate] also takes this record 
into account when deciding on certain applications submitted by us.

Your Involvement is Encouraged

    You are entitled to certain information about our operations and 
our performance under the CRA, including, for example, information 
about our branches, such as their location and services provided at 
them; the public section of our most recent CRA Performance Evaluation, 
prepared by the [OCC or FDIC, as appropriate]; and comments received 
from the public relating to our performance in helping to meet 
community credit needs, as well as our responses to those comments. You 
may review this information today.
    At least 30 days before the beginning of each quarter, the [OCC or 
FDIC, as appropriate] publishes a nationwide list of the banks and 
savings associations that are scheduled for CRA examination in that 
quarter. This list is available from the [OCC or FDIC, as appropriate], 
at [address]. You may send written comments about our performance in 
helping to meet community credit needs to [name and address of official 
at bank or savings association] and to the [OCC or FDIC, as 
appropriate], at [address]. Your letter, together with any response by 
us, will be considered by the [OCC or FDIC, as appropriate] in 
evaluating our CRA performance and may be made public.
    You may ask to look at any comments received by the [OCC or FDIC, 
as appropriate]. You may also request from the [OCC or FDIC, as 
appropriate] an announcement of our applications covered by the CRA 
filed with the [OCC or FDIC, as appropriate]. We are an affiliate of 
[name of holding company], a [bank holding company or savings and loan 
holding company, as appropriate]. You may request from the [title of 
responsible official], Federal Reserve Bank of [__] [address] an 
announcement of applications covered by the CRA filed by [bank holding 
companies or savings and loan holding companies, as appropriate].
    (b) Notice for branch offices.

Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the 
[Comptroller of the Currency (OCC) and Federal Deposit Insurance 
Corporation (FDIC), as appropriate] evaluates our record of helping to 
meet the credit needs of this community consistent with safe and sound 
operations. The [OCC or FDIC, as appropriate] also takes this record 
into account when deciding on certain applications submitted by us.

Your Involvement is Encouraged

    You are entitled to certain information about our operations and 
our performance under the CRA. You may review today the public section 
of our most recent CRA evaluation, prepared by the [OCC or FDIC, as 
appropriate], and a list of services provided at this branch. You may 
also have access to the following additional information, which we will 
make available to you at this branch within five calendar days after 
you make a request to us: (1) A map showing the assessment area 
containing this branch, which is the area in which the [OCC or FDIC, as 
appropriate] evaluates our CRA performance in this community; (2) 
information about our branches in this assessment area; (3) a list of 
services we provide at those locations; (4) data on our lending 
performance in this assessment area; and (5) copies of all written 
comments received by us that specifically relate to our CRA performance 
in this assessment area, and any responses we have made to those 
comments. If we are operating under an approved strategic plan, you may 
also have access to a copy of the plan.
    [If you would like to review information about our CRA performance 
in other communities served by us, the public file for our entire [bank 
or savings association, as appropriate] is available at [name of office 
located in state], located at [address].]
    At least 30 days before the beginning of each quarter, the [OCC or 
FDIC, as appropriate] publishes a nationwide list of the banks and 
savings associations that are scheduled for CRA examination in that 
quarter. This list is available from the [OCC or FDIC, as appropriate] 
at [address]. You may send written comments about our performance in 
helping to meet community credit needs to [name and address of official 
at bank or savings association, as appropriate] and to the [OCC or 
FDIC, as appropriate] at [address]. Your letter, together with any 
response by us, will be considered by the [OCC or FDIC, as appropriate] 
in evaluating our CRA performance and may be made public.
    You may ask to look at any comments received by the [OCC or FDIC, 
as appropriate]. You may also request from the [OCC or FDIC, as 
appropriate] an announcement of our applications covered by the CRA 
filed with the [OCC or FDIC, as appropriate]. We are an affiliate of 
[name of holding company],

[[Page 7188]]

a [bank holding company or savings and loan holding company, as 
appropriate]. You may request from the [title of responsible official], 
Federal Reserve Bank of [__], [address], an announcement of 
applications covered by the CRA filed by [bank holding companies or 
savings and loan holding companies, as appropriate].

FEDERAL RESERVE SYSTEM

12 CFR Chapter II

Authority and Issuance

    For the reasons discussed in the common preamble, the Board of 
Governors of the Federal Reserve System amends part 228 of chapter II 
of title 12 of the Code of Federal Regulations as follows:

PART 228--COMMUNITY REINVESTMENT (REGULATION BB)

0
30. The authority citation for part 228 continues to read as follows:

     Authority: 12 U.S.C. 321, 325, 1828(c), 1842, 1843, 1844, and 
2901 et seq.

0
31. Revise part 228 as set forth at the end of the common preamble.

0
32. Amend part 228 by:
0
a. Removing ``[Agency]'' wherever it appears and adding in its place 
``Board'';
0
b. Removing ``[Agency]'s'' wherever it appears and adding in its place 
``Board's'';
0
c. Removing ``[operations subsidiary or operating subsidiary]'' 
wherever it appears and adding in its place ``operations subsidiary'';
0
d. Removing ``[operations subsidiaries or operating subsidiaries]'' 
wherever it appears and adding in its place ``operations 
subsidiaries''; and
0
e. Removing ``[operations subsidiaries or operating subsidiaries]'' 
wherever it appears and adding in its place ``operations 
subsidiaries''.

0
33. Amend Sec.  228.11 by:
0
a. Adding paragraph (a);
0
b. In paragraph (b), removing ``Community Reinvestment Act (12 U.S.C. 
2901 et seq.) (CRA)'' and adding in its place ``CRA''; and
0
c. Adding paragraph (c).
    The additions read as follows:


Sec.  228.11  Authority, purposes, and scope.

    (a) Authority. The Board of Governors of the Federal Reserve System 
(the Board) issues this part to implement the Community Reinvestment 
Act (12 U.S.C. 2901 et seq.) (CRA). The regulations comprising this 
part are issued under the authority of the CRA and under the provisions 
of the United States Code authorizing the Federal Reserve:
    (1) To conduct examinations of State-chartered banks that are 
members of the Federal Reserve System (12 U.S.C. 325);
    (2) To conduct examinations of bank holding companies and their 
subsidiaries (12 U.S.C. 1844) and savings and loan holding companies 
and their subsidiaries (12 U.S.C. 1467a); and
    (3) To consider applications for:
    (i) Domestic branches by State member banks (12 U.S.C. 321);
    (ii) Mergers in which the resulting bank would be a State member 
bank (12 U.S.C. 1828(c));
    (iii) Formations of, acquisitions of banks by, and mergers of, bank 
holding companies (12 U.S.C. 1842);
    (iv) The acquisition of savings associations by bank holding 
companies (12 U.S.C. 1843); and
    (v) Formations of, acquisitions of savings associations by, 
conversions of, and mergers of, savings and loan holding companies (12 
U.S.C. 1467a).
* * * * *
    (c) Scope--(1) General. This part applies to all banks except as 
provided in paragraph (c)(3) of this section.
    (2) Foreign bank acquisitions. This part also applies to an 
uninsured State branch (other than a limited branch) of a foreign bank 
that results from an acquisition described in section 5(a)(8) of the 
International Banking Act of 1978 (12 U.S.C. 3103(a)(8)). The terms 
``State branch'' and ``foreign bank'' have the same meanings as given 
to those terms in section 1(b) of the International Banking Act of 1978 
(12 U.S.C. 3101 et seq.); the term ``uninsured State branch'' means a 
State branch the deposits of which are not insured by the Federal 
Deposit Insurance Corporation; the term ``limited branch'' means a 
State branch that accepts only deposits that are permissible for a 
corporation organized under section 25A of the Federal Reserve Act (12 
U.S.C. 611 et seq.).
    (3) Certain exempt banks. This part does not apply to banks that do 
not perform commercial or retail banking services by granting credit to 
the public in the ordinary course of business, other than as incident 
to their specialized operations and done on an accommodation basis. 
These banks include bankers' banks, as defined in 12 U.S.C. 24 
(Seventh), and banks that engage only in one or more of the following 
activities: providing cash management controlled disbursement services 
or serving as correspondent banks, trust companies, or clearing agents.

0
34. Amend Sec.  228.12 by:
0
a. Revising the definition of ``Affiliate''.
0
b. Adding the definition of ``Bank'' in alphabetical order.
0
c. In the definition of ``Depository institution'', removing ``12 CFR 
25.11, 228.11, and 345.11'' and adding ``Sec.  228.11 and 12 CFR 25.11 
and 345.11'' in its place.
0
d. In the definition of ``Distressed or underserved nonmetropolitan 
middle-income census tract'', removing ``Board of Governors of the 
Federal Reserve System (Board)'' and adding ``Board'' in its place;
0
e. In the definition of ``Large depository institution'', removing ``12 
CFR 228.26(a) or 345.26(a)'' and adding ``Sec.  228.26(a) or 12 CFR 
345.26(a)'' in its place.
0
f. Adding the definition of ``Operations subsidiary'' in alphabetical 
order.
    The revision and additions read as follows:


Sec.  228.12  Definitions.

* * * * *
    Affiliate means any company that controls, is controlled by, or is 
under common control with another company. The term ``control'' has the 
meaning given to that term in 12 U.S.C. 1841(a)(2), as implemented by 
the Board in 12 CFR part 225, and a company is under common control 
with another company if both companies are directly or indirectly 
controlled by the same company.
* * * * *
    Bank means a State member bank as that term is defined in section 
3(d)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1813(d)(2)), 
except as provided in Sec.  228.11(c)(3), and includes an uninsured 
State branch (other than a limited branch) of a foreign bank described 
in Sec.  228.11(c)(2).
* * * * *
    Operations subsidiary means an organization designed to serve, in 
effect, as a separately incorporated department of the bank, 
performing, at locations at which the bank is authorized to engage in 
business, functions that the bank is empowered to perform directly.
* * * * *

0
35. Delayed indefinitely, further amend Sec.  228.12 by:
0
a. Revising paragraph (3) in the definition of ``Loan location'';
0
b. Revising paragraph (2) in the definition of ``Reported loan''; and
0
c. Revising the definitions of ``Small business'', ``Small business 
loan'', ``Small farm'', and ``Small farm loan''.
    The revisions read as follows:


Sec.  228.12  Definitions.

* * * * *

[[Page 7189]]

    Loan location * * *
    (3) A small business loan or small farm loan is located in the 
census tract reported pursuant to subpart B of 12 CFR part 1002.
* * * * *
    Reported loan means * * *
    (2) A small business loan or small farm loan reported by a bank 
pursuant to subpart B of 12 CFR part 1002.
* * * * *
    Small business means a small business, other than a small farm, as 
defined in section 704B of the Equal Credit Opportunity Act (15 U.S.C. 
1691c-2) and implemented by 12 CFR 1002.106.
    Small business loan means a loan to a small business as defined in 
this section.
    Small farm means a small business, as defined in section 704B of 
the Equal Credit Opportunity Act (15 U.S.C. 1691c-2) and implemented by 
12 CFR 1002.106, and that is identified with one of the 3-digit North 
American Industry Classification System (NAICS) codes 111-115.
    Small farm loan means a loan to a small farm as defined in this 
section.
* * * * *


Sec.  228.13  [Amended]

0
36. Amend Sec.  228.13 in paragraph (k) by removing ``part 25, 228, or 
345 of this title'' and adding ``this part or 12 CFR part 25 or 345'' 
in its place.


Sec.  228.14  [Amended]

0
37. Amend Sec.  228.14 in paragraphs (b)(2)(ii) and (b)(3) by removing 
``[other Agencies]'' and adding in its place ``OCC and FDIC''.


Sec.  228.21  [Amended]

0
38. Amend Sec.  228.21 in paragraph (b)(1) by removing ``12 CFR part 
25, 228, or 345'' and adding ``this part or 12 CFR part 25 or 345'' in 
its place.


Sec.  228.22  [Amended]

0
39. Delayed indefinitely, amend Sec.  228.22 by:
0
a. In paragraphs (e)(2)(ii)(C) and (D), removing ``Businesses'' and 
adding in its place ``Small businesses''.
0
b. In paragraphs (e)(2)(ii)(E) and (F), removing ``Farms'' and adding 
in its place ``Small farms''.


Sec.  228.26  [Amended]

0
40. Amend Sec.  228.26 by:
0
a. In paragraph (f)(2)(ii)(A), removing ``12 CFR 228.26(a) or 
345.26(a)'' and ``12 CFR 25.42(b), 228.42(b), or 345.42(b)'' and adding 
``paragraph (a) of this section or 12 CFR 345.26(a)'' and ``Sec.  
228.42(b) or 12 CFR 25.42(b) or 345.42(b)'' in their places, 
respectively; and
0
b. In paragraph (f)(2)(ii)(B), removing ``12 CFR 25.42(b), 228.42(b), 
or 345.42(b)'' and adding ``Sec.  228.42(b) or 12 CFR 25.42(b) or 
345.42(b)'' in its place.

0
41. Add Sec.  228.31 to read as follows:


Sec.  228.31  Effect of CRA performance on applications.

    (a) CRA performance. Among other factors, the Board takes into 
account the record of performance under the CRA of:
    (1) Each applicant bank for the:
    (i) Establishment of a domestic branch by a State member bank; and
    (ii) Merger, consolidation, acquisition of assets, or assumption of 
liabilities requiring approval under the Bank Merger Act (12 U.S.C. 
1828(c)) if the acquiring, assuming, or resulting bank is to be a State 
member bank; and
    (2) Each insured depository institution (as defined in 12 U.S.C. 
1813) controlled by an applicant and subsidiary bank or savings 
association proposed to be controlled by an applicant:
    (i) To become a bank holding company in a transaction that requires 
approval under section 3 of the Bank Holding Company Act (12 U.S.C. 
1842);
    (ii) To acquire ownership or control of shares or all or 
substantially all of the assets of a bank, to cause a bank to become a 
subsidiary of a bank holding company, or to merge or consolidate a bank 
holding company with any other bank holding company in a transaction 
that requires approval under section 3 of the Bank Holding Company Act 
(12 U.S.C. 1842);
    (iii) To own, control, or operate a savings association in a 
transaction that requires approval under section 4 of the Bank Holding 
Company Act (12 U.S.C. 1843);
    (iv) To become a savings and loan holding company in a transaction 
that requires approval under section 10 of the Home Owners' Loan Act 
(12 U.S.C. 1467a); and
    (v) To acquire ownership or control of shares or all or 
substantially all of the assets of a savings association, to cause a 
savings association to become a subsidiary of a savings and loan 
holding company, or to merge or consolidate a savings and loan holding 
company with any other savings and loan holding company in a 
transaction that requires approval under section 10 of the Home Owners' 
Loan Act (12 U.S.C. 1467a).
    (b) Interested parties. In considering CRA performance in an 
application described in paragraph (a) of this section, the Board takes 
into account any views expressed by interested parties that are 
submitted in accordance with the Board's Rules of Procedure set forth 
in 12 CFR part 262.
    (c) Denial or conditional approval of application. A bank or 
savings association's record of performance may be the basis for 
denying or conditioning approval of an application listed in paragraph 
(a) of this section.
    (d) Definitions. For purposes of paragraphs (a)(2)(i) through (iii) 
of this section, ``bank,'' ``bank holding company,'' ``subsidiary,'' 
and ``savings association'' have the same meanings given to those terms 
in section 2 of the Bank Holding Company Act (12 U.S.C. 1841). For 
purposes of paragraphs (a)(2)(iv) and (v) of this section, ``savings 
and loan holding company'' and ``subsidiary'' have the same meaning 
given to those terms in section 10 of the Home Owners' Loan Act (12 
U.S.C. 1467a).


Sec.  228.42  [Amended]

0
42. Amend Sec.  228.42 by:
0
a. In paragraph (h), removing ``12 CFR part 25, 228, or 345'' and 
adding ``this part or 12 CFR part 25 or 345'' in its place; and
0
b. In paragraph (j)(2), removing ``[Agency]'s'' and adding ``Board's'' 
in its place.

0
43. Delayed indefinitely, further amend Sec.  228.42 by:
0
a. Revising paragraph (a)(1);
0
b. Removing and reserving paragraph (b)(1); and
0
c. In paragraphs (g)(1)(i) and (g)(2)(i), removing ``small business 
loans and small farm loans reported as originated or purchased'' and 
adding in their place ``small business loans and small farm loans 
reported as originated''.
    The revision reads as follows:


Sec.  228.42  Data collection, reporting, and disclosure.

    (a) * * *
    (1) Purchases of small business loans and small farm loans data. A 
bank that opts to have the Board consider its purchases of small 
business loans and small farm loans must collect and maintain in 
electronic form, as prescribed by the Board, until the completion of 
the bank's next CRA examination in which the data are evaluated, the 
following data for each small business loan or small farm loan 
purchased by the bank during the evaluation period:
    (i) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (ii) An indicator for the loan type as reported on the bank's Call 
Report or on the bank's Report of Assets and

[[Page 7190]]

Liabilities of U.S. Branches and Agencies of Foreign Banks, as 
applicable;
    (iii) The date of the loan purchase;
    (iv) The loan amount at purchase;
    (v) The loan location, including State, county, and census tract;
    (vi) An indicator for whether the purchased loan was to a business 
or farm with gross annual revenues of $250,000 or less;
    (vii) An indicator for whether the purchased loan was to a business 
or farm with gross annual revenues greater than $250,000 but less than 
or equal to $1 million;
    (viii) An indicator for whether the purchased loan was to a 
business or farm with gross annual revenues greater than $1 million; 
and
    (ix) An indicator for whether the purchased loan was to a business 
or farm for which gross annual revenues are not known by the bank.
* * * * *


Sec.  228.43  [Amended]

0
44. Amend Sec.  228.43 in paragraph (b)(2)(i) by removing ``[operations 
subsidiaries' or operating subsidiaries']'' and adding in its place 
``operations subsidiaries'''.

0
45. Delayed indefinitely, further amend Sec.  228.43 by:
0
a. Revising the heading of paragraph (b)(2); and
0
b. Adding paragraph (b)(2)(iii).
    The revision and addition read as follows:


Sec.  228.43  Content and availability of public file.

* * * * *
    (b) * * *
    (2) Banks required to report HMDA data and small business lending 
data. * * *
    (iii) Small business lending data notice. A bank required to report 
small business loan or small farm loan data pursuant to 12 CFR part 
1002 must include in its public file a written notice that the bank's 
small business loan and small farm loan data may be obtained on the 
CFPB's website at: https://www.consumerfinance.gov/data-research/small-business-lending/.
* * * * *


Sec.  228.46  [Amended]

0
46. Amend Sec.  228.46 in paragraph (b) by removing ``[Agency contact 
information]'' and adding in its place ``Staff Group: Community 
Reinvestment Act at https://www.federalreserve.gov/apps/ContactUs/feedback.aspx, by mail to Secretary of the Board, Board of Governors of 
the Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551, or by facsimile at (202) 452-3819''.


Sec.  228.51  [Amended]

0
47. Amend Sec.  228.51 in paragraph (e) by removing ``[other Agencies' 
regulations]'' and adding in its place ``12 CFR part 25 or 345''.

Appendix A to Part 228 [Amended]

0
48. Amend appendix A by:
0
a. In paragraph I.b introductory text, removing ``12 CFR 25.42(b)(1), 
228.42(b)(1), or 345.42(b)(1) or 12 CFR part 1003'' and adding ``Sec.  
228.42(b)(1), 12 CFR 25.42(b)(1) or 345.42(b)(1), or 12 CFR part 1003'' 
in its place; and
0
b. In paragraph I.b.2, removing ``12 CFR 25.42(b)(3), 228.42(b)(3), or 
345.42(b)(3)'' and adding ``Sec.  228.42(b)(3) or 12 CFR 25.42(b)(3) or 
345.42(b)(3)'' in its place.

0
49. Delayed indefinitely, further amend appendix A by:
0
a. Adding a sentence at the end of paragraph I.a.1;
0
b. Removing ``subject to reporting pursuant to Sec.  228.42(b)(1), 12 
CFR 25.42(b)(1) or 345.42(b)(1),'' in paragraph I.b introductory text 
and adding in its place ``subject to reporting pursuant to subpart B of 
12 CFR part 1002'';
0
c. Adding a sentence at the end of paragraph III.a.1;
0
d. Revising paragraphs III.c.3.i and ii, III.c.4.i and ii, III.c.5.i 
and ii, and III.c.6.i and ii;
0
e. In paragraph III.c.8.iii, revising Example A-7;
0
f. Revising the third and fourth introductory paragraphs to section IV;
0
g. Adding a sentence at the end of paragraph IV.a.1;
0
h. Revising the introductory paragraph to IV.c.3 and paragraphs 
IV.c.3.i and ii;
0
i. Revising the introductory paragraph to IV.c.4 and paragraphs 
IV.c.4.i and ii;
0
j. Revising the introductory paragraph to IV.c.5 and paragraphs 
IV.c.5.i and ii;
0
k. Revising the introductory paragraph to IV.c.6 and paragraphs 
IV.c.6.i and ii;
0
l. In section V, in paragraph a, in table 1, revising the entries for 
``Small Business Loans'' and ``Small Farm Loans''; and
0
m. In section VII:
0
i. In paragraph a.1.ii, in table 3, revising the entries for ``Small 
Business Loans'' and ``Small Farm Loans''; and
0
ii. In paragraph a.1.iii, in table 4, revising the entries for ``Small 
Business Loans'' and ``Small Farm Loans''.
    The revisions and additions read as follows:

Appendix A to Part 228--Calculations for the Retail Lending Test

* * * * *
    I. * * *
    a. * * *
    1. * * * A bank's loan purchases that otherwise meet the 
definition of a covered credit transaction to a small business, as 
those terms are defined in 12 CFR 1002.104 and 1002.106(b), may be 
included in the numerator of the Bank Volume Metric at the bank's 
option.
* * * * *
    III. * * *
    a. * * *
    1. * * * A bank's loan purchases that otherwise meet the 
definition of a covered credit transaction to a small business, as 
provided in 12 CFR 1002.104 and 1002.106(b), may be included in the 
numerator of the Geographic Bank Metric at the bank's option.
* * * * *
    c. * * *
    3. * * *
    i. Summing, over the years in the evaluation period, the numbers 
of small businesses in low-income census tracts in the facility-
based assessment area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small businesses in the facility-based assessment area or 
retail lending assessment area.
* * * * *
    4. * * *
    i. Summing, over the years in the evaluation period, the numbers 
of small businesses in moderate-income census tracts in the 
facility-based assessment area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small businesses in the facility-based assessment area or 
retail lending assessment area.
    5. * * *
    i. Summing, over the years in the evaluation period, the numbers 
of small farms in low-income census tracts in the facility-based 
assessment area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small farms in the facility-based assessment area or 
retail lending assessment area.
* * * * *
    6. * * *
    i. Summing, over the years in the evaluation period, the numbers 
of small farms in moderate-income census tracts in the facility-
based assessment area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small farms in the facility-based assessment area or 
retail lending assessment area.
* * * * *
    8. * * *
    iii. * * *
    Example A-7: The applicable benchmark uses a three-year 
evaluation period. There were 4,000 small business establishments, 
based upon the sum of the numbers of small business establishments 
over the years in the

[[Page 7191]]

evaluation period (1,300 small business establishments in year 1, 
1,300 small business establishments in year 2, and 1,400 small 
business establishments in year 3), in a bank's facility-based 
assessment area. Of these small business establishments, 500 small 
business establishments were in low-income census tracts, based upon 
the sum of the numbers of small business establishments in low-
income census tracts over the years in the evaluation period (200 
small business establishments in year 1,150 small business in year 
2, and 150 small business establishments in year 3). The Geographic 
Community Benchmark for small business loans in low-income census 
tracts would be 500 divided by 4,000, or 0.125 (equivalently, 12.5 
percent). In addition, 1,000 small business establishments in that 
facility-based assessment area were in moderate-income census 
tracts, over the years in the evaluation period (400 small business 
establishments in year 1,300 small business establishments in year 
2, and 300 small business establishments in year 3). The Geographic 
Community Benchmark for small business loans in moderate-income 
census tracts would be 1,000 divided by 4,000, or 0.25 
(equivalently, 25 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.101

* * * * *
    IV. * * *
    For small business loans, the Board calculates these metrics and 
benchmarks for each of the following designated borrowers: (i) small 
businesses with gross annual revenues of $250,000 or less; and (ii) 
small businesses with gross annual revenues of more than $250,000 
but less than or equal to $1 million.
    For small farm loans, the Board calculates these metrics and 
benchmarks for each of the following designated borrowers: (i) small 
farms with gross annual revenues of $250,000 or less; and (ii) small 
farms with gross annual revenues of more than $250,000 but less than 
or equal to $1 million.
* * * * *
    a. * * *
    1. * * * A bank's loan purchases that otherwise meet the 
definition of a covered credit transaction to a small business, as 
provided in 12 CFR 1002.104 and 1002.106(b), may be included in the 
numerator of the Borrower Bank Metric at the bank's option.
* * * * *
    c. * * *
    3. For small business loans, the Board calculates a Borrower 
Community Benchmark for small businesses with gross annual revenues 
of $250,000 or less by:
    i. Summing, over the years in the evaluation period, the numbers 
of small businesses with gross annual revenues of $250,000 or less 
in the facility-based lending area or retail lending assessment 
area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small businesses in the facility-based lending area or 
retail lending assessment area.
* * * * *
    4. For small business loans, the Board calculates a Borrower 
Community Benchmark for small businesses with gross annual revenues 
of more than $250,000 but less than or equal to $1 million by:
    i. Summing, over the years in the evaluation period, the numbers 
of small businesses with gross annual revenues of more than $250,000 
but less than or equal to $1 million in the facility-based lending 
area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small businesses in the facility-based lending area or 
retail lending assessment area.
* * * * *
    5. For small farm loans, the Board calculates a Borrower 
Community Benchmark for small farms with gross annual revenues of 
$250,000 or less by:
    i. Summing, over the years in the evaluation period, the numbers 
of small farms with gross annual revenues of $250,000 or less in the 
facility-based lending area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small farms in the facility-based lending area or retail 
lending assessment area.
* * * * *
    6. For small farm loans, the Board calculates a Borrower 
Community Benchmark for small farms with gross annual revenues of 
more than $250,000 but less than or equal to $1 million by:
    i. Summing, over the years in the evaluation period, the numbers 
of small farms with gross annual revenues of more than $250,000 but 
less than or equal to $1 million in the facility-based lending area 
or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small farms in the facility-based lending area or retail 
lending assessment area.
* * * * *
    V. * * *
    a. * * *

   Table 1 to Appendix A--Retail Lending Test Categories of Designated
                 Census Tracts and Designated Borrowers
------------------------------------------------------------------------
                                Designated census
      Major product line              tracts             Designated
------------------------------------------------------------------------
 
                              * * * * * * *
Small Business Loans..........  Low-Income Census  Small businesses with
                                 Tracts.            Gross Annual
                                                    Revenues of $250,000
                                                    or Less.
                                Moderate-Income    Small businesses with
                                 Census Tracts.     Gross Annual
                                                    Revenues Greater
                                                    than $250,000 but
                                                    Less Than or Equal
                                                    to $1 million.
Small Farm Loans..............  Low-Income Census  Small farms with
                                 Tracts.            Gross Annual
                                                    Revenues of $250,000
                                                    or Less.
                                Moderate-Income    Small farms with
                                 Census Tracts.     Gross Annual
                                                    Revenues Greater
                                                    than $250,000 but
                                                    Less Than or Equal
                                                    to $1 million.
------------------------------------------------------------------------


[[Page 7192]]

* * * * *
    VII. * * *
    a. * * *
    1. * * *
    ii. * * *

   Table 3 to Appendix A--Retail Lending Test, Geographic Distribution
                            Average--Weights
------------------------------------------------------------------------
                                   Category of
      Major product line        designated census          Weight
                                      tracts
------------------------------------------------------------------------
 
                              * * * * * * *
Small Business Loans..........  Low-Income Census  Percentage of total
                                 Tracts.            number of small
                                                    businesses in low-
                                                    and moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in low-
                                                    income census
                                                    tracts.
                                Moderate-Income    Percentage of total
                                 Census Tracts.     number of small
                                                    businesses in low-
                                                    and moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in moderate-
                                                    income census
                                                    tracts.
Small Farm Loans..............  Low-Income Census  Percentage of total
                                 Tracts.            number of small
                                                    farms in low- and
                                                    moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in low-
                                                    income census
                                                    tracts.
                                Moderate-Income    Percentage of total
                                 Census Tracts.     number of small
                                                    farms in low- and
                                                    moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in moderate-
                                                    income census
                                                    tracts.
 
                              * * * * * * *
------------------------------------------------------------------------

* * * * *
    iii. * * *

    Table 4 to Appendix A--Retail Lending Test, Borrower Distribution
                            Average--Weights
------------------------------------------------------------------------
                                  Categories of
      Major product line            designated             Weight
                                    borrowers
------------------------------------------------------------------------
 
                              * * * * * * *
Small Business Loans..........  Small businesses   Percentage of total
                                 with gross         number of small
                                 annual revenues    businesses with
                                 of $250,000 or     gross annual
                                 less.              revenues of $250,000
                                                    or less and small
                                                    businesses with
                                                    gross annual
                                                    revenues greater
                                                    than $250,000 but
                                                    less than or equal
                                                    to $1 million in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are small
                                                    businesses with
                                                    gross annual
                                                    revenues of $250,000
                                                    or less.
                                Small businesses   Percentage of total
                                 with gross         number of small
                                 annual revenues    businesses with
                                 greater than       gross annual
                                 $250,000 and       revenues of $250,000
                                 less than or       or less and small
                                 equal to $1        businesses with
                                 million.           gross annual
                                                    revenues greater
                                                    than $250,000 but
                                                    less than or equal
                                                    to $1 million in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are small
                                                    businesses with
                                                    gross annual
                                                    revenues greater
                                                    than $250,00 but
                                                    less than or equal
                                                    to $1 million.
Small Farm Loans..............  Small farms with   Percentage of total
                                 gross annual       number of small
                                 revenues of        farms with gross
                                 $250,000 or less.  annual revenues of
                                                    $250,000 or less and
                                                    small farms with
                                                    gross annual
                                                    revenues greater
                                                    than $250,000 but
                                                    less than or equal
                                                    to $1 million in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are small farms
                                                    with gross annual
                                                    revenues of $250,000
                                                    or less.
                                Small farms with   Percentage of total
                                 gross annual       number of small
                                 revenues greater   farms with gross
                                 than $250,000      annual revenues of
                                 and less than or   $250,000 or less and
                                 equal to $1        small farms with
                                 million.           gross annual
                                                    revenues greater
                                                    than $250,000 but
                                                    less than or equal
                                                    to $1 million in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are small farms
                                                    with gross annual
                                                    revenues greater
                                                    than $250,000 but
                                                    less than or equal
                                                    to $1 million.
 
                              * * * * * * *
------------------------------------------------------------------------

* * * * *

Appendix B to Part 228 [Amended]

0
50. Amend appendix B by:
0
a. In paragraph I.a.2.i, removing ``12 CFR 25.42, 228.42, or 345.42'' 
and adding ``Sec.  228.42 or 12 CFR 25.42 or 345.42'' in its place;
0
b. In paragraphs III.b.1 and 2, removing ``12 CFR 228.26(a) or 
345.26(a)'' and ``12 CFR 25.42(b), 228.42(b), or 345.42(b)'' and adding 
``Sec.  228.26(a) or 12 CFR 345.26(a)'' and ``Sec.  228.42(b) or 12 CFR 
25.42(b) or 345.42(b)'' in their places, respectively; and
0
c. In paragraphs c.1 and 2, removing ``12 CFR 25.42(b), 228.42(b), or 
345.42(b)'' and adding ``Sec.  228.42(b) or 12 CFR 25.42(b) or 
345.42(b)'' in its place.

0
51. Add appendix F to read as follows:

Appendix F to Part 228--CRA Notice

    (a) Notice for main offices and, if an interstate bank, one 
branch office in each State.

Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the Federal 
Reserve Board (Board) evaluates our record of helping to meet the 
credit needs of this community consistent with safe and sound 
operations. The Board also takes this record into account

[[Page 7193]]

when deciding on certain applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and 
our performance under the CRA, including, for example, information 
about our branches, such as their location and services provided at 
them; the public section of our most recent CRA Performance 
Evaluation, prepared by the Federal Reserve Bank of ____(Reserve 
Bank); and comments received from the public relating to our 
performance in helping to meet community credit needs, as well as 
our responses to those comments. You may review this information 
today.
    At least 30 days before the beginning of each calendar quarter, 
the Federal Reserve System publishes a list of the banks that are 
scheduled for CRA examination by the Reserve Bank for the next two 
quarters. This list is available from (title of responsible 
official), Federal Reserve Bank of ____(address), or through the 
Board's website at https://www.federalreserve.gov.
    You may send written comments about our performance in helping 
to meet community credit needs to (name and address of official at 
bank) and (title of responsible official), Federal Reserve Bank of 
____(address), or through the Board's website at https://www.federalreserve.gov. Your letter, together with any response by 
us, will be considered by the Federal Reserve System in evaluating 
our CRA performance and may be made public.
    You may ask to look at any comments received by the Reserve 
Bank. You may also request from the Reserve Bank an announcement of 
our applications covered by the CRA filed with the Reserve Bank. [We 
are an affiliate of (name of holding company), a bank holding 
company. You may request from (title of responsible official), 
Federal Reserve Bank of ____(address) an announcement of 
applications covered by the CRA filed by bank holding companies.]
    (b) Notice for branch offices.

Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the Federal 
Reserve Board (Board) evaluates our record of helping to meet the 
credit needs of this community consistent with safe and sound 
operations. The Board also takes this record into account when 
deciding on certain applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and 
our performance under the CRA. You may review today the public 
section of our most recent CRA evaluation, prepared by the Federal 
Reserve Bank of ____(address), and a list of services provided at 
this branch. You may also have access to the following additional 
information, which we will make available to you at this branch 
within five calendar days after you make a request to us: (1) a map 
showing the assessment area containing this branch, which is the 
area in which the Board evaluates our CRA performance in this 
community; (2) information about our branches in this assessment 
area; (3) a list of services we provide at those locations; (4) data 
on our lending performance in this assessment area; and (5) copies 
of all written comments received by us that specifically relate to 
our CRA performance in this assessment area, and any responses we 
have made to those comments. If we are operating under an approved 
strategic plan, you may also have access to a copy of the plan.
    [If you would like to review information about our CRA 
performance in other communities served by us, the public file for 
our entire bank is available at (name of office located in state), 
located at (address).]
    At least 30 days before the beginning of each calendar quarter, 
the Federal Reserve System publishes a list of the banks that are 
scheduled for CRA examination by the Reserve Bank for the next two 
quarters. This list is available from (title of responsible 
official), Federal Reserve Bank of ____(address), or through the 
Board's website at https://www.federalreserve.gov.
    You may send written comments about our performance in helping 
to meet community credit needs to (name and address of official at 
bank) and (title of responsible official), Federal Reserve Bank of 
____(address), or through the Board's website at https://www.federalreserve.gov. Your letter, together with any response by 
us, will be considered by the Federal Reserve System in evaluating 
our CRA performance and may be made public.
    You may ask to look at any comments received by the Reserve 
Bank. You may also request from the Reserve Bank an announcement of 
our applications covered by the CRA filed with the Reserve Bank. [We 
are an affiliate of (name of holding company), a bank holding 
company. You may request from (title of responsible official), 
Federal Reserve Bank of ____(address) an announcement of 
applications covered by the CRA filed by bank holding companies.]

0
52. Effective April 1, 2024, through January 1, 2031, add appendix G to 
part 228 to read as follows:

Appendix G to Part 228--Community Reinvestment Act (Regulation BB)

    Note:  The content of this appendix reproduces part 228 
implementing the Community Reinvestment Act as of March 31, 2024. 
Cross-references to CFR parts (as well as to included sections, 
subparts, and appendices) in this appendix are to those provisions 
as contained within this appendix and the CFR as of March 31, 2024.

Subpart A--General


Sec.  228.11  Authority, purposes, and scope.

    (a) Authority. The Board of Governors of the Federal Reserve System 
(the Board) issues this part to implement the Community Reinvestment 
Act (12 U.S.C. 2901 et seq.) (CRA). The regulations comprising this 
part are issued under the authority of the CRA and under the provisions 
of the United States Code authorizing the Board:
    (1) To conduct examinations of State-chartered banks that are 
members of the Federal Reserve System (12 U.S.C. 325);
    (2) To conduct examinations of bank holding companies and their 
subsidiaries (12 U.S.C. 1844) and savings and loan holding companies 
and their subsidiaries (12 U.S.C. 1467a); and(3) To consider 
applications for:
    (i) Domestic branches by State member banks (12 U.S.C. 321);
    (ii) Mergers in which the resulting bank would be a State member 
bank (12 U.S.C. 1828(c));
    (iii) Formations of, acquisitions of banks by, and mergers of, bank 
holding companies (12 U.S.C. 1842);
    (iv) The acquisition of savings associations by bank holding 
companies (12 U.S.C. 1843); and
    (v) Formations of, acquisitions of savings associations by, 
conversions of, and mergers of, savings and loan holding companies (12 
U.S.C. 1467a).
    (b) Purposes. In enacting the CRA, the Congress required each 
appropriate Federal financial supervisory agency to assess an 
institution's record of helping to meet the credit needs of the local 
communities in which the institution is chartered, consistent with the 
safe and sound operation of the institution, and to take this record 
into account in the agency's evaluation of an application for a deposit 
facility by the institution. This part is intended to carry out the 
purposes of the CRA by:
    (1) Establishing the framework and criteria by which the Board 
assesses a bank's record of helping to meet the credit needs of its 
entire community, including low- and moderate-income neighborhoods, 
consistent with the safe and sound operation of the bank; and
    (2) Providing that the Board takes that record into account in 
considering certain applications.
    (c) Scope--(1) General. This part applies to all banks except as 
provided in paragraph (c)(3) of this section.
    (2) Foreign bank acquisitions. This part also applies to an 
uninsured State branch (other than a limited branch) of a foreign bank 
that results from an acquisition described in section 5(a)(8) of the 
International Banking Act of 1978 (12 U.S.C. 3103(a)(8)). The terms 
``State branch'' and ``foreign bank'' have the same meanings as in 
section 1(b) of the International Banking Act of 1978 (12 U.S.C. 3101 
et seq.); the term ``uninsured State branch'' means a State branch the 
deposits of which are not insured by the Federal Deposit Insurance 
Corporation; the term ``limited branch'' means a State branch that 
accepts only deposits that are permissible for a corporation organized 
under section 25A of the Federal Reserve Act (12 U.S.C. 611 et seq.).
    (3) Certain special purpose banks. This part does not apply to 
special

[[Page 7194]]

purpose banks that do not perform commercial or retail banking services 
by granting credit to the public in the ordinary course of business, 
other than as incident to their specialized operations. These banks 
include banker's banks, as defined in 12 U.S.C. 24(Seventh), and banks 
that engage only in one or more of the following activities: providing 
cash management controlled disbursement services or serving as 
correspondent banks, trust companies, or clearing agents.


Sec.  228.12  Definitions.

    For purposes of this part, the following definitions apply:
    (a) Affiliate means any company that controls, is controlled by, or 
is under common control with another company. The term ``control'' has 
the meaning given to that term in 12 U.S.C. 1841(a)(2), and a company 
is under common control with another company if both companies are 
directly or indirectly controlled by the same company.
    (b) Area median income means:
    (1) The median family income for the MSA, if a person or geography 
is located in an MSA, or for the metropolitan division, if a person or 
geography is located in an MSA that has been subdivided into 
metropolitan divisions; or
    (2) The statewide nonmetropolitan median family income, if a person 
or geography is located outside an MSA.
    (c) Assessment area means a geographic area delineated in 
accordance with Sec.  [thinsp]228.41.
    (d) Automated teller machine (ATM) means an automated, unstaffed 
banking facility owned or operated by, or operated exclusively for, the 
bank at which deposits are received, cash dispersed, or money lent.
    (e) Bank means a State member bank as that term is defined in 
section 3(d)(2) of the Federal Deposit Insurance Act (12 U.S.C. 
1813(d)(2)), except as provided in Sec.  [thinsp]228.11(c)(3), and 
includes an uninsured State branch (other than a limited branch) of a 
foreign bank described in Sec.  [thinsp]228.11(c)(2).
    (f) Branch means a staffed banking facility approved as a branch, 
whether shared or unshared, including, for example, a mini-branch in a 
grocery store or a branch operated in conjunction with any other local 
business or nonprofit organization.
    (g) Community development means:
    (1) Affordable housing (including multifamily rental housing) for 
low- or moderate-income individuals;
    (2) Community services targeted to low- or moderate-income 
individuals;
    (3) Activities that promote economic development by financing 
businesses or farms that meet the size eligibility standards of the 
Small Business Administration's Development Company or Small Business 
Investment Company programs (13 CFR 121.301) or have gross annual 
revenues of $1 million or less; or
    (4) Activities that revitalize or stabilize--
    (i) Low-or moderate-income geographies;
    (ii) Designated disaster areas; or
    (iii) Distressed or underserved nonmetropolitan middle-income 
geographies designated by the Board, Federal Deposit Insurance 
Corporation, and Office of the Comptroller of the Currency, based on--
    (A) Rates of poverty, unemployment, and population loss; or
    (B) Population size, density, and dispersion. Activities revitalize 
and stabilize geographies designated based on population size, density, 
and dispersion if they help to meet essential community needs, 
including needs of low- and moderate-income individuals.
    (h) Community development loan means a loan that:
    (1) Has as its primary purpose community development; and
    (2) Except in the case of a wholesale or limited purpose bank:
    (i) Has not been reported or collected by the bank or an affiliate 
for consideration in the bank's assessment as a home mortgage, small 
business, small farm, or consumer loan, unless the loan is for a 
multifamily dwelling (as defined in Sec.  [thinsp]1003.2(n) of this 
title); and
    (ii) Benefits the bank's assessment area(s) or a broader statewide 
or regional area that includes the bank's assessment area(s).
    (i) Community development service means a service that:
    (1) Has as its primary purpose community development;
    (2) Is related to the provision of financial services; and
    (3) Has not been considered in the evaluation of the bank's retail 
banking services under Sec.  [thinsp]228.24(d).
    (j) Consumer loan means a loan to one or more individuals for 
household, family, or other personal expenditures. A consumer loan does 
not include a home mortgage, small business, or small farm loan. 
Consumer loans include the following categories of loans:
    (1) Motor vehicle loan, which is a consumer loan extended for the 
purchase of and secured by a motor vehicle;
    (2) Credit card loan, which is a line of credit for household, 
family, or other personal expenditures that is accessed by a borrower's 
use of a ``credit card,'' as this term is defined in Sec.  
[thinsp]1026.2 of this chapter;
    (3) Other secured consumer loan, which is a secured consumer loan 
that is not included in one of the other categories of consumer loans; 
and
    (4) Other unsecured consumer loan, which is an unsecured consumer 
loan that is not included in one of the other categories of consumer 
loans.
    (k) Geography means a census tract delineated by the United States 
Bureau of the Census in the most recent decennial census.
    (l) Home mortgage loan means a closed-end mortgage loan or an open-
end line of credit as these terms are defined under Sec.  
[thinsp]1003.2 of this title and that is not an excluded transaction 
under Sec.  [thinsp]1003.3(c)(1) through (10) and (13) of this title.
    (m) Income level includes:
    (1) Low-income, which means an individual income that is less than 
50 percent of the area median income, or a median family income that is 
less than 50 percent, in the case of a geography.
    (2) Moderate-income, which means an individual income that is at 
least 50 percent and less than 80 percent of the area median income, or 
a median family income that is at least 50 and less than 80 percent, in 
the case of a geography.
    (3) Middle-income, which means an individual income that is at 
least 80 percent and less than 120 percent of the area median income, 
or a median family income that is at least 80 and less than 120 
percent, in the case of a geography.
    (4) Upper-income, which means an individual income that is 120 
percent or more of the area median income, or a median family income 
that is 120 percent or more, in the case of a geography.
    (n) Limited purpose bank means a bank that offers only a narrow 
product line (such as credit card or motor vehicle loans) to a regional 
or broader market and for which a designation as a limited purpose bank 
is in effect, in accordance with Sec.  [thinsp]228.25(b).
    (o) Loan location. A loan is located as follows:
    (1) A consumer loan is located in the geography where the borrower 
resides;
    (2) A home mortgage loan is located in the geography where the 
property to which the loan relates is located; and
    (3) A small business or small farm loan is located in the geography 
where the main business facility or farm is located or where the loan 
proceeds otherwise will be applied, as indicated by the borrower.
    (p) Loan production office means a staffed facility, other than a 
branch, that is open to the public and that provides lending-related 
services, such as loan information and applications.

[[Page 7195]]

    (q) Metropolitan division means a metropolitan division as defined 
by the Director of the Office of Management and Budget.
    (r) MSA means a metropolitan statistical area as defined by the 
Director of the Office of Management and Budget.
    (s) Nonmetropolitan area means any area that is not located in an 
MSA.
    (t) Qualified investment means a lawful investment, deposit, 
membership share, or grant that has as its primary purpose community 
development.
    (u) Small bank--(1) Definition. Small bank means a bank that, as of 
December 31 of either of the prior two calendar years, had assets of 
less than $1.384 billion. Intermediate small bank means a small bank 
with assets of at least $346 million as of December 31 of both of the 
prior two calendar years and less than $1.384 billion as of December 31 
of either of the prior two calendar years.
    (2) Adjustment. The dollar figures in paragraph (u)(1) of this 
section shall be adjusted annually and published by the Board, based on 
the year-to-year change in the average of the Consumer Price Index for 
Urban Wage Earners and Clerical Workers, not seasonally adjusted, for 
each twelve-month period ending in November, with rounding to the 
nearest million.
    (v) Small business loan means a loan included in ``loans to small 
businesses'' as defined in the instructions for preparation of the 
Consolidated Report of Condition and Income.
    (w) Small farm loan means a loan included in ``loans to small 
farms'' as defined in the instructions for preparation of the 
Consolidated Report of Condition and Income.
    (x) Wholesale bank means a bank that is not in the business of 
extending home mortgage, small business, small farm, or consumer loans 
to retail customers, and for which a designation as a wholesale bank is 
in effect, in accordance with Sec.  [thinsp]228.25(b).

Subpart B--Standards for Assessing Performance


Sec.  [thinsp]228.21  Performance tests, standards, and ratings, in 
general.

    (a) Performance tests and standards. The Board assesses the CRA 
performance of a bank in an examination as follows:
    (1) Lending, investment, and service tests. The Board applies the 
lending, investment, and service tests, as provided in Sec. Sec.  
[thinsp]228.22 through 228.24, in evaluating the performance of a bank, 
except as provided in paragraphs (a)(2), (a)(3), and (a)(4) of this 
section.
    (2) Community development test for wholesale or limited purpose 
banks. The Board applies the community development test for a wholesale 
or limited purpose bank, as provided in Sec.  [thinsp]228.25, except as 
provided in paragraph (a)(4) of this section.
    (3) Small bank performance standards. The Board applies the small 
bank performance standards as provided in Sec.  [thinsp]228.26 in 
evaluating the performance of a small bank or a bank that was a small 
bank during the prior calendar year, unless the bank elects to be 
assessed as provided in paragraphs (a)(1), (a)(2), or (a)(4) of this 
section. The bank may elect to be assessed as provided in paragraph 
(a)(1) of this section only if it collects and reports the data 
required for other banks under Sec.  [thinsp]228.42.
    (4) Strategic plan. The Board evaluates the performance of a bank 
under a strategic plan if the bank submits, and the Board approves, a 
strategic plan as provided in Sec.  [thinsp]228.27.
    (b) Performance context. The Board applies the tests and standards 
in paragraph (a) of this section and also considers whether to approve 
a proposed strategic plan in the context of:
    (1) Demographic data on median income levels, distribution of 
household income, nature of housing stock, housing costs, and other 
relevant data pertaining to a bank's assessment area(s);
    (2) Any information about lending, investment, and service 
opportunities in the bank's assessment area(s) maintained by the bank 
or obtained from community organizations, state, local, and tribal 
governments, economic development agencies, or other sources;
    (3) The bank's product offerings and business strategy as 
determined from data provided by the bank;
    (4) Institutional capacity and constraints, including the size and 
financial condition of the bank, the economic climate (national, 
regional, and local), 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);
    (5) The bank's past performance and the performance of similarly 
situated lenders;
    (6) The bank's public file, as described in Sec.  [thinsp]228.43, 
and any written comments about the bank's CRA performance submitted to 
the bank or the Board; and
    (7) Any other information deemed relevant by the Board.
    (c) Assigned ratings. The Board assigns to a bank one of the 
following four ratings pursuant to Sec.  [thinsp]228.28 and appendix A 
of this part: ``outstanding''; ``satisfactory''; ``needs to improve''; 
or ``substantial noncompliance'' as provided in 12 U.S.C. 2906(b)(2). 
The rating assigned by the Board reflects the bank's record of helping 
to meet the credit needs of its entire community, including low- and 
moderate-income neighborhoods, consistent with the safe and sound 
operation of the bank.
    (d) Safe and sound operations. This part and the CRA do not require 
a bank to make loans or investments or to provide services that are 
inconsistent with safe and sound operations. To the contrary, the Board 
anticipates banks can meet the standards of this part with safe and 
sound loans, investments, and services on which the banks expect to 
make a profit. Banks are permitted and encouraged to develop and apply 
flexible underwriting standards for loans that benefit low- or 
moderate-income geographies or individuals, only if consistent with 
safe and sound operations.
    (e) Low-cost education loans provided to low-income borrowers. In 
assessing and taking into account the record of a bank under this part, 
the Board considers, as a factor, low-cost education loans originated 
by the bank to borrowers, particularly in its assessment area(s), who 
have an individual income that is less than 50 percent of the area 
median income. For purposes of this paragraph, ``low-cost education 
loans'' means any education loan, as defined in section 140(a)(7) of 
the Truth in Lending Act (15 U.S.C. 1650(a)(7)) (including a loan under 
a state or local education loan program), originated by the bank for a 
student at an ``institution of higher education,'' as that term is 
generally defined in sections 101 and 102 of the Higher Education Act 
of 1965 (20 U.S.C. 1001 and 1002) and the implementing regulations 
published by the U.S. Department of Education, with interest rates and 
fees no greater than those of comparable education loans offered 
directly by the U.S. Department of Education. Such rates and fees are 
specified in section 455 of the Higher Education Act of 1965 (20 U.S.C. 
1087e).
    (f) Activities in cooperation with minority- or women-owned 
financial institutions and low-income credit unions. In assessing and 
taking into account the record of a nonminority-owned and nonwomen-
owned bank under this part, the Board considers as a factor capital 
investment, loan participation, and other ventures undertaken by the 
bank in cooperation with minority- and women-owned financial 
institutions and low-income credit unions. Such activities must help

[[Page 7196]]

meet the credit needs of local communities in which the minority- and 
women-owned financial institutions and low-income credit unions are 
chartered. To be considered, such activities need not also benefit the 
bank's assessment area(s) or the broader statewide or regional area 
that includes the bank's assessment area(s).


Sec.  228.22  Lending test.

    (a) Scope of test. (1) The lending test evaluates a bank's record 
of helping to meet the credit needs of its assessment area(s) through 
its lending activities by considering a bank's home mortgage, small 
business, small farm, and community development lending. If consumer 
lending constitutes a substantial majority of a bank's business, the 
Board will evaluate the bank's consumer lending in one or more of the 
following categories: motor vehicle, credit card, other secured, and 
other unsecured loans. In addition, at a bank's option, the Board will 
evaluate one or more categories of consumer lending, if the bank has 
collected and maintained, as required in Sec.  [thinsp]228.42(c)(1), 
the data for each category that the bank elects to have the Board 
evaluate.
    (2) The Board considers originations and purchases of loans. The 
Board will also consider any other loan data the bank may choose to 
provide, including data on loans outstanding, commitments and letters 
of credit.
    (3) A bank may ask the Board to consider loans originated or 
purchased by consortia in which the bank participates or by third 
parties in which the bank has invested only if the loans meet the 
definition of community development loans and only in accordance with 
paragraph (d) of this section. The Board will not consider these loans 
under any criterion of the lending test except the community 
development lending criterion.
    (b) Performance criteria. The Board evaluates a bank's lending 
performance pursuant to the following criteria:
    (1) Lending activity. The number and amount of the bank's home 
mortgage, small business, small farm, and consumer loans, if 
applicable, in the bank's assessment area(s);
    (2) Geographic distribution. The geographic distribution of the 
bank's home mortgage, small business, small farm, and consumer loans, 
if applicable, based on the loan location, including:
    (i) The proportion of the bank's lending in the bank's assessment 
area(s);
    (ii) The dispersion of lending in the bank's assessment area(s); 
and
    (iii) The number and amount of loans in low-, moderate-, middle-, 
and upper-income geographies in the bank's assessment area(s);
    (3) Borrower characteristics. The distribution, particularly in the 
bank's assessment area(s), of the bank's home mortgage, small business, 
small farm, and consumer loans, if applicable, based on borrower 
characteristics, including the number and amount of:
    (i) Home mortgage loans to low-, moderate-, middle-, and upper-
income individuals;
    (ii) Small business and small farm loans to businesses and farms 
with gross annual revenues of $1 million or less;
    (iii) Small business and small farm loans by loan amount at 
origination; and(iv) Consumer loans, if applicable, to low-, moderate-, 
middle-, and upper-income individuals;
    (4) Community development lending. The bank's community development 
lending, including the number and amount of community development 
loans, and their complexity and innovativeness; and
    (5) Innovative or flexible lending practices. The bank's use of 
innovative or flexible lending practices in a safe and sound manner to 
address the credit needs of low- or moderate-income individuals or 
geographies.
    (c) Affiliate lending. (1) At a bank's option, the Board will 
consider loans by an affiliate of the bank, if the bank provides data 
on the affiliate's loans pursuant to Sec.  [thinsp]228.42.
    (2) The Board considers affiliate lending subject to the following 
constraints:
    (i) No affiliate may claim a loan origination or loan purchase if 
another institution claims the same loan origination or purchase; and
    (ii) If a bank elects to have the Board consider loans within a 
particular lending category made by one or more of the bank's 
affiliates in a particular assessment area, the bank shall elect to 
have the Board consider, in accordance with paragraph (c)(1) of this 
section, all the loans within that lending category in that particular 
assessment area made by all of the bank's affiliates.
    (3) The Board does not consider affiliate lending in assessing a 
bank's performance under paragraph (b)(2)(i) of this section.
    (d) Lending by a consortium or a third party. Community development 
loans originated or purchased by a consortium in which the bank 
participates or by a third party in which the bank has invested:
    (1) Will be considered, at the bank's option, if the bank reports 
the data pertaining to these loans under Sec.  [thinsp]228.42(b)(2); 
and
    (2) May be allocated among participants or investors, as they 
choose, for purposes of the lending test, except that no participant or 
investor:
    (i) May claim a loan origination or loan purchase if another 
participant or investor claims the same loan origination or purchase; 
or
    (ii) May claim loans accounting for more than its percentage share 
(based on the level of its participation or investment) of the total 
loans originated by the consortium or third party.
    (e) Lending performance rating. The Board rates a bank's lending 
performance as provided in appendix A of this part.


Sec.  [thinsp]228.23  Investment test.

    (a) Scope of test. The investment test evaluates a bank's record of 
helping to meet the credit needs of its assessment area(s) through 
qualified investments that benefit its assessment area(s) or a broader 
statewide or regional area that includes the bank's assessment area(s).
    (b) Exclusion. Activities considered under the lending or service 
tests may not be considered under the investment test.
    (c) Affiliate investment. At a bank's option, the Board will 
consider, in its assessment of a bank's investment performance, a 
qualified investment made by an affiliate of the bank, if the qualified 
investment is not claimed by any other institution.
    (d) Disposition of branch premises. Donating, selling on favorable 
terms, or making available on a rent-free basis a branch of the bank 
that is located in a predominantly minority neighborhood to a minority 
depository institution or women's depository institution (as these 
terms are defined in 12 U.S.C. 2907(b)) will be considered as a 
qualified investment.
    (e) Performance criteria. The Board evaluates the investment 
performance of a bank pursuant to the following criteria:
    (1) The dollar amount of qualified investments;
    (2) The innovativeness or complexity of qualified investments;
    (3) The responsiveness of qualified investments to credit and 
community development needs; and
    (4) The degree to which the qualified investments are not routinely 
provided by private investors.
    (f) Investment performance rating. The Board rates a bank's 
investment performance as provided in appendix A of this part.


Sec.  [thinsp]228.24  Service test.

    (a) Scope of test. The service test evaluates a bank's record of 
helping to

[[Page 7197]]

meet the credit needs of its assessment area(s) by analyzing both the 
availability and effectiveness of a bank's systems for delivering 
retail banking services and the extent and innovativeness of its 
community development services.
    (b) Area(s) benefitted. Community development services must benefit 
a bank's assessment area(s) or a broader statewide or regional area 
that includes the bank's assessment area(s).
    (c) Affiliate service. At a bank's option, the Board will consider, 
in its assessment of a bank's service performance, a community 
development service provided by an affiliate of the bank, if the 
community development service is not claimed by any other institution.
    (d) Performance criteria--retail banking services. The Board 
evaluates the availability and effectiveness of a bank's systems for 
delivering retail banking services, pursuant to the following criteria:
    (1) The current distribution of the bank's branches among low-, 
moderate-, middle-, and upper-income geographies;
    (2) In the context of its current distribution of the bank's 
branches, the bank's record of opening and closing branches, 
particularly branches located in low- or moderate-income geographies or 
primarily serving low- or moderate-income individuals;
    (3) The availability and effectiveness of alternative systems for 
delivering retail banking services (e.g., 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) in low- and moderate-income geographies and to low- and 
moderate-income individuals; and
    (4) The range of services provided in low-, moderate-, middle-, and 
upper-income geographies and the degree to which the services are 
tailored to meet the needs of those geographies.
    (e) Performance criteria--community development services. The Board 
evaluates community development services pursuant to the following 
criteria:
    (1) The extent to which the bank provides community development 
services; and
    (2) The innovativeness and responsiveness of community development 
services.
    (f) Service performance rating. The Board rates a bank's service 
performance as provided in appendix A of this part.


Sec.  [thinsp]228.25  Community development test for wholesale or 
limited purpose banks.

    (a) Scope of test. The Board assesses a wholesale or limited 
purpose bank's record of helping to meet the credit needs of its 
assessment area(s) under the community development test through its 
community development lending, qualified investments, or community 
development services.
    (b) Designation as a wholesale or limited purpose bank. In order to 
receive a designation as a wholesale or limited purpose bank, a bank 
shall file a request, in writing, with the Board, at least three months 
prior to the proposed effective date of the designation. If the Board 
approves the designation, it remains in effect until the bank requests 
revocation of the designation or until one year after the Board 
notifies the bank that the Board has revoked the designation on its own 
initiative.
    (c) Performance criteria. The Board evaluates the community 
development performance of a wholesale or limited purpose bank pursuant 
to the following criteria:
    (1) The number and amount of community development loans (including 
originations and purchases of loans and other community development 
loan data provided by the bank, such as data on loans outstanding, 
commitments, and letters of credit), qualified investments, or 
community development services;
    (2) The use of innovative or complex qualified investments, 
community development loans, or community development services and the 
extent to which the investments are not routinely provided by private 
investors; and
    (3) The bank's responsiveness to credit and community development 
needs.
    (d) Indirect activities. At a bank's option, the Board will 
consider in its community development performance assessment:
    (1) Qualified investments or community development services 
provided by an affiliate of the bank, if the investments or services 
are not claimed by any other institution; and
    (2) Community development lending by affiliates, consortia and 
third parties, subject to the requirements and limitations in Sec.  
[thinsp]228.22(c) and (d).
    (e) Benefit to assessment area(s)--(1) Benefit inside assessment 
area(s). The Board considers all qualified investments, community 
development loans, and community development services that benefit 
areas within the bank's assessment area(s) or a broader statewide or 
regional area that includes the bank's assessment area(s).
    (2) Benefit outside assessment area(s). The Board considers the 
qualified investments, community development loans, and community 
development services that benefit areas outside the bank's assessment 
area(s), if the bank has adequately addressed the needs of its 
assessment area(s).
    (f) Community development performance rating. The Board rates a 
bank's community development performance as provided in appendix A of 
this part.


Sec.  [thinsp]228.26  Small bank performance standards.

    (a) Performance criteria--(1) Small banks that are not intermediate 
small banks. The Board evaluates the record of a small bank that is 
not, or that was not during the prior calendar year, an intermediate 
small bank, of helping to meet the credit needs of its assessment 
area(s) pursuant to the criteria set forth in paragraph (b) of this 
section.
    (2) Intermediate small banks. The Board evaluates the record of a 
small bank that is, or that was during the prior calendar year, an 
intermediate small bank, of helping to meet the credit needs of its 
assessment area(s) pursuant to the criteria set forth in paragraphs (b) 
and (c) of this section.
    (b) Lending test. A small bank's lending performance is evaluated 
pursuant to the following criteria:
    (1) The bank's loan-to-deposit ratio, adjusted for seasonal 
variation, and, as appropriate, other lending-related activities, such 
as loan originations for sale to the secondary markets, community 
development loans, or qualified investments;
    (2) The percentage of loans and, as appropriate, other lending-
related activities located in the bank's assessment area(s);
    (3) The bank's record of lending to and, as appropriate, engaging 
in other lending-related activities for borrowers of different income 
levels and businesses and farms of different sizes;
    (4) The geographic distribution of the bank's loans; and
    (5) The bank's record of taking action, if warranted, in response 
to written complaints about its performance in helping to meet credit 
needs in its assessment area(s).
    (c) Community development test. An intermediate small bank's 
community development performance also is evaluated pursuant to the 
following criteria:
    (1) The number and amount of community development loans;
    (2) The number and amount of qualified investments;

[[Page 7198]]

    (3) The extent to which the bank provides community development 
services; and
    (4) The bank's responsiveness through such activities to community 
development lending, investment, and services needs.
    (d) Small bank performance rating. The Board rates the performance 
of a bank evaluated under this section as provided in appendix A of 
this part.


Sec.  [thinsp]228.27  Strategic plan.

    (a) Alternative election. The Board will assess a bank's record of 
helping to meet the credit needs of its assessment area(s) under a 
strategic plan if:
    (1) The bank has submitted the plan to the Board as provided for in 
this section;
    (2) The Board has approved the plan;
    (3) The plan is in effect; and
    (4) The bank has been operating under an approved plan for at least 
one year.
    (b) Data reporting. The Board's approval of a plan does not affect 
the bank's obligation, if any, to report data as required by Sec.  
[thinsp]228.42.
    (c) Plans in general--(1) Term. A plan may have a term of no more 
than five years, and any multi-year plan must include annual interim 
measurable goals under which the Board will evaluate the bank's 
performance.
    (2) Multiple assessment areas. A bank with more than one assessment 
area may prepare a single plan for all of its assessment areas or one 
or more plans for one or more of its assessment areas.
    (3) Treatment of affiliates. Affiliated institutions may prepare a 
joint plan if the plan provides measurable goals for each institution. 
Activities may be allocated among institutions at the institutions' 
option, provided that the same activities are not considered for more 
than one institution.
    (d) Public participation in plan development. Before submitting a 
plan to the Board for approval, a bank shall:
    (1) Informally seek suggestions from members of the public in its 
assessment area(s) covered by the plan while developing the plan;
    (2) Once the bank has developed a plan, formally solicit public 
comment on the plan for at least 30 days by publishing notice in at 
least one newspaper of general circulation in each assessment area 
covered by the plan; and
    (3) During the period of formal public comment, make copies of the 
plan available for review by the public at no cost at all offices of 
the bank in any assessment area covered by the plan and provide copies 
of the plan upon request for a reasonable fee to cover copying and 
mailing, if applicable.
    (e) Submission of plan. The bank shall submit its plan to the Board 
at least three months prior to the proposed effective date of the plan. 
The bank shall also submit with its plan a description of its informal 
efforts to seek suggestions from members of the public, any written 
public comment received, and, if the plan was revised in light of the 
comment received, the initial plan as released for public comment.
    (f) Plan content--(1) Measurable goals. (i) A bank shall specify in 
its plan measurable goals for helping to meet the credit needs of each 
assessment area covered by the plan, particularly the needs of low- and 
moderate-income geographies and low- and moderate-income individuals, 
through lending, investment, and services, as appropriate.
    (ii) A bank shall address in its plan all three performance 
categories and, unless the bank has been designated as a wholesale or 
limited purpose bank, shall emphasize lending and lending-related 
activities. Nevertheless, a different emphasis, including a focus on 
one or more performance categories, may be appropriate if responsive to 
the characteristics and credit needs of its assessment area(s), 
considering public comment and the bank's capacity and constraints, 
product offerings, and business strategy.
    (2) Confidential information. A bank may submit additional 
information to the Board on a confidential basis, but the goals stated 
in the plan must be sufficiently specific to enable the public and the 
Board to judge the merits of the plan.
    (3) Satisfactory and outstanding goals. A bank shall specify in its 
plan measurable goals that constitute ``satisfactory'' performance. A 
plan may specify measurable goals that constitute ``outstanding'' 
performance. If a bank submits, and the Board approves, both 
``satisfactory'' and ``outstanding'' performance goals, the Board will 
consider the bank eligible for an ``outstanding'' performance rating.
    (4) Election if satisfactory goals not substantially met. A bank 
may elect in its plan that, if the bank fails to meet substantially its 
plan goals for a satisfactory rating, the Board will evaluate the 
bank's performance under the lending, investment, and service tests, 
the community development test, or the small bank performance 
standards, as appropriate.
    (g) Plan approval--(1) Timing. The Board will act upon a plan 
within 60 calendar days after the Board receives the complete plan and 
other material required under paragraph (e) of this section. If the 
Board fails to act within this time period, the plan shall be deemed 
approved unless the Board extends the review period for good cause.
    (2) Public participation. In evaluating the plan's goals, the Board 
considers the public's involvement in formulating the plan, written 
public comment on the plan, and any response by the bank to public 
comment on the plan.
    (3) Criteria for evaluating plan. The Board evaluates a plan's 
measurable goals using the following criteria, as appropriate:
    (i) The extent and breadth of lending or lending-related 
activities, including, as appropriate, the distribution of loans among 
different geographies, businesses and farms of different sizes, and 
individuals of different income levels, the extent of community 
development lending, and the use of innovative or flexible lending 
practices to address credit needs;
    (ii) The amount and innovativeness, complexity, and responsiveness 
of the bank's qualified investments; and
    (iii) The availability and effectiveness of the bank's systems for 
delivering retail banking services and the extent and innovativeness of 
the bank's community development services.
    (h) Plan amendment. During the term of a plan, a bank may request 
the Board to approve an amendment to the plan on grounds that there has 
been a material change in circumstances. The bank shall develop an 
amendment to a previously approved plan in accordance with the public 
participation requirements of paragraph (d) of this section.
    (i) Plan assessment. The Board approves the goals and assesses 
performance under a plan as provided for in appendix A of this part.


Sec.  [thinsp]228.28  Assigned ratings.

    (a) Ratings in general. Subject to paragraphs (b) and (c) of this 
section, the Board assigns to a bank a rating of ``outstanding,'' 
``satisfactory,'' ``needs to improve,'' or ``substantial 
noncompliance'' based on the bank's performance under the lending, 
investment and service tests, the community development test, the small 
bank performance standards, or an approved strategic plan, as 
applicable.
    (b) Lending, investment, and service tests. The Board assigns a 
rating for a bank assessed under the lending, investment, and service 
tests in accordance with the following principles:
    (1) A bank that receives an ``outstanding'' rating on the lending 
test receives an assigned rating of at least ``satisfactory'';

[[Page 7199]]

    (2) A bank that receives an ``outstanding'' rating on both the 
service test and the investment test and a rating of at least ``high 
satisfactory'' on the lending test receives an assigned rating of 
``outstanding''; and
    (3) No bank may receive an assigned rating of ``satisfactory'' or 
higher unless it receives a rating of at least ``low satisfactory'' on 
the lending test.
    (c) Effect of evidence of discriminatory or other illegal credit 
practices. (1) The Board's evaluation of a bank's CRA performance is 
adversely affected by evidence of discriminatory or other illegal 
credit practices in any geography by the bank or in any assessment area 
by any affiliate whose loans have been considered as part of the bank's 
lending performance. In connection with any type of lending activity 
described in Sec.  228.22(a), evidence of discriminatory or other 
credit practices that violate an applicable law, rule, or regulation 
includes, but is not limited to:
    (i) Discrimination against applicants on a prohibited basis in 
violation, for example, of the Equal Credit Opportunity Act or the Fair 
Housing Act;
    (ii) Violations of the Home Ownership and Equity Protection Act;
    (iii) Violations of section 5 of the Federal Trade Commission Act;
    (iv) Violations of section 8 of the Real Estate Settlement 
Procedures Act; and
    (v) Violations of the Truth in Lending Act provisions regarding a 
consumer's right of rescission.
    (2) In determining the effect of evidence of practices described in 
paragraph (c)(1) of this section on the bank's assigned rating, the 
Board considers 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; and any other relevant information.


Sec.  228.29  Effect of CRA performance on applications.

    (a) CRA performance. Among other factors, the Board takes into 
account the record of performance under the CRA of:
    (1) Each applicant bank for the:
    (i) Establishment of a domestic branch by a State member bank; and
    (ii) Merger, consolidation, acquisition of assets, or assumption of 
liabilities requiring approval under the Bank Merger Act (12 U.S.C. 
1828(c)) if the acquiring, assuming, or resulting bank is to be a State 
member bank; and
    (2) Each insured depository institution (as defined in 12 U.S.C. 
1813) controlled by an applicant and subsidiary bank or savings 
association proposed to be controlled by an applicant:
    (i) To become a bank holding company in a transaction that requires 
approval under section 3 of the Bank Holding Company Act (12 U.S.C. 
1842);
    (ii) To acquire ownership or control of shares or all or 
substantially all of the assets of a bank, to cause a bank to become a 
subsidiary of a bank holding company, or to merge or consolidate a bank 
holding company with any other bank holding company in a transaction 
that requires approval under section 3 of the Bank Holding Company Act 
(12 U.S.C. 1842);
    (iii) To own, control or operate a savings association in a 
transaction that requires approval under section 4 of the Bank Holding 
Company Act (12 U.S.C. 1843);
    (iv) To become a savings and loan holding company in a transaction 
that requires approval under section 10 of the Home Owners' Loan Act 
(12 U.S.C. 1467a); and
    (v) To acquire ownership or control of shares or all or 
substantially all of the assets of a savings association, to cause a 
savings association to become a subsidiary of a savings and loan 
holding company, or to merge or consolidate a savings and loan holding 
company with any other savings and loan holding company in a 
transaction that requires approval under section 10 of the Home Owners' 
Loan Act (12 U.S.C. 1467a).
    (b) Interested parties. In considering CRA performance in an 
application described in paragraph (a) of this section, the Board takes 
into account any views expressed by interested parties that are 
submitted in accordance with the Board's Rules of Procedure set forth 
in part 262 of this chapter.
    (c) Denial or conditional approval of application. A bank or 
savings association's record of performance may be the basis for 
denying or conditioning approval of an application listed in paragraph 
(a) of this section.
    (d) Definitions. For purposes of paragraphs (a)(2)(i), (ii), and 
(iii) of this section, ``bank,'' ``bank holding company,'' 
``subsidiary,'' and ``savings association'' have the meanings given to 
those terms in section 2 of the Bank Holding Company Act (12 U.S.C. 
1841). For purposes of paragraphs (a)(2)(iv) and (v) of this section, 
``savings and loan holding company'' and ``subsidiary'' has the meaning 
given to that term in section 10 of the Home Owners' Loan Act (12 
U.S.C. 1467a).

Subpart C--Records, Reporting, and Disclosure Requirements


Sec.  228.41  Assessment area delineation.

    (a) In general. A bank shall delineate one or more assessment areas 
within which the Board evaluates the bank's record of helping to meet 
the credit needs of its community. The Board does not evaluate the 
bank's delineation of its assessment area(s) as a separate performance 
criterion, but the Board reviews the delineation for compliance with 
the requirements of this section.
    (b) Geographic area(s) for wholesale or limited purpose banks. The 
assessment area(s) for a wholesale or limited purpose bank must consist 
generally of one or more MSAs or metropolitan divisions (using the MSA 
or metropolitan division boundaries that were in effect as of January 1 
of the calendar year in which the delineation is made) 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.
    (c) Geographic area(s) for other banks. The assessment area(s) for 
a bank other than a wholesale or limited purpose bank must:
    (1) Consist generally of one or more MSAs or metropolitan divisions 
(using the MSA or metropolitan division boundaries that were in effect 
as of January 1 of the calendar year in which the delineation is made) 
or one or more contiguous political subdivisions, such as counties, 
cities, or towns; and
    (2) Include the geographies in which the bank has its main office, 
its branches, and its deposit-taking ATMs, as well as the surrounding 
geographies in which the bank has originated or purchased a substantial 
portion of its loans (including home mortgage loans, small business and 
small farm loans, and any other loans the bank chooses, such as those 
consumer loans on which the bank elects to have its performance 
assessed).
    (d) Adjustments to geographic area(s). A bank may adjust the 
boundaries of its assessment area(s) to include only the portion of a 
political subdivision that it reasonably can be expected to serve. An 
adjustment is particularly appropriate in the case of an assessment 
area that otherwise would be extremely large, of unusual configuration, 
or divided by significant geographic barriers.
    (e) Limitations on the delineation of an assessment area. Each 
bank's assessment area(s):

[[Page 7200]]

    (1) Must consist only of whole geographies;
    (2) May not reflect illegal discrimination;
    (3) May not arbitrarily exclude low- or moderate-income 
geographies, taking into account the bank's size and financial 
condition; and
    (4) May not extend substantially beyond an MSA boundary or beyond a 
state boundary unless the assessment area is located in a multistate 
MSA. If a bank serves a geographic area that extends substantially 
beyond a state boundary, the bank shall delineate separate assessment 
areas for the areas in each state. If a bank serves a geographic area 
that extends substantially beyond an MSA boundary, the bank shall 
delineate separate assessment areas for the areas inside and outside 
the MSA.
    (f) Banks serving military personnel. Notwithstanding the 
requirements of this section, a bank whose business predominantly 
consists of serving the needs of military personnel or their dependents 
who are not located within a defined geographic area may delineate its 
entire deposit customer base as its assessment area.
    (g) Use of assessment area(s). The Board uses the assessment 
area(s) delineated by a bank in its evaluation of the bank's CRA 
performance unless the Board determines that the assessment area(s) do 
not comply with the requirements of this section.


Sec.  228.42  Data collection, reporting, and disclosure.

    (a) Loan information required to be collected and maintained. A 
bank, except a small bank, shall collect, and maintain in machine 
readable form (as prescribed by the Board) until the completion of its 
next CRA examination, the following data for each small business or 
small farm loan originated or purchased by the bank:
    (1) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (2) The loan amount at origination;
    (3) The loan location; and
    (4) An indicator whether the loan was to a business or farm with 
gross annual revenues of $1 million or less.
    (b) Loan information required to be reported. A bank, except a 
small bank or a bank that was a small bank during the prior calendar 
year, shall report annually by March 1 to the Board in machine readable 
form (as prescribed by the Board) the following data for the prior 
calendar year:
    (1) Small business and small farm loan data. For each geography in 
which the bank originated or purchased a small business or small farm 
loan, the aggregate number and amount of loans:
    (i) With an amount at origination of $100,000 or less;
    (ii) With amount at origination of more than $100,000 but less than 
or equal to $250,000;
    (iii) With an amount at origination of more than $250,000; and
    (iv) To businesses and farms with gross annual revenues of $1 
million or less (using the revenues that the bank considered in making 
its credit decision);
    (2) Community development loan data. The aggregate number and 
aggregate amount of community development loans originated or 
purchased; and
    (3) Home mortgage loans. If the bank is subject to reporting under 
part 1003 of this chapter, the location of each home mortgage loan 
application, origination, or purchase outside the MSAs in which the 
bank has a home or branch office (or outside any MSA) in accordance 
with the requirements of part 1003 of this chapter.
    (c) Optional data collection and maintenance--(1) Consumer loans. A 
bank may collect and maintain in machine readable form (as prescribed 
by the Board) data for consumer loans originated or purchased by the 
bank for consideration under the lending test. A bank may maintain data 
for one or more of the following categories of consumer loans: motor 
vehicle, credit card, other secured, and other unsecured. If the bank 
maintains data for loans in a certain category, it shall maintain data 
for all loans originated or purchased within that category. The bank 
shall maintain data separately for each category, including for each 
loan:
    (i) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (ii) The loan amount at origination or purchase;
    (iii) The loan location; and
    (iv) The gross annual income of the borrower that the bank 
considered in making its credit decision.
    (2) Other loan data. At its option, a bank may provide other 
information concerning its lending performance, including additional 
loan distribution data.
    (d) Data on affiliate lending. A bank that elects to have the Board 
consider loans by an affiliate, for purposes of the lending or 
community development test or an approved strategic plan, shall 
collect, maintain, and report for those loans the data that the bank 
would have collected, maintained, and reported pursuant to paragraphs 
(a), (b), and (c) of this section had the loans been originated or 
purchased by the bank. For home mortgage loans, the bank shall also be 
prepared to identify the home mortgage loans reported under part 1003 
of this chapter by the affiliate.
    (e) Data on lending by a consortium or a third party. A bank that 
elects to have the Board consider community development loans by a 
consortium or third party, for purposes of the lending or community 
development tests or an approved strategic plan, shall report for those 
loans the data that the bank would have reported under paragraph (b)(2) 
of this section had the loans been originated or purchased by the bank.
    (f) Small banks electing evaluation under the lending, investment, 
and service tests. A bank that qualifies for evaluation under the small 
bank performance standards but elects evaluation under the lending, 
investment, and service tests shall collect, maintain, and report the 
data required for other banks pursuant to paragraphs (a) and (b) of 
this section.
    (g) Assessment area data. A bank, except a small bank or a bank 
that was a small bank during the prior calendar year, shall collect and 
report to the Board by March 1 of each year a list for each assessment 
area showing the geographies within the area.
    (h) CRA Disclosure Statement. The Board prepares annually for each 
bank that reports data pursuant to this section a CRA Disclosure 
Statement that contains, on a state-by-state basis:
    (1) For each county (and for each assessment area smaller than a 
county) with a population of 500,000 persons or fewer in which the bank 
reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans 
reported as originated or purchased located in low-, moderate-, middle-
, and upper-income geographies;
    (ii) A list grouping each geography according to whether the 
geography is low-, moderate-, middle-, or upper-income;
    (iii) A list showing each geography in which the bank reported a 
small business or small farm loan; and
    (iv) The number and amount of small business and small farm loans 
to businesses and farms with gross annual revenues of $1 million or 
less;
    (2) For each county (and for each assessment area smaller than a 
county) with a population in excess of 500,000 persons in which the 
bank reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans 
reported as originated or purchased located in geographies with median 
income relative to the area median income of

[[Page 7201]]

less than 10 percent, 10 or more but less than 20 percent, 20 or more 
but less than 30 percent, 30 or more but less than 40 percent, 40 or 
more but less than 50 percent, 50 or more but less than 60 percent, 60 
or more but less than 70 percent, 70 or more but less than 80 percent, 
80 or more but less than 90 percent, 90 or more but less than 100 
percent, 100 or more but less than 110 percent, 110 or more but less 
than 120 percent, and 120 percent or more;
    (ii) A list grouping each geography in the county or assessment 
area according to whether the median income in the geography relative 
to the area median income is less than 10 percent, 10 or more but less 
than 20 percent, 20 or more but less than 30 percent, 30 or more but 
less than 40 percent, 40 or more but less than 50 percent, 50 or more 
but less than 60 percent, 60 or more but less than 70 percent, 70 or 
more but less than 80 percent, 80 or more but less than 90 percent, 90 
or more but less than 100 percent, 100 or more but less than 110 
percent, 110 or more but less than 120 percent, and 120 percent or 
more;
    (iii) A list showing each geography in which the bank reported a 
small business or small farm loan; and
    (iv) The number and amount of small business and small farm loans 
to businesses and farms with gross annual revenues of $1 million or 
less;
    (3) The number and amount of small business and small farm loans 
located inside each assessment area reported by the bank and the number 
and amount of small business and small farm loans located outside the 
assessment area(s) reported by the bank; and
    (4) The number and amount of community development loans reported 
as originated or purchased.
    (i) Aggregate disclosure statements. The Board, in conjunction with 
the Office of the Comptroller of the Currency and the Federal Deposit 
Insurance Corporation, prepares annually, for each MSA or metropolitan 
division (including an MSA or metropolitan division that crosses a 
state boundary) and the nonmetropolitan portion of each state, an 
aggregate disclosure statement of small business and small farm lending 
by all institutions subject to reporting under this part or parts 25, 
195, or 345 of this title. These disclosure statements indicate, for 
each geography, the number and amount of all small business and small 
farm loans originated or purchased by reporting institutions, except 
that the Board may adjust the form of the disclosure if necessary, 
because of special circumstances, to protect the privacy of a borrower 
or the competitive position of an institution.
    (j) Central data depositories. The Board makes the aggregate 
disclosure statements, described in paragraph (i) of this section, and 
the individual bank CRA Disclosure Statements, described in paragraph 
(h) of this section, available to the public at central data 
depositories. The Board publishes a list of the depositories at which 
the statements are available.


Sec.  228.43  Content and availability of public file.

    (a) Information available to the public. A bank shall maintain a 
public file that includes the following information:
    (1) All written comments received from the public for the current 
year and each of the prior two calendar years that specifically relate 
to the bank's performance in helping to meet community credit needs, 
and any response to the comments by the bank, if neither the comments 
nor the responses contain statements that reflect adversely on the good 
name or reputation of any persons other than the bank or publication of 
which would violate specific provisions of law;
    (2) A copy of the public section of the bank's most recent CRA 
Performance Evaluation prepared by the Board. The bank shall place this 
copy in the public file within 30 business days after its receipt from 
the Board;
    (3) A list of the bank's branches, their street addresses, and 
geographies;
    (4) A list of branches opened or closed by the bank during the 
current year and each of the prior two calendar years, their street 
addresses, and geographies;
    (5) A list of services (including hours of operation, available 
loan and deposit products, and transaction fees) generally offered at 
the bank's branches and descriptions of material differences in the 
availability or cost of services at particular branches, if any. At its 
option, a bank may include information regarding the availability of 
alternative systems for delivering retail banking services (e.g., 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);
    (6) A map of each assessment area showing the boundaries of the 
area and identifying the geographies contained within the area, either 
on the map or in a separate list; and
    (7) Any other information the bank chooses.
    (b) Additional information available to the public--(1) Banks other 
than small banks. A bank, except a small bank or a bank that was a 
small bank during the prior calendar year, shall include in its public 
file the following information pertaining to the bank and its 
affiliates, if applicable, for each of the prior two calendar years:
    (i) If the bank has elected to have one or more categories of its 
consumer loans considered under the lending test, for each of these 
categories, the number and amount of loans:
    (A) To low-, moderate-, middle-, and upper-income individuals;
    (B) Located in low-, moderate-, middle-, and upper-income census 
tracts; and
    (C) Located inside the bank's assessment area(s) and outside the 
bank's assessment area(s); and
    (ii) The bank's CRA Disclosure Statement. The bank shall place the 
statement in the public file within three business days of its receipt 
from the Board.
    (2) Banks required to report Home Mortgage Disclosure Act (HMDA) 
data. A bank required to report home mortgage loan data pursuant part 
1003 of this title shall include in its public file a written notice 
that the institution's HMDA Disclosure Statement may be obtained on the 
Consumer Financial Protection Bureau's (Bureau's) website at 
www.consumerfinance.gov/hmda. In addition, a bank that elected to have 
the Board consider the mortgage lending of an affiliate shall include 
in its public file the name of the affiliate and a written notice that 
the affiliate's HMDA Disclosure Statement may be obtained at the 
Bureau's website. The bank shall place the written notice(s) in the 
public file within three business days after receiving notification 
from the Federal Financial Institutions Examination Council of the 
availability of the disclosure statement(s).
    (3) Small banks. A small bank or a bank that was a small bank 
during the prior calendar year shall include in its public file:
    (i) The bank's loan-to-deposit ratio for each quarter of the prior 
calendar year and, at its option, additional data on its loan-to-
deposit ratio; and
    (ii) The information required for other banks by paragraph (b)(1) 
of this section, if the bank has elected to be evaluated under the 
lending, investment, and service tests.
    (4) Banks with strategic plans. A bank that has been approved to be 
assessed under a strategic plan shall include in its public file a copy 
of that plan. A bank need not include information

[[Page 7202]]

submitted to the Board on a confidential basis in conjunction with the 
plan.
    (5) Banks with less than satisfactory ratings. A bank that received 
a less than satisfactory rating during its most recent examination 
shall include in its public file a description of its current efforts 
to improve its performance in helping to meet the credit needs of its 
entire community. The bank shall update the description quarterly.
    (c) Location of public information. A bank shall make available to 
the public for inspection upon request and at no cost the information 
required in this section as follows:
    (1) At the main office and, if an interstate bank, at one branch 
office in each state, all information in the public file; and
    (2) At each branch:
    (i) A copy of the public section of the bank's most recent CRA 
Performance Evaluation and a list of services provided by the branch; 
and
    (ii) Within five calendar days of the request, all the information 
in the public file relating to the assessment area in which the branch 
is located.
    (d) Copies. Upon request, a bank shall provide copies, either on 
paper or in another form acceptable to the person making the request, 
of the information in its public file. The bank may charge a reasonable 
fee not to exceed the cost of copying and mailing (if applicable).
    (e) Updating. Except as otherwise provided in this section, a bank 
shall ensure that the information required by this section is current 
as of April 1 of each year.


Sec.  228.44  Public notice by banks.

    A bank shall provide in the public lobby of its main office and 
each of its branches the appropriate public notice set forth in 
appendix B of this part. Only a branch of a bank having more than one 
assessment area shall include the bracketed material in the notice for 
branch offices. Only a bank that is an affiliate of a holding company 
shall include the next to the last sentence of the notices. A bank 
shall include the last sentence of the notices only if it is an 
affiliate of a holding company that is not prevented by statute from 
acquiring additional banks.


Sec.  228.45  Publication of planned examination schedule.

    The Board publishes at least 30 days in advance of the beginning of 
each calendar quarter a list of banks scheduled for CRA examinations in 
that quarter.

Appendix A to Part 228--Ratings

    (a) Ratings in general. (1) In assigning a rating, the Board 
evaluates a bank's performance under the applicable performance 
criteria in this part, in accordance with Sec. Sec.  228.21 and 
228.28. This includes consideration of low-cost education loans 
provided to low-income borrowers and activities in cooperation with 
minority- or women-owned financial institutions and low-income 
credit unions, as well as adjustments on the basis of evidence of 
discriminatory or other illegal credit practices.
    (2) A bank's performance need not fit each aspect of a 
particular rating profile in order to receive that rating, and 
exceptionally strong performance with respect to some aspects may 
compensate for weak performance in others. The bank's overall 
performance, however, must be consistent with safe and sound banking 
practices and generally with the appropriate rating profile as 
follows.
    (b) Banks evaluated under the lending, investment, and service 
tests--(1) Lending performance rating. The Board assigns each bank's 
lending performance one of the five following ratings.
    (i) Outstanding. The Board rates a bank's lending performance 
``outstanding'' if, in general, it demonstrates:
    (A) Excellent responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in 
its assessment area(s);
    (B) A substantial majority of its loans are made in its 
assessment area(s);
    (C) An excellent geographic distribution of loans in its 
assessment area(s);
    (D) An excellent distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product 
lines offered by the bank;
    (E) An excellent record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross 
annual revenues of $1 million or less, consistent with safe and 
sound operations;
    (F) Extensive use of innovative or flexible lending practices in 
a safe and sound manner to address the credit needs of low- or 
moderate-income individuals or geographies; and
    (G) It is a leader in making community development loans.
    (ii) High satisfactory. The Board rates a bank's lending 
performance ``high satisfactory'' if, in general, it demonstrates:
    (A) Good responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in 
its assessment area(s);
    (B) A high percentage of its loans are made in its assessment 
area(s);
    (C) A good geographic distribution of loans in its assessment 
area(s);
    (D) A good distribution, particularly in its assessment area(s), 
of loans among individuals of different income levels and businesses 
(including farms) of different sizes, given the product lines 
offered by the bank;
    (E) A good record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross 
annual revenues of $1 million or less, consistent with safe and 
sound operations;
    (F) Use of innovative or flexible lending practices in a safe 
and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
    (G) It has made a relatively high level of community development 
loans.
    (iii) Low satisfactory. The Board rates a bank's lending 
performance ``low satisfactory'' if, in general, it demonstrates:
    (A) Adequate responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in 
its assessment area(s);
    (B) An adequate percentage of its loans are made in its 
assessment area(s);
    (C) An adequate geographic distribution of loans in its 
assessment area(s);
    (D) An adequate distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product 
lines offered by the bank;
    (E) An adequate record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross 
annual revenues of $1 million or less, consistent with safe and 
sound operations;
    (F) Limited use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or 
moderate-income individuals or geographies; and
    (G) It has made an adequate level of community development 
loans.
    (iv) Needs to improve. The Board rates a bank's lending 
performance ``needs to improve'' if, in general, it demonstrates:
    (A) Poor responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in 
its assessment area(s);
    (B) A small percentage of its loans are made in its assessment 
area(s);
    (C) A poor geographic distribution of loans, particularly to 
low- or moderate-income geographies, in its assessment area(s);
    (D) A poor distribution, particularly in its assessment area(s), 
of loans among individuals of different income levels and businesses 
(including farms) of different sizes, given the product lines 
offered by the bank;
    (E) A poor record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross 
annual revenues of $1 million or less, consistent with safe and 
sound operations;
    (F) Little use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or 
moderate-income individuals or geographies; and

[[Page 7203]]

    (G) It has made a low level of community development loans.
    (v) Substantial noncompliance. The Board rates a bank's lending 
performance as being in ``substantial noncompliance'' if, in 
general, it demonstrates:
    (A) A very poor responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in 
its assessment area(s);
    (B) A very small percentage of its loans are made in its 
assessment area(s);
    (C) A very poor geographic distribution of loans, particularly 
to low- or moderate-income geographies, in its assessment area(s);
    (D) A very poor distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product 
lines offered by the bank;
    (E) A very poor record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross 
annual revenues of $1 million or less, consistent with safe and 
sound operations;
    (F) No use of innovative or flexible lending practices in a safe 
and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
    (G) It has made few, if any, community development loans.
    (2) Investment performance rating. The Board assigns each bank's 
investment performance one of the five following ratings.
    (i) Outstanding. The Board rates a bank's investment performance 
``outstanding'' if, in general, it demonstrates:
    (A) An excellent level of qualified investments, particularly 
those that are not routinely provided by private investors, often in 
a leadership position;
    (B) Extensive use of innovative or complex qualified 
investments; and
    (C) Excellent responsiveness to credit and community development 
needs.
    (ii) High satisfactory. The Board rates a bank's investment 
performance ``high satisfactory'' if, in general, it demonstrates:
    (A) A significant level of qualified investments, particularly 
those that are not routinely provided by private investors, 
occasionally in a leadership position;
    (B) Significant use of innovative or complex qualified 
investments; and
    (C) Good responsiveness to credit and community development 
needs.
    (iii) Low satisfactory. The Board rates a bank's investment 
performance ``low satisfactory'' if, in general, it demonstrates:
    (A) An adequate level of qualified investments, particularly 
those that are not routinely provided by private investors, although 
rarely in a leadership position;
    (B) Occasional use of innovative or complex qualified 
investments; and
    (C) Adequate responsiveness to credit and community development 
needs.
    (iv) Needs to improve. The Board rates a bank's investment 
performance ``needs to improve'' if, in general, it demonstrates:
    (A) A poor level of qualified investments, particularly those 
that are not routinely provided by private investors;
    (B) Rare use of innovative or complex qualified investments; and
    (C) Poor responsiveness to credit and community development 
needs.
    (v) Substantial noncompliance. The Board rates a bank's 
investment performance as being in ``substantial noncompliance'' if, 
in general, it demonstrates:
    (A) Few, if any, qualified investments, particularly those that 
are not routinely provided by private investors;
    (B) No use of innovative or complex qualified investments; and
    (C) Very poor responsiveness to credit and community development 
needs.
    (3) Service performance rating. The Board assigns each bank's 
service performance one of the five following ratings.
    (i) Outstanding. The Board rates a bank's service performance 
``outstanding'' if, in general, the bank demonstrates:
    (A) Its service delivery systems are readily accessible to 
geographies and individuals of different income levels in its 
assessment area(s);
    (B) To the extent changes have been made, its record of opening 
and closing branches has improved the accessibility of its delivery 
systems, particularly in low- or moderate-income geographies or to 
low- or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) 
are tailored to the convenience and needs of its assessment area(s), 
particularly low- or moderate-income geographies or low- or 
moderate-income individuals; and
    (D) It is a leader in providing community development services.
    (ii) High satisfactory. The Board rates a bank's service 
performance ``high satisfactory'' if, in general, the bank 
demonstrates:
    (A) Its service delivery systems are accessible to geographies 
and individuals of different income levels in its assessment 
area(s);
    (B) To the extent changes have been made, its record of opening 
and closing branches has not adversely affected the accessibility of 
its delivery systems, particularly in low- and moderate-income 
geographies and to low- and moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) 
do not vary in a way that inconveniences its assessment area(s), 
particularly low- and moderate-income geographies and low- and 
moderate-income individuals; and
    (D) It provides a relatively high level of community development 
services.
    (iii) Low satisfactory. The Board rates a bank's service 
performance ``low satisfactory'' if, in general, the bank 
demonstrates:
    (A) Its service delivery systems are reasonably accessible to 
geographies and individuals of different income levels in its 
assessment area(s);
    (B) To the extent changes have been made, its record of opening 
and closing branches has generally not adversely affected the 
accessibility of its delivery systems, particularly in low- and 
moderate-income geographies and to low- and moderate-income 
individuals;
    (C) Its services (including, where appropriate, business hours) 
do not vary in a way that inconveniences its assessment area(s), 
particularly low- and moderate-income geographies and low- and 
moderate-income individuals; and
    (D) It provides an adequate level of community development 
services.
    (iv) Needs to improve. The Board rates a bank's service 
performance ``needs to improve'' if, in general, the bank 
demonstrates:
    (A) Its service delivery systems are unreasonably inaccessible 
to portions of its assessment area(s), particularly to low- or 
moderate-income geographies or to low- or moderate-income 
individuals;
    (B) To the extent changes have been made, its record of opening 
and closing branches has adversely affected the accessibility its 
delivery systems, particularly in low- or moderate-income 
geographies or to low- or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) 
vary in a way that inconveniences its assessment area(s), 
particularly low- or moderate-income geographies or low- or 
moderate-income individuals; and
    (D) It provides a limited level of community development 
services.
    (v) Substantial noncompliance. The Board rates a bank's service 
performance as being in ``substantial noncompliance'' if, in 
general, the bank demonstrates:
    (A) Its service delivery systems are unreasonably inaccessible 
to significant portions of its assessment area(s), particularly to 
low- or moderate-income geographies or to low- or moderate-income 
individuals;
    (B) To the extent changes have been made, its record of opening 
and closing branches has significantly adversely affected the 
accessibility of its delivery systems, particularly in low- or 
moderate-income geographies or to low- or moderate-income 
individuals;
    (C) Its services (including, where appropriate, business hours) 
vary in a way that significantly inconveniences its assessment 
area(s), particularly low- or moderate-income geographies or low- or 
moderate-income individuals; and
    (D) It provides few, if any, community development services.
    (c) Wholesale or limited purpose banks. The Board assigns each 
wholesale or limited purpose bank's community development 
performance one of the four following ratings.
    (1) Outstanding. The Board rates a wholesale or limited purpose 
bank's community development performance ``outstanding'' if, in 
general, it demonstrates:
    (i) A high level of community development loans, community 
development services, or qualified investments, particularly 
investments that are not routinely provided by private investors;
    (ii) Extensive use of innovative or complex qualified 
investments, community development loans, or community development 
services; and

[[Page 7204]]

    (iii) Excellent responsiveness to credit and community 
development needs in its assessment area(s).
    (2) Satisfactory. The Board rates a wholesale or limited purpose 
bank's community development performance ``satisfactory'' if, in 
general, it demonstrates:
    (i) An adequate level of community development loans, community 
development services, or qualified investments, particularly 
investments that are not routinely provided by private investors;
    (ii) Occasional use of innovative or complex qualified 
investments, community development loans, or community development 
services; and
    (iii) Adequate responsiveness to credit and community 
development needs in its assessment area(s).
    (3) Needs to improve. The Board rates a wholesale or limited 
purpose bank's community development performance as ``needs to 
improve'' if, in general, it demonstrates:
    (i) A poor level of community development loans, community 
development services, or qualified investments, particularly 
investments that are not routinely provided by private investors;
    (ii) Rare use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Poor responsiveness to credit and community development 
needs in its assessment area(s).
    (4) Substantial noncompliance. The Board rates a wholesale or 
limited purpose bank's community development performance in 
``substantial noncompliance'' if, in general, it demonstrates:
    (i) Few, if any, community development loans, community 
development services, or qualified investments, particularly 
investments that are not routinely provided by private investors;
    (ii) No use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Very poor responsiveness to credit and community 
development needs in its assessment area(s).
    (d) Banks evaluated under the small bank performance standards--
(1) Lending test ratings. (i) Eligibility for a satisfactory lending 
test rating. The Board rates a small bank's lending performance 
``satisfactory'' if, in general, the bank demonstrates:
    (A) A reasonable loan-to-deposit ratio (considering seasonal 
variations) given the bank's size, financial condition, the credit 
needs of its assessment area(s), and taking into account, as 
appropriate, other lending-related activities such as loan 
originations for sale to the secondary markets and community 
development loans and qualified investments;
    (B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
    (C) A distribution of loans to and, as appropriate, other 
lending-related activities for individuals of different income 
levels (including low- and moderate-income individuals) and 
businesses and farms of different sizes that is reasonable given the 
demographics of the bank's assessment area(s);
    (D) A record of taking appropriate action, when warranted, in 
response to written complaints, if any, about the bank's performance 
in helping to meet the credit needs of its assessment area(s); and
    (E) A reasonable geographic distribution of loans given the 
bank's assessment area(s).
    (ii) Eligibility for an ``outstanding'' lending test rating. A 
small bank that meets each of the standards for a ``satisfactory'' 
rating under this paragraph and exceeds some or all of those 
standards may warrant consideration for a lending test rating of 
``outstanding.''
    (iii) Needs to improve or substantial noncompliance ratings. A 
small bank may also receive a lending test rating of ``needs to 
improve'' or ``substantial noncompliance'' depending on the degree 
to which its performance has failed to meet the standard for a 
``satisfactory'' rating.
    (2) Community development test ratings for intermediate small 
banks--(i) Eligibility for a satisfactory community development test 
rating. The Board rates an intermediate small bank's community 
development performance ``satisfactory'' if the bank demonstrates 
adequate responsiveness to the community development needs of its 
assessment area(s) through community development loans, qualified 
investments, and community development services. The adequacy of the 
bank's response will depend on its capacity for such community 
development activities, its assessment area's need for such 
community development activities, and the availability of such 
opportunities for community development in the bank's assessment 
area(s).
    (ii) Eligibility for an outstanding community development test 
rating. The Board rates an intermediate small bank's community 
development performance ``outstanding'' if the bank demonstrates 
excellent responsiveness to community development needs in its 
assessment area(s) through community development loans, qualified 
investments, and community development services, as appropriate, 
considering the bank's capacity and the need and availability of 
such opportunities for community development in the bank's 
assessment area(s).
    (iii) Needs to improve or substantial noncompliance ratings. An 
intermediate small bank may also receive a community development 
test rating of ``needs to improve'' or ``substantial noncompliance'' 
depending on the degree to which its performance has failed to meet 
the standards for a ``satisfactory'' rating.
    (3) Overall rating--(i) Eligibility for a satisfactory overall 
rating. No intermediate small bank may receive an assigned overall 
rating of ``satisfactory'' unless it receives a rating of at least 
``satisfactory'' on both the lending test and the community 
development test.
    (ii) Eligibility for an outstanding overall rating. (A) An 
intermediate small bank that receives an ``outstanding'' rating on 
one test and at least ``satisfactory'' on the other test may receive 
an assigned overall rating of ``outstanding.''
    (B) A small bank that is not an intermediate small bank that 
meets each of the standards for a ``satisfactory'' rating under the 
lending test and exceeds some or all of those standards may warrant 
consideration for an overall rating of ``outstanding.'' In assessing 
whether a bank's performance is ``outstanding,'' the Board considers 
the extent to which the bank exceeds each of the performance 
standards for a ``satisfactory'' rating and its performance in 
making qualified investments and its performance in providing 
branches and other services and delivery systems that enhance credit 
availability in its assessment area(s).
    (iii) Needs to improve or substantial noncompliance overall 
ratings. A small bank may also receive a rating of ``needs to 
improve'' or ``substantial noncompliance'' depending on the degree 
to which its performance has failed to meet the standards for a 
``satisfactory'' rating.
    (e) Strategic plan assessment and rating--(1) Satisfactory 
goals. The Board approves as ``satisfactory'' measurable goals that 
adequately help to meet the credit needs of the bank's assessment 
area(s).
    (2) Outstanding goals. If the plan identifies a separate group 
of measurable goals that substantially exceed the levels approved as 
``satisfactory,'' the Board will approve those goals as 
``outstanding.''
    (3) Rating. The Board assesses the performance of a bank 
operating under an approved plan to determine if the bank has met 
its plan goals:
    (i) If the bank substantially achieves its plan goals for a 
satisfactory rating, the Board will rate the bank's performance 
under the plan as ``satisfactory.''
    (ii) If the bank exceeds its plan goals for a satisfactory 
rating and substantially achieves its plan goals for an outstanding 
rating, the Board will rate the bank's performance under the plan as 
``outstanding.''
    (iii) If the bank fails to meet substantially its plan goals for 
a satisfactory rating, the Board will rate the bank as either 
``needs to improve'' or ``substantial noncompliance,'' depending on 
the extent to which it falls short of its plan goals, unless the 
bank elected in its plan to be rated otherwise, as provided in Sec.  
228.27(f)(4).

Appendix B to Part 228--CRA Notice

    (a) Notice for main offices and, if an interstate bank, one 
branch office in each state.

Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the Federal 
Reserve Board (Board) evaluates our record of helping to meet the 
credit needs of this community consistent with safe and sound 
operations. The Board also takes this record into account when 
deciding on certain applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and 
our performance under the CRA, including, for example, information 
about our branches, such as their location and services provided at 
them; the

[[Page 7205]]

public section of our most recent CRA Performance Evaluation, 
prepared by the Federal Reserve Bank of ____(Reserve Bank); and 
comments received from the public relating to our performance in 
helping to meet community credit needs, as well as our responses to 
those comments. You may review this information today.
    At least 30 days before the beginning of each quarter, the 
Federal Reserve System publishes a list of the banks that are 
scheduled for CRA examination by the Reserve Bank in that quarter. 
This list is available from (title of responsible official), Federal 
Reserve Bank of ____(address). You may send written comments about 
our performance in helping to meet community credit needs to (name 
and address of official at bank) and (title of responsible 
official), Federal Reserve Bank of ____(address). Your letter, 
together with any response by us, will be considered by the Federal 
Reserve System in evaluating our CRA performance and may be made 
public.
    You may ask to look at any comments received by the Reserve 
Bank. You may also request from the Reserve Bank an announcement of 
our applications covered by the CRA filed with the Reserve Bank. We 
are an affiliate of (name of holding company), a bank holding 
company. You may request from (title of responsible official), 
Federal Reserve Bank of ____(address) an announcement of 
applications covered by the CRA filed by bank holding companies.
    (b) Notice for branch offices.

Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the Federal 
Reserve Board (Board) evaluates our record of helping to meet the 
credit needs of this community consistent with safe and sound 
operations. The Board also takes this record into account when 
deciding on certain applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and 
our performance under the CRA. You may review today the public 
section of our most recent CRA evaluation, prepared by the Federal 
Reserve Bank of ____(address), and a list of services provided at 
this branch. You may also have access to the following additional 
information, which we will make available to you at this branch 
within five calendar days after you make a request to us: (1) a map 
showing the assessment area containing this branch, which is the 
area in which the Board evaluates our CRA performance in this 
community; (2) information about our branches in this assessment 
area; (3) a list of services we provide at those locations; (4) data 
on our lending performance in this assessment area; and (5) copies 
of all written comments received by us that specifically relate to 
our CRA performance in this assessment area, and any responses we 
have made to those comments. If we are operating under an approved 
strategic plan, you may also have access to a copy of the plan.
    [If you would like to review information about our CRA 
performance in other communities served by us, the public file for 
our entire bank is available at (name of office located in state), 
located at (address).]
    At least 30 days before the beginning of each quarter, the 
Federal Reserve System publishes a list of the banks that are 
scheduled for CRA examination by the Reserve Bank in that quarter. 
This list is available from (title of responsible official), Federal 
Reserve Bank of ____(address). You may send written comments about 
our performance in helping to meet community credit needs to (name 
and address of official at bank) and (title of responsible 
official), Federal Reserve Bank of ____(address). Your letter, 
together with any response by us, will be considered by the Federal 
Reserve System in evaluating our CRA performance and may be made 
public.
    You may ask to look at any comments received by the Reserve 
Bank. You may also request from the Reserve Bank an announcement of 
our applications covered by the CRA filed with the Reserve Bank. We 
are an affiliate of (name of holding company), a bank holding 
company. You may request from (title of responsible official), 
Federal Reserve Bank of ____(address) an announcement of 
applications covered by the CRA filed by bank holding companies.

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Chapter III

Authority and Issuance

    For the reasons discussed in the common preamble, the Federal 
Deposit Insurance Corporation amends part 345 of chapter III of title 
12 of the Code of Federal Regulations as follows:.

PART 345--COMMUNITY REINVESTMENT

0
53. Revise the authority citation for part 345 to read as follows:

    Authority: 12 U.S.C. 1814-1817, 1819-1820, 1828, 1831u, 2901-
2908, 3103-3104, and 3108(a).


0
54. Revise part 345 as set forth at the end of the common preamble.


0
55. Amend part 345 by:
0
a. Removing the word ``[Agency]'' wherever it appears and adding 
``FDIC'' in its place;
0
b. Removing the word ``[Agency]'s'' wherever it appears and adding 
``FDIC's'' in its place;
0
c. Removing ``[operations subsidiary or operating subsidiary]'' 
wherever it appears and adding ``operating subsidiary'' in its place;
0
d. Removing ``[operations subsidiaries or operating subsidiaries]'' 
wherever it appears and adding ``operating subsidiaries'' in its place; 
and
0
e. Removing ``[operations subsidiaries or operating subsidiaries]'' 
wherever it appears and adding ``operating subsidiaries'' in its place.


0
56. Amend Sec.  345.11 by:
0
a. Adding paragraph (a);
0
b. In paragraph (b), removing ``FDIC'' and adding ``Federal Deposit 
Insurance Corporation (FDIC)'' in its place; and
0
c. Adding paragraph (c).
    The additions read as follows:


Sec.  345.11  Authority, purposes, and scope.

    (a) Authority. The authority for this part is 12 U.S.C. 1814-1817, 
1819-1820, 1828, 1831u, 2901-2908, 3103-3104, and 3108(a).
* * * * *
    (c) Scope--(1) General. Except for certain special purpose banks 
described in paragraph (c)(3) of this section, this part applies to all 
insured State nonmember banks, including insured State branches as 
described in paragraph (c)(2) and any uninsured State branch that 
results from an acquisition described in section 5(a)(8) of the 
International Banking Act of 1978 (12 U.S.C. 3103(a)(8)).
    (2) Insured State branches. Insured State branches are branches of 
a foreign bank established and operating under the laws of any State, 
the deposits of which are insured in accordance with the provisions of 
the Federal Deposit Insurance Act. In the case of insured State 
branches, references in this part to main office mean the principal 
branch within the United States and the term branch or branches refers 
to any insured State branch or branches located within the United 
States. The facility-based assessment areas and, as applicable, retail 
lending assessment areas and outside retail lending area of an insured 
State branch is the community or communities located within the United 
States served by the branch as described in Sec.  345.16 and, as 
applicable, Sec. Sec.  345.17 and 345.18.
    (3) Certain special purpose banks. This part does not apply to 
special purpose banks that do not perform commercial or retail banking 
services by granting credit to the public in the ordinary course of 
business, other than as incident to their specialized operations. These 
banks include banker's banks, as defined in 12 U.S.C. 24(Seventh), and 
banks that engage only in one or more of the following activities: 
providing cash management controlled disbursement services or serving 
as correspondent banks, trust companies, or clearing agents.

0
57. Amend Sec.  345.12 as follows:
0
a. Adding the definition of ``Bank'' in alphabetical order;
0
b. In the definition of ``Depository institution'', removing ``12 CFR 
25.11, 228.11, and 345.11'' and adding ``Sec.  345.11 and 12 CFR 25.11 
and 228.11'' in its place;
0
c. In the definition of ``Distressed or underserved nonmetropolitan 
middle-

[[Page 7206]]

income census tract'', removing ``the Federal Deposit Insurance 
Corporation (FDIC)'' and adding ``the FDIC'' in its place;
0
d. In the definition of ``Large depository institution'', removing ``12 
CFR 228.26(a) or 345.26(a)'' and adding ``Sec.  345.26(a) or 12 CFR 
228.26(a)'' in its place; and
0
e. Adding the definition of ``Operating subsidiary'' in alphabetical 
order.
    The additions read as follows:


Sec.  345.12  Definitions.

* * * * *
    Bank means a State nonmember bank, as that term is defined in 
section 3(e)(2) of the Federal Deposit Insurance Act (FDIA) (12 U.S.C. 
1813(e)(2)), with federally insured deposits, except as defined in 
Sec.  345.11(c). The term bank also includes an insured State branch as 
defined in Sec.  345.11(c).
* * * * *
    Operating subsidiary, for purposes of this part, means an operating 
subsidiary as described in 12 CFR 5.34.
* * * * *

0
58. Delayed indefinitely, further amend Sec.  345.12 by:
0
a. In the definition of ``Loan location'', revising paragraph (3);
0
b. In the definition of ``Reported loan'', revising paragraph (2); and
0
c. Revising the definitions of ``Small business'', ``Small business 
loan'', ``Small farm'', and ``Small farm loan''.
    The revisions read as follows:


Sec.  345.12  Definitions.

* * * * *
    Loan location * * *
    (3) A small business loan or small farm loan is located in the 
census tract reported pursuant to subpart B of 12 CFR part 1002.
* * * * *
    Reported loan means * * *
    (2) A small business loan or small farm loan reported by a bank 
pursuant to subpart B of 12 CFR part 1002.
* * * * *
    Small business means a small business, other than a small farm, as 
defined in section 704B of the Equal Credit Opportunity Act (15 U.S.C. 
1691c-2) and implemented by 12 CFR 1002.106.
    Small business loan means a loan to a small business as defined in 
this section.
    Small farm means a small business, as defined in section 704B of 
the Equal Credit Opportunity Act (15 U.S.C. 1691c-2) and implemented by 
12 CFR 1002.106, and that is identified with one of the 3-digit North 
American Industry Classification System (NAICS) codes 111-115.
    Small farm loan means a loan to a small farm as defined in this 
section.
* * * * *


Sec.  345.13  [Amended]

0
59. Amend Sec.  345.13 in paragraph (k) by removing ``part 25, 228, or 
345 of this title'' and adding ``this part or 12 CFR part 25 or 228'' 
in its place.


Sec.  345.14  [Amended]

0
60. Amend Sec.  345.14 in paragraphs (b)(2)(ii) and (b)(3) by removing 
``[other Agencies]'' and adding in its place ``Board and OCC''.


Sec.  345.21  [Amended]

0
61. Amend Sec.  345.21 in paragraph (b)(1) by removing ``12 CFR part 
25, 228, or 345'' and adding ``this part or 12 CFR part 25 or 228'' in 
its place.


Sec.  345.22  [Amended]

0
62. Delayed indefinitely, amend Sec.  345.22 by:
0
a. Removing the term ``Businesses'' in paragraphs (e)(2)(ii)(C) and (D) 
and adding in its place ``Small businesses''; and
0
b. Removing the term ``Farms'' in paragraphs (e)(2)(ii)(E) and (F) and 
adding in its place ``Small farms''.


Sec.  345.26  [Amended]

0
63. Amend Sec.  345.26 by:
0
a. In paragraph (f)(2)(ii)(A), removing ``12 CFR 228.26(a) or 
345.26(a)'' and ``12 CFR 25.42(b), 228.42(b), or 345.42(b)'' and adding 
``paragraph (a) of this section or 12 CFR 228.26(a)'' and ``Sec.  
345.42(b) or 12 CFR 25.42(b) or 228.42(b)'' in their places, 
respectively; and
0
b. In paragraph (f)(2)(ii)(B), removing ``12 CFR 25.42(b), 228.42(b), 
or 345.42(b)'' and adding ``Sec.  345.42(b) or 12 CFR 25.42(b) or 
228.42(b)'' in its place.

0
64. Add Sec.  345.31 to read as follows:


Sec.  345.31  Effect of CRA performance on applications.

    (a) CRA performance. Among other factors, the FDIC takes into 
account the record of performance under the CRA of each applicant bank 
in considering an application for approval of:
    (1) The establishment of a domestic branch or other facility with 
the ability to accept deposits;
    (2) The relocation of the bank's main office or a branch;
    (3) The merger, consolidation, acquisition of assets, or assumption 
of liabilities; and
    (4) Deposit insurance for a newly chartered financial institution.
    (b) New financial institutions. A newly chartered financial 
institution shall submit with its application for deposit insurance a 
description of how it will meet its CRA objectives. The FDIC takes the 
description into account in considering the application and may deny or 
condition approval on that basis.
    (c) Interested parties. The FDIC takes into account any views 
expressed by interested parties that are submitted in accordance with 
the FDIC's procedures set forth in part 303 of this chapter in 
considering CRA performance in an application listed in paragraphs (a) 
and (b) of this section.
    (d) Denial or conditional approval of application. A bank's record 
of performance may be the basis for denying or conditioning approval of 
an application listed in paragraph (a) of this section.


Sec.  345.42  [Amended]

0
65. Amend Sec.  345.42 by:
0
a. In paragraph (h), removing ``12 CFR part 25, 228, or 345'' and 
adding ``this part or 12 CFR part 25 or 228'' in its place; and
0
b. In paragraph (j)(2), removing ``[Agency]'s'' and adding ``FDIC's'' 
in its place.

0
66. Delayed indefinitely, further amend Sec.  345.42 by:
0
a. Revising paragraph (a)(1);
0
b. Removing and reserving paragraph (b)(1); and
0
c. Removing the phrase ``small business loans and small farm loans 
reported as originated or purchased'' in paragraphs (g)(1)(i) and 
(g)(2)(i) wherever it appears and adding in its place ``small business 
loans and small farm loans reported as originated''.
    The revision reads as follows:


Sec.  345.42  Data collection, reporting, and disclosure.

    (a) * * *
    (1) Purchases of small business loans and small farm loans data. A 
bank that opts to have the FDIC consider its purchases of small 
business loans and small farm loans must collect and maintain in 
electronic form, as prescribed by the FDIC, until the completion of the 
bank's next CRA examination in which the data are evaluated, the 
following data for each small business loan or small farm loan 
purchased by the bank during the evaluation period:
    (i) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (ii) An indicator for the loan type as reported on the bank's Call 
Report or on the bank's Report of Assets and Liabilities of U.S. 
Branches and

[[Page 7207]]

Agencies of Foreign Banks, as applicable;
    (iii) The date of the loan purchase;
    (iv) The loan amount at purchase;
    (v) The loan location, including State, county, and census tract;
    (vi) An indicator for whether the purchased loan was to a business 
or farm with gross annual revenues of $250,000 or less;
    (vii) An indicator for whether the purchased loan was to a business 
or farm with gross annual revenues greater than $250,000 but less than 
or equal to $1 million;
    (viii) An indicator for whether the purchased loan was to a 
business or farm with gross annual revenues greater than $1 million; 
and
    (ix) An indicator for whether the purchased loan was to a business 
or farm for which gross annual revenues are not known by the bank.
* * * * *


Sec.  345.43  [Amended]

0
67. Amend Sec.  345.43 in paragraph (b)(2)(i) by removing ``[operations 
subsidiaries' or operating subsidiaries']'' and adding ``operating 
subsidiaries' '' in its place.
    * * *

0
68. Delayed indefinitely, further amend Sec.  345.43 by:
0
a. Revising the heading of paragraph (b)(2); and
0
b. Adding paragraph (b)(2)(iii).
    The revision and addition read as follows:


Sec.  345.43  Content and availability of public file.

* * * * *
    (b) * * *
    (2) Banks required to report HMDA data and small business lending 
data. * * *
    (iii) Small business lending data notice. A bank required to report 
small business loan or small farm loan data pursuant to 12 CFR part 
1002 must include in its public file a written notice that the bank's 
small business loan and small farm loan data may be obtained on the 
CFPB's website at: https://www.consumerfinance.gov/data-research/small-business-lending/.
* * * * *


Sec.  345.46  [Amended]

0
69. Amend Sec.  345.46 in paragraph (b) by removing ``[Agency contact 
information]'' and adding in its place ``[email protected] 
or to the address of the appropriate FDIC regional office found at 
https://www.fdic.gov/resources/bankers/community-reinvestment-act/cra-regional-contacts-list.html''.


Sec.  345.51  [Amended]

0
70. Amend Sec.  345.51 in paragraph (e) by removing ``[other Agencies' 
regulations]'' and adding ``12 CFR part 25 or 228'' in its place.

Appendix A to Part 345 [Amended]

0
71. Amend appendix A by:
0
a. In paragraph I.b introductory text, removing ``12 CFR 25.42(b)(1), 
228.42(b)(1), or 345.42(b)(1) or 12 CFR part 1003'' and adding ``Sec.  
345.42(b)(1), 12 CFR 25.42(b)(1) or 228.42(b)(1), or 12 CFR part 1003'' 
in its place; and
0
b. In paragraph I.b.2, removing ``12 CFR 25.42(b)(3), 228.42(b)(3), or 
345.42(b)(3)'' and adding ``Sec.  345.42(b)(3) or 12 CFR 25.42(b)(3) or 
228.42(b)(3)'' in its place.


0
72. Delayed indefinitely, further amend appendix A by:
0
a. Adding a sentence at the end of paragraph I.a.1;
0
b. Removing the phrase ``subject to reporting pursuant to Sec.  
345.42(b)(1), 12 CFR 25.42(b)(1) or 228.42(b)(1),'' in paragraph I.b 
introductory text and adding in its place the phrase ``subject to 
reporting pursuant to subpart B of 12 CFR part 1002'';
0
c. Adding a sentence at the end of paragraph III.a.1;
0
d. Revising paragraphs III.c.3.i and ii, III.c.4.i and ii, III.c.5.i 
and ii, and III.c.6.i and ii;
0
e. In paragraph III.c.8.iii, revising Example A-7;
0
f. Revising the third and fourth introductory paragraphs to section IV;
0
g. Adding a sentence at the end of paragraph IV.a.1;
0
h. Revising the introductory paragraph to IV.c.3 and paragraphs 
IV.c.3.i and ii;
0
i. Revising the introductory paragraph to IV.c.4 and paragraphs 
IV.c.4.i and ii;
0
j. Revising the introductory paragraph to IV.c.5 and paragraphs 
IV.c.5.i and ii;
0
k. Revising the introductory paragraph to IV.c.6 and paragraphs 
IV.c.6.i and ii;
0
l. In section V, in paragraph a, in table 1, revising the entries for 
``Small Business Loans'' and ``Small Farm Loans''; and
0
m. In section VII:
0
i. In paragraph a.1.ii, in table 3, revising the entries for ``Small 
Business Loans'' and ``Small Farm Loans''; and
0
ii. In paragraph a.1.iii, in table 4, revising the entries for ``Small 
Business Loans'' and ``Small Farm Loans''.
    The additions and revisions read as follows:

Appendix A to Part 345--Calculations for the Retail Lending Test

* * * * *
    I. * * *
    a. * * *
    1. * * * A bank's loan purchases that otherwise meet the 
definition of a covered credit transaction to a small business, as 
those terms are defined in 12 CFR 1002.104 and 1002.106(b), may be 
included in the numerator of the Bank Volume Metric at the bank's 
option.
* * * * *
    III. * * *
    a. * * *
    1. * * * A bank's loan purchases that otherwise meet the 
definition of a covered credit transaction to a small business, as 
provided in 12 CFR 1002.104 and 1002.106(b), may be included in the 
numerator of the Geographic Bank Metric at the bank's option.
* * * * *
    c. * * *
    3. * * *
    i. Summing, over the years in the evaluation period, the numbers 
of small businesses in low-income census tracts in the facility-
based assessment area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small businesses in the facility-based assessment area or 
retail lending assessment area.
* * * * *
    4. * * *
    i. Summing, over the years in the evaluation period, the numbers 
of small businesses in moderate-income census tracts in the 
facility-based assessment area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small businesses in the facility-based assessment area or 
retail lending assessment area.
* * * * *
    5. * * *
    i. Summing, over the years in the evaluation period, the numbers 
of small farms in low-income census tracts in the facility-based 
assessment area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small farms in the facility-based assessment area or 
retail lending assessment area.
* * * * *
    6. * * *
    i. Summing, over the years in the evaluation period, the numbers 
of small farms in moderate-income census tracts in the facility-
based assessment area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small farms in the facility-based assessment area or 
retail lending assessment area.
* * * * *
    8. * * *
    iii. * * *
    Example A-7: The applicable benchmark uses a three-year 
evaluation period. There were 4,000 small business establishments, 
based upon the sum of the numbers of small business establishments 
over the years in the evaluation period (1,300 small business 
establishments in year 1, 1,300 small business establishments in 
year 2, and 1,400

[[Page 7208]]

small business establishments in year 3), in a bank's facility-based 
assessment area. Of these small business establishments, 500 small 
business establishments were in low-income census tracts, based upon 
the sum of the numbers of small business establishments in low-
income census tracts over the years in the evaluation period (200 
small business establishments in year 1,150 small business in year 
2, and 150 small business establishments in year 3). The Geographic 
Community Benchmark for small business loans in low-income census 
tracts would be 500 divided by 4,000, or 0.125 (equivalently, 12.5 
percent). In addition, 1,000 small business establishments in that 
facility-based assessment area were in moderate-income census 
tracts, over the years in the evaluation period (400 small business 
establishments in year 1,300 small business establishments in year 
2, and 300 small business establishments in year 3). The Geographic 
Community Benchmark for small business loans in moderate-income 
census tracts would be 1,000 divided by 4,000, or 0.25 
(equivalently, 25 percent).
[GRAPHIC] [TIFF OMITTED] TR01FE24.102

* * * * *
    IV. * * *
    For small business loans, the FDIC calculates these metrics and 
benchmarks for each of the following designated borrowers: (i) small 
businesses with gross annual revenues of $250,000 or less; and (ii) 
small businesses with gross annual revenues of more than $250,000 
but less than or equal to $1 million.
    For small farm loans, the FDIC calculates these metrics and 
benchmarks for each of the following designated borrowers: (i) small 
farms with gross annual revenues of $250,000 or less; and (ii) small 
farms with gross annual revenues of more than $250,000 but less than 
or equal to $1 million.
* * * * *
    a. * * *
    1. * * * A bank's loan purchases that otherwise meet the 
definition of a covered credit transaction to a small business, as 
provided in 12 CFR 1002.104 and 1002.106(b), may be included in the 
numerator of the Borrower Bank Metric at the bank's option.
* * * * *
    c. * * *
    3. For small business loans, the FDIC calculates a Borrower 
Community Benchmark for small businesses with gross annual revenues 
of $250,000 or less by:
    i. Summing, over the years in the evaluation period, the numbers 
of small businesses with gross annual revenues of $250,000 or less 
in the facility-based lending area or retail lending assessment 
area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small businesses in the facility-based lending area or 
retail lending assessment area.
* * * * *
    4. For small business loans, the FDIC calculates a Borrower 
Community Benchmark for small businesses with gross annual revenues 
of more than $250,000 but less than or equal to $1 million by:
    i. Summing, over the years in the evaluation period, the numbers 
of small businesses with gross annual revenues of more than $250,000 
but less than or equal to $1 million in the facility-based lending 
area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small businesses in the facility-based lending area or 
retail lending assessment area.
* * * * *
    5. For small farm loans, the FDIC calculates a Borrower 
Community Benchmark for small farms with gross annual revenues of 
$250,000 or less by:
    i. Summing, over the years in the evaluation period, the numbers 
of small farms with gross annual revenues of $250,000 or less in the 
facility-based lending area or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small farms in the facility-based lending area or retail 
lending assessment area.
* * * * *
    6. For small farm loans, the FDIC calculates a Borrower 
Community Benchmark for small farms with gross annual revenues of 
more than $250,000 but less than or equal to $1 million by:
    i. Summing, over the years in the evaluation period, the numbers 
of small farms with gross annual revenues of more than $250,000 but 
less than or equal to $1 million in the facility-based lending area 
or retail lending assessment area.
    ii. Summing, over the years in the evaluation period, the 
numbers of small farms in the facility-based lending area or retail 
lending assessment area.
* * * * *
    V. * * *
    a. * * *

   Table 1 to Appendix A--Retail Lending Test Categories of Designated
                 Census Tracts and Designated Borrowers
------------------------------------------------------------------------
                                Designated census
      Major product line              tracts        Designated borrowers
------------------------------------------------------------------------
 
                              * * * * * * *
Small Business Loans..........  Low-Income Census  Small businesses with
                                 Tracts.            Gross Annual
                                                    Revenues of $250,000
                                                    or Less.
                                Moderate-Income    Small businesses with
                                 Census Tracts.     Gross Annual
                                                    Revenues Greater
                                                    than $250,000 but
                                                    Less Than or Equal
                                                    to $1 million.
Small Farm Loans..............  Low-Income Census  Small farms with
                                 Tracts.            Gross Annual
                                                    Revenues of $250,000
                                                    or Less.
                                Moderate-Income    Small farms with
                                 Census Tracts.     Gross Annual
                                                    Revenues Greater
                                                    than $250,000 but
                                                    Less Than or Equal
                                                    to $1 million.
------------------------------------------------------------------------


[[Page 7209]]

* * * * *
    VII. * * *
    a. * * *
    1. * * *
    ii. * * *

   Table 3 to Appendix A--Retail Lending Test, Geographic Distribution
                            Average--Weights
------------------------------------------------------------------------
                                   Category of
      Major product line        designated census          Weight
                                      tracts
------------------------------------------------------------------------
 
                              * * * * * * *
Small Business Loans..........  Low-Income Census  Percentage of total
                                 Tracts.            number of small
                                                    businesses in low-
                                                    and moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in low-
                                                    income census
                                                    tracts.
                                Moderate-Income    Percentage of total
                                 Census Tracts.     number of small
                                                    businesses in low-
                                                    and moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in moderate-
                                                    income census
                                                    tracts.
Small Farm Loans..............  Low-Income Census  Percentage of total
                                 Tracts.            number of small
                                                    farms in low- and
                                                    moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in low-
                                                    income census
                                                    tracts.
                                Moderate-Income    Percentage of total
                                 Census Tracts.     number of small
                                                    farms in low- and
                                                    moderate-income
                                                    census tracts in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are in moderate-
                                                    income census
                                                    tracts.
 
                              * * * * * * *
------------------------------------------------------------------------

* * * * *
    iii. * * *

    Table 4 to Appendix A--Retail Lending Test, Borrower Distribution
                            Average--Weights
------------------------------------------------------------------------
                                  Categories of
      Major product line            designated             Weight
                                    borrowers
------------------------------------------------------------------------
 
                              * * * * * * *
Small Business Loans..........  Small businesses   Percentage of total
                                 with gross         number of small
                                 annual revenues    businesses with
                                 of $250,000 or     gross annual
                                 less.              revenues of $250,000
                                                    or less and small
                                                    businesses with
                                                    gross annual
                                                    revenues greater
                                                    than $250,000 but
                                                    less than or equal
                                                    to $1 million in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are small
                                                    businesses with
                                                    gross annual
                                                    revenues of $250,000
                                                    or less.
                                Small businesses   Percentage of total
                                 with gross         number of small
                                 annual revenues    businesses with
                                 greater than       gross annual
                                 $250,000 and       revenues of $250,000
                                 less than or       or less and small
                                 equal to $1        businesses with
                                 million.           gross annual
                                                    revenues greater
                                                    than $250,000 but
                                                    less than or equal
                                                    to $1 million in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are small
                                                    businesses with
                                                    gross annual
                                                    revenues greater
                                                    than $250,00 but
                                                    less than or equal
                                                    to $1 million.
Small Farm Loans..............  Small farms with   Percentage of total
                                 gross annual       number of small
                                 revenues of        farms with gross
                                 $250,000 or less.  annual revenues of
                                                    $250,000 or less and
                                                    small farms with
                                                    gross annual
                                                    revenues greater
                                                    than $250,000 but
                                                    less than or equal
                                                    to $1 million in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are small farms
                                                    with gross annual
                                                    revenues of $250,000
                                                    or less.
                                Small farms with   Percentage of total
                                 gross annual       number of small
                                 revenues greater   farms with gross
                                 than $250,000      annual revenues of
                                 and less than or   $250,000 or less and
                                 equal to $1        small farms with
                                 million.           gross annual
                                                    revenues greater
                                                    than $250,000 but
                                                    less than or equal
                                                    to $1 million in the
                                                    applicable Retail
                                                    Lending Test Area
                                                    that are small farms
                                                    with gross annual
                                                    revenues greater
                                                    than $250,000 but
                                                    less than or equal
                                                    to $1 million.
 
                              * * * * * * *
------------------------------------------------------------------------

* * * * *

Appendix B to Part 345 [Amended]

0
73. Amend appendix B by:
0
a. In paragraph I.a.2.i, removing ``12 CFR 25.42, 228.42, or 345.42'' 
and adding ``Sec.  345.42 or 12 CFR 25.42 or 228.42'' in its place;
0
b. In paragraphs III.b.1 and 2, removing ``12 CFR 228.26(a) or 
345.26(a)'' and ``12 CFR 25.42(b), 228.42(b), or 345.42(b)'' and adding 
``Sec.  345.26(a) or 12 CFR 228.26(a)'' and ``Sec.  345.42(b) or 12 CFR 
25.42(b) or 228.42(b)'' in their places, respectively; and
0
c. In paragraphs c.1 and 2, removing ``12 CFR 25.42(b), 228.42(b), or 
345.42(b)'' and adding ``Sec.  345.42(b) or 12 CFR 25.42(b) or 
228.42(b)'' in its place.

0
74. Add appendix F to read as follows:

Appendix F to Part 345--CRA Notice

    (a) Notice for main offices and, if an interstate bank, one 
branch office in each State.

Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the Federal 
Deposit Insurance Corporation (FDIC) evaluates our record of helping 
to meet the credit needs of this community consistent with safe and 
sound operations. The FDIC also takes this

[[Page 7210]]

record into account when deciding on certain applications submitted 
by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and 
our performance under the CRA, including, for example, information 
about our branches, such as their location and services provided at 
them; the public section of our most recent CRA Performance 
Evaluation, prepared by the FDIC; and comments received from the 
public relating to our performance in helping to meet community 
credit needs, as well as our responses to those comments. You may 
review this information today.
    At least 30 days before the beginning of each calendar quarter, 
the FDIC publishes a nationwide list of the banks that are scheduled 
for CRA examination for the next two quarters. This list is 
available from the Regional Director, FDIC (address). You may send 
written comments about our performance in helping to meet community 
credit needs to (name and address of official at bank) and FDIC 
Regional Director. You may also submit comments electronically 
through the FDIC's website at www.fdic.gov/regulations/cra. Your 
letter, together with any response by us, will be considered by the 
FDIC in evaluating our CRA performance and may be made public.
    You may ask to look at any comments received by the FDIC 
Regional Director. You may also request from the FDIC Regional 
Director an announcement of our applications covered by the CRA 
filed with the FDIC. [We are an affiliate of (name of holding 
company), a bank holding company. You may request from the (title of 
responsible official), Federal Reserve Bank of _______(address) an 
announcement of applications covered by the CRA filed by bank 
holding companies.]
    (b) Notice for branch offices.

Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the Federal 
Deposit Insurance Corporation (FDIC) evaluates our record of helping 
to meet the credit needs of this community consistent with safe and 
sound operations. The FDIC also takes this record into account when 
deciding on certain applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and 
our performance under the CRA. You may review today the public 
section of our most recent CRA evaluation, prepared by the FDIC, and 
a list of services provided at this branch. You may also have access 
to the following additional information, which we will make 
available to you at this branch within five calendar days after you 
make a request to us: (1) a map showing the assessment area 
containing this branch, which is the area in which the FDIC 
evaluates our CRA performance in this community; (2) information 
about our branches in this assessment area; (3) a list of services 
we provide at those locations; (4) data on our lending performance 
in this assessment area; and (5) copies of all written comments 
received by us that specifically relate to our CRA performance in 
this assessment area, and any responses we have made to those 
comments. If we are operating under an approved strategic plan, you 
may also have access to a copy of the plan.
    [If you would like to review information about our CRA 
performance in other communities served by us, the public file for 
our entire bank is available at (name of office located in state), 
located at (address).]
    At least 30 days before the beginning of each calendar quarter, 
the FDIC publishes a nationwide list of the banks that are scheduled 
for CRA examination for the next two quarters. This list is 
available from the Regional Director, FDIC (address). You may send 
written comments about our performance in helping to meet community 
credit needs to (name and address of official at bank) and the FDIC 
Regional Director. You may also submit comments electronically 
through the FDIC's website at www.fdic.gov/regulations/cra. Your 
letter, together with any response by us, will be considered by the 
FDIC in evaluating our CRA performance and may be made public.
    You may ask to look at any comments received by the FDIC 
Regional Director. You may also request from the FDIC Regional 
Director an announcement of our applications covered by the CRA 
filed with the FDIC. [We are an affiliate of (name of holding 
company), a bank holding company. You may request from the (title of 
responsible official), Federal Reserve Bank of _______(address) an 
announcement of applications covered by the CRA filed by bank 
holding companies.]

0
75. Effective April 1, 2024, through January 1, 2031, add appendix G to 
read as follows:

Appendix G to Part 345--Community Reinvestment Regulations

    Note:  The content of this appendix reproduces part 345 
implementing the Community Reinvestment Act as of March 31, 2024. 
Cross-references to CFR parts (as well as to included sections, 
subparts, and appendices) in this appendix are to those provisions 
as contained within this appendix and the CFR as of March 31, 2024.

PART 345--COMMUNITY REINVESTMENT

Subpart A--General


Sec.  [thinsp]345.11  Authority, purposes, and scope.

    (a) Authority and OMB control number--(1) Authority. The authority 
for this part is 12 U.S.C. 1814-1817, 1819-1820, 1828, 1831u and 2901-
2907, 3103-3104, and 3108(a).
    (2) OMB control number. The information collection requirements 
contained in this part were approved by the Office of Management and 
Budget under the provisions of 44 U.S.C. 3501 et seq. and have been 
assigned OMB control number 3064-0092.
    (b) Purposes. In enacting the Community Reinvestment Act (CRA), the 
Congress required each appropriate Federal financial supervisory agency 
to assess an institution's record of helping to meet the credit needs 
of the local communities in which the institution is chartered, 
consistent with the safe and sound operation of the institution, and to 
take this record into account in the agency's evaluation of an 
application for a deposit facility by the institution. This part is 
intended to carry out the purposes of the CRA by:
    (1) Establishing the framework and criteria by which the Federal 
Deposit Insurance Corporation (FDIC) assesses a bank's record of 
helping to meet the credit needs of its entire community, including 
low- and moderate-income neighborhoods, consistent with the safe and 
sound operation of the bank; and
    (2) Providing that the FDIC takes that record into account in 
considering certain applications.
    (c) Scope--(1) General. Except for certain special purpose banks 
described in paragraph (c)(3) of this section, this part applies to all 
insured State nonmember banks, including insured State branches as 
described in paragraph (c)(2) and any uninsured State branch that 
results from an acquisition described in section 5(a)(8) of the 
International Banking Act of 1978 (12 U.S.C. 3103(a)(8)).
    (2) Insured State branches. Insured State branches are branches of 
a foreign bank established and operating under the laws of any State, 
the deposits of which are insured in accordance with the provisions of 
the Federal Deposit Insurance Act. In the case of insured State 
branches, references in this part to main office mean the principal 
branch within the United States and the term branch or branches refers 
to any insured State branch or branches located within the United 
States. The assessment area of an insured State branch is the community 
or communities located within the United States served by the branch as 
described in Sec.  345.41.
    (3) Certain special purpose banks. This part does not apply to 
special purpose banks that do not perform commercial or retail banking 
services by granting credit to the public in the ordinary course of 
business, other than as incident to their specialized operations. These 
banks include banker's banks, as defined in 12 U.S.C. 24(Seventh), and 
banks that engage only in one or more of the following activities: 
providing cash management controlled disbursement services or serving 
as correspondent banks, trust companies, or clearing agents.


Sec.  [thinsp]345.12  Definitions.

    For purposes of this part, the following definitions apply:

[[Page 7211]]

    (a) Affiliate means any company that controls, is controlled by, or 
is under common control with another company. The term control has the 
meaning given to that term in 12 U.S.C. 1841(a)(2), and a company is 
under common control with another company if both companies are 
directly or indirectly controlled by the same company.
    (b) Area median income means:
    (1) The median family income for the MSA, if a person or geography 
is located in an MSA, or for the metropolitan division, if a person or 
geography is located in an MSA that has been subdivided into 
metropolitan divisions; or
    (2) The statewide nonmetropolitan median family income, if a person 
or geography is located outside an MSA.
    (c) Assessment area means a geographic area delineated in 
accordance with Sec.  [thinsp]345.41.
    (d) Remote Service Facility (RSF) means an automated, unstaffed 
banking facility owned or operated by, or operated exclusively for, the 
bank, such as an automated teller machine, cash dispensing machine, 
point-of-sale terminal, or other remote electronic facility, at which 
deposits are received, cash dispersed, or money lent.
    (e) Bank means a State nonmember bank, as that term is defined in 
section 3(e)(2) of the Federal Deposit Insurance Act, as amended (FDIA) 
(12 U.S.C. 1813(e)(2)), with Federally insured deposits, except as 
provided in Sec.  [thinsp]345.11(c). The term bank also includes an 
insured State branch as defined in Sec.  [thinsp]345.11(c).
    (f) Branch means a staffed banking facility authorized as a branch, 
whether shared or unshared, including, for example, a mini-branch in a 
grocery store or a branch operated in conjunction with any other local 
business or nonprofit organization. The term ``branch'' only includes a 
``domestic branch'' as that term is defined in section 3(o) of the FDIA 
(12 U.S.C. 1813(o)).
    (g) Community development means:
    (1) Affordable housing (including multifamily rental housing) for 
low- or moderate-income individuals;
    (2) Community services targeted to low- or moderate-income 
individuals;
    (3) Activities that promote economic development by financing 
businesses or farms that meet the size eligibility standards of the 
Small Business Administration's Development Company or Small Business 
Investment Company programs (13 CFR 121.301) or have gross annual 
revenues of $1 million or less; or
    (4) Activities that revitalize or stabilize--
    (i) Low-or moderate-income geographies;
    (ii) Designated disaster areas; or
    (iii) Distressed or underserved nonmetropolitan middle-income 
geographies designated by the Board of Governors of the Federal Reserve 
System, FDIC, and Office of the Comptroller of the Currency, based on--
    (A) Rates of poverty, unemployment, and population loss; or
    (B) Population size, density, and dispersion. Activities revitalize 
and stabilize geographies designated based on population size, density, 
and dispersion if they help to meet essential community needs, 
including needs of low- and moderate-income individuals.
    (h) Community development loan means a loan that:
    (1) Has as its primary purpose community development; and
    (2) Except in the case of a wholesale or limited purpose bank:
    (i) Has not been reported or collected by the bank or an affiliate 
for consideration in the bank's assessment as a home mortgage, small 
business, small farm, or consumer loan, unless the loan is for a 
multifamily dwelling (as defined in Sec.  [thinsp]1003.2(n) of this 
title); and
    (ii) Benefits the bank's assessment area(s) or a broader statewide 
or regional area that includes the bank's assessment area(s).
    (i) Community development service means a service that:
    (1) Has as its primary purpose community development;
    (2) Is related to the provision of financial services; and
    (3) Has not been considered in the evaluation of the bank's retail 
banking services under Sec.  [thinsp]345.24(d).
    (j) Consumer loan means a loan to one or more individuals for 
household, family, or other personal expenditures. A consumer loan does 
not include a home mortgage, small business, or small farm loan. 
Consumer loans include the following categories of loans:
    (1) Motor vehicle loan, which is a consumer loan extended for the 
purchase of and secured by a motor vehicle;
    (2) Credit card loan, which is a line of credit for household, 
family, or other personal expenditures that is accessed by a borrower's 
use of a ``credit card,'' as this term is defined in Sec.  
[thinsp]1026.2 of this title;
    (3) Other secured consumer loan, which is a secured consumer loan 
that is not included in one of the other categories of consumer loans; 
and
    (4) Other unsecured consumer loan, which is an unsecured consumer 
loan that is not included in one of the other categories of consumer 
loans.
    (k) Geography means a census tract delineated by the United States 
Bureau of the Census in the most recent decennial census.
    (l) Home mortgage loan means a closed-end mortgage loan or an open-
end line of credit as these terms are defined under Sec.  
[thinsp]1003.2 of this title and that is not an excluded transaction 
under Sec.  [thinsp]1003.3(c)(1) through (10) and (13) of this title.
    (m) Income level includes:
    (1) Low-income, which means an individual income that is less than 
50 percent of the area median income or a median family income that is 
less than 50 percent in the case of a geography.
    (2) Moderate-income, which means an individual income that is at 
least 50 percent and less than 80 percent of the area median income or 
a median family income that is at least 50 and less than 80 percent in 
the case of a geography.
    (3) Middle-income, which means an individual income that is at 
least 80 percent and less than 120 percent of the area median income or 
a median family income that is at least 80 and less than 120 percent in 
the case of a geography.
    (4) Upper-income, which means an individual income that is 120 
percent or more of the area median income or a median family income 
that is 120 percent or more in the case of a geography.
    (n) Limited purpose bank means a bank that offers only a narrow 
product line (such as credit card or motor vehicle loans) to a regional 
or broader market and for which a designation as a limited purpose bank 
is in effect, in accordance with Sec.  [thinsp]345.25(b).
    (o) Loan location. A loan is located as follows:
    (1) A consumer loan is located in the geography where the borrower 
resides;
    (2) A home mortgage loan is located in the geography where the 
property to which the loan relates is located; and
    (3) A small business or small farm loan is located in the geography 
where the main business facility or farm is located or where the loan 
proceeds otherwise will be applied, as indicated by the borrower.
    (p) Loan production office means a staffed facility, other than a 
branch, that is open to the public and that provides lending-related 
services, such as loan information and applications.
    (q) Metropolitan division means a metropolitan division as defined 
by the Director of the Office of Management and Budget.
    (r) MSA means a metropolitan statistical area as defined by the 
Director of the Office of Management and Budget.

[[Page 7212]]

    (s) Nonmetropolitan area means any area that is not located in an 
MSA.
    (t) Qualified investment means a lawful investment, deposit, 
membership share, or grant that has as its primary purpose community 
development.
    (u) Small bank--(1) Definition. Small bank means a bank that, as of 
December 31 of either of the prior two calendar years, had assets of 
less than $1.503 billion. Intermediate small bank means a small bank 
with assets of at least $376 million as of December 31 of both of the 
prior two calendar years and less than $1.503 billion as of December 31 
of either of the prior two calendar years.
    (2) Adjustment. The dollar figures in paragraph (u)(1) of this 
section shall be adjusted annually and published by the FDIC, based on 
the year-to-year change in the average of the Consumer Price Index for 
Urban Wage Earners and Clerical Workers, not seasonally adjusted, for 
each twelve-month period ending in November, with rounding to the 
nearest million.
    (v) Small business loan means a loan included in ``loans to small 
businesses'' as defined in the instructions for preparation of the 
Consolidated Report of Condition and Income.
    (w) Small farm loan means a loan included in ``loans to small 
farms'' as defined in the instructions for preparation of the 
Consolidated Report of Condition and Income.
    (x) Wholesale bank means a bank that is not in the business of 
extending home mortgage, small business, small farm, or consumer loans 
to retail customers, and for which a designation as a wholesale bank is 
in effect, in accordance with Sec.  [thinsp]345.25(b).

Subpart B--Standards for Assessing Performance


Sec.  [thinsp]345.21  Performance tests, standards, and ratings, in 
general.

    (a) Performance tests and standards. The FDIC assesses the CRA 
performance of a bank in an examination as follows:
    (1) Lending, investment, and service tests. The FDIC applies the 
lending, investment, and service tests, as provided in Sec. Sec.  
345.22 through 345.24, in evaluating the performance of a bank, except 
as provided in paragraphs (a)(2), (a)(3), and (a)(4) of this section.
    (2) Community development test for wholesale or limited purpose 
banks. The FDIC applies the community development test for a wholesale 
or limited purpose bank, as provided in Sec.  [thinsp]345.25, except as 
provided in paragraph (a)(4) of this section.
    (3) Small bank performance standards. The FDIC applies the small 
bank performance standards as provided in Sec.  [thinsp]345.26 in 
evaluating the performance of a small bank or a bank that was a small 
bank during the prior calendar year, unless the bank elects to be 
assessed as provided in paragraphs (a)(1), (a)(2), or (a)(4) of this 
section. The bank may elect to be assessed as provided in paragraph 
(a)(1) of this section only if it collects and reports the data 
required for other banks under Sec.  [thinsp]345.42.
    (4) Strategic plan. The FDIC evaluates the performance of a bank 
under a strategic plan if the bank submits, and the FDIC approves, a 
strategic plan as provided in Sec.  345.27.
    (b) Performance context. The FDIC applies the tests and standards 
in paragraph (a) of this section and also considers whether to approve 
a proposed strategic plan in the context of:
    (1) Demographic data on median income levels, distribution of 
household income, nature of housing stock, housing costs, and other 
relevant data pertaining to a bank's assessment area(s);
    (2) Any information about lending, investment, and service 
opportunities in the bank's assessment area(s) maintained by the bank 
or obtained from community organizations, state, local, and tribal 
governments, economic development agencies, or other sources;
    (3) The bank's product offerings and business strategy as 
determined from data provided by the bank;
    (4) Institutional capacity and constraints, including the size and 
financial condition of the bank, the economic climate (national, 
regional, and local), 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);
    (5) The bank's past performance and the performance of similarly 
situated lenders;
    (6) The bank's public file, as described in Sec.  345.43, and any 
written comments about the bank's CRA performance submitted to the bank 
or the FDIC; and
    (7) Any other information deemed relevant by the FDIC.
    (c) Assigned ratings. The FDIC assigns to a bank one of the 
following four ratings pursuant to Sec.  [thinsp]345.28 and Appendix A 
of this part: ``outstanding''; ``satisfactory''; ``needs to improve''; 
or ``substantial noncompliance'' as provided in 12 U.S.C. 2906(b)(2). 
The rating assigned by the FDIC reflects the bank's record of helping 
to meet the credit needs of its entire community, including low- and 
moderate-income neighborhoods, consistent with the safe and sound 
operation of the bank.
    (d) Safe and sound operations. This part and the CRA do not require 
a bank to make loans or investments or to provide services that are 
inconsistent with safe and sound operations. To the contrary, the FDIC 
anticipates banks can meet the standards of this part with safe and 
sound loans, investments, and services on which the banks expect to 
make a profit. Banks are permitted and encouraged to develop and apply 
flexible underwriting standards for loans that benefit low- or 
moderate-income geographies or individuals, only if consistent with 
safe and sound operations.
    (e) Low-cost education loans provided to low-income borrowers. In 
assessing and taking into account the record of a bank under this part, 
the FDIC considers, as a factor, low-cost education loans originated by 
the bank to borrowers, particularly in its assessment area(s), who have 
an individual income that is less than 50 percent of the area median 
income. For purposes of this paragraph, ``low-cost education loans'' 
means any education loan, as defined in section 140(a)(7) of the Truth 
in Lending Act (15 U.S.C. 1650(a)(7)) (including a loan under a state 
or local education loan program), originated by the bank for a student 
at an ``institution of higher education,'' as that term is generally 
defined in sections 101 and 102 of the Higher Education Act of 1965 (20 
U.S.C. 1001 and 1002) and the implementing regulations published by the 
U.S. Department of Education, with interest rates and fees no greater 
than those of comparable education loans offered directly by the U.S. 
Department of Education. Such rates and fees are specified in section 
455 of the Higher Education Act of 1965 (20 U.S.C. 1087e).
    (f) Activities in cooperation with minority- or women-owned 
financial institutions and low-income credit unions. In assessing and 
taking into account the record of a nonminority-owned and nonwomen-
owned bank under this part, the FDIC considers as a factor capital 
investment, loan participation, and other ventures undertaken by the 
bank in cooperation with minority- and women-owned financial 
institutions and low-income credit unions. Such activities must help 
meet the credit needs of local communities in which the minority- and 
women-owned financial institutions and low-income credit unions are 
chartered. To be considered, such activities need not also benefit the 
bank's assessment area(s) or the broader

[[Page 7213]]

statewide or regional area that includes the bank's assessment area(s).


Sec.  345.22  Lending test.

    (a) Scope of test. (1) The lending test evaluates a bank's record 
of helping to meet the credit needs of its assessment area(s) through 
its lending activities by considering a bank's home mortgage, small 
business, small farm, and community development lending. If consumer 
lending constitutes a substantial majority of a bank's business, the 
FDIC will evaluate the bank's consumer lending in one or more of the 
following categories: motor vehicle, credit card, other secured, and 
other unsecured loans. In addition, at a bank's option, the FDIC will 
evaluate one or more categories of consumer lending, if the bank has 
collected and maintained, as required in Sec.  [thinsp]345.42(c)(1), 
the data for each category that the bank elects to have the FDIC 
evaluate.
    (2) The FDIC considers originations and purchases of loans. The 
FDIC will also consider any other loan data the bank may choose to 
provide, including data on loans outstanding, commitments and letters 
of credit.
    (3) A bank may ask the FDIC to consider loans originated or 
purchased by consortia in which the bank participates or by third 
parties in which the bank has invested only if the loans meet the 
definition of community development loans and only in accordance with 
paragraph (d) of this section. The FDIC will not consider these loans 
under any criterion of the lending test except the community 
development lending criterion.
    (b) Performance criteria. The FDIC evaluates a bank's lending 
performance pursuant to the following criteria:
    (1) Lending activity. The number and amount of the bank's home 
mortgage, small business, small farm, and consumer loans, if 
applicable, in the bank's assessment area(s);
    (2) Geographic distribution. The geographic distribution of the 
bank's home mortgage, small business, small farm, and consumer loans, 
if applicable, based on the loan location, including:
    (i) The proportion of the bank's lending in the bank's assessment 
area(s);
    (ii) The dispersion of lending in the bank's assessment area(s); 
and
    (iii) The number and amount of loans in low-, moderate-, middle-, 
and upper-income geographies in the bank's assessment area(s);
    (3) Borrower characteristics. The distribution, particularly in the 
bank's assessment area(s), of the bank's home mortgage, small business, 
small farm, and consumer loans, if applicable, based on borrower 
characteristics, including the number and amount of:
    (i) Home mortgage loans to low-, moderate-, middle-, and upper-
income individuals;
    (ii) Small business and small farm loans to businesses and farms 
with gross annual revenues of $1 million or less;
    (iii) Small business and small farm loans by loan amount at 
origination; and
    (iv) Consumer loans, if applicable, to low-, moderate-, middle-, 
and upper-income individuals;
    (4) Community development lending. The bank's community development 
lending, including the number and amount of community development 
loans, and their complexity and innovativeness; and
    (5) Innovative or flexible lending practices. The bank's use of 
innovative or flexible lending practices in a safe and sound manner to 
address the credit needs of low- or moderate-income individuals or 
geographies.
    (c) Affiliate lending. (1) At a bank's option, the FDIC will 
consider loans by an affiliate of the bank, if the bank provides data 
on the affiliate's loans pursuant to Sec.  [thinsp]345.42.
    (2) The FDIC considers affiliate lending subject to the following 
constraints:
    (i) No affiliate may claim a loan origination or loan purchase if 
another institution claims the same loan origination or purchase; and
    (ii) If a bank elects to have the FDIC consider loans within a 
particular lending category made by one or more of the bank's 
affiliates in a particular assessment area, the bank shall elect to 
have the FDIC consider, in accordance with paragraph (c)(1) of this 
section, all the loans within that lending category in that particular 
assessment area made by all of the bank's affiliates.
    (3) The FDIC does not consider affiliate lending in assessing a 
bank's performance under paragraph (b)(2)(i) of this section.
    (d) Lending by a consortium or a third party. Community development 
loans originated or purchased by a consortium in which the bank 
participates or by a third party in which the bank has invested:
    (1) Will be considered, at the bank's option, if the bank reports 
the data pertaining to these loans under Sec.  345.42(b)(2); and
    (2) May be allocated among participants or investors, as they 
choose, for purposes of the lending test, except that no participant or 
investor:
    (i) May claim a loan origination or loan purchase if another 
participant or investor claims the same loan origination or purchase; 
or
    (ii) May claim loans accounting for more than its percentage share 
(based on the level of its participation or investment) of the total 
loans originated by the consortium or third party.
    (e) Lending performance rating. The FDIC rates a bank's lending 
performance as provided in Appendix A of this part.


Sec.  345.23  Investment test.

    (a) Scope of test. The investment test evaluates a bank's record of 
helping to meet the credit needs of its assessment area(s) through 
qualified investments that benefit its assessment area(s) or a broader 
statewide or regional area that includes the bank's assessment area(s).
    (b) Exclusion. Activities considered under the lending or service 
tests may not be considered under the investment test.
    (c) Affiliate investment. At a bank's option, the FDIC will 
consider, in its assessment of a bank's investment performance, a 
qualified investment made by an affiliate of the bank, if the qualified 
investment is not claimed by any other institution.
    (d) Disposition of branch premises. Donating, selling on favorable 
terms, or making available on a rent-free basis a branch of the bank 
that is located in a predominantly minority neighborhood to a minority 
depository institution or women's depository institution (as these 
terms are defined in 12 U.S.C. 2907(b)) will be considered as a 
qualified investment.
    (e) Performance criteria. The FDIC evaluates the investment 
performance of a bank pursuant to the following criteria:
    (1) The dollar amount of qualified investments;
    (2) The innovativeness or complexity of qualified investments;
    (3) The responsiveness of qualified investments to credit and 
community development needs; and
    (4) The degree to which the qualified investments are not routinely 
provided by private investors.
    (f) Investment performance rating. The FDIC rates a bank's 
investment performance as provided in Appendix A of this part.


Sec.  [thinsp]345.24  Service test.

    (a) Scope of test. The service test evaluates a bank's record of 
helping to meet the credit needs of its assessment area(s) by analyzing 
both the availability and effectiveness of a bank's systems for 
delivering retail banking services and the extent and innovativeness of 
its community development services.
    (b) Area(s) benefited. Community development services must benefit 
a bank's assessment area(s) or a broader

[[Page 7214]]

statewide or regional area that includes the bank's assessment area(s).
    (c) Affiliate service. At a bank's option, the FDIC will consider, 
in its assessment of a bank's service performance, a community 
development service provided by an affiliate of the bank, if the 
community development service is not claimed by any other institution.
    (d) Performance criteria--retail banking services. The FDIC 
evaluates the availability and effectiveness of a bank's systems for 
delivering retail banking services, pursuant to the following criteria:
    (1) The current distribution of the bank's branches among low-, 
moderate-, middle-, and upper-income geographies;
    (2) In the context of its current distribution of the bank's 
branches, the bank's record of opening and closing branches, 
particularly branches located in low- or moderate-income geographies or 
primarily serving low- or moderate-income individuals;
    (3) The availability and effectiveness of alternative systems for 
delivering retail banking services (e.g., RSFs, RSFs 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) in low- and moderate-income geographies and to low- and 
moderate-income individuals; and
    (4) The range of services provided in low-, moderate-, middle-, and 
upper-income geographies and the degree to which the services are 
tailored to meet the needs of those geographies.
    (e) Performance criteria--community development services. The FDIC 
evaluates community development services pursuant to the following 
criteria:
    (1) The extent to which the bank provides community development 
services; and
    (2) The innovativeness and responsiveness of community development 
services.
    (f) Service performance rating. The FDIC rates a bank's service 
performance as provided in Appendix A of this part.


Sec.  [thinsp]345.25  Community development test for wholesale or 
limited purpose banks.

    (a) Scope of test. The FDIC assesses a wholesale or limited purpose 
bank's record of helping to meet the credit needs of its assessment 
area(s) under the community development test through its community 
development lending, qualified investments, or community development 
services.
    (b) Designation as a wholesale or limited purpose bank. In order to 
receive a designation as a wholesale or limited purpose bank, a bank 
shall file a request, in writing, with the FDIC, at least three months 
prior to the proposed effective date of the designation. If the FDIC 
approves the designation, it remains in effect until the bank requests 
revocation of the designation or until one year after the FDIC notifies 
the bank that the FDIC has revoked the designation on its own 
initiative.
    (c) Performance criteria. The FDIC evaluates the community 
development performance of a wholesale or limited purpose bank pursuant 
to the following criteria:
    (1) The number and amount of community development loans (including 
originations and purchases of loans and other community development 
loan data provided by the bank, such as data on loans outstanding, 
commitments, and letters of credit), qualified investments, or 
community development services;
    (2) The use of innovative or complex qualified investments, 
community development loans, or community development services and the 
extent to which the investments are not routinely provided by private 
investors; and
    (3) The bank's responsiveness to credit and community development 
needs.
    (d) Indirect activities. At a bank's option, the FDIC will consider 
in its community development performance assessment:
    (1) Qualified investments or community development services 
provided by an affiliate of the bank, if the investments or services 
are not claimed by any other institution; and
    (2) Community development lending by affiliates, consortia and 
third parties, subject to the requirements and limitations in Sec.  
[thinsp]345.22 (c) and (d).
    (e) Benefit to assessment area(s)--(1) Benefit inside assessment 
area(s). The FDIC considers all qualified investments, community 
development loans, and community development services that benefit 
areas within the bank's assessment area(s) or a broader statewide or 
regional area that includes the bank's assessment area(s).
    (2) Benefit outside assessment area(s). The FDIC considers the 
qualified investments, community development loans, and community 
development services that benefit areas outside the bank's assessment 
area(s), if the bank has adequately addressed the needs of its 
assessment area(s).
    (f) Community development performance rating. The FDIC rates a 
bank's community development performance as provided in Appendix A of 
this part.


Sec.  [thinsp]345.26  Small bank performance standards.

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


Sec.  345.27  Strategic plan.

    (a) Alternative election. The FDIC will assess a bank's record of 
helping to meet

[[Page 7215]]

the credit needs of its assessment area(s) under a strategic plan if:
    (1) The bank has submitted the plan to the FDIC as provided for in 
this section;
    (2) The FDIC has approved the plan;
    (3) The plan is in effect; and
    (4) The bank has been operating under an approved plan for at least 
one year.
    (b) Data reporting. The FDIC's approval of a plan does not affect 
the bank's obligation, if any, to report data as required by Sec.  
[thinsp]345.42.
    (c) Plans in general--(1) Term. A plan may have a term of no more 
than five years, and any multi-year plan must include annual interim 
measurable goals under which the FDIC will evaluate the bank's 
performance.
    (2) Multiple assessment areas. A bank with more than one assessment 
area may prepare a single plan for all of its assessment areas or one 
or more plans for one or more of its assessment areas.
    (3) Treatment of affiliates. Affiliated institutions may prepare a 
joint plan if the plan provides measurable goals for each institution. 
Activities may be allocated among institutions at the institutions' 
option, provided that the same activities are not considered for more 
than one institution.
    (d) Public participation in plan development. Before submitting a 
plan to the FDIC for approval, a bank shall:
    (1) Informally seek suggestions from members of the public in its 
assessment area(s) covered by the plan while developing the plan;
    (2) Once the bank has developed a plan, formally solicit public 
comment on the plan for at least 30 days by publishing notice in at 
least one newspaper of general circulation in each assessment area 
covered by the plan; and
    (3) During the period of formal public comment, make copies of the 
plan available for review by the public at no cost at all offices of 
the bank in any assessment area covered by the plan and provide copies 
of the plan upon request for a reasonable fee to cover copying and 
mailing, if applicable.
    (e) Submission of plan. The bank shall submit its plan to the FDIC 
at least three months prior to the proposed effective date of the plan. 
The bank shall also submit with its plan a description of its informal 
efforts to seek suggestions from members of the public, any written 
public comment received, and, if the plan was revised in light of the 
comment received, the initial plan as released for public comment.
    (f) Plan content--(1) Measurable goals. (i) A bank shall specify in 
its plan measurable goals for helping to meet the credit needs of each 
assessment area covered by the plan, particularly the needs of low- and 
moderate-income geographies and low- and moderate-income individuals, 
through lending, investment, and services, as appropriate.
    (ii) A bank shall address in its plan all three performance 
categories and, unless the bank has been designated as a wholesale or 
limited purpose bank, shall emphasize lending and lending-related 
activities. Nevertheless, a different emphasis, including a focus on 
one or more performance categories, may be appropriate if responsive to 
the characteristics and credit needs of its assessment area(s), 
considering public comment and the bank's capacity and constraints, 
product offerings, and business strategy.
    (2) Confidential information. A bank may submit additional 
information to the FDIC on a confidential basis, but the goals stated 
in the plan must be sufficiently specific to enable the public and the 
FDIC to judge the merits of the plan.
    (3) Satisfactory and outstanding goals. A bank shall specify in its 
plan measurable goals that constitute ``satisfactory'' performance. A 
plan may specify measurable goals that constitute ``outstanding'' 
performance. If a bank submits, and the FDIC approves, both 
``satisfactory'' and ``outstanding'' performance goals, the FDIC will 
consider the bank eligible for an ``outstanding'' performance rating.
    (4) Election if satisfactory goals not substantially met. A bank 
may elect in its plan that, if the bank fails to meet substantially its 
plan goals for a satisfactory rating, the FDIC will evaluate the bank's 
performance under the lending, investment, and service tests, the 
community development test, or the small bank performance standards, as 
appropriate.
    (g) Plan approval--(1) Timing. The FDIC will act upon a plan within 
60 calendar days after the FDIC receives the complete plan and other 
material required under paragraph (e) of this section. If the FDIC 
fails to act within this time period, the plan shall be deemed approved 
unless the FDIC extends the review period for good cause.
    (2) Public participation. In evaluating the plan's goals, the FDIC 
considers the public's involvement in formulating the plan, written 
public comment on the plan, and any response by the bank to public 
comment on the plan.
    (3) Criteria for evaluating plan. The FDIC evaluates a plan's 
measurable goals using the following criteria, as appropriate:
    (i) The extent and breadth of lending or lending-related 
activities, including, as appropriate, the distribution of loans among 
different geographies, businesses and farms of different sizes, and 
individuals of different income levels, the extent of community 
development lending, and the use of innovative or flexible lending 
practices to address credit needs;
    (ii) The amount and innovativeness, complexity, and responsiveness 
of the bank's qualified investments; and
    (iii) The availability and effectiveness of the bank's systems for 
delivering retail banking services and the extent and innovativeness of 
the bank's community development services.
    (h) Plan amendment. During the term of a plan, a bank may request 
the FDIC to approve an amendment to the plan on grounds that there has 
been a material change in circumstances. The bank shall develop an 
amendment to a previously approved plan in accordance with the public 
participation requirements of paragraph (d) of this section.
    (i) Plan assessment. The FDIC approves the goals and assesses 
performance under a plan as provided for in Appendix A of this part.


Sec.  [thinsp]345.28  Assigned ratings.

    (a) Ratings in general. Subject to paragraphs (b) and (c) of this 
section, the FDIC assigns to a bank a rating of ``outstanding,'' 
``satisfactory,'' ``needs to improve,'' or ``substantial 
noncompliance'' based on the bank's performance under the lending, 
investment and service tests, the community development test, the small 
bank performance standards, or an approved strategic plan, as 
applicable.
    (b) Lending, investment, and service tests. The FDIC assigns a 
rating for a bank assessed under the lending, investment, and service 
tests in accordance with the following principles:
    (1) A bank that receives an ``outstanding'' rating on the lending 
test receives an assigned rating of at least ``satisfactory'';
    (2) A bank that receives an ``outstanding'' rating on both the 
service test and the investment test and a rating of at least ``high 
satisfactory'' on the lending test receives an assigned rating of 
``outstanding''; and
    (3) No bank may receive an assigned rating of ``satisfactory'' or 
higher unless it receives a rating of at least ``low satisfactory'' on 
the lending test.
    (c) Effect of evidence of discriminatory or other illegal credit 
practices. (1) The FDIC's evaluation of a bank's CRA performance is 
adversely affected by evidence of discriminatory

[[Page 7216]]

or other illegal credit practices in any geography by the bank or in 
any assessment area by any affiliate whose loans have been considered 
as part of the bank's lending performance. In connection with any type 
of lending activity described in Sec.  [thinsp]345.22(a), evidence of 
discriminatory or other credit practices that violate an applicable 
law, rule, or regulation includes, but is not limited to:
    (i) Discrimination against applicants on a prohibited basis in 
violation, for example, of the Equal Credit Opportunity Act or the Fair 
Housing Act;
    (ii) Violations of the Home Ownership and Equity Protection Act;
    (iii) Violations of section 5 of the Federal Trade Commission Act;
    (iv) Violations of section 8 of the Real Estate Settlement 
Procedures Act; and
    (v) Violations of the Truth in Lending Act provisions regarding a 
consumer's right of rescission.
    (2) In determining the effect of evidence of practices described in 
paragraph (c)(1) of this section on the bank's assigned rating, the 
FDIC considers 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; and any other relevant information.


Sec.  [thinsp]345.29  Effect of CRA performance on applications.

    (a) CRA performance. Among other factors, the FDIC takes into 
account the record of performance under the CRA of each applicant bank 
in considering an application for approval of:
    (1) The establishment of a domestic branch or other facility with 
the ability to accept deposits;
    (2) The relocation of the bank's main office or a branch;
    (3) The merger, consolidation, acquisition of assets, or assumption 
of liabilities; and
    (4) Deposit insurance for a newly chartered financial institution.
    (b) New financial institutions. A newly chartered financial 
institution shall submit with its application for deposit insurance a 
description of how it will meet its CRA objectives. The FDIC takes the 
description into account in considering the application and may deny or 
condition approval on that basis.
    (c) Interested parties. The FDIC takes into account any views 
expressed by interested parties that are submitted in accordance with 
the FDIC's procedures set forth in part 303 of this chapter in 
considering CRA performance in an application listed in paragraphs (a) 
and (b) of this section.
    (d) Denial or conditional approval of application. A bank's record 
of performance may be the basis for denying or conditioning approval of 
an application listed in paragraph (a) of this section.

Subpart C--Records, Reporting, and Disclosure Requirements


Sec.  [thinsp]345.41  Assessment area delineation.

    (a) In general. A bank shall delineate one or more assessment areas 
within which the FDIC evaluates the bank's record of helping to meet 
the credit needs of its community. The FDIC does not evaluate the 
bank's delineation of its assessment area(s) as a separate performance 
criterion, but the FDIC reviews the delineation for compliance with the 
requirements of this section.
    (b) Geographic area(s) for wholesale or limited purpose banks. The 
assessment area(s) for a wholesale or limited purpose bank must consist 
generally of one or more MSAs or metropolitan divisions (using the MSA 
or metropolitan division boundaries that were in effect as of January 1 
of the calendar year in which the delineation is made) 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.
    (c) Geographic area(s) for other banks. The assessment area(s) for 
a bank other than a wholesale or limited purpose bank must:
    (1) Consist generally of one or more MSAs or metropolitan divisions 
(using the MSA or metropolitan division boundaries that were in effect 
as of January 1 of the calendar year in which the delineation is made) 
or one or more contiguous political subdivisions, such as counties, 
cities, or towns; and
    (2) Include the geographies in which the bank has its main office, 
its branches, and its deposit-taking RSFs, as well as the surrounding 
geographies in which the bank has originated or purchased a substantial 
portion of its loans (including home mortgage loans, small business and 
small farm loans, and any other loans the bank chooses, such as those 
consumer loans on which the bank elects to have its performance 
assessed).
    (d) Adjustments to geographic area(s). A bank may adjust the 
boundaries of its assessment area(s) to include only the portion of a 
political subdivision that it reasonably can be expected to serve. An 
adjustment is particularly appropriate in the case of an assessment 
area that otherwise would be extremely large, of unusual configuration, 
or divided by significant geographic barriers.
    (e) Limitations on the delineation of an assessment area. Each 
bank's assessment area(s):
    (1) Must consist only of whole geographies;
    (2) May not reflect illegal discrimination;
    (3) May not arbitrarily exclude low- or moderate-income 
geographies, taking into account the bank's size and financial 
condition; and
    (4) May not extend substantially beyond an MSA boundary or beyond a 
state boundary unless the assessment area is located in a multistate 
MSA. If a bank serves a geographic area that extends substantially 
beyond a state boundary, the bank shall delineate separate assessment 
areas for the areas in each state. If a bank serves a geographic area 
that extends substantially beyond an MSA boundary, the bank shall 
delineate separate assessment areas for the areas inside and outside 
the MSA.
    (f) Banks serving military personnel. Notwithstanding the 
requirements of this section, a bank whose business predominantly 
consists of serving the needs of military personnel or their dependents 
who are not located within a defined geographic area may delineate its 
entire deposit customer base as its assessment area.
    (g) Use of assessment area(s). The FDIC uses the assessment area(s) 
delineated by a bank in its evaluation of the bank's CRA performance 
unless the FDIC determines that the assessment area(s) do not comply 
with the requirements of this section.


Sec.  [thinsp]345.42  Data collection, reporting, and disclosure.

    (a) Loan information required to be collected and maintained. A 
bank, except a small bank, shall collect, and maintain in machine 
readable form (as prescribed by the FDIC) until the completion of its 
next CRA examination, the following data for each small business or 
small farm loan originated or purchased by the bank:
    (1) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (2) The loan amount at origination;
    (3) The loan location; and
    (4) An indicator whether the loan was to a business or farm with 
gross annual revenues of $1 million or less.
    (b) Loan information required to be reported. A bank, except a 
small bank or

[[Page 7217]]

a bank that was a small bank during the prior calendar year, shall 
report annually by March 1 to the FDIC in machine readable form (as 
prescribed by the FDIC) the following data for the prior calendar year:
    (1) Small business and small farm loan data. For each geography in 
which the bank originated or purchased a small business or small farm 
loan, the aggregate number and amount of loans:
    (i) With an amount at origination of $100,000 or less;
    (ii) With an amount at origination of more than $100,000 but less 
than or equal to $250,000;
    (iii) With an amount at origination of more than $250,000; and
    (iv) To businesses and farms with gross annual revenues of $1 
million or less (using the revenues that the bank considered in making 
its credit decision);
    (2) Community development loan data. The aggregate number and 
aggregate amount of community development loans originated or 
purchased; and
    (3) Home mortgage loans. If the bank is subject to reporting under 
part 1003 of this title, the location of each home mortgage loan 
application, origination, or purchase outside the MSAs in which the 
bank has a home or branch office (or outside any MSA) in accordance 
with the requirements of part 1003 of this title.
    (c) Optional data collection and maintenance--(1) Consumer loans. A 
bank may collect and maintain in machine readable form (as prescribed 
by the FDIC) data for consumer loans originated or purchased by the 
bank for consideration under the lending test. A bank may maintain data 
for one or more of the following categories of consumer loans: motor 
vehicle, credit card, other secured, and other unsecured. If the bank 
maintains data for loans in a certain category, it shall maintain data 
for all loans originated or purchased within that category. The bank 
shall maintain data separately for each category, including for each 
loan:
    (i) A unique number or alpha-numeric symbol that can be used to 
identify the relevant loan file;
    (ii) The loan amount at origination or purchase;
    (iii) The loan location; and
    (iv) The gross annual income of the borrower that the bank 
considered in making its credit decision.
    (2) Other loan data. At its option, a bank may provide other 
information concerning its lending performance, including additional 
loan distribution data.
    (d) Data on affiliate lending. A bank that elects to have the FDIC 
consider loans by an affiliate, for purposes of the lending or 
community development test or an approved strategic plan, shall 
collect, maintain, and report for those loans the data that the bank 
would have collected, maintained, and reported pursuant to paragraphs 
(a), (b), and (c) of this section had the loans been originated or 
purchased by the bank. For home mortgage loans, the bank shall also be 
prepared to identify the home mortgage loans reported under part 1003 
of this title by the affiliate.
    (e) Data on lending by a consortium or a third party. A bank that 
elects to have the FDIC consider community development loans by a 
consortium or third party, for purposes of the lending or community 
development tests or an approved strategic plan, shall report for those 
loans the data that the bank would have reported under paragraph (b)(2) 
of this section had the loans been originated or purchased by the bank.
    (f) Small banks electing evaluation under the lending, investment, 
and service tests. A bank that qualifies for evaluation under the small 
bank performance standards but elects evaluation under the lending, 
investment, and service tests shall collect, maintain, and report the 
data required for other banks pursuant to paragraphs (a) and (b) of 
this section.
    (g) Assessment area data. A bank, except a small bank or a bank 
that was a small bank during the prior calendar year, shall collect and 
report to the FDIC by March 1 of each year a list for each assessment 
area showing the geographies within the area.
    (h) CRA Disclosure Statement. The FDIC prepares annually for each 
bank that reports data pursuant to this section a CRA Disclosure 
Statement that contains, on a state-by-state basis:
    (1) For each county (and for each assessment area smaller than a 
county) with a population of 500,000 persons or fewer in which the bank 
reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans 
reported as originated or purchased located in low-, moderate-, middle-
, and upper-income geographies;
    (ii) A list grouping each geography according to whether the 
geography is low-, moderate-, middle-, or upper-income;
    (iii) A list showing each geography in which the bank reported a 
small business or small farm loan; and
    (iv) The number and amount of small business and small farm loans 
to businesses and farms with gross annual revenues of $1 million or 
less;
    (2) For each county (and for each assessment area smaller than a 
county) with a population in excess of 500,000 persons in which the 
bank reported a small business or small farm loan:
    (i) The number and amount of small business and small farm loans 
reported as originated or purchased located in geographies with median 
income relative to the area median income of less than 10 percent, 10 
or more but less than 20 percent, 20 or more but less than 30 percent, 
30 or more but less than 40 percent, 40 or more but less than 50 
percent, 50 or more but less than 60 percent, 60 or more but less than 
70 percent, 70 or more but less than 80 percent, 80 or more but less 
than 90 percent, 90 or more but less than 100 percent, 100 or more but 
less than 110 percent, 110 or more but less than 120 percent, and 120 
percent or more;
    (ii) A list grouping each geography in the county or assessment 
area according to whether the median income in the geography relative 
to the area median income is less than 10 percent, 10 or more but less 
than 20 percent, 20 or more but less than 30 percent, 30 or more but 
less than 40 percent, 40 or more but less than 50 percent, 50 or more 
but less than 60 percent, 60 or more but less than 70 percent, 70 or 
more but less than 80 percent, 80 or more but less than 90 percent, 90 
or more but less than 100 percent, 100 or more but less than 110 
percent, 110 or more but less than 120 percent, and 120 percent or 
more;
    (iii) A list showing each geography in which the bank reported a 
small business or small farm loan; and
    (iv) The number and amount of small business and small farm loans 
to businesses and farms with gross annual revenues of $1 million or 
less;
    (3) The number and amount of small business and small farm loans 
located inside each assessment area reported by the bank and the number 
and amount of small business and small farm loans located outside the 
assessment area(s) reported by the bank; and
    (4) The number and amount of community development loans reported 
as originated or purchased.
    (i) Aggregate disclosure statements. The FDIC, in conjunction with 
the Board of Governors of the Federal Reserve System and the Office of 
the Comptroller of the Currency, prepares annually, for each MSA or 
metropolitan division (including an MSA or metropolitan division that 
crosses a state boundary) and the nonmetropolitan portion of each 
state, an aggregate disclosure statement of small business and small 
farm lending

[[Page 7218]]

by all institutions subject to reporting under this part or parts 25, 
195, or 228 of this title. These disclosure statements indicate, for 
each geography, the number and amount of all small business and small 
farm loans originated or purchased by reporting institutions, except 
that the FDIC may adjust the form of the disclosure if necessary, 
because of special circumstances, to protect the privacy of a borrower 
or the competitive position of an institution.
    (j) Central data depositories. The FDIC makes the aggregate 
disclosure statements, described in paragraph (i) of this section, and 
the individual bank CRA Disclosure Statements, described in paragraph 
(h) of this section, available to the public at central data 
depositories. The FDIC publishes a list of the depositories at which 
the statements are available.


Sec.  345.43  Content and availability of public file.

    (a) Information available to the public. A bank shall maintain a 
public file that includes the following information:
    (1) All written comments received from the public for the current 
year and each of the prior two calendar years that specifically relate 
to the bank's performance in helping to meet community credit needs, 
and any response to the comments by the bank, if neither the comments 
nor the responses contain statements that reflect adversely on the good 
name or reputation of any persons other than the bank or publication of 
which would violate specific provisions of law;
    (2) A copy of the public section of the bank's most recent CRA 
Performance Evaluation prepared by the FDIC. The bank shall place this 
copy in the public file within 30 business days after its receipt from 
the FDIC;
    (3) A list of the bank's branches, their street addresses, and 
geographies;
    (4) A list of branches opened or closed by the bank during the 
current year and each of the prior two calendar years, their street 
addresses, and geographies;
    (5) A list of services (including hours of operation, available 
loan and deposit products, and transaction fees) generally offered at 
the bank's branches and descriptions of material differences in the 
availability or cost of services at particular branches, if any. At its 
option, a bank may include information regarding the availability of 
alternative systems for delivering retail banking services (e.g., RSFs, 
RSFs 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);
    (6) A map of each assessment area showing the boundaries of the 
area and identifying the geographies contained within the area, either 
on the map or in a separate list; and
    (7) Any other information the bank chooses.
    (b) Additional information available to the public--(1) Banks other 
than small banks. A bank, except a small bank or a bank that was a 
small bank during the prior calendar year, shall include in its public 
file the following information pertaining to the bank and its 
affiliates, if applicable, for each of the prior two calendar years:
    (i) If the bank has elected to have one or more categories of its 
consumer loans considered under the lending test, for each of these 
categories, the number and amount of loans:
    (A) To low-, moderate-, middle-, and upper-income individuals;
    (B) Located in low-, moderate-, middle-, and upper-income census 
tracts; and
    (C) Located inside the bank's assessment area(s) and outside the 
bank's assessment area(s); and
    (ii) The bank's CRA Disclosure Statement. The bank shall place the 
statement in the public file within three business days of its receipt 
from the FDIC.
    (2) Banks required to report Home Mortgage Disclosure Act (HMDA) 
data. A bank required to report home mortgage loan data pursuant part 
1003 of this title shall include in its public file a written notice 
that the institution's HMDA Disclosure Statement may be obtained on the 
Consumer Financial Protection Bureau's (Bureau's) website at 
www.consumerfinance.gov/hmda. In addition, a bank that elected to have 
the FDIC consider the mortgage lending of an affiliate shall include in 
its public file the name of the affiliate and a written notice that the 
affiliate's HMDA Disclosure Statement may be obtained at the Bureau's 
website. The bank shall place the written notice(s) in the public file 
within three business days after receiving notification from the 
Federal Financial Institutions Examination Council of the availability 
of the disclosure statement(s).
    (3) Small banks. A small bank or a bank that was a small bank 
during the prior calendar year shall include in its public file:
    (i) The bank's loan-to-deposit ratio for each quarter of the prior 
calendar year and, at its option, additional data on its loan-to-
deposit ratio; and
    (ii) The information required for other banks by paragraph (b)(1) 
of this section, if the bank has elected to be evaluated under the 
lending, investment, and service tests.
    (4) Banks with strategic plans. A bank that has been approved to be 
assessed under a strategic plan shall include in its public file a copy 
of that plan. A bank need not include information submitted to the FDIC 
on a confidential basis in conjunction with the plan.
    (5) Banks with less than satisfactory ratings. A bank that received 
a less than satisfactory rating during its most recent examination 
shall include in its public file a description of its current efforts 
to improve its performance in helping to meet the credit needs of its 
entire community. The bank shall update the description quarterly.
    (c) Location of public information. A bank shall make available to 
the public for inspection upon request and at no cost the information 
required in this section as follows:
    (1) At the main office and, if an interstate bank, at one branch 
office in each state, all information in the public file; and
    (2) At each branch:
    (i) A copy of the public section of the bank's most recent CRA 
Performance Evaluation and a list of services provided by the branch; 
and
    (ii) Within five calendar days of the request, all the information 
in the public file relating to the assessment area in which the branch 
is located.
    (d) Copies. Upon request, a bank shall provide copies, either on 
paper or in another form acceptable to the person making the request, 
of the information in its public file. The bank may charge a reasonable 
fee not to exceed the cost of copying and mailing (if applicable).
    (e) Updating. Except as otherwise provided in this section, a bank 
shall ensure that the information required by this section is current 
as of April 1 of each year.


Sec.  345.44  Public notice by banks.

    A bank shall provide in the public lobby of its main office and 
each of its branches the appropriate public notice set forth in 
Appendix B of this part. Only a branch of a bank having more than one 
assessment area shall include the bracketed material in the notice for 
branch offices. Only a bank that is an affiliate of a holding company 
shall include the next to the last sentence of the notices. A bank 
shall include the last sentence of the notices only if it is an 
affiliate of a holding company that is not prevented by statute from 
acquiring additional banks.

[[Page 7219]]

Sec.  345.45  Publication of planned examination schedule.

    The FDIC publishes at least 30 days in advance of the beginning of 
each calendar quarter a list of banks scheduled for CRA examinations in 
that quarter.

Appendix A to Part 345--Ratings

    (a) Ratings in general. (1) In assigning a rating, the FDIC 
evaluates a bank's performance under the applicable performance 
criteria in this part, in accordance with Sec. Sec.  345.21 and 
345.28. This includes consideration of low-cost education loans 
provided to low-income borrowers and activities in cooperation with 
minority- or women-owned financial institutions and low-income 
credit unions, as well as adjustments on the basis of evidence of 
discriminatory or other illegal credit practices.
    (2) A bank's performance need not fit each aspect of a 
particular rating profile in order to receive that rating, and 
exceptionally strong performance with respect to some aspects may 
compensate for weak performance in others. The bank's overall 
performance, however, must be consistent with safe and sound banking 
practices and generally with the appropriate rating profile as 
follows.
    (b) Banks evaluated under the lending, investment, and service 
tests--(1) Lending performance rating. The FDIC assigns each bank's 
lending performance one of the five following ratings.
    (i) Outstanding. The FDIC rates a bank's lending performance 
``outstanding'' if, in general, it demonstrates:
    (A) Excellent responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in 
its assessment area(s);
    (B) A substantial majority of its loans are made in its 
assessment area(s);
    (C) An excellent geographic distribution of loans in its 
assessment area(s);
    (D) An excellent distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product 
lines offered by the bank;
    (E) An excellent record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross 
annual revenues of $1 million or less, consistent with safe and 
sound operations;
    (F) Extensive use of innovative or flexible lending practices in 
a safe and sound manner to address the credit needs of low- or 
moderate-income individuals or geographies; and
    (G) It is a leader in making community development loans.
    (ii) High satisfactory. The FDIC rates a bank's lending 
performance ``high satisfactory'' if, in general, it demonstrates:
    (A) Good responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in 
its assessment area(s);
    (B) A high percentage of its loans are made in its assessment 
area(s);
    (C) A good geographic distribution of loans in its assessment 
area(s);
    (D) A good distribution, particularly in its assessment area(s), 
of loans among individuals of different income levels and businesses 
(including farms) of different sizes, given the product lines 
offered by the bank;
    (E) A good record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross 
annual revenues of $1 million or less, consistent with safe and 
sound operations;
    (F) Use of innovative or flexible lending practices in a safe 
and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
    (G) It has made a relatively high level of community development 
loans.
    (iii) Low satisfactory. The FDIC rates a bank's lending 
performance ``low satisfactory'' if, in general, it demonstrates:
    (A) Adequate responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in 
its assessment area(s);
    (B) An adequate percentage of its loans are made in its 
assessment area(s);
    (C) An adequate geographic distribution of loans in its 
assessment area(s);
    (D) An adequate distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product 
lines offered by the bank;
    (E) An adequate record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross 
annual revenues of $1 million or less, consistent with safe and 
sound operations;
    (F) Limited use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or 
moderate-income individuals or geographies; and
    (G) It has made an adequate level of community development 
loans.
    (iv) Needs to improve. The FDIC rates a bank's lending 
performance ``needs to improve'' if, in general, it demonstrates:
    (A) Poor responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in 
its assessment area(s);
    (B) A small percentage of its loans are made in its assessment 
area(s);
    (C) A poor geographic distribution of loans, particularly to 
low- or moderate-income geographies, in its assessment area(s);
    (D) A poor distribution, particularly in its assessment area(s), 
of loans among individuals of different income levels and businesses 
(including farms) of different sizes, given the product lines 
offered by the bank;
    (E) A poor record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross 
annual revenues of $1 million or less, consistent with safe and 
sound operations;
    (F) Little use of innovative or flexible lending practices in a 
safe and sound manner to address the credit needs of low- or 
moderate-income individuals or geographies; and
    (G) It has made a low level of community development loans.
    (v) Substantial noncompliance. The FDIC rates a bank's lending 
performance as being in ``substantial noncompliance'' if, in 
general, it demonstrates:
    (A) A very poor responsiveness to credit needs in its assessment 
area(s), taking into account the number and amount of home mortgage, 
small business, small farm, and consumer loans, if applicable, in 
its assessment area(s);
    (B) A very small percentage of its loans are made in its 
assessment area(s);
    (C) A very poor geographic distribution of loans, particularly 
to low- or moderate-income geographies, in its assessment area(s);
    (D) A very poor distribution, particularly in its assessment 
area(s), of loans among individuals of different income levels and 
businesses (including farms) of different sizes, given the product 
lines offered by the bank;
    (E) A very poor record of serving the credit needs of highly 
economically disadvantaged areas in its assessment area(s), low-
income individuals, or businesses (including farms) with gross 
annual revenues of $1 million or less, consistent with safe and 
sound operations;
    (F) No use of innovative or flexible lending practices in a safe 
and sound manner to address the credit needs of low- or moderate-
income individuals or geographies; and
    (G) It has made few, if any, community development loans.
    (2) Investment performance rating. The FDIC assigns each bank's 
investment performance one of the five following ratings.
    (i) Outstanding. The FDIC rates a bank's investment performance 
``outstanding'' if, in general, it demonstrates:
    (A) An excellent level of qualified investments, particularly 
those that are not routinely provided by private investors, often in 
a leadership position;
    (B) Extensive use of innovative or complex qualified 
investments; and
    (C) Excellent responsiveness to credit and community development 
needs.
    (ii) High satisfactory. The FDIC rates a bank's investment 
performance ``high satisfactory'' if, in general, it demonstrates:
    (A) A significant level of qualified investments, particularly 
those that are not routinely provided by private investors, 
occasionally in a leadership position;
    (B) Significant use of innovative or complex qualified 
investments; and
    (C) Good responsiveness to credit and community development 
needs.

[[Page 7220]]

    (iii) Low satisfactory. The FDIC rates a bank's investment 
performance ``low satisfactory'' if, in general, it demonstrates:
    (A) An adequate level of qualified investments, particularly 
those that are not routinely provided by private investors, although 
rarely in a leadership position;
    (B) Occasional use of innovative or complex qualified 
investments; and
    (C) Adequate responsiveness to credit and community development 
needs.
    (iv) Needs to improve. The FDIC rates a bank's investment 
performance ``needs to improve'' if, in general, it demonstrates:
    (A) A poor level of qualified investments, particularly those 
that are not routinely provided by private investors;
    (B) Rare use of innovative or complex qualified investments; and
    (C) Poor responsiveness to credit and community development 
needs.
    (v) Substantial noncompliance. The FDIC rates a bank's 
investment performance as being in ``substantial noncompliance'' if, 
in general, it demonstrates:
    (A) Few, if any, qualified investments, particularly those that 
are not routinely provided by private investors;
    (B) No use of innovative or complex qualified investments; and
    (C) Very poor responsiveness to credit and community development 
needs.
    (3) Service performance rating. The FDIC assigns each bank's 
service performance one of the five following ratings.
    (i) Outstanding. The FDIC rates a bank's service performance 
``outstanding'' if, in general, the bank demonstrates:
    (A) Its service delivery systems are readily accessible to 
geographies and individuals of different income levels in its 
assessment area(s);
    (B) To the extent changes have been made, its record of opening 
and closing branches has improved the accessibility of its delivery 
systems, particularly in low- or moderate-income geographies or to 
low- or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) 
are tailored to the convenience and needs of its assessment area(s), 
particularly low- or moderate-income geographies or low- or 
moderate-income individuals; and
    (D) It is a leader in providing community development services.
    (ii) High satisfactory. The FDIC rates a bank's service 
performance ``high satisfactory'' if, in general, the bank 
demonstrates:
    (A) Its service delivery systems are accessible to geographies 
and individuals of different income levels in its assessment 
area(s);
    (B) To the extent changes have been made, its record of opening 
and closing branches has not adversely affected the accessibility of 
its delivery systems, particularly in low- and moderate-income 
geographies and to low- and moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) 
do not vary in a way that inconveniences its assessment area(s), 
particularly low- and moderate-income geographies and low- and 
moderate-income individuals; and
    (D) It provides a relatively high level of community development 
services.
    (iii) Low satisfactory. The FDIC rates a bank's service 
performance ``low satisfactory'' if, in general, the bank 
demonstrates:
    (A) Its service delivery systems are reasonably accessible to 
geographies and individuals of different income levels in its 
assessment area(s);
    (B) To the extent changes have been made, its record of opening 
and closing branches has generally not adversely affected the 
accessibility of its delivery systems, particularly in low- and 
moderate-income geographies and to low- and moderate-income 
individuals;
    (C) Its services (including, where appropriate, business hours) 
do not vary in a way that inconveniences its assessment area(s), 
particularly low- and moderate-income geographies and low- and 
moderate-income individuals; and
    (D) It provides an adequate level of community development 
services.
    (iv) Needs to improve. The FDIC rates a bank's service 
performance ``needs to improve'' if, in general, the bank 
demonstrates:
    (A) Its service delivery systems are unreasonably inaccessible 
to portions of its assessment area(s), particularly to low- or 
moderate-income geographies or to low- or moderate-income 
individuals;
    (B) To the extent changes have been made, its record of opening 
and closing branches has adversely affected the accessibility its 
delivery systems, particularly in low- or moderate-income 
geographies or to low- or moderate-income individuals;
    (C) Its services (including, where appropriate, business hours) 
vary in a way that inconveniences its assessment area(s), 
particularly low- or moderate-income geographies or low- or 
moderate-income individuals; and
    (D) It provides a limited level of community development 
services.
    (v) Substantial noncompliance. The FDIC rates a bank's service 
performance as being in ``substantial noncompliance'' if, in 
general, the bank demonstrates:
    (A) Its service delivery systems are unreasonably inaccessible 
to significant portions of its assessment area(s), particularly to 
low- or moderate-income geographies or to low- or moderate-income 
individuals;
    (B) To the extent changes have been made, its record of opening 
and closing branches has significantly adversely affected the 
accessibility of its delivery systems, particularly in low- or 
moderate-income geographies or to low- or moderate-income 
individuals;
    (C) Its services (including, where appropriate, business hours) 
vary in a way that significantly inconveniences its assessment 
area(s), particularly low- or moderate-income geographies or low- or 
moderate-income individuals; and
    (D) It provides few, if any, community development services.
    (c) Wholesale or limited purpose banks. The FDIC assigns each 
wholesale or limited purpose bank's community development 
performance one of the four following ratings.
    (1) Outstanding. The FDIC rates a wholesale or limited purpose 
bank's community development performance ``outstanding'' if, in 
general, it demonstrates:
    (i) A high level of community development loans, community 
development services, or qualified investments, particularly 
investments that are not routinely provided by private investors;
    (ii) Extensive use of innovative or complex qualified 
investments, community development loans, or community development 
services; and
    (iii) Excellent responsiveness to credit and community 
development needs in its assessment area(s).
    (2) Satisfactory. The FDIC rates a wholesale or limited purpose 
bank's community development performance ``satisfactory'' if, in 
general, it demonstrates:
    (i) An adequate level of community development loans, community 
development services, or qualified investments, particularly 
investments that are not routinely provided by private investors;
    (ii) Occasional use of innovative or complex qualified 
investments, community development loans, or community development 
services; and
    (iii) Adequate responsiveness to credit and community 
development needs in its assessment area(s).
    (3) Needs to improve. The FDIC rates a wholesale or limited 
purpose bank's community development performance as ``needs to 
improve'' if, in general, it demonstrates:
    (i) A poor level of community development loans, community 
development services, or qualified investments, particularly 
investments that are not routinely provided by private investors;
    (ii) Rare use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Poor responsiveness to credit and community development 
needs in its assessment area(s).
    (4) Substantial noncompliance. The FDIC rates a wholesale or 
limited purpose bank's community development performance in 
``substantial noncompliance'' if, in general, it demonstrates:
    (i) Few, if any, community development loans, community 
development services, or qualified investments, particularly 
investments that are not routinely provided by private investors;
    (ii) No use of innovative or complex qualified investments, 
community development loans, or community development services; and
    (iii) Very poor responsiveness to credit and community 
development needs in its assessment area(s).
    (d) Banks evaluated under the small bank performance standards--
(1) Lending test ratings--(i) Eligibility for a satisfactory lending 
test rating. The FDIC rates a small bank's lending performance 
``satisfactory'' if, in general, the bank demonstrates:
    (A) A reasonable loan-to-deposit ratio (considering seasonal 
variations) given the bank's size, financial condition, the credit 
needs of its assessment area(s), and taking

[[Page 7221]]

into account, as appropriate, other lending-related activities such 
as loan originations for sale to the secondary markets and community 
development loans and qualified investments;
    (B) A majority of its loans and, as appropriate, other lending-
related activities, are in its assessment area;
    (C) A distribution of loans to and, as appropriate, other 
lending-related activities for individuals of different income 
levels (including low- and moderate-income individuals) and 
businesses and farms of different sizes that is reasonable given the 
demographics of the bank's assessment area(s);
    (D) A record of taking appropriate action, when warranted, in 
response to written complaints, if any, about the bank's performance 
in helping to meet the credit needs of its assessment area(s); and
    (E) A reasonable geographic distribution of loans given the 
bank's assessment area(s).
    (ii) Eligibility for an ``outstanding'' lending test rating. A 
small bank that meets each of the standards for a ``satisfactory'' 
rating under this paragraph and exceeds some or all of those 
standards may warrant consideration for a lending test rating of 
``outstanding.''
    (iii) Needs to improve or substantial noncompliance ratings. A 
small bank may also receive a lending test rating of ``needs to 
improve'' or ``substantial noncompliance'' depending on the degree 
to which its performance has failed to meet the standard for a 
``satisfactory'' rating.
    (2) Community development test ratings for intermediate small 
banks--(i) Eligibility for a satisfactory community development test 
rating. The FDIC rates an intermediate small bank's community 
development performance ``satisfactory'' if the bank demonstrates 
adequate responsiveness to the community development needs of its 
assessment area(s) through community development loans, qualified 
investments, and community development services. The adequacy of the 
bank's response will depend on its capacity for such community 
development activities, its assessment area's need for such 
community development activities, and the availability of such 
opportunities for community development in the bank's assessment 
area(s).
    (ii) Eligibility for an outstanding community development test 
rating. The FDIC rates an intermediate small bank's community 
development performance ``outstanding'' if the bank demonstrates 
excellent responsiveness to community development needs in its 
assessment area(s) through community development loans, qualified 
investments, and community development services, as appropriate, 
considering the bank's capacity and the need and availability of 
such opportunities for community development in the bank's 
assessment area(s).
    (iii) Needs to improve or substantial noncompliance ratings. An 
intermediate small bank may also receive a community development 
test rating of ``needs to improve'' or ``substantial noncompliance'' 
depending on the degree to which its performance has failed to meet 
the standards for a ``satisfactory'' rating.
    (3) Overall rating--(i) Eligibility for a satisfactory overall 
rating. No intermediate small bank may receive an assigned overall 
rating of ``satisfactory'' unless it receives a rating of at least 
``satisfactory'' on both the lending test and the community 
development test.
    (ii) Eligibility for an outstanding overall rating. (A) An 
intermediate small bank that receives an ``outstanding'' rating on 
one test and at least ``satisfactory'' on the other test may receive 
an assigned overall rating of ``outstanding.''
    (B) A small bank that is not an intermediate small bank that 
meets each of the standards for a ``satisfactory'' rating under the 
lending test and exceeds some or all of those standards may warrant 
consideration for an overall rating of ``outstanding.'' In assessing 
whether a bank's performance is ``outstanding,'' the FDIC considers 
the extent to which the bank exceeds each of the performance 
standards for a ``satisfactory'' rating and its performance in 
making qualified investments and its performance in providing 
branches and other services and delivery systems that enhance credit 
availability in its assessment area(s).
    (iii) Needs to improve or substantial noncompliance overall 
ratings. A small bank may also receive a rating of ``needs to 
improve'' or ``substantial noncompliance'' depending on the degree 
to which its performance has failed to meet the standards for a 
``satisfactory'' rating.
    (e) Strategic plan assessment and rating--(1) Satisfactory 
goals. The FDIC approves as ``satisfactory'' measurable goals that 
adequately help to meet the credit needs of the bank's assessment 
area(s).
    (2) Outstanding goals. If the plan identifies a separate group 
of measurable goals that substantially exceed the levels approved as 
``satisfactory,'' the FDIC will approve those goals as 
``outstanding.''
    (3) Rating. The FDIC assesses the performance of a bank 
operating under an approved plan to determine if the bank has met 
its plan goals:
    (i) If the bank substantially achieves its plan goals for a 
satisfactory rating, the FDIC will rate the bank's performance under 
the plan as ``satisfactory.''
    (ii) If the bank exceeds its plan goals for a satisfactory 
rating and substantially achieves its plan goals for an outstanding 
rating, the FDIC will rate the bank's performance under the plan as 
``outstanding.''
    (iii) If the bank fails to meet substantially its plan goals for 
a satisfactory rating, the FDIC will rate the bank as either ``needs 
to improve'' or ``substantial noncompliance,'' depending on the 
extent to which it falls short of its plan goals, unless the bank 
elected in its plan to be rated otherwise, as provided in Sec.  
345.27(f)(4).

Appendix B to Part 345--CRA Notice

    (a) Notice for main offices and, if an interstate bank, one 
branch office in each state.

Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the Federal 
Deposit Insurance Corporation (FDIC) evaluates our record of helping 
to meet the credit needs of this community consistent with safe and 
sound operations. The FDIC also takes this record into account when 
deciding on certain applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and 
our performance under the CRA, including, for example, information 
about our branches, such as their location and services provided at 
them; the public section of our most recent CRA Performance 
Evaluation, prepared by the FDIC; and comments received from the 
public relating to our performance in helping to meet community 
credit needs, as well as our responses to those comments. You may 
review this information today.
    At least 30 days before the beginning of each quarter, the FDIC 
publishes a nationwide list of the banks that are scheduled for CRA 
examination in that quarter. This list is available from the 
Regional Director, FDIC (address). You may send written comments 
about our performance in helping to meet community credit needs to 
(name and address of official at bank) and FDIC Regional Director. 
You may also submit comments electronically through the FDIC's 
website at www.fdic.gov/regulations/cra. Your letter, together with 
any response by us, will be considered by the FDIC in evaluating our 
CRA performance and may be made public.
    You may ask to look at any comments received by the FDIC 
Regional Director. You may also request from the FDIC Regional 
Director an announcement of our applications covered by the CRA 
filed with the FDIC. We are an affiliate of (name of holding 
company), a bank holding company. You may request from the (title of 
responsible official), Federal Reserve Bank of 
______________(address) an announcement of applications covered by 
the CRA filed by bank holding companies.
    (b) Notice for branch offices.

Community Reinvestment Act Notice

    Under the Federal Community Reinvestment Act (CRA), the Federal 
Deposit Insurance Corporation (FDIC) evaluates our record of helping 
to meet the credit needs of this community consistent with safe and 
sound operations. The FDIC also takes this record into account when 
deciding on certain applications submitted by us.
    Your involvement is encouraged.
    You are entitled to certain information about our operations and 
our performance under the CRA. You may review today the public 
section of our most recent CRA evaluation, prepared by the FDIC, and 
a list of services provided at this branch. You may also have access 
to the following additional information, which we will make 
available to you at this branch within five calendar days after you 
make a request to us: (1) a map showing the assessment area 
containing this branch, which is the area in which the FDIC 
evaluates our CRA performance in this community; (2) information 
about our branches in this assessment area; (3) a list of services 
we provide at those locations; (4) data on our lending performance 
in this

[[Page 7222]]

assessment area; and (5) copies of all written comments received by 
us that specifically relate to our CRA performance in this 
assessment area, and any responses we have made to those comments. 
If we are operating under an approved strategic plan, you may also 
have access to a copy of the plan.
    [If you would like to review information about our CRA 
performance in other communities served by us, the public file for 
our entire bank is available at (name of office located in state), 
located at (address).]
    At least 30 days before the beginning of each quarter, the FDIC 
publishes a nationwide list of the banks that are scheduled for CRA 
examination in that quarter. This list is available from the 
Regional Director, FDIC (address). You may send written comments 
about our performance in helping to meet community credit needs to 
(name and address of official at bank) and the FDIC Regional 
Director. You may also submit comments electronically through the 
FDIC's website at www.fdic.gov/regulations/cra. Your letter, 
together with any response by us, will be considered by the FDIC in 
evaluating our CRA performance and may be made public.
    You may ask to look at any comments received by the FDIC 
Regional Director. You may also request from the FDIC Regional 
Director an announcement of our applications covered by the CRA 
filed with the FDIC. We are an affiliate of (name of holding 
company), a bank holding company. You may request from the (title of 
responsible official), Federal Reserve Bank of 
______________(address) an announcement of applications covered by 
the CRA filed by bank holding companies.

Michael J. Hsu,
Acting Comptroller of the Currency.

    By order of the Board of Governors of the Federal Reserve 
System.

Ann E. Misback,
Secretary of the Board.

Federal Deposit Insurance Corporation.

    By order of the Board of Directors.
    Dated at Washington, DC, on October 24, 2023.
James P. Sheesley,
Assistant Executive Secretary.
[FR Doc. 2023-25797 Filed 1-31-24; 8:45 am]
 BILLING CODE 4810-33-P; 6210-01-P; 6714-01-P