Federal Reserve Board: Merger Process Needs Guidelines for Community
Reinvestment Issues (Letter Report, 09/24/1999, GAO/GGD-99-180).

Pursuant to a congressional request, GAO reviewed large bank holding
company mergers and the impact of such mergers on low- and
modeate-income (LMI) areas, focusing on: (1) the Federal Reserve Board's
(FRB) legal responsibilities in assessing Bank Holding Company Act of
1956 (BHC) mergers for Community Reinvestment Act of 1977 (CRA)
performance; (2) FRB's process for assessing the CRA performance of six
large BHC merger applicants, including how FRB addressed the principal
public concerns related to the CRA performance; and (3) the premerger
and postmerger mortgage lending in LMI and minority communities for
three large BHC mergers.

GAO noted that: (1) in acting on a BHC merger application, FRB must
consider the convenience and needs of the community to be served under
the BHC Act and take into account the record of the relevant depository
institutions under CRA; (2) neither the BHC Act nor CRA, or their
legislative histories, provide guidance on how FRB is to take these
factors into account when considering a BHC merger application; (3) the
depository institutions' primary federal regulators have developed
guidance for their assessments of a depository institution's CRA
performance; (4) however, FRB has not developed guidance on how it
evaluates the CRA records of the merging BHCs; (5) for the six BHC
merger applications that GAO reviewed, FRB attempted to balance the
regulators' ratings of the depository institutions' CRA performance and
information presented through public comments that raised concerns with
the institutions' CRA records; (6) all of the bank subsidiaries included
in the six mergers had satisfactory or outstanding performance ratings
in their most recent CRA examinations; (7) the principal CRA concerns
raised by commenters included insufficient home mortgage lending,
insufficient small business lending, and branch closures in LMI areas;
(8) FRB analyzed Home Mortgage Disclosure Act of 1975 (HMDA) and small
business data to address concerns of insufficient home mortgage and
small business lending, respectively; (9) FRB's consideration of branch
closures was generally limited to a determination of whether the
applicant had an adequate branch closure policy and its past branch
closure record; (10) FRB approved all six mergers, but four of the
mergers were approved with conditions for the reporting of subsequent
branch closures; (11) FRB's lack of written guidance on how it addresses
public comments raising CRA concerns contributed to the concerns voiced
by community groups and the BHC applicants regarding the lack of
transparency in the merger application process; (12) on the basis of
GAO's analysis of home mortgage lending, BHC merger activity had not
been associated with adverse changes in single-family home mortgage
lending in minority and LMI areas in the major metropolitan areas served
by the acquired BHCs for the three BHC mergers GAO analyzed; and (13)
NBD Corporation's acquisition of First Chicago and Chemical Banking
Corporation's acquisition of Chase Manhattan Bank have been associated
with stable to increased lending in the relevant areas.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-99-180
     TITLE:  Federal Reserve Board: Merger Process Needs Guidelines for
	     Community Reinvestment Issues
      DATE:  09/24/1999
   SUBJECT:  Economically depressed areas
	     Corporate mergers
	     Economic analysis
	     Bank holding companies
	     Lending institutions
	     Community development programs
	     Banking regulation
	     Minorities
	     Bank examination
	     Mortgage loans

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    United States General Accounting Office GAO               Report
    to the Honorable Maxine Waters and the Honorable Bernard Sanders,
    House of Representatives September 1999    FEDERAL RESERVE BOARD
    Merger Process Needs Guidelines for Community Reinvestment Issues
    GAO/GGD-99-180 United States General Accounting Office
    General Government Division Washington, D.C.  20548 B-280468
    September 24, 1999 The Honorable Maxine Waters The Honorable
    Bernard Sanders House of Representatives As you requested, this
    report discusses large bank holding company1 (BHC) mergers and the
    impact of such mergers on lending in low- and moderate-income
    (LMI) areas.2  In reviewing BHC merger applications, the Federal
    Reserve Board (FRB) has a statutory responsibility, established by
    the Bank Holding Company Act of 1956 (BHC Act) and the Community
    Reinvestment Act of 1977 (CRA), to take into account an
    institution's record of community credit performance when
    evaluating the application. In addition, the BHC Act requires that
    FRB take into account the convenience and needs of the community
    to be served when reviewing BHC merger applications. As agreed
    with your offices, our objectives were to analyze (1) FRB's legal
    responsibilities in assessing BHC mergers for CRA performance; (2)
    FRB's process for assessing the CRA performance of six large BHC
    merger applicants, including how FRB addressed the principal
    public concerns related to the CRA performance; and (3) the
    premerger and postmerger mortgage lending in LMI and minority
    communities for three large BHC mergers.  To meet the first two
    objectives, we focused on six of the largest bank mergers in the
    period of 1995-98.3 1 A bank holding company consists of a parent
    company with one or more subsidiaries that may include banks,
    thrifts, and other entities providing services that the regulators
    consider closely related to banking. 2 You also asked us to
    discuss the impact of large bank mergers and enforcement of the
    Fair Housing Act and the Equal Credit Opportunity Act
    (collectively, the fair lending laws). We are conducting a
    separate assignment and issuing another report to address these
    issues. 3 The six large BHC mergers we reviewed were (1) NBD
    Bancorp, Inc.'s acquisition of First Chicago Corporation in 1995;
    (2) Fleet Financial Group's acquisition of Shawmut National
    Corporation in 1995; (3) Chemical Banking Corporation's
    acquisition of Chase Manhattan Corporation in 1996; (4)
    NationsBank Corporation's acquisition of Boatmen's Bancshares,
    Inc. in 1997; (5) NationsBank Corporation's acquisition of
    BankAmerica Corporation in 1998; and (6) Bank One Corporation's
    acquisition of NBD First Chicago Corporation in 1998. Page 1
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 In acting on a bank holding company merger application, FRB
    must Results in Brief    consider the convenience and needs of the
    community to be served under the BHC Act and take into account the
    record of the relevant depository institutions under CRA. Neither
    the BHC Act nor CRA, or their legislative histories, provide
    guidance on how FRB is to take these factors into account when
    considering a BHC merger application.  The depository
    institutions' primary federal regulators have developed guidance
    for their assessments of a depository institution's CRA
    performance.  However, FRB has not developed guidance on how it
    evaluates the CRA records, including the performance ratings and
    public comments comprising that record, of the merging BHCs. For
    the six BHC merger applications that we reviewed, FRB attempted to
    balance the regulators' ratings of the depository institutions'
    CRA performance and information presented through public comments
    that raised concerns with the institutions' CRA records.  All of
    the bank subsidiaries included in the six mergers had satisfactory
    or outstanding performance ratings in their most recent CRA
    examinations. The principal CRA concerns raised by commenters
    included insufficient home mortgage lending, insufficient small
    business lending, and branch closures in LMI areas. FRB analyzed
    Home Mortgage Disclosure Act of 1975 (HMDA) and small business
    data to address concerns of insufficient home mortgage and small
    business lending, respectively. FRB's consideration of branch
    closures was generally limited to a determination of whether the
    applicant had an adequate branch closure policy and its past
    branch closure record. FRB approved all six mergers, but four of
    the mergers were approved with conditions for the reporting of
    subsequent branch closures. FRB's lack of written guidance on how
    it addresses public comments raising CRA concerns contributed to
    the concerns voiced by community groups and the BHC applicants
    regarding the lack of transparency in the merger application
    process.  In this report, we recommend that FRB address this lack
    of transparency. On the basis of our analysis of home mortgage
    lending, BHC merger activity had not been associated with adverse
    changes in single-family home mortgage lending in minority and LMI
    areas in the major metropolitan areas served by the acquired BHCs
    for the three BHC mergers we analyzed.  NBD's acquisition of First
    Chicago and Chemical's acquisition of Chase Manhattan have been
    associated with stable to increased lending in the relevant areas.
    Fleet's acquisition of Shawmut has been associated with a decline
    in Fleet's market share in the relevant areas that mirrored its
    decline in overall market share in the Boston metropolitan
    statistical area. Page 2                   GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues B-280468 Under the
    BHC Act, a bank holding company must obtain FRB's approval
    Background    before merging with or acquiring another bank
    holding company. In reviewing an application filed by a bank
    holding company, FRB is required to consider several factors,
    including the financial and managerial resources of the applicant,
    the future prospects of both the applicant and the bank holding
    company that is to be acquired, the competitive effects of the
    merger, and the convenience and needs of the community to be
    served. Even before CRA was enacted, FRB's regulations called for
    public comments in connection with the merger applications
    pursuant to the BHC Act obligation of FRB to ensure that the
    merger would meet the convenience and needs of the local
    community.  The Board of Governors has the authority to delegate
    its application authority to the Reserve Banks if the application
    fits certain criteria.  However, an application may raise several
    issues that might require Board Action under such factors as the
    financial, managerial, and convenience and needs of the community,
    including the CRA performance of the applicant. FRB approved the
    six BHC mergers in our study.  With the exception of NBD's
    acquisition of First Chicago and Bank One's acquisition of NBD
    First Chicago, the lead bank subsidiaries4 also took actions to
    merge their operations.  Bank subsidiaries are also required to
    receive approval from their primary regulators for such
    combinations.  For three BHC mergers, the lead bank subsidiaries
    of the merging BHCs submitted their applications to their primary
    regulators after FRB approved their BHC applications. CRA requires
    all federal bank and thrift regulators-FRB, the Office of the
    Comptroller of the Currency (OCC), the Office of Thrift
    Supervision (OTS), and the Federal Deposit Insurance Corporation
    (FDIC)-to encourage depository institutions under their
    jurisdiction to help meet the credit needs in all areas of the
    community that the institution is chartered to serve, consistent
    with safe and sound operations.  CRA requires that the appropriate
    federal supervisory authority (1) assess the institution's record
    of meeting the credit needs of its entire community, including LMI
    areas, and (2) take that record into account in its evaluation of
    bank expansion applications.  Such applications include those to
    establish or relocate a branch or home office and applications for
    mergers, consolidations, or the purchase of assets or assumption
    of liabilities of a regulated financial institution.  Assessment
    areas, also called delineated areas, represent the 4 In this
    report, we refer to banks and thrifts that are subsidiaries of
    BHCs as bank subsidiaries.  Lead bank subsidiary means the largest
    insured depository institution controlled by the bank holding
    company at any time. Page 3
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 communities for which the regulators are to assess an
    institution's record of CRA performance.  CRA also requires the
    regulators to periodically assess an institution's community
    lending performance during examinations.  Only insured banks and
    thrifts are subject to the provisions of CRA.  On the basis of the
    findings of the examination, depository institutions are assigned
    a rating-that is, outstanding, satisfactory, needs to improve, or
    substantial noncompliance.  Nonbank financial institutions, such
    as mortgage companies, are not subject to CRA provisions.5 Unlike
    certain other banking laws, CRA does not provide regulators with
    the authority to take enforcement action on the basis of findings
    of noncompliance resulting from the examination process.  The CRA
    application evaluation process is the exclusive mechanism for
    enforcing the statute.  Regulations proposed in 1993 and 1994 by
    the regulators included a new set of sanctions to enforce CRA.
    According to the proposed regulations, a poor CRA rating would
    have been considered a violation of a bank's affirmative
    obligation to meet the credit needs of its entire community.  A
    bank that received a CRA rating of substantial noncompliance would
    have been subject to enforcement actions authorized by the Federal
    Deposit Insurance Act.6  In a letter to OCC dated December 15,
    1994, the Department of Justice (Justice) concluded that the
    agencies lack legal authority to use cease and desist orders and
    civil money penalties to combat noncompliance with CRA.  The final
    regulations did not contain the enforcement provisions, but,
    consistent with the statute, did require that the CRA record be
    taken into account in the application process. Since the initial
    enactment of CRA, the regulations that implement the act have been
    amended.7 In 1993, the Clinton Administration instructed the
    federal bank regulators to revise the CRA regulations by moving
    from a process- and paperwork-based system to a performance-based
    system focusing on results, especially the results in LMI areas of
    an institution's communities.  Based on these instructions, the
    federal banking agencies replaced the qualitative CRA examination
    system with a more quantitative system that is based on actual
    performance.  For large retail institutions, CRA performance is
    measured through the use of three tests as follows. 5 In this
    report, we refer to BHC subsidiaries that are not insured
    depository institutions, such as mortgage companies, as nonbank
    subsidiaries. 6 Section 8 of the Federal Deposit Insurance Act
    provides enforcement mechanisms to the regulators for violations
    of banking law.  Among the mechanisms are cease and desist orders
    and civil money penalties. 7 FRB implemented CRA with its
    Regulation BB. Page 4
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 *  The lending test entails a review of an institution's
    lending record, including originations and purchases of home
    mortgage, small business, small farm, and, at the institution's
    option, consumer loans throughout the institution's service area,
    including the LMI areas.  The lending test is weighted more
    heavily than the investment and service tests in the institution's
    overall CRA rating. *  The investment test evaluates an
    institution's investment in community development activities. *
    The service test requires the examiner to analyze an institution's
    system for delivering retail banking services and the extent and
    innovativeness of its community development services. In May 1995,
    the bank regulators issued the new CRA regulations (the
    performance-based CRA regulations).8  For large institutions, the
    performance-based CRA regulations became effective on July 1,
    1997. Therefore, CRA ratings that FRB relied upon in the six
    merger applications we considered were mostly from the previous
    process- and paperwork- based system. Most of the bank
    subsidiaries of the BHCs we reviewed were national banks regulated
    by OCC.  The exception was Chemical Bank, which is a state-
    chartered bank regulated by FRB and the New York State Banking
    Supervisor. HMDA was enacted to provide regulators and the public
    with information on home mortgage lending so that both could
    determine whether institutions were serving the credit needs of
    their communities.9  HMDA was amended in 1989 to include the
    collection of data on the race, sex, and income of applicants and
    the action taken on the application. Home mortgage lenders that
    are required to report are to submit HMDA data files for each loan
    application. HMDA reporting requirements first only applied to
    banks and their subsidiaries. Over the years, Congress has
    expanded HMDA's coverage to include mortgage banking subsidiaries
    of bank holding companies and independent mortgage companies that
    have assets above a certain level and a home or branch office in a
    metropolitan statistical area (MSA).  For data collection in 1998,
    depository institutions with an office in an MSA are covered if
    they had more than $29 million in assets as of December 31, 1997.
    Nondepository lenders are covered if they were located in or made
    loans in metropolitan areas and had assets of 8 A previous report,
    Community Reinvestment Act: Challenges Remain to Successfully
    Implement CRA, (GAO/GGD-96-23, Nov. 28, 1995), analyzed CRA and
    its implementing regulations. 9 FRB implemented HMDA with its
    Regulation C. Page 5
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 more than $10 million or if they originated 100 or more
    home purchase loans in the preceding year. FRB's Regulation BB
    describes the data that depository institutions are required to
    collect and maintain for CRA purposes.  Under revisions of
    Regulation BB, depository institutions defined as "large" were
    required, beginning in 1996, to collect and report data annually
    on the number and dollar amount of their originations and
    purchases of small loans to businesses and farms and on any
    community development loans.  Only independent institutions with
    total assets of $250 million or more and institutions of any size
    if owned by a holding company that has assets of $1 billion or
    more are subject to the data reporting requirements.  The Federal
    Financial Institutions Examination Council (FFIEC) made the CRA
    data on 1996 small business lending available to the public in
    October 1997.10  The data on business and farm lending reported
    under the CRA regulations are more limited in scope than data
    reported on home mortgage lending under HMDA. In particular, the
    CRA data include information only on loans originated or
    purchased, not on applications that are turned down or withdrawn
    by the customer. Also, unlike HMDA data, the CRA data do not
    include the income, sex, or racial or ethnic background of
    applicants. Finally, again unlike HMDA data, the CRA data are not
    reported and disclosed application by application; rather, the
    data are aggregated into three loan-size categories and then
    reported at the census tract level. To determine FRB's legal
    responsibilities for assessing CRA performance, Scope and      we
    reviewed the BHC Act and CRA, their legislative histories,
    regulations Methodology    promulgated under each act, and related
    published materials. To assess FRB's process for reviewing BHC
    merger applications for CRA performance, we used a case study
    approach. We selected, on the basis of the assets of the acquired
    BHC, the two largest BHC mergers in 1995, the single largest BHC
    merger in 1996 and again in 1997, and the two largest BHC mergers
    in 1998.11  We reviewed the CRA public evaluation reports of the
    lead bank subsidiaries of the BHCs included in our case studies,
    internal FRB memorandums and analyses conducted in conjunction
    with the six merger applications, orders publicly issued by the
    Board of Governors containing approval of each merger, public
    comment letters, 10 The member agencies of FFIEC include OCC,
    FDIC, OTS, FRB, and the National Credit Union Administration.  For
    HMDArelated matters, the Department of Housing and Urban
    Development also participates in FFIEC deliberations. 11 In this
    report, we refer to the applicant as the BHC that acquired the
    target BHC.  We refer to the consummation of the transaction as
    the merger. Page 6                                        GAO/GGD-
    99-180 Guidelines for Community Reinvestment Issues B-280468 and
    FRB summaries of concerns raised in public comment letters. The
    scope of our reported findings on how FRB addressed the principal
    public concerns was limited by the confidentiality of particular
    FRB analyses and conclusions. FRB's process for the six mergers in
    our study cannot be generalized to all large BHC mergers because
    of the small sample size (i.e., six mergers) and the judgment
    involved in selecting the sample. We focused on FRB's BHC merger
    application process in reviewing the six mergers. We did not
    assess the quality of previous CRA examinations conducted by
    primary banking regulators or the accuracy of public comments.  We
    also did not verify the accuracy of data and other inputs relied
    upon by FRB in its review of the six merger applications. To
    address the third objective on premerger and postmerger home
    mortgage lending for three of the six mergers completed in 1995
    and 1996, we obtained and analyzed HMDA data.  We did not verify
    the accuracy of the HMDA data. In addressing our three objectives,
    we interviewed officials from FRB, the Federal Reserve Bank of New
    York, OCC, the Office of New York State's Supervisor of Banking,
    the BHCs included in our case studies, the American Bankers'
    Association, the Consumer Bankers' Association, and a selected
    number of community groups submitting public comments in
    opposition to the mergers included in our case studies. We also
    reviewed relevant published literature on CRA, home mortgage
    lending, and the use of HMDA data. Appendix I provides a more
    detailed discussion of our scope and methodology. We conducted our
    work in Charlotte, NC; Chicago, IL; New York, NY; and Washington,
    D.C., between June 1998 and August 1999 in accordance with
    generally accepted government auditing standards. We requested
    comments on a draft of this report from FRB and OCC.  FRB's and
    OCC's written comments are discussed near the end of this letter
    and are reprinted in appendixes VI and VII, respectively.  In
    addition, we provided Bank One, Chase Manhattan, and Fleet the
    section of our draft report from our HMDA analysis on their
    respective institutions.  We incorporated their technical comments
    where appropriate. Page 7                GAO/GGD-99-180 Guidelines
    for Community Reinvestment Issues B-280468 In acting on a BHC
    merger application, FRB must consider the Guidance Has Not
    convenience and needs of the community to be served under the BHC
    Act Been Developed for                and take into account the
    records of the relevant depository institutions under CRA.
    Neither the BHC Act nor CRA, or their legislative histories,
    Implementing the BHC provide guidance on how FRB is to take into
    account the convenience and Act and CRA in the
    needs of the community when considering a BHC merger application.
    The BHC Merger                        federal regulators,
    including FRB, have developed guidance on how to Application
    Process               assess a depository institution's CRA
    performance. However, FRB has not developed guidance on how it
    will evaluate the CRA record, comprising the regulators' ratings
    of institutions' CRA performance and comments from the public, for
    large BHC merger applications. Under the BHC Act, FRB is required
    to review the bank holding company's The BHC Act Calls for
    merger application for the convenience and needs of the
    communities to FRB's Review of Impacts on be served.  FRB has
    defined convenience and needs to relate to the effect Convenience
    and Needs             of a proposal on the availability and
    quality of banking services in a community.  FRB considers
    convenience and needs as including the record of CRA performance.
    The requirement to consider the convenience and needs of the
    community has been included as part of the BHC Act since its
    original enactment in 1956.  In the 1970s, Congress increased the
    need for depository institutions to focus on the convenience and
    needs of local communities when it passed CRA. CRA was passed in
    response to a national concern over redlining12 practices. CRA
    requires federal regulators, including FRB, to take into account
    the CRA record of the applicant in their evaluation of an
    application related to a deposit facility.  CRA defines
    applications to include (1) applications to establish or relocate
    a branch or home office and (2) applications for mergers,
    consolidations, or the purchase of assets or assumption of
    liabilities of a regulated financial institution.  Nonbank
    subsidiaries of BHCs are not subject to CRA.  However, CRA
    regulations allow bank subsidiaries of BHCs to receive CRA credit
    for home mortgage loans originated by affiliated nonbank
    subsidiaries in the delineated areas of the bank subsidiaries. 12
    Redlining is a refusal of lenders to make loans in certain
    geographic areas, typically minority or low- income neighborhoods,
    regardless of the creditworthiness of the loan applicant. Page 8
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 The federal depository institution regulators, including
    FRB, have Federal Bank Regulators      developed guidance, using
    rulemaking and additional efforts, on how CRA Have Developed
    Guidance      performance should be considered during the
    applications process for for Assessing CRA            depository
    institutions.  In 1989, the federal bank regulators published The
    Performance During the       Statement of the Federal Financial
    Supervisory Agencies Regarding the Community Reinvestment Act (the
    Statement). The Statement was Application Process for
    designed to provide federally insured financial institutions and
    the public Depository Institutions      with guidance regarding
    the requirements of CRA and the policies and procedures the
    agencies will apply during the depository institution application
    process.  After the performance-based CRA regulations were issued
    in 1995, FFIEC published Interagency Questions and Answers
    Regarding Community Reinvestment in 1997 and 1999.  The 1989
    Statement was withdrawn effective April 5, 1999, and replaced by
    the Interagency Questions and Answers Regarding Community
    Reinvestment.13 The 1989 Statement, which was in effect during the
    mergers contained in our study, included guidance on the following
    issues: *  the basic components of an effective CRA policy, *  the
    role of examination reports on CRA performance in reviewing
    applications, *  the need for periodic review and documentation by
    financial institutions of their CRA performance, and *  the role
    of commitments in assessing an institution's performance. Most
    notably, the regulators concluded in the Statement that the CRA
    record of the institution, as reflected in its examination
    reports, would be given great weight in the application process.
    In the Interagency Questions and Answers for 1999, the regulators
    continued to stress the significance of the CRA examination in the
    application process, and they stated that the examination is an
    important, and often controlling, factor in the consideration of
    an institution's record.14 In addition to the CRA examination, the
    regulators have consistently underscored the importance of public
    comments to the applications process. According to the 1989
    Statement, the CRA examination is not conclusive evidence in the
    face of significant and supported allegations from a commenter.
    Moreover, the balance may be shifted further when the examination
    is not recent or the particular issue raised in the 13 Questions
    and Answers Regarding Community Reinvestment, 64 Fed. Reg. 23618-
    23648 (1999). 14 64 Fed. Reg. at 23641. Page 9
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 application proceeding was not addressed in the
    examination.  During the development of the performance-based CRA
    regulations, a number of commenters expressed concern that the
    regulators may provide a "safe harbor" to depository institutions
    from challenges to their CRA performance record in the application
    process if they achieved an outstanding CRA examination rating.
    However, in the preamble of the 1995 Final Rule on the CRA
    regulations, the regulators reconfirmed the importance of the
    public comments in the applications process by acknowledging that
    materials relating to CRA performance received during the
    applications process can and do provide relevant and valuable
    information. For each BHC application submitted, FRB publicly
    issues an Order Board Orders Explain BHC         containing its
    application decision and a discussion supporting its Application
    Decisions            decision.  FRB officials told us that Board
    Orders provide a detailed explanation of how the Board arrived at
    its decision and puts the facts into the context of the specific
    case at hand.  In the FRB officials' view, Board Orders provide
    guidance on FRB's BHC application process.  We reviewed the Board
    Orders approving the six BHC merger applications in our study. The
    Orders provided insight into issues considered by the Board of
    Governors.  For example, the Orders discussed FRB's consideration
    of CRA performance ratings received by bank subsidiaries, recent
    trends in home mortgage lending by the BHCs, and CRA agreements
    reached by BHCs with community groups.  FRB's treatment of the
    various CRA issues appeared to be consistent with that suggested
    in the 1989 Statement for assessing CRA performance. The BHC Act
    requires FRB's approval for formation of a BHC, BHC FRB Has Not
    Developed            acquisition of control of another BHC or a
    subsidiary bank or bank assets, Additional Guidance on
    or the merger of BHCs.  There were nearly 6,000 BHCs operating as
    of How It Evaluates an              year-end 1998; almost 700 BHC
    cases of applications were submitted to the Institution's CRA
    Federal Reserve for approval in 1998.  Of these, over 400 were for
    mergers and acquisitions.  Consistent with the Statement for
    assessing CRA Performance in the BHC           performance, FRB
    regulations provide that FRB will take into account the Merger
    Application Process record of performance under CRA of each
    insured bank and thrift controlled by a BHC applicant and each
    subsidiary bank proposed to be controlled by an applicant.  FRB
    officials told us that if an institution was examined recently,
    FRB would be more likely to rely on the rating given by the bank's
    primary regulator. If the CRA exam is not recent or there have
    been significant public comments raising concerns, FRB would be
    more likely to undertake a review of the institution's CRA
    performance and obtain more information from the primary bank
    regulator.  FRB considers Page 10                GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues B-280468 the CRA
    performance of the BHC in the delineated areas of its bank
    subsidiaries. Also consistent with the Statement for assessing CRA
    performance, FRB regulations require public notice of a BHC
    application and a specific public comment period. FRB does not
    have written guidelines that summarize how public comments raising
    CRA concerns are to be used along with other information in its
    BHC merger application decisions.  An FRB Associate General
    Counsel told us that although the BHC Act does not require a
    public comment period, FRB voluntarily adopted the requirement of
    a notice, comment, and specific comment period because FRB found
    the public process helpful. FRB's Rules of Procedure state that an
    applicant must file notice of the application in the classified
    advertising legal notices section of the local newspaper.  The
    notice must state that the public has an opportunity to comment
    for at least 30 days after the date of publication.15  Under the
    revised Regulation Y, FRB will not accept late written comments
    except in extraordinary circumstances. FRB can extend, and has
    extended, the 30- day time frame.  According to Regulation Y, the
    30-day comment period is required for all BHC merger applications
    to acquire an insured depository institution whether the
    applications are Board Action cases or delegated to the Reserve
    Banks for a decision.  BHC officials we interviewed told us that
    FRB's adherence to the public comment period deadlines was better
    than it had been in previous BHC mergers. Relatively few BHC
    mergers have been protested on CRA grounds. As shown in table 1,
    the number of BHC merger/acquisition cases that received CRA
    protests was small during the period of 1995-98.16  In 1998, the
    total number of BHC acquisition/merger cases that were protested
    on CRA grounds was 18 cases out of 424 BHC merger/acquisition
    cases. 15 FRB may, in its discretion, extend the public comment
    period and, if a person has requested a copy of a notice or
    application, FRB may, in its discretion, grant such person an
    extension of the comment period for up to 15 calendar days. 16 We
    included data on both BHC acquisitions and mergers.  Sections
    3(a)(3) and 3(a)(5) of the BHC Act require approval for BHC
    acquisitions and mergers, respectively.  In an acquisition, the
    applicant is a BHC and the target institution may be a BHC or a
    bank subsidiary.  In a merger, both the applicant and the target
    are BHCs.  Determining whether a BHC application was an
    acquisition or merger depends on how the transaction was
    structured. Page 11                                       GAO/GGD-
    99-180 Guidelines for Community Reinvestment Issues B-280468 Table
    1:  Number of BHC
    BHC merger/acquisition cases Merger/Acquisition Cases Receiving
    Protested CRA Protests
    Percentage of Year
    Total              Number                    total cases 1995
    386                        40                      10.4% 1996
    359                        30                            8.4 1997
    347                        16                            4.6 1998
    424                        18                            4.2
    aProtested means those BHC mergers/acquisitions in which FRB
    received substantive comments regarding a BHC's lending record or
    CRA record. Source: FRB. The Statement for assessing CRA
    performance does not specifically address issues that arise in BHC
    merger application decisions, such as the consideration to be
    given to the activities of nonbank subsidiaries.  Large BHCs
    comprise bank subsidiaries that are subject to CRA operating in
    delineated areas and may include nonbank subsidiaries, such as
    mortgage lending companies, that are not subject to CRA operating
    within and outside of the delineated areas of the bank
    subsidiaries.  However, CRA regulations allow bank subsidiaries of
    BHCs to receive CRA credit for home mortgage loans originated by
    their affiliated nonbank subsidiaries in the delineated areas of
    the bank subsidiaries. In reviewing the six BHC merger
    applications, it appeared to us that FRB FRB's CRA
    attempted to balance the CRA performance ratings with information
    that Performance Review                    raised concerns with
    the institutions' CRA performance obtained through the public
    comment process.  All of the bank subsidiaries in our selected
    Process for the Six                   merger cases received a
    satisfactory or better CRA rating from their Large BHC Merger
    primary federal bank regulator. The four principal CRA concerns
    raised in Applications Lacked                   public comments
    were (1) an insufficient amount of home mortgage Transparency
    lending in LMI areas, (2) an insufficient amount of small business
    lending in LMI areas, (3) expected bank branch closures in LMI
    areas, and (4) a lack of specificity in CRA agreements. FRB
    appeared to give more weight to CRA performance ratings and
    concerns with home mortgage and small business lending than to
    other concerns raised.  FRB conducted analyses with HMDA and CRA
    small business data to address concerns of insufficient home
    mortgage and small business lending, respectively. FRB's
    consideration of branch closures was generally limited to a
    determination of whether the applicant had an adequate branch
    closure policy and its past branch closure record.  According to
    FRB officials, CRA agreements17 did not play a role in FRB's
    assessment of the six merger 17There is no consensus among banks
    and community groups on a definition of a CRA agreement. CRA
    agreements can be called agreements, pledges, or commitments. The
    level of involvement by the Page 12
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 cases.  FRB does not have written guidance on how it
    considers the sufficiency of home mortgage and small business
    lending or what branch closure policy it would consider adequate.
    FRB's lack of written guidance on how it addresses public comments
    contributed to the concerns voiced by the community groups and BHC
    applicants we contacted regarding the lack of transparency in the
    merger application process. All of the bank subsidiaries in the
    six merger cases received a CRA All of the Bank Subsidiaries
    performance rating of satisfactory or better.  Over half of the
    lead bank Received a Satisfactory              subsidiaries owned
    by the applicants and the target institutions received Rating or
    Better                     an outstanding CRA rating from their
    primary bank regulators.  CRA performance ratings for the bank
    subsidiaries in our study are presented in appendix II. The CRA
    ratings of the bank subsidiaries in our study were similar to the
    CRA ratings of their peers.  As table 2 shows, all large bank
    subsidiaries (assets of $10 billion or greater) examined by OCC
    and FRB received either outstanding or satisfactory ratings during
    the period of 1995-98. Table 2:  The Distribution of CRA
    Performance rating Performance Ratings for Large
    Needs to                Substantial             Number Banks
    Examined by OCC and FRB, 1995-98
    Regulator                 Outstanding Satisfactory
    improve noncompliance                         of banks OCC
    17                     9                 0
    0                26 FRB                                      12
    12                 0                           0                24
    Sources: FRB and OCC. For all BHC mergers, including the six cases
    that we reviewed, FRB's Division of Consumer and Community Affairs
    (DCCA)18 screened the most recent CRA ratings of both the bank
    subsidiaries of the applicant institution and the target
    institution.  According to FRB officials, this task was a major
    component of FRB's review of each merger application. Absent any
    ratings issues or CRA allegations, according to DCCA officials,
    DCCA generally focuses its CRA examination analysis on the lead
    banks of the applicant and the target institution. Since the new
    CRA regulations for large banks were not effective until July
    1997, almost all of the public evaluation reports on the lead
    banks of the BHCs involved in the six BHC community groups and the
    level of specificity differentiates the various types of
    agreements. In some cases, community groups negotiate with the
    banks regarding specific CRA goals to be reached in the community.
    These are referred to as negotiated agreements. Another type of
    community agreement is a pledge.  Generally, banks that make
    pledges consider input from community groups, but the bank
    unilaterally formulates the final pledge. 18 Among its
    responsibilities, DCCA is charged with reviewing bank and bank
    holding company applications for CRA and compliance issues. Page
    13                               GAO/GGD-99-180 Guidelines for
    Community Reinvestment Issues B-280468 mergers were completed
    under the old process-oriented CRA regulations. According to the
    DCCA Manager for Applications, DCCA will do additional analysis on
    the CRA records of the applicant and the target institution when
    comments regarding the institutions' CRA records are sent. DCCA
    was generally dependent on CRA examination information from the
    DCCA Was Dependent on              other federal bank regulators
    for assessing the CRA performance of large CRA Examination
    BHCs. In the six merger cases, FRB did not have its own on-site
    CRA Information From the Other information on the bank
    subsidiaries.19  A federal regulator other than the Federal Bank
    Regulators for FRB supervised almost all of the bank subsidiaries
    of the BHCs in the six merger cases.  Of the six merger cases,
    only the lead bank of the Chemical Assessing the CRA
    Banking Corporation was supervised by FRB. The lead banks of the
    other Performance of Large BHCs 11 BHCs were supervised by OCC.
    DCCA staff told us that FRB does not second-guess the CRA
    examinations conducted by the other federal bank regulators. The
    purpose of FRB's review of the CRA record is not to reexamine the
    banks for CRA compliance. We were told by DCCA analysts that after
    the initial screening of the CRA ratings, they reviewed the most
    recent public evaluation report of the lead bank of the applicant
    and the target institution.  If the DCCA analyst determined it was
    warranted, he or she talked with the OCC CRA compliance examiner.
    In three of the five merger cases in which FRB was not the primary
    bank regulator of the lead bank of the applicant-Fleet- Shawmut,
    NationsBank-BankAmerica, and Bank One-NBD First Chicago, DCCA
    analysts contacted OCC for additional supervisory information. FRB
    officials told us that additional supervisory information was not
    obtained in the NationsBank-Boatmen's merger because the July 1995
    CRA examination of NationsBank was relatively current. In two of
    the merger cases, NationsBank-BankAmerica and Bank One-NBD First
    Chicago, DCCA reviewed CRA information from OCC that was more than
    2 years old.  During the application review, OCC was examining the
    lead banks of both NationsBank and Bank One.  In the absence of
    recent examinations of the lead banks, DCCA analysts obtained
    limited information from OCC's ongoing examinations for these two
    cases. According to an OCC official, the implementation of OCC's
    new performance-based CRA examination procedures for the 30
    largest national banks caused delays in the frequency of
    examinations for these institutions. 19 Bank holding companies are
    not subject to CRA; therefore, they are not inspected by the
    Federal Reserve Banks for CRA compliance performance. Page 14
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 FRB received public comments addressing a wide variety of
    issues, All of the BHC Mergers in         including CRA issues,
    for all six mergers. The number of comments ranged Our Study Were
    Protested          from a high of over 1,600 comments for
    NationsBank's acquisition of on CRA and Other Issues
    BankAmerica to a low of 17 comments for NBD's acquisition of First
    Chicago. The number of public comments that FRB received for the
    other 4 mergers ranged from about 50 to about 300.  For each
    merger, the majority of the comments were in support of the
    merger.  Among the comments in opposition to each of the six
    mergers, FRB received public comments criticizing the CRA
    performance of either the applicant or the target institution. In
    addition to considering written comments, FRB conducted public
    meetings for four of the six mergers: (1) Fleet's acquisition of
    Shawmut, (2) Chemical's acquisition of Chase, (3) NationsBank's
    acquisition of BankAmerica, and (4) Bank One's acquisition of NBD
    First Chicago.20 The four principal CRA concerns raised in the six
    mergers were (1) an Home Mortgage Lending,            insufficient
    amount of home mortgage lending in LMI areas, (2) an Small
    Business Lending,           insufficient amount of small business
    lending in LMI areas, (3) expected Branch Closures, and CRA
    bank branch closures in LMI areas, and (4) the lack of specificity
    in CRA Agreements Were the Four          agreements.  A summary of
    comments raising these concerns for each of the six BHC mergers is
    presented in appendix III. Principal CRA Public Concerns in the
    Six Mergers Commenters Raised Concerns of For the six mergers,
    commenters raised concerns that either the Insufficient Home
    Mortgage and    applicant's or the target institution's
    performance was generally Small Business Lending in LMI
    inadequate in providing mortgage lending to minority groups and in
    LMI Areas                             areas. In many cases,
    commenters included statistical results from HMDA analysis to help
    support their claims of insufficient home mortgage lending. FRB
    received comments alleging an insufficient level of small business
    and rural lending for two mergers, NationsBank's acquisition of
    BankAmerica and Bank One's acquisition of NBD First Chicago.
    Comments related to small business lending only affected the later
    two BHC mergers because banks were not required to collect small
    business data and submit the data to their primary bank regulator
    until 1996. 20 FRB has discretion as to whether to provide an
    opportunity for formal hearings or allow interested persons to
    present their views orally before the Board of Governors.  Unless
    otherwise ordered, any oral presentation is public and notice of
    the public proceeding is published in the Federal Register. Page
    15                                       GAO/GGD-99-180 Guidelines
    for Community Reinvestment Issues B-280468 Commenters Raised
    Concerns     In all six mergers, commenters were concerned with
    the number and location of banking branches that would be closed
    in LMI areas after the That Branch Closures Would     merger and
    the resulting impacts on LMI areas.  Commenters generally Have a
    Negative Impact Upon    referred to bank holding company branch
    closure practices in previous LMI Areas
    mergers to support their claim that the pending mergers would
    result in similar closings. For example, during the application
    process for Bank One's acquisition of NBD First Chicago, a
    community group cited Bank One's closure of branches after its
    acquisition of First USA and noted that the branches closed by
    Bank One were located in predominantly minority communities and
    LMI areas. Commenters Criticized          Community groups wanted
    CRA agreements that centered on banks' Agreements Reached in Three
    establishing, or pledging, specific lending and investment
    activities that BHC Mergers                    serve the banks'
    delineated areas, including LMI areas.  The community groups we
    contacted told us that CRA agreements are beneficial in meeting
    the convenience and needs of LMI communities, such as obtaining
    affordable mortgage loans or small business loans.  Of the six
    mergers we reviewed, FRB received comments on the issue of
    community agreements or pledges for three BHC mergers: Chemical's
    acquisition of Chase, NationsBank's acquisition of BankAmerica,
    and Bank One's acquisition of NBD First Chicago. Pledges issued by
    Chemical Bank and NationsBank were criticized for lacking specific
    lending goals. Chemical Bank issued a pledge for increased lending
    and community development funding of $18.1 billion primarily in
    New York, New Jersey, Connecticut, and Texas.  The goals of the
    pledge included loans and investments to assist small businesses,
    affordable mortgages, and commercial and economic development.
    According to the summary of comments prepared by FRB, commenters
    criticized the pledge as inadequate because it was not
    enforceable, could not be monitored by community groups, was too
    vague to be meaningful, and did not identify the amount of lending
    that would be made within specific communities. Before its merger
    with BankAmerica, NationsBank made a 10-year pledge of $350
    billion, for community development lending and investment. The
    comments were similar to those made for Chemical Bank's pledge.
    NationsBank's pledge was also criticized for lacking geographic
    detail and enforceability. In 1998, before Bank One's acquisition
    of NBD First Chicago, a Chicago community group obtained a CRA
    commitment from NBD First Chicago and Bank One.  The CRA
    commitment included, among other features, increased bank lending
    to small businesses in Chicago's LMI areas. Page 16
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 Community groups criticized Bank One for not making
    commitments in other areas where Bank One is located. FRB
    attempted to address three of the four CRA concerns that were
    raised FRB Attempted to Address     in public comments.  FRB
    appeared to give more weight to concerns with Concerns Raised in
    Public    home mortgage and small business lending than to branch
    closure Comments                     concerns raised.  DCCA
    conducted analyses of HMDA and CRA small business data to address
    concerns of insufficient home mortgage and small business lending
    when it became available, respectively.  Generally, the
    statistical results from DCCA's analyses indicated that the
    lending activity in question was sufficient. In situations where
    statistical results from DCCA's HMDA analyses indicated that the
    lending activity in question may not have been sufficient, FRB
    generally emphasized CRA performance ratings and cited limitations
    in the use of HMDA statistics. FRB faced limitations in its legal
    authority to address branch closure concerns.  FRB approved four
    of the mergers with conditions for the reporting of branch
    closures.  According to FRB officials, CRA agreements did not play
    a role in FRB's assessment of the six merger cases.  For each
    merger, DCCA prepared a memorandum to the Board of Governors
    containing findings and recommendations.  The Board of Governors
    accepted DCCA's recommendations for each of the six mergers. FRB
    Analyzed HMDA Data to    To address the concern of insufficient
    home mortgage lending, FRB's Address Home Mortgage        DCCA
    generated a large number of statistical tabulations using HMDA
    Concerns                     individual loan file data containing
    the mortgage lending activity for each BHC across a large number
    of geographic areas.  DCCA analysts reviewed HMDA data submitted
    by commenters, but used their own HMDA data analysis.  According
    to DCCA analysts, many of the commenters did not include the home
    mortgage lending of the nonbank subsidiaries in their analysis. In
    its HMDA analysis, DCCA included home lending of nonbank mortgage
    subsidiaries in the delineated areas of the bank subsidiaries
    because such lending qualifies for CRA credit.  Examples of FRB
    analysis with HMDA data in response to public comments are
    contained in appendix IV. For each merger application, DCCA
    produced statistical tabulations for geographic areas where home
    mortgage lending concerns were raised. For example, NationsBank's
    acquisition of BankAmerica generated a large number of comments
    raising concerns in a number of states, counties, and MSAs.  For
    each geographic area (i.e., a state, county, or MSA) where
    concerns of insufficient mortgage lending in LMI areas were
    raised, the statistical tabulations were uniformly reported.  The
    statistical tabulations generated and analyzed by DCCA generally
    did not cover subsets of LMI Page 17                GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues B-280468 areas.  To
    respond to comments on these areas, DCCA analysts told us that
    they relied on information supplied by the applicant or the
    Federal Reserve Bank analyzing the merger. DCCA analyzed the
    statistical tabulations and prepared a memorandum for each BHC
    application to the Board of Governors. The memorandums focused on
    the tabulations that the DCCA analysts thought would be most
    useful to the Board.  Additional statistics were provided in an
    appendix to each memorandum.  The Board voted to approve each
    merger in our study. Statistics in the memorandum for each BHC
    merger application generally emphasized the recent trends in
    mortgage applications from the LMI areas and minority group
    applicants referenced in the comment letters. In most cases where
    public concerns of insufficient mortgage lending were raised, the
    statistical tabulations within the memorandum indicated that
    applications from LMI areas and the referenced minority group's
    applicants increased in the most recent 2- to 3-year period before
    the merger application.21  In situations where statistical results
    from FRB's HMDA analyses appeared to indicate that the lending
    activity in question may not have been sufficient, FRB tended to
    emphasize CRA performance ratings and cited limitations in the use
    of HMDA statistics. There are other measures of mortgage loan
    sufficiency that were not contained in the memorandums.  In
    particular, DCCA analysts calculated the portfolio share22 of a
    BHC's total mortgage originations in the relevant state, county,
    or MSA accounted for by mortgage originations from LMI census
    tracts and applicants classified with reference to a particular
    minority group.  The portfolio shares for all institutions
    originating mortgages in the relevant state, county, or MSA were
    also generated by DCCA.  This statistic can be considered a
    benchmark to which each BHC's portfolio share could be compared.
    Examples of these statistics are included in appendix IV when we
    refer to all institutions in the six tables. Generally, the BHCs'
    portfolio shares were similar to or exceeded the corresponding
    portfolio share for all institutions.23 21 Examples of the
    application statistics are included in the six tables in appendix
    IV. 22 Portfolio share is defined as the total number of loan
    originations for a given institution in the census tracts being
    analyzed divided by the total number of loans originated by the
    institution in the metropolitan area. 23 The one exception
    occurred in the case of public concerns raised in NationsBank's
    acquisition of BankAmerica with respect to mortgage lending to
    Hispanics in Texas. The percentage of NationsBank mortgage
    originations in Texas to Hispanic applicants declined in 1996 and
    1997. In both years, Page 18
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 Generally, the statistical results from DCCA's analyses
    indicated that the lending activity in question was sufficient.
    Therefore, the Board generally found that the commenters' concerns
    were not supported by DCCA's HMDA analysis and the institution's
    CRA record. Most of the comments that raised concerns of
    insufficient mortgage lending were directed toward delineated
    areas of the BHCs' bank subsidiaries subject to CRA.  However,
    comments were received that raised such concerns for nonbank
    mortgage lending subsidiaries outside of the delineated areas of
    the BHCs' bank subsidiaries. For example, 1 comment on Chemical's
    acquisition of Chase stated that Chase did not make substantial
    loans to applicants from LMI communities in 15 MSAs, many of which
    were not included in the delineated areas of Chase's bank
    subsidiaries. We identified one commenter who made this general
    comment for numerous BHC mergers.  He told us that FRB has a
    responsibility to address such comments because the BHC Act, which
    governs the bank and nonbank subsidiaries of a BHC, calls upon FRB
    to assess the impacts of the BHC merger on convenience and needs.
    FRB responded to this general comment by stating that nonbank
    subsidiaries of BHCs are not subject to CRA and their lending is
    only relevant in the delineated areas of the bank subsidiaries.
    According to a DCCA analyst, the purpose of CRA is to encourage
    the bank to make loans where it is collecting deposits. FRB
    Analyzed Small Business       In Bank One's 1998 acquisition of
    NBD First Chicago, a Wisconsin Data to Address Small Business
    community group stated that the majority of Bank One's small
    business Lending Concerns                  lending was targeted to
    larger businesses, and that the bank's volume of small farm loans
    was low. In addition to requesting that Bank One respond to this
    criticism, the DCCA analyst performed her own analysis of Bank
    One's small business lending.  In NationsBank's 1998 acquisition
    of BankAmerica, FRB assessed small business lending and small farm
    lending in seven states.  In this case, the DCCA analyst performed
    analysis of NationsBank's small business lending.  FRB did not
    find a basis for concern in either case. FRB Faces Limitations in
    The availability of bank services and offices after a merger is
    one of the Addressing Branch Closure         factors to be
    considered by FRB in assessing the effect of the merger on
    Concerns                          convenience and needs.
    According to FRB officials, if preliminary branch closure
    information is received, DCCA reviews the information to determine
    if any of the proposed closures are in LMI areas and, if so, asks
    NationsBank's portfolio share was less than the corresponding
    portfolio share for all institutions (see table 5 in app. IV).
    Page 19                               GAO/GGD-99-180 Guidelines
    for Community Reinvestment Issues B-280468 the reason for the
    closures, the proximity of the receiving branch, and what actions
    the applicant plans to take to mitigate the impact on that
    community.  The officials stated that they undertook such an
    analysis on the Chemical-Chase merger application.  The law does
    not provide the regulators with the authority to prohibit banks
    from closing a branch.  If the applicant has not developed final
    plans for branch closings, FRB's consideration of branch closures
    is limited to a determination of whether the applicant has an
    adequate branch closure policy, and any branch closings that do
    occur can only be assessed in future CRA examinations and BHC
    merger applications. 24  Branch closures could affect a bank's
    subsequent CRA performance rating if the closures were associated
    with a decline in lending, investment, or services in the bank's
    delineated areas. The Board of Governors placed a branch closure
    reporting requirement on four of the BHC mergers as a condition
    for approval.25  According to FRB officials, when a branch closure
    reporting requirement is placed on an applicant, a message is sent
    to the applicant that the Board is interested in such plans and
    will be reviewing the closures associated with the application in
    the context of future applications.  Because FRB cannot prohibit
    banks from closing branches, it is unclear what effect the
    conditional approvals would have on the number of branch closings
    in LMI areas. Depository institution regulators do not have the
    legal authority to prohibit banks from closing a branch.  Insured
    banks and thrifts must post notice to the public at least 30 days
    before closing a branch and provide their regulators with at least
    a 90-day notice.  Under performance criteria of the CRA
    examination's Service Test, the regulators are to review the
    bank's (1) distribution of branches among low-, moderate-, middle-
    , and upper- income areas and (2) record of closing and opening
    branches, particularly in LMI areas.  However, if a bank can
    demonstrate to the examiner that retail banking services can be
    provided to LMI areas through alternative systems, such as
    automated teller machines, telephone banking, or mobile banking,
    the bank can receive credit under the Service Test without the
    brick and mortar of a branch. 24 The 1989 Statement points to an
    institution's adoption of "a written corporate policy concerning
    branch closings which contains provisions for appropriate notice,
    analysis of the impact of the closing on the local community, and
    efforts that may be made to minimize any adverse effects" as a
    step taken by institutions with the most effective programs for
    meeting their CRA responsibilities. 25 Under Regulation Y, the
    Board of Governors may impose conditions on any approval,
    including conditions to address competitive, financial,
    managerial, safety and soundness, convenience and needs,
    compliance, or other concerns to ensure that approval is
    consistent with the relevant statutory factors and other
    provisions of the BHC Act. Page 20
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 In four of the six merger cases, the Board of Governors
    placed a reporting requirement regarding branch closures as a
    condition for approval.  The four mergers were Fleet's acquisition
    of Shawmut, NationsBank's acquisition of Boatmen's, NationsBank's
    acquisition of BankAmerica, and Bank One's acquisition of NBD
    First Chicago.  For each of the four mergers, the Board of
    Governors required the applicant to provide the Federal Reserve
    System with periodic reports on the number of branch closings26
    resulting from the merger and to show how it planned to minimize
    the impact of these closings on LMI areas.  According to the DCCA
    Manager for Applications, applicants are not required to submit
    branch closure plans as part of the application.  However, the
    Board of Governors generally orders branch closure reports from
    those applicants who have not submitted branch closure plans
    during the application process.  Except for Fleet Financial Group,
    none of the four, who were required to submit reports, had
    submitted a branch closure plan. Because FRB cannot prohibit banks
    from closing branches, it cannot directly affect branch closures
    in designated areas.  Branch closures in LMI areas, however, could
    potentially affect future CRA performance ratings. In addition,
    FRB officials told us that the applicant may apply for merger
    again in the future. For example, the DCCA analyst, who reviewed
    the NationsBank-BankAmerica merger, told us that they considered
    NationsBank branch closures subsequent to its acquisition of
    Boatmen's in approving its merger with BankAmerica. CRA Agreements
    Did Not Play a      According to FRB officials, CRA agreements did
    not play a role in FRB's Role in FRB's Assessment of the
    assessment of the merger application.  This view is supported by
    Six Merger Cases                   statements in the Board's
    Orders.  Using the 1989 Statement as its basis, FRB considers CRA
    agreements as private agreements between the banks and the
    community groups.  DCCA officials told us that CRA does not
    provide the regulators with the enforcement authority to assess a
    bank's compliance with CRA agreements.  Pledges were not
    considered either. DCCA staff said they did not consider the
    pledges of Chemical Bank and NationsBank or the commitment
    negotiated by NBD First Chicago when developing their
    recommendations to the Board of Governors. BHC officials and
    community groups we interviewed had opposing views on whether FRB
    should consider the agreements during the application 26 In many
    cases, a branch closed from a merger may be technically a
    consolidation. A consolidation is considered a relocation if the
    branch is located within the same neighborhood and the nature of
    the business or customers served is not affected. In less densely
    populated areas, where neighborhoods extend farther and a long
    move would not significantly affect the nature of the business or
    the customers served by the branch, a relocation may occur over
    substantially longer distances. Page 21
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 process.  The BHC officials we interviewed supported the
    position that regulators should not consider CRA agreements as
    part of the institutions' CRA record. We were told by community
    development officials at two BHCs that the CRA agreements are
    significant in terms of external relations for the BHC with its
    communities. According to these officials, the primary purpose of
    the commitments and pledges was not to influence the regulatory
    process, since FRB does not consider the agreements of the
    applicant as a part of its analysis of the applicant's CRA record.
    Alternatively, community groups we interviewed want FRB to
    consider the banks' compliance with those agreements as part of
    its assessment of the applicant's CRA record. The BHC Merger
    Application    FRB's lack of written guidance for how it addresses
    public comments Process Lacks Transparency    contributed to the
    concerns voiced by some community groups and two BHCs regarding
    the lack of transparency in the merger application process.
    Several of the community groups who submitted comments told us
    that they did not understand the process by which FRB approved the
    six BHC mergers and how FRB considered their public comments
    raising concerns.  The community group officials told us that FRB
    does not have written criteria for how it assesses merger
    applications, and FRB did not explain its process when community
    groups met with FRB officials.  Some of the officials told us that
    while FRB conducted HMDA analysis, it did not criticize the
    applicant's lending performance on the basis of the analysis. Two
    BHC community development officials told us that they did not
    understand why they needed to provide the Federal Reserve with
    redundant information when they had established good CRA records.
    One BHC official stated that if a bank has been examined for CRA,
    why should the Federal Reserve have to reexamine the bank. The
    banking official's perception of FRB's CRA review was different
    from that of FRB officials who do not consider their review
    process to be a reexamination of the bank's CRA performance.  The
    BHC officials told us that during the application process, FRB
    will ask for redundant information. According to the officials,
    even if FRB has requested information from the applicant on a
    particular issue, it would request the same information again from
    the applicant if it subsequently received comment letters on the
    same issue. Commenters who raised concerns often expressed
    judgments that were critical of the BHC applicant, the BHC to be
    acquired, and the bank and nonbank subsidiaries of the BHCs.  The
    merging BHCs have a business interest in completing the merger in
    a timely manner with minimal disruption to their future
    consolidation efforts.  Therefore, the implications Page 22
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 of FRB's actions are of major importance to the parties
    involved in this process. By analyzing three large BHC mergers
    using appropriate statistical Bank Merger Activity
    measures and benchmarks for lending performance, we found that
    after Was Not Associated                 none of the three mergers
    was there a disproportionate decline in single- family home
    mortgage lending to minority and LMI census tracts.27  NBD With
    Adverse Change                Bancorp's acquisition of First
    Chicago was associated with fairly stable in Mortgage Lending in
    market share of loans in LMI and minority census tracts in the
    Chicago Minority and LMI                   MSA. Fleet Financial
    Group's acquisition of Shawmut National Bank was Areas for Three
    BHC                associated with a decline in Fleet's market
    share in minority and LMI Mergers
    census tracts that mirrored Fleet's decline in overall market
    share in the Boston MSA. Chemical Bank's acquisition of Chase
    Manhattan Bank was associated with increased market and portfolio
    share lending in minority and LMI census tracts in 1997, as
    compared to the combined lending by the two competing institutions
    in 1995. Using HMDA data for each institution, we constructed and
    analyzed its Our Statistical Results Were market share of loan
    originations and the distribution of originations Generally
    Consistent Using         (portfolio share) across specified
    geographic areas.  Our statistical results Alternative Measures of
    using two measures, one for conventional loans and one for all
    loans, were Home Mortgage Lending              generally
    consistent with one another.28  For each universe of home mortgage
    lending used, we calculated the market share of loan originations
    Performance                        in LMI, minority census tracts,
    and all census tracts that made up the MSA. We also calculated the
    portfolio share of loan originations in LMI and minority census
    tracts by the combined BHC.  The market share of loan originations
    is defined as the number of loan originations for a given
    institution divided by the number of loan originations by all
    lenders in the census tracts being analyzed.  Portfolio share is
    defined as the number of loan originations for a given institution
    in the LMI and minority census tracts being analyzed divided by
    the number of loans originated by the institution in the MSA.  The
    lending of both BHCs before the merger and the lending of the
    combined BHC after the merger were included in our market and
    portfolio share measures. In addition, the market share of loan
    originations by both BHCs in all census tracts in the MSA was used
    as a benchmark in assessing market share changes in LMI and
    minority census tracts. 27 We defined a minority census tract as
    one where members of minority groups comprise 20 percent or more
    of the census tract's households. We defined a LMI census tract as
    one where median family income for the census tract did not exceed
    80 percent of the median family income for the MSA. HMDA data are
    the source for all lending measures. 28 Our statistical results
    using a broader universe of all single-family home mortgage
    lending are presented in appendix V. Page 23
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 Our statistical results were also generally consistent
    using two different universes of home mortgage lending, (1)
    conventional, single-family home purchase loan originations and
    (2) all single-family mortgage loan originations. A conventional,
    single-family home purchase mortgage loan is defined as a single-
    family mortgage loan that is not insured or guaranteed by the
    federal government, and that is for the purpose of financing the
    purchase of a home. For each merger, we analyzed market and
    portfolio shares for the years beginning 1 year before the
    acquisition through the 2nd year after the acquisition was
    completed. For the three case studies used here, the market
    corresponded to the MSA where the acquired BHC's lead banking
    subsidiary is located. The resulting MSAs were Chicago, Boston,
    and New York for NBD's acquisition of First Chicago, Fleet's
    acquisition of Shawmut, and Chemical's acquisition of Chase,
    respectively. As shown in table 3, NBD's 1995 acquisition of First
    Chicago is associated NBD First Chicago Bank
    with fairly stable market share in the Chicago MSA and a slight
    increase in Merger Showed Fairly                     market share
    in both LMI and minority census tracts. For conventional, Stable
    LMI and Minority                  single-family home purchase
    loans, the market shares for both LMI and Lending
    minority census tracts increased from 1994-97. Portfolio shares
    rose slightly for conventional home purchase loan originations in
    LMI and minority communities.  The overall increase in
    conventional, single-family home purchase loan originations for
    the Chicago MSA was modest in magnitude during the period of 1994-
    97. Table 3:  Market and Portfolio Shares
    Bank holding company for NBD/First Chicago Bank Holding
    NBD/First Chicago             NBD Companies for Conventional,
    Single- Family Home Purchase Loan                Market or
    portfolio share                           1994        1995
    1996            1997 Originations in the Chicago MSA
    Market share of loan origination for                4.6%
    6.2%     5.0%            5.5% Chicago MSA Market share of census
    tracts that were: LMI
    5.3         5.9      5.7            6.3 Minority
    5.4         6.2      5.4            6.4 Portfolio share of census
    tracts that were: LMI
    11.0       10.4      10.9           12.6 Minority
    26.9       24.0      24.5           28.2 Source: HMDA data.
    Fleet's 1995 acquisition of Shawmut National Bank is associated
    with a Fleet Merger Had Reduction reduction in mortgage lending to
    LMI and minority census tracts that in Lending in LMI and
    mirrored Fleet's overall reduction in mortgage lending for the
    Boston MSA. Minority Areas That                      According to
    Fleet Financial Group officials, over the period of 1994-97,
    Mirrored Its Reduction in                the Boston MSA
    experienced a significant influx of mortgage lenders that resulted
    in competitive pressures and a subsequent reduction in residential
    the Overall Market                       mortgage lending among
    existing lenders in that market. As shown in table Page 24
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 4, market share statistics for conventional, single-family
    home purchase loan originations indicated large declines for both
    LMI and minority census tracts as well as overall in the Boston
    MSA. Portfolio shares only declined slightly. Table 4:  Market and
    Portfolio Shares
    Bank  holding company for Fleet/Shawmut Bank Holding
    Fleet/Shawmut                  Fleet Company for Conventional,
    Single- Family Home Purchase Loan                Market or
    portfolio share                                  1994        1995
    1996        1997 Originations in the Boston MSA           Market
    share of loan origination for Boston                9.2%
    11.5%         6.1%        4.3% MSA Market share of census tracts
    that were: LMI
    26.3        27.1         14.7           10.2 Minority
    32.8        32.7         17.2           11.6 Portfolio share of
    census tracts that were: LMI
    34.4        32.3         33.2           32.6 Minority
    27.1        25.7         25.3           24.5 Source: HMDA data. As
    shown in table 5, Chemical Bank's 1996 acquisition of Chase
    Manhattan Chase Manhattan Bank                     Bank is
    associated with increased market and portfolio shares of loan
    Merger Showed an Increase originations in LMI census tracts.
    Market and portfolio shares in minority in LMI and Minority
    Lending census tracts were fairly stable. Table 5:  Market and
    Portfolio Shares
    Bank holding company for Chemical/Chase Manhattan Bank
    Chemical/Chase                    Chase Holding Companies for
    Conventional, Single-Family Home Purchase Loan         Market or
    portfolio share                              1995          1996
    1997         1998 Originations in the New York City MSA    Market
    share of loan origination for New              14.3%         13.8%
    14.4%                 a York City MSA Market share of census
    tracts that were: LMI
    10.6          11.8         18.2                a Minority
    13.0          12.8         14.4                a Portfolio share
    of census tracts that were: LMI
    6.4           6.2         10.0         9.9% Minority
    39.0          37.9         40.4             41.7 aFRB provided us
    with 1998 HMDA data that allowed us to calculate portfolio, but
    not market share measures of lending performance. Source: HMDA
    data. In acting on a BHC merger application, FRB must consider the
    Conclusions                              convenience and needs of
    the community to be served under the BHC Act and take into account
    the CRA records of the relevant banks.  FRB's Regulation Y,
    promulgated under the BHC Act, requires public notice of a BHC
    application and a specific public comment period.  FRB said it
    voluntarily adopted the requirement of notice, comment, and
    specific comment period because it found the public process
    helpful. Page 25                      GAO/GGD-99-180 Guidelines
    for Community Reinvestment Issues B-280468 In the six BHC merger
    applications that we reviewed, it appeared to us that FRB
    attempted to balance the CRA performance ratings of the bank
    subsidiaries of the merging BHCs with information presented
    through public comments that raised concerns with the
    institutions' CRA records. Both the BHC applicants and the
    community groups raising CRA concerns lacked relevant information
    on how FRB analyzes an institution's CRA record.  The implications
    of FRB's actions are of major importance to the parties involved
    in the BHC merger application process.  The merging BHCs have a
    business interest in completing the merger in a timely manner with
    minimal disruption of their future consolidation efforts.  The
    community groups that submit comments on large BHC mergers have an
    interest in ensuring that specific community credit issues are
    being addressed. A more transparent process is needed regarding
    how FRB balances the CRA ratings of banks, particularly those with
    good CRA ratings, such as the banks in our study, with public
    comments raising CRA concerns.  A more transparent process could
    be useful for both BHC applicants and public commenters.  Enhanced
    transparency could improve the BHC applicants' understanding of
    what information is expected of them, what role public comments
    play in FRB's CRA review, and what information FRB focuses on in
    response to different CRA concerns.  In addition, a more
    transparent process may contribute to more focused public comments
    from community organizations and provide commenters with knowledge
    of how FRB analyzes an institution's CRA record, such as its home
    mortgage lending performance. To enhance the transparency and
    improve the efficiency with which CRA Recommendation     concerns
    are addressed in the BHC merger application process, we recommend
    that FRB develop written guidelines that summarize how public
    comments raising CRA concerns are used with CRA examination
    information in FRB's merger application decisions for large BHCs.
    For example, such guidelines could summarize important conclusions
    from previous Board of Governors application decisions.  Such
    guidelines could also include when and how concerns raised in
    public comments will be considered, the types of analyses FRB is
    likely to conduct and rely upon in reaching its conclusions, and
    the situations in which HMDA statistics are limited. We received
    written comments on a draft of this report from FRB that are
    Agency Comments    reprinted in appendix VI.  FRB generally agreed
    with our recommendation that it develop written guidelines to
    enhance the transparency of the process.  The letter stated that
    FRB will consider how best to convey Page 26
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues B-
    280468 useful information focusing on the CRA aspects of the
    application process and discussed information that could be
    included in an FRB guide to the process.  In addition, FRB
    provided technical comments, which we have incorporated where
    appropriate. We received written comments on a draft of this
    report from OCC that are reprinted in appendix VII.  OCC also
    provided technical comments, which we have incorporated where
    appropriate. We are sending copies of this report to Senator Phil
    Gramm and Senator Paul Sarbanes and to Representative Barney
    Frank, Representative John LaFalce, Representative Rick Lazio,
    Representative Jim Leach, Representative Marge Roukema, and
    Representative Bruce Vento in their capacities as Chair or Ranking
    Minority Member of Senate and House Committees and Subcommittees.
    We are also sending copies of this report to the Honorable Alan
    Greenspan, Chairman of the Board of Governors of the Federal
    Reserve System; the Honorable John Hawke, Comptroller of the
    Currency; and others upon request. Please call me or Bill Shear,
    Assistant Director, at (202) 512-8678 if you or your staffs have
    any questions concerning this report.  Key contributors to this
    report are acknowledged in appendix VIII. Thomas J. McCool
    Director, Financial Institutions and Markets Issues Page 27
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
    Contents 1 Letter 34 Appendix I                   FRB's Legal
    Responsibilities
    34 Scope and                    FRB's Process for Reviewing BHC
    Merger Applications                          34 Premerger and
    Postmerger Home Mortgage Lending                               35
    Methodology 37 Appendix II                  NBD's Acquisition of
    First Chicago                                           37
    Premerger Bank               Fleet's Acquisition of Shawmut
    38 Chemical's Acquisition of Chase Manhattan
    39 Subsidiary CRA               NationsBank's Acquisition of
    Boatmen's Bancshares                            40 Performance
    Ratings          NationsBank's Acquisition of BankAmerica
    43 Bank One's Acquisition of NBD First Chicago
    44 46 Appendix III                 NBD's Acquisition of First
    Chicago                                           46 Discussion of
    Principal Fleet's Acquisition of Shawmut
    46 Chemical's Acquisition of Chase Manhattan
    46 CRA Concerns Raised          NationsBank's Acquisition of
    Boatmen's Bancshares                            46 by Commenters
    NationsBank's Acquisition of BankAmerica
    47 Bank One's Acquisition of NBD First Chicago
    47 48 Appendix IV Examples of FRB Analysis of HMDA Data in
    Response to Public Concerns 51 Appendix V                   NBD
    First Chicago Bank Merger Shows Fairly Stable LMI
    51 BHC Mergers and                and Minority Lending Fleet
    Merger Had Reduction in Lending in LMI and
    51 Lending in Minority            Minority Areas That Mirrored Its
    Reduction in the and Low- and                   Overall Market
    Chase Manhattan Bank Merger Shows an Increase in LMI
    52 Moderate-Income                and Minority Lending Areas Page
    28              GAO/GGD-99-180 Guidelines for Community
    Reinvestment Issues Contents 53 Appendix VI Comments From the
    Federal Reserve Board 54 Appendix VII Comments From the Office of
    the Comptroller of the Currency 55 Appendix VIII GAO Contacts and
    Staff Acknowledgments Table 1:  Number of BHC Merger/Acquisition
    Cases                             12 Tables
    Receiving CRA Protests Table 2:  The Distribution of CRA
    Performance Ratings                        13 for Large  Banks
    Examined by OCC and FRB, 1995-98 Table 3:  Market and Portfolio
    Shares  for NBD/First                         24 Chicago Bank
    Holding Companies for Conventional, Single-Family Home Purchase
    Loan Originations in the Chicago MSA Table 4:  Market and
    Portfolio Shares  for Fleet/Shawmut                     25 Bank
    Holding Company for Conventional, Single- Family Home Purchase
    Loan Originations in the Boston MSA Table 5:  Market and Portfolio
    Shares for Chemical/Chase                     25 Manhattan Bank
    Holding Companies for Conventional, Single-Family Home Purchase
    Loan Originations in the New York City MSA Table II.1:  NBD
    Corporation Premerger CRA Ratings                           37
    Table II.2:  First Chicago Corporation Premerger CRA
    37 Ratings Table II.3:  Fleet Financial Group Premerger CRA
    Ratings                     38 Table II.4:  Shawmut National
    Corporation Premerger                          38 CRA Ratings Page
    29              GAO/GGD-99-180 Guidelines for Community
    Reinvestment Issues Contents Table II.5:  Chemical Banking
    Corporation Premerger                            39 CRA Ratings
    Table II.6:  Chase Manhattan Corporation Premerger CRA
    39 Ratings Table II.7: NationsBank Corporation Premerger CRA
    40 Ratings Table II.8:  Boatmen's Bancshares Premerger CRA
    41 Ratings Table II.9: NationsBank Corporation Premerger CRA
    43 Ratings Table II.10: BankAmerica Corporation Premerger CRA
    43 Ratings Table II.11: Bank One Corporation Premerger CRA
    44 Ratings Table II.12: First Chicago NBD Corporation Premerger
    45 CRA Ratings Table IV.1: HMDA Statistics Generated in Response
    to                           48 Public Concerns Raised in NBD's
    Acquisition of First Chicago Table IV.2: HMDA Statistics Generated
    in Response to                           49 Public Concerns Raised
    in Fleet's Acquisition of Shawmut Table IV.3: HMDA Statistics
    Generated in Response to                           49 Public
    Concerns Raised in Chemical's Acquisition of Chase Table IV.4:
    HMDA Statistics Generated in Response to
    49 Public Concerns Raised in NationsBank Acquisition of Boatmen's
    Table IV.5: HMDA Statistics Generated in Response to
    50 Public Concerns Raised in NationsBank's Acquisition of Bank
    America Table IV.6: HMDA Statistics Generated in Response to
    50 Public Concerns Raised in Bank One's Acquisition of NBD First
    Chicago Table V.1: Market and Portfolio Shares for First
    51 Chicago/NBD Bank Holding Companies for All Single- Family
    Mortgage Loan Originations in the Chicago MSA Table V.2: Market
    and Portfolio Shares for Fleet/Shawmut                       52
    Bank Holding Company for All Single-Family Mortgage Loan
    Originations in the Boston MSA Page 30                GAO/GGD-99-
    180 Guidelines for Community Reinvestment Issues Contents Table
    V.3:  Market and Portfolio Shares for
    52 Chemical/Chase Manhattan Bank Holding Companies for All Single-
    Family Mortgage Loan Originations in the New York City MSA Page 31
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
    Contents Abbreviations BHC         bank holding company CRA
    Community Reinvestment Act DCCA        Division of Consumer and
    Community Affairs FDIC        Federal Deposit Insurance
    Corporation FFIEC       Federal Financial Institutions Examination
    Council FRB         Federal Reserve Board HMDA        Home
    Mortgage Disclosure Act of 1975 LMI         low- and moderate-
    income MSA         metropolitan statistical area OCC
    Office of the Comptroller of the Currency OTS         Office of
    Thrift Supervision Page 32             GAO/GGD-99-180 Guidelines
    for Community Reinvestment Issues Page 33    GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues Appendix I Scope and
    Methodology To provide a more detailed description of our scope
    and methodology, this appendix supplements our discussion
    contained in the letter of this report. Our legal analysis
    included a review of the Bank Holding Company Act of FRB's Legal
    1956 (BHC Act) and the Community Reinvestment Act of 1977 (CRA).
    Responsibilities               Included in this review was our
    analysis of statutory amendments to the BHC Act and  court
    decisions addressing the convenience and needs factor in the BHC
    Act. To identify the principal CRA comments submitted to the
    Federal Reserve FRB's Process for              Board (FRB) on each
    of the six mergers, we reviewed summaries of Reviewing BHC Merger
    comments prepared by FRB's Legal Division and the Division of
    Consumer and Community Affairs (DCCA).  The Legal Division wrote
    summaries for Applications                   four merger
    applications-Fleet Financial Group's acquisition of Shawmut
    National Corporation, Chemical Banking Corporation's acquisition
    of Chase Manhattan Corporation, NationsBank Corporation's
    acquisition of BankAmerica Corporation, and Bank One Corporation's
    acquisition of NBD First Chicago Corporation.  To verify the
    completeness of the Legal Division's and DCCA's summaries, we
    developed a data collection instrument, took a sample of comment
    letters from Chemical's acquisition of Chase Manhattan and
    NationsBank's acquisition of BankAmerica and compared our data
    with the written summaries.  From our sampling of these comment
    letters, we determined that the Legal Division's and DCCA's
    summaries of public comments were accurate. We focused our
    attention on public comments addressing CRA performance measures.
    We did not analyze comments raising employment, safety and
    soundness, or competitive issues.  We also did not analyze
    comments raising personal complaints (e.g., "I did not receive a
    loan") or managerial issues if they were not directly tied to CRA
    performance.  We did not assess the validity of the public
    comments or verify the accuracy of data submitted with the
    comments.  We also did not verify the accuracy of the data FRB
    relied upon in its response to public concerns. To identify how
    FRB addressed the principal CRA comments for the six mergers in
    our case study, we reviewed DCCA's internal memorandums and
    supporting documentation submitted to the Board of Governors and
    the Board of Governors' Orders approving the mergers.  We also
    interviewed officials from DCCA and the Legal Division and
    officials from the Federal Reserve Bank of New York.  Specifically
    for DCCA, we interviewed the Manager of Applications in DCCA and
    each analyst who was responsible for assessing the CRA performance
    of the six mergers. We interviewed officials from Bank America
    Corporation, Bank One, Chase Manhattan Corporation, and Fleet
    Financial Group.  We also Page 34                GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues Appendix I Scope and
    Methodology interviewed a number of community groups that
    submitted comments or testified in public meetings on the bank
    holding company (BHC) merger applications included in our case
    studies. To identify how FRB used Home Mortgage Disclosure Act of
    1975 (HMDA) analysis to address public concerns, we specified the
    relevant geographic areas at the state, county, or metropolitan
    statistical area level of aggregation. We obtained selected
    reproductions of FRB analyses conducted in response to the
    principal public concerns raised.  FRB officials told us that for
    some of the older mergers, they had not retained computer-
    generated output or documentation of the computer programs used to
    produce the output at the time of the merger application.   FRB
    officials told us that it would be difficult and costly to
    reconstruct and reproduce the delineated areas for the bank
    subsidiaries of each BHC at the time of the merger application.
    FRB officials told us that the statistical tabulations they
    supplied to us would likely correspond closely to the statistical
    results obtained when the merger application was being processed
    at FRB. We did not analyze FRB's analysis of CRA small business
    loan file data to address public concerns of insufficient small
    business lending. To determine the premerger and postmerger
    mortgage lending in low- and Premerger and       moderate-income
    (LMI) and minority communities for three mergers, we Postmerger
    Home     used HMDA data.  FRB provided us with "value-added" HMDA
    data for the years 1994-98; in these data, the individual HMDA
    loan files were merged Mortgage Lending    with census tract
    characteristics from the 1990 Census of Population and Housing.
    We undertook steps to verify, in part, the accuracy of HMDA data
    used in our premerger and postmerger HMDA analysis for the three
    BHC mergers that we reviewed.  We reviewed information on the
    process used by the Federal Financial Institutions Examination
    Council's (FFIEC) member agencies for the identification and
    resolution of errors in the HMDA information submitted by lenders.
    In November 1994, FRB amended a regulation to require lenders to
    update the HMDA information on their loan activity on a quarterly
    basis and to require most lenders to submit their data to the
    supervisory agencies in a machine-readable form. We discussed HMDA
    data with FRB and BHC officials.  We identified that HMDA data on
    home improvement loans were not consistently reported by all HMDA
    reporters because they have the option to report equity lines of
    credit as home improvement loans.  We also obtained a list of the
    bank and nonbank subsidiaries of the three BHCs who were HMDA
    filers in the metropolitan statistical areas we were analyzing.
    We obtained the list of HMDA reporters from DCCA as well as Bank
    One, Chase Manhattan, and Page 35                  GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues Appendix I Scope and
    Methodology Fleet.  In cases where discrepancies were present, we
    conducted statistical analyses and followed up with inquiries to
    DCCA and BHCs to reach resolution. In our mortgage lending
    analysis, we defined a census tract as LMI if median family income
    for the census tract was less than 80 percent of median family
    income for the metropolitan statistical area. Consistent with
    definitions used in an analysis of trends in home purchase lending
    recently conducted by FRB, we classified a census tract as a
    minority tract if 20 percent or more of the residents were members
    of minority groups.1 This definition of a minority tract therefore
    includes census tracts that can be characterized as integrated as
    well as census tracts that have a greater number of minority
    residents. FRB provided us with 1998 HMDA data that allowed us to
    calculate portfolio, but not market share, measures of lending
    performance for Chase Manhattan in the 2nd year after the
    acquisition was completed. During the time frame of our work, 1998
    HMDA data required to calculate market shares were not available.
    HMDA data alone cannot reflect changes in market conditions that
    help determine market outcomes.  For example, mortgage interest
    rates change over time, thus affecting the number of households
    among different income groups that purchase a home or refinance
    existing mortgages.  We calculated portfolio and market shares for
    both the universe of single- family mortgage originations and
    conventional home purchase mortgage originations to see if the
    various statistical results were consistent with one another.  We
    also calculated the BHC's market share in all census tracts to
    create a benchmark that can be compared to changes in the BHC's
    market share in LMI and minority census tracts. We tested the HMDA
    data we obtained from FRB for missing variable values.  We found
    that the variables on which we relied, such as HMDA reporter,
    metropolitan statistical area, census tract number, census tract
    family income, and census tract minority population, were not
    missing for the years 1994 through 1998. 1 Robert B. Avery,
    Raphael W. Bostic, Paul S. Calem, and Glenn B. Canner, "Trends in
    Home Purchase Lending: Consolidation and the Community
    Reinvestment Act," Federal Reserve Bulletin (Feb. 1999), pp. 81-
    102. Page 36                                       GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues Appendix II Premerger
    Bank Subsidiary CRA Performance Ratings Tables II.1 through II.12
    list the premerger CRA performance ratings for all bank
    subsidiaries owned by the applicant and the target institutions of
    the six BHC merger cases that we reviewed. NBD Corporation
    acquired First Chicago Corporation in 1995. NBD's Acquisition of
    First Chicago Table II.1:  NBD Corporation Premerger CRA Ratings
    Assets NBD Corporation bank subsidiaries                      (in
    millions)         CRA ratings      Date                  Agency
    NBD-Michigan, N.A,. Detroit, MI                          $31,000.0
    Outstanding      March 31, 1993        OCC NBD-Skokie, N.A.,
    Skokie, IL                                  781.9
    Satisfactory     March 31, 1995        0CC NBD-Indianapolis, N.A.,
    Indianapolis, IN                    9,986.1          Outstanding
    April 20, 1993        0CC NBD-Elkhart, Elkhart, IN
    718.9          Satisfactory     June 1, 1993          FRB-Chicago
    NBD-Florida, Venice, Fl
    78.3          Satisfactory     October 20, 1994      OTS NBD-Ohio,
    Columbus, OH                                        706.4
    Outstanding      May 16, 1994          OCC NBD-Wheaton, Wheaton,
    IL                                    5,719.0          Outstanding
    October 29, 1993      OCC Source:  Federal Reserve Board. Table
    II.2:  First Chicago Corporation Premerger CRA Ratings Assets
    First Chicago Corporation bank subsidiaries            (in
    billions)         CRA ratings      Date                  Agency
    First National Bank of Chicago,
    $49.3          Satisfactory     November 5, 1993      OCC Chicago,
    IL American National Bank and Trust Co.
    6.2          Satisfactory     April 11, 1994        OCC Chicago,
    IL FCC National Bank, Wilmington, DE
    5.8          Outstanding      April 11, 1994        OCC Source:
    Federal Reserve Board. Page 37                      GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues Appendix II Premerger
    Bank Subsidiary CRA Performance Ratings Fleet Financial Group
    acquired Shawmut in 1995. Fleet's Acquisition of Shawmut Table
    II.3:  Fleet Financial Group Premerger CRA Ratings Assets Fleet
    Financial Group bank subsidiaries                   (in billions)
    CRA ratings          Date                  Agency Fleet Bank,
    Albany, NY                                          $14.8
    Satisfactory         January 10, 1994      FRB-New York Fleet
    Bank, Melville, NY                                          N/A
    Outstanding          May 18, 1992          FRB-New York Fleet
    National Bank, Providence, RI                               10.1
    Satisfactory         March 31, 1995        OCC Fleet Bank of
    Massachusetts, N.A.,                                10.8
    Satisfactory         March 31, 1995        OCC Boston MA Fleet
    Bank., N.A., Hartford, CT                                    6.9
    Outstanding          March 31, 1993        OCC Fleet Bank of
    Maine, Portland, ME                                  3.1
    Outstanding          August 8, 1994        FRB-Boston Fleet Bank-
    NH, Nashua, NH                                          1.9
    Outstanding          August 8, 1994        FRB-Boston Source:
    Federal Reserve Board. Table II.4:  Shawmut National Corporation
    Premerger CRA Ratings Shawmut National Corporation bank
    Assets subsidiaries
    (in billions)        CRA ratings          Date
    Agency Shawmut Bank, N.A., Boston, MA
    $14.4          Satisfactory         December 31, 1993     OCC
    Shawmut Bank-Connecticut, N.A.,
    18.7         Satisfactory         December 31, 1993     OCC
    Hartford, CT Shawmut Bank-NH, Manchester, NH
    1.8         Satisfactory         April 11, 1994        FDIC
    Shawmut Bank-New York, N.A.,
    1.7         Not examined          N/A                   N/A
    Schenectady, NYa Shawmut Bank, FSB, Boca Raton, FLb
    0.2         Not examined          N/A                   N/A
    aShawmut Bank-New York was formed in June 1995 from the
    acquisition of branches of Northeast Savings, F.A., Hartford, CT
    (Satisfactory, Sept. 28, 1992). bShawmut Bank, FSB, was formed
    through the acquisition of branches from the Resolution Trust
    Corporation in July 1994. Source:  Federal Reserve Board. Page 38
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
    Appendix II Premerger Bank Subsidiary CRA Performance Ratings
    Chemical Banking Corporation acquired Chase Manhattan in 1996.
    Chemical's Acquisition of Chase Manhattan Table II.5:  Chemical
    Banking Corporation Premerger CRA Ratings Chemical Banking
    Corporation bank                            Assets subsidiaries
    (in millions)        CRA ratings      Date
    Agency Chemical Bank, New York, NY
    $153,100          Outstanding      March 13, 1995         FRB-New
    York Chemical Bank, N.A., Jericho, NY
    4,342         Satisfactory     September 30, 1994     OCC Texas
    Commerce Bank, N.A.,                                   19,649
    Outstanding      September 14, 1994     OCC Houston, TX Texas
    Commerce Bank--San Angelo,                                 201
    Satisfactory     September 15, 1994     OCC San Angelo, TX
    Chemical Bank, New Jersey, N.A., East
    188         Satisfactory     August 31, 1993        OCC Brunswick,
    NJ Princeton Bank & Trust Co, N.A., East
    N/A         Satisfactory     August 31, 1993        OCC Brunswick,
    NJ Chemical Bank, FSB, Palm Beach, FL
    162         Satisfactory     March 6, 1995          OTS Source:
    Federal Reserve Board. Table II.6:  Chase Manhattan Corporation
    Premerger CRA Ratings Chase Manhattan Corporation bank
    Assets subsidiaries                                            (in
    millions)        CRA ratings      Date                   Agency
    The Chase Manhattan Bank, N.A.,
    $97,900          Satisfactory     October 28, 1993       OCC New
    York, NY The Chase Manhattan Bank (USA)
    9,616         Outstanding      August 30, 1994        FDIC
    Wilmington, DE The Chase Manhattan Bank of Florida,
    409         Satisfactory     October 6, 1993        OCC N.A.,
    Tampa, FL The Chase Manhattan Bank of Maryland,
    646         Satisfactory     February 6, 1995       FRB-Richmond
    Baltimore, MD Source:  Federal Reserve Board. Page 39
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
    Appendix II Premerger Bank Subsidiary CRA Performance Ratings
    NationsBank Corporation acquired Boatmen's Bancshares in 1996.
    NationsBank's Acquisition of Boatmen's Bancshares Table II.7:
    NationsBank Corporation Premerger CRA Ratings Assets Nationsbank
    Corporation subsidiaries                        (in billions)
    CRA ratings         Date                       Agency NationsBank
    N.A. Carolinas, Charlotte, NCa                         $70.2
    Outstanding         July 21, 1995              OCC NationsBank,
    N.A. (South), Atlanta, GA                               49.5
    Outstanding         July 21, 1995              OCC NationsBank of
    Texas, N.A., Dallas, TX                               41.7
    Outstanding         July 21, 1995              OCC NationsBank of
    Delaware, N.A., Dover, DE                              6.6
    Satisfactory        July 21, 1995              OCC NationsBank of
    Tennessee, N.A., Nashville,                            4.9
    Outstanding         July 21, 1995              OCC TN NationsBank
    of Kentucky, N.A., Hopkinsville,                          0.2
    Satisfactory        July 21, 1995              OCC KY Sun World,
    N.A., El Paso, TX                                          0.1
    Not examined        N/A                        N/A aSince the 1995
    examinations, NationsBank merged several banks. NationsBank of
    Florida, N.A., Tampa, Fl, which merged into the Atlanta, GA,
    subsidiary, received a CRA rating of outstanding (July 1995).
    NationsBank, N.A., Richmond, VA, merged into the Charlotte, NC,
    bank and received a CRA rating of outstanding (July 1995). Source:
    Federal Reserve Board. Page 40                       GAO/GGD-99-
    180 Guidelines for Community Reinvestment Issues Appendix II
    Premerger Bank Subsidiary CRA Performance Ratings Table II.8:
    Boatmen's Bancshares Premerger CRA RatingsAssets Boatmen's
    Bancshares subsidiaries                           (in billions)
    CRA ratings      Date                   Agency Boatmens NB of
    Batesville, Batesville, AR                        $160. 7
    Outstanding      April 29, 1996         OCC Boatmens NB of North
    Central AR, Bull                             208.5
    Outstanding      April 1, 1996          OCC Shoals, AR Boatmens NB
    of South AR, Camden, AR                               115.4
    Outstanding      April 29, 1996         OCC Boatmens NB of Conway,
    Conway, AR                                 198.7
    Outstanding      April 29, 1996         OCC Boatmens NB of North
    West AR, Fayetteville,                       494.7
    Outstanding      May 6, 1996            OCC AR Superior Federal
    Bank, FSB, Fort Smith, AR                       1,229.2
    Outstanding      August 8, 1994         OTS Boatmens NB of Hot
    Springs, Hot Springs, AR                       304.9
    Outstanding      April 15, 1996         OCC Boatmens BK of
    Northeast AR, Jonesboro,                           257.7
    Satisfactory     February 13, 1995      FDIC AR Boatmens NB of AR,
    Little Rock, AR                               1,592.5
    Outstanding      April 8, 1996          OCC Boatmens NB of Newark,
    Newark, AR                                   12.5
    Outstanding      May 6, 1996            OCC Boatmens NB of Pine
    Bluff, Pine Bluff, AR                         246.7
    Outstanding      April 29, 1996         OCC Boatmens NB of
    Russellville, Russellville, AR                     164.0
    Outstanding      April 22, 1996         OCC Boatmens Bank of
    Franklin County, Benton, IL                      166.1
    Satisfactory     November 28, 1994      FDIC Boatmens NB
    Charleston, Charleston, IL                            112.8
    Satisfactory     September 27, 1994     OCC Boatmens NB of Central
    IL, Hillsboro, IL                          109.2
    Satisfactory     September 12, 1994     OCC Boatmens Bank of S.
    Central IL, Mount                             236.4
    Outstanding      January 3, 1994        FDIC Vernon, IL Boatmens
    Bank of Quincy, Quincy, IL                               193.7
    Outstanding      February 4, 1994       FDIC Boatmens Bank of
    Iowa, NA, Des Moines, IA                         688.7
    Outstanding      September 6, 1994      OCC Boatmens BK Fort
    Dodge, Fort Dodge, IA                            104.5
    Outstanding      April 24, 1995         FDIC Boatmens Bank North
    Iowa, Mason City, IA                          258.7
    Outstanding      July 15, 1996          FDIC Boatmens NB Northwest
    IA, Spencer, IA                             115.9
    Satisfactory     July 25, 1994          OCC Bank IV NA, Wichita,
    KS                                          4,754.7
    Outstanding      March13, 1995          OCC Boatmens NB of
    Boonville, Boonville, MO                             51.1
    Satisfactory     October 3, 1994        OCC Boatmens Osage Bank,
    Butler, MO                                   113.3
    Outstanding      December 30, 1994      FDIC Boatmens NB of Cape
    Girardeau, Cape                               423.5
    Satisfactory     April 4, 1994          OCC Girardeau, MO Boatmens
    Bank of Southwest MO, Carthage,                          237.4
    Outstanding      September 5, 1995      FRB-Kansas MO
    City Boatmens Bank of Mid MO, Columbia, MO
    288.4          Outstanding      December 12, 1994      FDIC
    Boatmens First NB of Kansas, Kansas City,
    4,428.5         Outstanding      January 18, 1994       OCC MO
    Boatmens Bank, Kennett, MO
    125.2          Satisfactory     April 1, 1996          FDIC
    Boatmens NB Lebanon, Lebanon, MO
    100.1          Satisfactory     August 15, 1994        OCC
    Boatmens River Valley Bank, Lexington, MO
    74.1         Outstanding      January 19, 1996       FDIC Boatmens
    Bank of Marshall, Marshall, MO                             69.7
    Outstanding      August 16, 1994        FDIC Boatmens Bank of
    Pulaski County, Richland,                          46.9
    Outstanding      September 5, 1995      FDIC MO Boatmens Bank,
    Rolla, MO                                            99.1
    Outstanding      August 8, 1994         FDIC Boatmens NB of St.
    Louis, St. Louis                             11,482.4
    Outstanding      February 26, 1996      OCC Boatmens Bank of
    Southern MO, Springfield,                       1,192.2
    Outstanding      October 18, 1995       FDIC MO Boatmens Bank of
    Troy, Troy, MO                                     62.6
    Satisfactory     April 3, 1995          FDIC Page 41
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
    Appendix II Premerger Bank Subsidiary CRA Performance Ratings
    Assets Boatmen's Bancshares subsidiaries
    (in billions)         CRA ratings      Date
    Agency Boatmens Bank, Vandalia, MO
    41.1        Satisfactory     January 10, 1995       FRB-St. Louis
    Boatmens First NB, West Plains, MO
    152.5         Satisfactory     September 12, 1994     OCC Boatmens
    Credit Card Bank, Albuquerque,                          580.9
    Satisfactory     August 19, 1994        FDIC NM Sunwest Bank of
    Albuquerque, Albuquerque,                      2,217.5
    Outstanding      April 4, 1994          OCC NM Sunwest Bank of
    Clovis, NA, Clovis, NM                           169.5
    Outstanding      March 31, 1994         OCC Sunwest Bank of Rio
    Arriba, NA, Espanola,                          90.7
    Satisfactory     March 31, 1994         OCC NM Sunwest Bank of
    Farmington, Farmington, NM                         79.1
    Satisfactory     March 8, 1996          FDIC Sunwest Bank of
    Gallup, Gallup, NM                               176.5
    Satisfactory     January 12, 1996       FDIC Sunwest Bank of
    Hobbs, Hobbs, NM                                   78.1
    Satisfactory     April 11, 1994         OCC Sunwest Bank of Las
    Cruces, NA,                                    99.6
    Satisfactory     April 18, 1994         OCC Las Cruces, NM Sunwest
    Bank of Raton, NA, Raton, NM                               84.4
    Outstanding      March 31, 1994         OCC Sunwest Bank of
    Roswell, NA, Roswell, NM                         165.3
    Satisfactory     March 31, 1994         OCC Sunwest Bank of Santa
    Fe, Santa Fe, NM                           283.2
    Outstanding      November 25, 1994      FDIC Sunwest Bank, Silver
    City, NM                                    107.4
    Outstanding      April 24, 1995         FRB-Dallas Boatmens NB of
    Oklahoma, Tulsa, OK                             3,961.4
    Satisfactory     September 12, 1995     OCC Boatmens Bank of
    Tennessee, Memphis, TN                          942.7
    Outstanding      December 12, 1994      FDIC Boatmens First NB,
    Amarillo, TX                                1,586.1
    Satisfactory     May 16, 1994           OCC Boatmens NB Austin,
    Austin, TX                                   120.9
    Satisfactory     October 10, 1994       OCC Sunwest Bank, El Paso,
    TX                                        548.8
    Outstanding      July 8, 1996           FDIC Source:  Federal
    Reserve Board. Page 42                      GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues Appendix II Premerger
    Bank Subsidiary CRA Performance Ratings NationsBank Corporation
    acquired BankAmerica in 1998. NationsBank's Acquisition of
    BankAmerica Table II.9: NationsBank Corporation Premerger CRA
    Ratings NationsBank Corporation bank
    Assets subsidiaries
    (in billions)        CRA ratings          Date
    Agency NationsBank, N.A. (Carolinas), Charlotte, NCa
    $216.4          Outstanding          July 21, 1995
    OCC NationsBank of Tennessee, N.A., Nashville,
    6.0         Outstanding          July 21, 1995                OCC
    TN NationsBank of Kentucky, N.A., Hopkinsville,
    0.2         Satisfactory         July 21, 1995                OCC
    KY NationsBank of Delaware, N.A., Dover, DE
    6.7         Satisfactory         July 21, 1995                OCC
    NationsBank, N.A. (NationsBank-Glynn Co.),
    0.3         Outstanding          April 22, 1996               OTS
    Brunswick, GA Sunwest Bank of El Paso, TX
    0.6         Outstanding          July 8, 1996                 FDIC
    Boatmen's National Bank of Austin, Austin, TX
    0.1         Satisfactory         December 31, 1994            OCC
    Barnett Bank, N.A. (Barnett), Jacksonville, FL
    46.3         Outstanding          December 31, 1996            OCC
    Community Bank of the Islands, Sanibel, FL
    0.1         Outstanding          January 31, 1996             FRB-
    Atlanta Superior Federal Bank, FSB, Ft. Smith, AR
    1.3         Outstanding          August 8, 1994               OTS
    aAt the time of the BHC merger application review, the
    NationsBank, N.A., operated in 14 states and DC; it included all
    of NationsBank's East Coast banks (except banks in Tennessee,
    Kentucky, and the Barnett Banks) and all former Boatmen's banks.
    NationsBank--TX merged into NationsBank, N.A., on 5/6/98 as the
    result of a court decision allowing the merger of Texas banks into
    banks based in other states; Boatmen's-TX and Sunwest-TX were also
    merged into the NC bank. Source:  Federal Reserve Board. Table
    II.10: BankAmerica Corporation Premerger CRA Ratings BankAmerica
    Corporation bank                                         Assets
    subsidiaries
    (in billions)        CRA ratings          Date
    Agency Bank of America National Trust and SA,
    $240.4          Outstanding          September 30, 1997
    OCC San Francisco, CA Bank of America, N.A., Phoenix, AZ
    6.7         Outstanding          October 31, 1996             OCC
    Bank of America Texas, N.A., Irving, TX
    5.3         Outstanding          October 31, 1996             OCC
    Bank of America, FSB, Portland, ORa
    15.8         Outstanding          June 9, 1997                 OTS
    Bank of America Community Development
    0.4         Outstanding          August 27, 1997              FDIC
    Bank, Walnut Creek, CAb aAll deposit-taking branches were sold
    (Hawaii, Dec. 5, 1997, and in-store branches in the Chicago MSA,
    Jan. 31,1998).  Other divisions included BankAmerica's mortgage
    company and a community development division, which generally
    complemented the activities of the Bank of America Community
    Development Bank and operated in states other than California.
    bThe bank was considered a leader for community development
    efforts for all BankAmerica banking units.  Its activities focused
    on Small Business Administration lending, affordable housing
    lending, and community development services; it operated mainly in
    California. Source:  Federal Reserve Board. Page 43
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
    Appendix II Premerger Bank Subsidiary CRA Performance Ratings Bank
    One Corporation acquired NBD First Chicago in 1998. Bank One's
    Acquisition of NBD First Chicago Table II.11: Bank One Corporation
    Premerger CRA Ratings Bank One Corporation bank
    Assets subsidiaries
    (in millions)        CRA ratings            Date
    Agency Bank One NA, Columbus, OHa
    $24,607          Outstanding          January 21, 1995
    OCC Bank One Texas, NA, Dallas, TX
    24,509          Satisfactory         October 31, 1997
    OCC Bank One Arizona, NA, Phoenix, AZ.
    14,678          Satisfactory         October 28, 1996
    OCC Bank One Wisconsin, Milwaukee, WIa
    9,007         Satisfactory         November 25, 1995
    OCCc First USA Bank, Wilmington, DE
    9,002         Satisfactory         August 19, 1996
    FDICd Bank One Indiana, NA, Indianapolis, INa
    8,323         Outstanding          February 21, 1995           OCC
    Bank One LA, NA, Baton Rouge, LA
    6,003         Satisfactory         September 19, 1996          OCC
    Bank One Kentucky, NA, Louisville, KY
    5,456         Outstanding          November 7, 1994b           OCC
    Bank One Oklahoma, NA, Oklahoma City,
    3,890         Satisfactory         April 22, 1996              OCC
    OK Bank One Illinois, NA, Springfield, IL
    3,535         Outstanding          December 21, 1994           OCC
    Bank One Colorado, NA, Denver, CO
    2,956         Outstanding          January 13, 1997            OCC
    Bank One West VA, NA, Huntington, WV
    2,397         Satisfactory         June 30, 1997               OCC
    Bank One Utah, NA, Salt Lake City, UT
    1,025         Satisfactory         October 31, 1997            OCC
    Bank One Trust Co., NA, Columbus, OHe
    581         Not examined         N/A                         OCC
    Bank One Wheeling, Steubenville, NA,
    453         Satisfactory         April 15, 1996              OCC
    Wheeling, WV aFRB staff noted that subsequent to the 1995 CRA
    examination of Bank One's Columbus, OH, bank subsidiary, it merged
    several other Bank One Ohio bank subsidiaries into the Columbus
    bank. Similarly, Bank One merged its other Indiana bank
    subsidiaries into the Indianapolis, IN, bank after that bank's
    1995 CRA examination.  In Wisconsin, Bank One merged several of
    its subsidiaries into the Milwaukee bank subsequent to that bank
    subsidiary's 1995 CRA examination.  Also, in Illinois, Bank One
    merged several subsidiaries into the Springfield bank, which was
    examined in late 1994. Therefore, these 1994/1995 ratings do not
    represent examinations of Bank One's activities throughout these
    three states.  FRB staff noted that all Bank One's banks that were
    merged out of existence had at least satisfactory CRA ratings. bAt
    the time of the BHC merger application review, the primary bank
    regulator was conducting a CRA examination at the bank. cChanged
    to an OCC charter in April 1998. dChanged to a FDIC charter in
    October 1996. eThe subsidiary was not subject to CRA. Source:
    Federal Reserve Board. Page 44                         GAO/GGD-99-
    180 Guidelines for Community Reinvestment Issues Appendix II
    Premerger Bank Subsidiary CRA Performance Ratings Table II.12:
    First Chicago NBD Corporation Premerger CRA Ratings First Chicago
    NBD Corporation bank                           Assets subsidiaries
    (in millions)      CRA ratings          Date
    Agency First NB of Chicago, Chicago, IL
    $58,138         Satisfactory         November 3, 1997
    OCC NBD Bank, Detroit, MI
    22,138         Outstanding          May 28, 1996a
    FRB-Chicago FCC National Bank, Wilmington, DE
    9,404         Outstanding          May 17, 1995a              OCC
    NBD Bank, NA, Indianapolis, IN                               9,268
    Outstanding          March 11, 1996             OCC American NB &
    Trust, Chicago, IL                             9,260
    Satisfactory         January 9, 1995a           OCC NBD Bank,
    Elkhart, IN                                          713
    Outstanding          July 26, 1998              FDIC NBD Bank,
    Venice FL                                            129
    Satisfactory         August 12, 1996            FDIC aAt the time
    of the BHC merger application review, the primary bank regulator
    was conducting a CRA examination at the bank. Source:  Federal
    Reserve Board. Page 45                       GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues Appendix III
    Discussion of Principal CRA Concerns Raised by Commenters FRB
    received both supportive and opposing comments for all six
    mergers. This appendix provides a discussion of the CRA concerns
    raised in each merger.  Our discussion includes the financial
    institutions, CRA comments, and geographic areas raised in the
    concerns. Commenters raised concerns that NBD had inadequate
    lending in LMI NBD's Acquisition of           areas in the Detroit
    MSA, where the lead bank subsidiary was located. First Chicago
    Similar concerns were also raised regarding the inadequacy of
    First Chicago's lending in the Lake County area of Chicago.
    Commenters also alleged that NBD redlined many LMI Detroit
    communities, as evidenced by the lead bank subsidiary's lack of
    branch presence and minimal marketing of credit products in these
    areas. Commenters expressed concerns about inadequate lending by
    Fleet or its Fleet's Acquisition of         subsidiaries in
    minority census tracts in the 13 MSAs in New York State. Shawmut
    Commenters alleged that the level of mortgage applications that
    Fleet received in each MSA was not consistent with the
    demographics of each MSA, and that the application denial rates
    evidenced disparate lending to minorities and those in LMI census
    tracts. Concerns were also raised regarding potential branch
    closures that would result in decreased banking services to LMI
    neighborhoods. Commenters raised CRA concerns for both Chemical
    and Chase Chemical's Acquisition Manhattan. Concerns were
    expressed about Chemical's and Chase's of Chase Manhattan
    lending in all states where the banks had a banking presence.
    Commenters also expressed concern that Chase had inadequate
    mortgage lending in LMI communities in a broad cross-section of
    cities, including Chicago, Los Angeles, Atlanta, Detroit, and
    Dallas. Commenters expressed concern that Chemical lacked home
    mortgage lending in LMI census tracts in New York, New Jersey,
    Delaware, Florida, and Texas. Concerns were also raised regarding
    branch closures.  In particular, a number of commenters expressed
    concern with the impact of Chemical's announced branch closures in
    LMI areas of New York City. Commenters expressed concern that
    NationsBank had inadequate NationsBank's                  mortgage
    and business lending to minorities and possible branch closings
    Acquisition of                 in Travis County, TX. Boatmen's
    Bancshares Page 46                  GAO/GGD-99-180 Guidelines for
    Community Reinvestment Issues Appendix III Discussion of Principal
    CRA Concerns Raised by Commenters Similar to the previous
    NationsBank merger, numerous commenters NationsBank's
    criticized the lending records of one or both banks in a number of
    Acquisition of                  geographical areas.  Commenters
    were concerned that one or both of the banks did not adequately
    lend to LMI individuals and areas.  Concerns BankAmerica
    were also raised regarding NationsBank's small business and rural
    lending, and branch closings.  One commenter asserted that the
    acquisition of BankAmerica would result in branch closings and
    reductions in banking services to LMI communities. Commenters
    criticized both BHCs' home mortgage lending and small Bank One's
    Acquisition business lending in serving the needs of minority
    borrowers and LMI and of NBD First Chicago            rural areas.
    Some commenters' concerns were related to Bank One's April 1998
    decision to modify its mortgage lending strategy, which they
    interpreted as the bank's plan to exit the mortgage lending
    business. Commenters feared that such a strategy would have the
    impact of reduced access to mortgage credit for certain
    individuals. Commenters also expressed concern about branch
    closings, including the concern that branch closings would reduce
    the availability of banking services to individuals in LMI and
    minority neighborhoods.  In addition, commenters expressed concern
    about Bank One's refusal to enter into community reinvestment
    agreements similar to the agreements entered into by First Chicago
    in Detroit and Chicago. Page 47                  GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues Appendix IV Examples
    of FRB Analysis of HMDA Data in Response to Public Concerns For
    each merger application, DCCA produced statistical tabulations on
    each geographic area where home mortgage lending concerns were
    raised. Tables IV.1 through IV.6 present examples of FRB analysis
    conducted with HMDA data that were performed in response to public
    concerns raised in each of the six bank holding company mergers
    included in our case study. The examples, which represent a small
    subset of DCCA's tabulations, are presented in six tables
    representing (1) NBD's acquisition of First Chicago in 1995, (2)
    Fleet's acquisition of Shawmut in 1995, (3) Chemical's acquisition
    of Chase in 1996, (4) NationsBank's acquisition of Boatmen's in
    1997, (5) NationsBank's acquisition of BankAmerica in 1998, and
    (6) Bank One's acquisition of NBD First Chicago in 1998. Each
    table includes statistics generated by FRB analysts for census
    tracts classified as LMI in response to public comments stating
    that such lending was insufficient.  Each table also includes
    statistics generated for minority applicants in the MSA or region.
    We reported FRB's analysis for the minority group accounting for
    the highest percentage of mortgage originations in the geographic
    area. When analyses were performed for a number of geographic
    areas covering one or more parties to the merger, we reported
    FRB's analysis for the area and merger partner we considered to be
    most helpful for illustrating FRB's process.  For example, in
    NBD's acquisition of First Chicago, we reported FRB analysis for
    NBD in the Detroit MSA.  FRB also conducted an analysis for First
    Chicago in the Chicago MSA and in Lake County, IL, in response to
    public comments on First Chicago's lending in those geographic
    areas. Table IV.1: HMDA Statistics Generated    NBD-Detroit MSA
    1993             1994 in Response to Public Concerns Raised
    Percentage of NBD mortgage applications
    8.3%            13.7% in NBD's Acquisition of First Chicago
    from LMI tracts Percentage of NBD mortgage applications
    6.6             11.7 from African-American applicants Percentage
    of NBD mortgage originations                            7.6
    16.3 from LMI tracts Percentage of all institution mortgage
    6.9             12.4 originations from LMI tracts Percentage of
    NBD mortgage originations                            5.6
    11.2 to African-American applicants Percentage of all institution
    mortgage                             5.0             10.3
    originations to African-American applicants Source:  Federal
    Reserve Board. Page 48                     GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues Appendix IV Examples
    of FRB Analysis of HMDA Data in Response to Public Concerns Table
    IV.2: HMDA Statistics Generated    Fleet-Albany
    1993             1994 in Response to Public Concerns Raised
    Percentage of Fleet mortgage applications
    16.6%            19.1% in Fleet's Acquisition of Shawmut
    from LMI tracts Percentage of Fleet mortgage applications
    1.4              3.2 from African-American applicants Percentage
    of Fleet mortgage originations                         15.2
    17.8 from LMI tracts Percentage of all institution mortgage
    12.4             13.4 originations from LMI tracts Percentage of
    Fleet mortgage originations                          1.4
    3.1 to African-American applicants Percentage of all institution
    mortgage                             1.7              1.9
    originations to African-American applicants Source:  Federal
    Reserve Board. Table IV.3: HMDA Statistics Generated    Chase-New
    York MSA                                               1993
    1994 in Response to Public Concerns Raised    Percentage of Chase
    mortgage applications                        8.5%             9.6%
    in Chemical's Acquisition of Chase         from LMI Tracts
    Percentage of Chase mortgage applications
    12.3             17.7 from African-American applicants Percentage
    of Chase mortgage originations                          7.7
    9.3 from LMI tracts Percentage of all institution mortgage
    7.8              9.8 originations from LMI Tracts Percentage of
    Chase mortgage originations                         11.3
    15.7 to African-American applicants Percentage of all institution
    mortgage                             9.1             13.7
    originations to African-American applicants Source:  Federal
    Reserve Board. Table IV.4: HMDA Statistics Generated
    NationsBank-Travis County, TX
    1994             1995 in Response to Public Concerns Raised
    Percentage of NationsBank mortgage
    24.3%            27.0% in NationsBank Acquisition of
    Applications from LMI tracts Boatmen's
    Percentage of NationsBank mortgage
    13.2             16.2 applications from Hispanic applicants
    Percentage of NationsBank mortgage
    22.0             22.8 Originations from LMI tracts Percentage of
    all institution mortgage                            15.5
    16.8 Originations from LMI tracts Percentage of NationsBank
    mortgage                                10.2             13.3
    originations to Hispanic applicants Percentage of all institution
    mortgage                             8.7             11.1
    originations to Hispanic applicants Source:  Federal Reserve
    Board. Page 49                     GAO/GGD-99-180 Guidelines for
    Community Reinvestment Issues Appendix IV Examples of FRB Analysis
    of HMDA Data in Response to Public Concerns Table IV.5: HMDA
    Statistics Generated     NationsBank-TX
    1995           1996      1997 in Response to Public Concerns
    Raised     Percentage of NationsBank mortgage
    26.1%         23.9%       22.0% in NationsBank's Acquisition of
    Bank        applications from LMI tracts America
    Percentage of NationsBank mortgage                       18.6
    18.3       18.4 applications from Hispanic applicants Percentage
    of NationsBank mortgage                       21.1           18.4
    15.7 originations from LMI tracts Percentage of all institution
    mortgage                   14.7           14.1       14.2
    originations from LMI tracts Percentage of NationsBank mortgage
    15.7           14.3       13.9 originations to Hispanic applicants
    Percentage of all institution mortgage                   15.5
    15.2       15.1 originations to Hispanic applicants Source:
    Federal Reserve Board. Table IV.6: HMDA Statistics Generated
    Bank One-Indianapolis MSA                                1995
    1996      1997 in Response to Public Concerns Raised
    Percentage of Bank One mortgage applications           28.3%
    24.4%       26.8% in Bank One's Acquisition of NBD First      from
    LMI tracts Chicago                                   Percentage of
    Bank One mortgage applications             14.4           13.8
    15.2 from African-American applicants Percentage of Bank One
    mortgage originations             23.0           19.1       21.6
    from LMI tracts Percentage of all institution mortgage
    16.6           16.1       16.9 originations from LMI tracts
    Percentage of Bank One mortgage originations             10.6
    10.2       11.2 to African-American applicants Percentage of all
    institution mortgage                    7.7            7.7
    7.7 originations to African-American applicants Source:  Federal
    Reserve Board. Page 50                     GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues Appendix V BHC
    Mergers and Lending in Minority and Low- and Moderate-Income Areas
    This appendix contains our statistical results using a broader
    universe of all single-family home mortgage lending.  We define a
    single-family mortgage loan as a home purchase, refinancing, or
    home improvement loan used to finance an one- to four-unit
    residential structure.  Statistical results using our narrower
    universe of conventional, single-family home purchase loan
    originations are contained in the body of the letter. Our broader
    universe of home mortgage lending includes home improvement loans
    that are not consistently reported by all HMDA reporters.  HMDA
    reporters have the option to report equity lines of credit as home
    improvement loans.  We also include refinancing loans that are
    more sensitive to interest rate changes as compared to home
    purchase loans.  Our broader universe also includes federally
    insured loans. NBD First Chicago Bank's market and portfolio share
    measures for all NBD First Chicago
    single-family loan originations are presented in table V.1. The
    market share Bank Merger Shows
    percentages for NBD First Chicago were fairly stable from 1994 to
    1997 for both LMI and minority areas. Fairly Stable LMI and
    Minority Lending Table V.1: Market and Portfolio Shares for First
    Chicago/NBD Bank Holding Companies for All Single-Family Mortgage
    Loan Originations in the Chicago MSA
    NBD/First Chicago                         NBD Market or portfolio
    share                                                  1994
    1995         1996                 1997 Market share of loan
    origination for Chicago MSA                           4.4%
    5.5%         4.9%                 5.0% Market share of census
    tracts that were: LMI
    3.9                     4.1     3.7                  4.0 Minority
    4.0                     4.5     4.0                  4.3 Portfolio
    share of census tracts that were: LMI
    12.5                11.7         11.5                 13.2
    Minority
    27.7                25.2         25.0                 27.9 Source:
    HMDA data. As stated in the letter of this report, Fleet's 1995
    acquisition of Shawmut Fleet Merger Had
    National Bank is associated with a reduction in conventional,
    single-family Reduction in Lending                           home
    purchase mortgage lending to LMI and minority census tracts that
    mirrored Fleet's overall reduction in mortgage lending for the
    Boston in LMI and Minority                            metropolitan
    statistical area.  According to Fleet Financial Group officials,
    Areas That Mirrored                            over the period of
    1994 to 1997, the Boston MSA experienced a significant Its
    Reduction in the                           influx of mortgage
    lenders that resulted in competitive pressures and a Overall
    Market                                 subsequent reduction in
    residential mortgage lending among existing lenders in that
    market.  A generally consistent pattern is found in table V.2 for
    all single-family loan originations by Fleet in the Boston
    metropolitan Page 51                GAO/GGD-99-180 Guidelines for
    Community Reinvestment Issues Appendix V BHC Mergers and Lending
    in Minority and Low- and Moderate-Income Areas statistical area.
    Market share declines in LMI and minority census tracts generally
    mirrored declines for all census tracts.  The market share
    declines in LMI and minority census tracts were accompanied by
    declines in respective portfolio share measures. Table V.2: Market
    and Portfolio Shares for Fleet/Shawmut Bank Holding Company for
    All Single-Family Mortgage Loan Originations in the Boston MSA
    Fleet/Shawmut                                Fleet Market or
    portfolio share
    1994                  1995           1996                  1997
    Market share of loan origination for Boston MSA
    8.1%               10.2%              6.9%                  5.7%
    Market share of census tracts that were: LMI
    17.3                  19.1            11.6                  9.1
    Minority
    21.4                  22.4            12.4                  9.4
    Portfolio share of census tracts that were: LMI
    25.3                  25.0            22.5                 21.6
    Minority
    18.8                  18.2            14.8                 13.5
    Source: HMDA data. Chase Manhattan Bank's market and portfolio
    share statistics for all single- Chase Manhattan Bank family loan
    originations in the New York City metropolitan statistical area
    Merger Shows an                                are presented in
    table V.3.  The statistics are comparable to those for
    conventional home purchase loans discussed in the letter of this
    report. Increase in LMI and                            The market
    and portfolio shares of lending increased in LMI census tracts.
    Minority Lending                               Market share in LMI
    census tracts increased between 1995 and 1997 from 6.8 percent to
    9.2 percent.  On balance, the statistics indicated that the
    consolidated BHC did not reduce access to credit in LMI and
    minority census tracts after FRB approved its BHC application in
    1996. Table V.3:  Market and Portfolio Shares for Chemical/Chase
    Manhattan Bank Holding Companies for All Single-Family Mortgage
    Loan Originations in the New York City MSA
    Chemical/Chase                                 Chase Market or
    portfolio share
    1995                  1996           1997                  1998
    Market share of loan origination for New York City MSA
    10.8%                9.7%           10.1%                        a
    Market share of census tracts that were: LMI
    6.8                   6.2              9.2                     a
    Minority
    9.1                   8.0              8.9                     a
    Portfolio share of census tracts that were: LMI
    6.8                   6.6            10.4                 9.4%
    Minority
    39.6                  38.2            41.1                 40.1
    aFRB provided us with 1998 HMDA data that allowed us to calculate
    portfolio, but not market share measures of lending performance.
    Source: HMDA data. Page 52                      GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues Appendix VI Comments
    From the Federal Reserve Board Page 53    GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues Appendix VII Comments
    From the Office of the Comptroller of the Currency Page 54
    GAO/GGD-99-180 Guidelines for Community Reinvestment Issues
    Appendix VIII GAO Contacts and Staff Acknowledgments Thomas J.
    McCool,  (202) 512-8678 GAO Contacts       William B. Shear, (202)
    512-4325 In addition to those named above, Joan M. Conway, Rachel
    M. DeMarcus, Acknowledgments    Nancy Eibeck, Christopher C.
    Henderson, Sindy Udell, and Tonita G. Woodson made key
    contributions to this report. Page 55              GAO/GGD-99-180
    Guidelines for Community Reinvestment Issues Page 56    GAO/GGD-
    99-180 Guidelines for Community Reinvestment Issues Ordering
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