Fed governor details four principles for revising, promoting more CRA activity

The Federal Reserve is committed to regulatory changes to strengthen anti-redlining rules and is following four principles in guiding its approach to revising the regulations, a Federal Reserve Board governor said Monday, noting that “simplifying and clarifying” the regulations will have a goal of promoting more community reinvestment through stronger local community engagement.

Gov. Lael Brainard told a roundtable gathering at the Denver Branch of the Federal Reserve Bank of Kansas City that all of the federal banking agencies share the stated purpose of revising Community Reinvestment Act (CRA) regulations, “which is to promote more, not less, CRA activity in underserved areas,” she said.

Referring to the Office of the Comptroller of the Currency’s (OCC) Aug. 28 advance notice of proposed rulemaking (ANPR) seeking comment on questions related to revising CRA regulation, she said the Federal Reserve (which did not join in issuing the notice) would be reading all of the comment letters that are generated.

The Fed will be doing that, she said, in anticipation of working with the OCC and Federal Deposit Insurance Corp. (FDIC) on a joint proposal. “We understand the importance of having the agencies work toward one set of CRA regulations that are clear and consistently applied and will do everything we can to make that possible,” she said.

Any changes to existing rules will be guided by four principles at the Fed, Brainard said:

  • Updates to areas in which the agencies assess a bank’s CRA activities should retain the core focus on place. “CRA performances should to take into account the technological advances that have made it possible for banks to serve customers remotely, while retaining the focus on local credit needs that vary from place to place,” she said. “The Federal Reserve’s research, surveys, and outreach point to an economy that is very strong on an aggregate level but significantly more varied at the community level, with many neighborhoods still struggling.”
  • Rules should be tailored to banks of different sizes and business models. Now, she said, evaluation methods are tailored to banks of different sizes and business models. “We should consider whether assessment areas also should be tailored to the business models employed by banks,” Brainard said.
  • Redesign of CRA regulations should encourage banks to seek opportunities in underserved areas through incentives for banks to more effectively address the needs in neighborhoods that they may already be serving with branches. “For example, there are concerns that distortions may lead some areas to become credit hot spots, while others become credit deserts,” she said. “Investments, such as Low-Income Housing Tax Credits, are in such high demand in some areas that there is little return on investment, while it is difficult to find investors in other areas.” She said the Fed believes it important for revised CRA regulations to address such market distortion to promote more lending and investment in smaller markets within a bank’s footprint.
  • Greater consistency and predictability in CRA evaluations and ratings should be promoted. The Fed, she said, sees value of clearer definitions and metrics that use publicly available information to identify local credit needs and opportunities.

“The central thrust of the CRA is to encourage banks to ensure that all creditworthy borrowers have fair access to credit,” she said. “For banks to be successful in meeting the credit needs of their entire community, it has long been recognized that they must guard against discriminatory or unfair and deceptive lending practices.”

Speech by Federal Reserve Board Gov. Lael Brainard on community investment in Denver

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