Brainard: Commenters, Fed council discussions show broad support for CRA, support more clarity, consistency

Support for the Community Reinvestment Act (CRA) runs “broad and deep” among commenters and industry and community panels on the advance notice of proposed rulemaking issued last August, a Federal Reserve Board governor said in a speech Friday.

Speaking at a CRA research symposium held at the Philadelphia Federal Reserve Bank, Fed Gov. Lael Brainard acknowledged that the Fed Board did not join the Office of the Comptroller of the Currency (OCC) in last year’s ANPR, but it has been reviewing the approximately 1,500 comment letters submitted so far and consulted with the Fed’s industry and community-based councils on the issue.

Reiterating her own support for strengthening the CRA, “which is widely shared across the Federal Reserve System,” Brainard said the Fed aims “to promote more CRA activity, not less.”

Beyond that, Brainard, in her prepared remarks, didn’t give details of what the Fed might or might not do with regard to the ANPR and next steps. Instead, she briefed the audience on what has been seen by the Fed in the some 1,500 comment letters submitted on the ANPR, and what has been learned in the Fed’s discussions with its numerous industry and community panels ad roundtable discussions.

Following is a brief look at those takeaways:

  • ‘Broad and deep’ support. “Commenters across the board applauded the significant volume of CRA loans and investments that have supported LMI [low- and moderate-income] households and communities, as well as the benefits households and communities have realized from the CRA’s focus on local retail financial services … ,” she said. “And they asked that the three banking agencies work together toward a joint rulemaking proposal so that CRA policies can be clearly and consistently applied across agencies.”
  • Ideas for modernization regarding assessment areas while preserving CRA’s core focus. “The public comments we have read so far suggest general agreement that there is a need for an update – but not a complete overhaul – of assessment areas through a balanced package of reforms,” she said. “We have heard general support for assessment areas that reflect each bank’s business model, recognizing that branch-based assessment areas work for many banks but that additional or different assessment areas may be appropriate for others.”
  • Helpful input on tailoring CRA to banks of different sizes and business models. “Many of the comments we reviewed expressed support for retaining different performance tests for different types of banks, including the strategic plan option.” This was heard at regional roundtables as well, she said, adding it was “clear that CRA regulations cannot be one-size-fits-all.
  • Suggestions for ensuring modernization of assessment areas retains a goal of encouraging banks to seek opportunities in underserved areas. “The concern about CRA hotspots and credit deserts was echoed in the comment letters, and several commenters offered helpful suggestions for addressing this problem going forward,” she said. “And the need to create incentives for CRA capital to reach underserved communities was a theme we heard in our regional roundtables from both bankers and community groups.
  • Support for clarity, consistency and predictability of CRA regulations and examinations. “Likewise, there is an openness to expanding the use of metrics that evaluate components of a bank’s activity on an assessment area level, while recognizing the importance of also leveraging performance context information, including of a qualitative nature, so that bankers and examiners are able to identify and understand local community needs,” she said.
  • Community and consumer groupsunderscorethe historical context of the CRA as it relates to redlining practices. “To that end, they strongly supported the CRA retaining a proactive focus on reaching all underserved borrowers, including low-income communities and communities of color,” she noted. “The central thrust of the CRA is to encourage banks to ensure that all creditworthy borrowers have fair access to credit, and, to do so successfully, it has long been recognized that they must guard against discriminatory or unfair and deceptive lending practices.”

Fed Gov. Lael Brainard on ‘Strengthening the Community Reinvestment Act: What Are We Learning?’ at theResearch Symposium on the Community Reinvestment Act hosted by the Federal Reserve Bank of Philadelphia (Philadelphia, Pa.)