Breaking ranks, OCC plans to move forward on CRA proposal – but ‘the Fed is out’

FDIC has no comment, so far, on its involvement in proposal

The regulator of national banks will release its proposal next month for reforming anti-redlining regulations, but the agency likely won’t be joined by at least one of the other two federal banking agencies in the proposal, The Wall Street Journal reported Thursday.

That’s a break from past, relatively recent comments from all of the banking agencies saying they expected a joint proposal would be forthcoming.

In an interview with the Journal, Comptroller of the Currency Joseph Otting said he is “very optimistic” that the Federal Deposit Insurance Corp. (FDIC) will join the proposal reforming regulations that implement the Community Reinvestment Act (CRA), which bans redlining by banks and other financial institutions. The Journal reported that the FDIC, when contacted, had no comment.

Otting, as Comptroller, is by statute a member of the five-member FDIC Board. Of the other four seats, three are “appointive” (named by the president and confirmed by the Senate). The fourth is also a statutory member: the director of the Consumer Financial Protection Bureau (CFPB), currently Kathleen Kraninger. Both Otting and Kraninger were appointed by President Donald Trump.

One of the three appointive seats (for vice chairman) is vacant. The other two are held by Chairman Jelena McWilliams (appointed by Trump) and Board Member (and former Chairman) Martin Gruenberg (appointed originally by President George Bush, and appointed chairman by President Barack Obama).

However, Otting did say that he does not expect the Federal Reserve to join in the proposal. He said the Fed and OCC disagreed on how to refashion the rules. The Journal reported the Fed was working with its sister federal banking agencies until last week, but now isn’t expected to back the OCC’s proposal.

“At this point the Fed is out,” Otting told the newspaper. “We just fundamentally can’t get to the same spot” for the proposal.

The breakdown with the Fed, according to the Journal, revolved around whether to emphasize the number of CRA loans or the dollar amount of CRA activity by a financial institution covered by the law and rules. The OCC proposal, according to Otting, would account for both. He said the Fed was focused on number of loans (also called “units”). “At this point in time, we’ve just got to move forward,” he said.

Fed officials have said repeatedly over the last year (since the OCC’s advance notice of proposal rulemaking on a CRA revamp was released) that the central bank is committed to the anti-redlining law and rules. In subsequent speeches and testimony, Chair Jerome H. (“Jay”) Powell has suggested that reform of CRA would be a path to encourage service to rural, underserved areas. Vice Chairman for Supervision Randal Quarles, facing questions from a congressional committee last year, said the Fed is not interested in weakening CRA regulations. In response to comments from Rep. Al Green (D-Texas) before the House Financial Services Committee at a Nov. 14, 2018 hearing, Quarles indicated he did not think regulators should diminish regulations, but reinvigorate them.

And Fed Gov. Lael Brainard, speaking in February at a Fed-sponsored CRA research symposium in Philadelphia, reiterated her own support for strengthening the CRA, “which is widely shared across the Federal Reserve System,” she said. She added that the Fed aims “to promote more CRA activity, not less.”

In a statement provided to the Journal, the Fed said it agrees it is appropriate to update and modernize CRA regulations. “We worked diligently for months with the FDIC and OCC to agree on a common approach. It is unfortunate that these efforts have so far not been successful and that the agencies were unable to reach agreement on metrics that would be tailored to bank size and business model and reflect the different credit needs of the local communities that are at the heart of the statute,” it added.

The Fed added that it continues to believe that the best outcome would be a joint proposal.

In his Journal comments, Otting said the proposal would aim for clear standards and an illustrative list of the types of activities that qualify for CRA consideration; redefine where CRA activity counts by updating bank assessment areas (such as by requiring online lenders and other banks with deposits outside of its branch networks to be examined based on areas where they have significant deposits in addition to their branch neighborhoods); and close loopholes, such as by ensuring loans aren’t only made in areas defined as poorer neighborhoods, but that they go to lower-income borrowers, as well.

WSJ: Rewrite of Lower-Income Lending Rules to Advance in December (subscription required)

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