Brainard: Fed’s CRA proposal seeks ‘consistent approach’ among banking regulators to strengthen rules

Building a foundation for convergence on a consistent approach to strengthening anti-redlining rules among the federal banking agencies is the intention of the Federal Reserve in issuing a notice of proposed rulemaking on the subject, the agency’s point person on the rulemaking process said Monday.

Fed Gov. Lael Brainard said that the Fed, in issuing the notice seeking comment about strengthening the rules for the Community Reinvestment Act (CRA), the agency is also looking to build “broad support among stakeholders.”

“It has been 25 years since the last significant revision to the CRA regulation, so it is important to get reform right,” Brainard said in remarks to the Urban Institute in Washington, D.C. Brainard made the comments in a video telecast. She added that the long comment period, along with stakeholder views, would allow the Fed and the other banking agencies to “come together on a stronger, transparent, and tailored approach to the CRA that will benefit LMI (low- to moderate-income) communities across the country for years to come.”

On Monday, the Federal Reserve Board voted to issued an advance notice of proposed rulemaking seeking comment on an “approach” to modernize its regulations (and to inform regulations of the other banking agencies) by “strengthening, clarifying, and tailoring them to reflect the current banking landscape and better meet the core purpose of the CRA.”

Brainard, in her remarks, said the board’s action aims to advance the rules’ “core purpose” of addressing inequities in credit access and ensuring an inclusive financial services industry. “In addition, the ANPR seeks to provide more certainty and consistency, tailor expectations to local conditions and bank business models, and minimize burden.”

To round it all out, she said, the Fed intends for the feedback on the ANPR to provide a foundation for the banking agencies to converge on a “consistent regulatory approach that has broad support among stakeholders.”

In May, the Office of the Comptroller of the Currency (OCC) acted alone in issuing rewritten CRA rules, with neither the Federal Deposit Insurance Corp. (FDIC) nor the Fed joining (even though all three agencies have roles in enforcing the CRA through their rules). The OCC rule is designed to create more descriptive and expansive criteria for the types of activities that qualify for CRA credit. Among other things, it is designed to provide “defined criteria” that identify the types of activities that meet the credit needs of banks’ communities and, thus, can be considered qualifying activities.

In advancing the core of purpose of the CRA, Brainard said the Fed proposal sought to do three things: promote financial inclusion, meet the needs of LMI individuals and communities, and address changes in the banking industry.

In providing certainty and consistency, the Fed governor (who has chaired a group at the agencyworking to review and update the agency’s CRA rules) said the proposal would do that through tailored performance evaluations. “Responding to calls for greater certainty regarding how banks are assessed and rated, the ANPR introduces a metrics-based approach that is calibrated based on over 6,000 written public CRA evaluations,” she said.

She added that separating the retail test and the community development test (which are joined in current rules) “provides greater scope to tailor the metrics to local market conditions, which often differ for retail lending and community development financing.

“This approach would create clear quantitative thresholds for the level of retail lending and community development financing that is needed to achieve a ‘satisfactory’ CRA rating,” she said.

She said other proposed changes include tailoring performance evaluations to bank size and business model, minimizing data collection and reporting burden, clarifying and expanding eligible CRA activities to focus on communities, and “recognizing the special circumstances of small banks in rural areas.”

FRB Gov. Lael Brainard: Strengthening the CRA to Meet the Challenges of Our Time