Clarida underscores MDI focus in Fed’s CRA proposal

The advance notice of proposed rulemaking intended to modernize the Federal Reserve’s Community Reinvestment Act (CRA) rules will also make provisions focused on minority depository institutions (MDIs) more prominent and clear, the Fed’s vice chair said in a speech Monday before a banking conference.

In a speech focusing on the economy, monetary policy, and initiatives to keep credit flowing, Fed Vice Chair Richard Clarida reiterated to a conference of the American Bankers Association that the Fed’s ANPR was issued with the goal of modernizing CRA by strengthening, clarifying, and tailoring CRA regulations to ensure they reflect the current banking landscape and and better meet the CRA’s core purposes.

Clarida said the ANPR proposes special provisions for minority depository institutions (MDIs), women-owned financial institutions, low-income credit unions, and community development financial institutions. He also noted that because of feedback received about lack of awareness of existing MDI provisions in the rules, the Fed Board “plans to highlight all MDI special provisions and make the credit they receive more prominent and clear in revised regulation, examination guidance, and other public documentation.”

The Fed vice chair noted the four provisions added in the ANPR specifically focused on MDIs and its inclusion of four new provisions to create incentives for bank investments in geographic areas of need outside of traditional assessment areas.

The MDI provisions, as detailed by Fed Gov. Lael Brainard in a speech last Thursday, would:

  • Give banks credit for activities with MDIs, women-owned financial institutions, and low-income credit unions located outside their assessment areas at either the state or institution level, which would ensure that there is a clear “place” for such activities to be counted.
  • Explicitly designate activities in MDIs, women-owned financial institutions, and low-income credit unions as a potential pathway to achieving an “outstanding” CRA rating, in order to elevate the profile of and create more incentives for activities with these mission-oriented institutions.
  • Provide credit for MDIs and women-owned financial institutions investing in other MDIs, women-owned financial institutions, and low-income credit unions.
  • Offer credit for MDIs and women-owned financial institutions investing in limited activities to improve their own banks, with eligibility possibly limited to activities that demonstrate meaningful investment in the business, such as staff training, hiring new staff, opening new branches in minority neighborhoods, or expanding products and services.

The Fed’s CRA ANPR was published in the Federal Register Monday. Comments are due Feb. 16.

U.S. Economic Outlook, Monetary Policy, and Initiatives to Sustain the Flow of Credit to Households and Firms” – speech by Fed Vice Chair Richard H. Clarida at the Unconventional Convention of the American Bankers Association, Washington, D.C. (via webcast)

Reg lookup: Community Reinvestment Act

RR: Fed to unveil CRA proposal for 120-day comment period; Brainard says effort meant to ‘advance core purpose’ of statute (Oct. 16, 2020)

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