Brainard talks CRA reform; focuses on metrics, assessment areas, community development

With about just under nine weeks left for public comments, the Federal Reserve Board’s point person on the agency’s Community Reinvestment Act (CRA) advance notice of proposed rulemaking (ANPR) focused her remarks before a banking trade meeting Thursday on the matters of metrics and tailoring, assessment areas, and community development.

Addressing a Community Bankers Association CRA committee meeting, Federal Reserve Board Gov. Lael Brainard said the goal at the Fed is to modernize the anti-redlining CRA “in a way that advances the core purpose of the statute, while also providing greater certainty, tailoring regulations, and minimizing burden.”

Here’s a truncated account of her remarks Thursday on specific areas addressed in the ANPR:

  • Metrics and tailored standards: Brainard said the Fed’s proposed CRA evaluation framework incorporates the use of metrics and tailored standards that take into account differences across local communities and reflect differences in bank size and business model. She noted the retail test and community development test that would be applied to large retail banks, noting each of the tests is divided into two subtests – effectively subjecting the large banks to four subtests in each assessment area. She said small retail banks would be able to choose whether to be evaluated under the current framework or under the new framework. Small retail banks that elect the new framework would be assessed solely under a retail lending subtest unless they elect to have other activities considered.
  • Assessment areas: The ANPR seeks feedback on several options for updating the approach for defining assessment areas where a bank’s performance will be evaluated. Noting the growth in the banking system and growth of mobile and internet banking, Brainard also pointed to data that shows branches continue to play a critical role in lower-income and rural communities. She said the ANPR proposes maintaining facility-based assessment areas while also exploring options for defining new assessment areas. “Specifically, we ask for feedback on whether new assessment areas should be based on some threshold of deposits or lending in areas where the bank does not have a physical presence, and the ANPR discusses a potential option of allowing internet banks to have a national assessment area,” she said.
  • Community development: The ANPR proposes that the Fed provide an illustrative, non-exhaustive list of activities that meet the requirements for CRA consideration, and it’s seeking feedback on how such a list should developed and maintained. Input is also sought on developing a preapproval process for activities and whether the process should focus on specific transactions or on more general categories of eligible activities. Additionally, Brainard said, the ANPR seeks feedback on how to clarify elements of existing community development definitions. “For example, within the affordable housing definition, we seek feedback on defining naturally occurring affordable housing, which is not financed by any type of public subsidy and provides an important source of affordable housing in many communities,” Brainard said.

In closing, Brainard said the Fed over the next few months will host outreach meetings and listening sessions (“like this one”) around the country, and she said the Fed encourages members of the public submit their written comments by the Feb. 16 comment deadline.

Modernizing and Strengthening CRA Regulations: A Conversation with the Consumer Bankers Association” – speech by Fed Gov. Lael Brainard at the Consumer Bankers Association Community Reinvestment Act Committee Meeting