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FDIC releases report on bank's past discriminatory lending practices
On April 3, the FDIC made public for the first time its Community Reinvestment Act Performance Evaluation for a bank from September 2022. The bank focused on residential and commercial lending and had $1.15 billion in assets at the time of the review. During its supervision window from 2019 to 2022, the FDIC rated the bank’s CRA rating as “Needs to Improve,” which was a downgrade from its previous rating of “Satisfactory.” Although the FDIC found that the bank “demonstrated satisfactory performance” under the Lending and Community Development Tests, it was found to have violated ECOA and FHFA. Specifically, the FDIC found that the bank engaged in discriminatory lending through alleged redlining practices, the FDIC deemed. The FDIC noted that these violations occurred due to a lack of sufficient oversight and appropriate policies and procedures.
OCC releases March CRA evaluations for 19 banks
On April 1, the OCC released its Community Reinvestment Act (CRA) performance evaluations for last March. The OCC evaluated 19 national banks, federal savings associations, and insured federal branches of foreign banks with a rubric that included four possible ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance. Of the 19 evaluations reported by the OCC, two Midwest banks received the lowest rating, which was “Needs to Improve.” Most entities were rated “Satisfactory,” and four entities were rated “Outstanding.” A full list of the bank evaluations is available here. In an OCC FAQ regarding the implementation of the CRA, the OCC detailed how it evaluated and rated financial institutions by reviewing both the institution itself (such as its capacity, constraints, business strategies, competitors, and peers) and the community the institution serves (such as its demographics, economic data, and its lending, investment, and service opportunities).
Agencies extend applicability date of certain provisions of their Community Reinvestment Act final rule
On March 21, the FDIC, Fed, and OCC jointly issued an interim final rule to extend the applicability date of certain provisions of the Community Reinvestment Act (CRA) final rule and requested comments on the extension. As previously covered by InfoBytes, the final rule was intended to modernize how banks comply with the CRA, a law that encouraged banks to help meet the credit needs of low- and moderate-income communities.
Stated “[t]o promote clarity and consistency,” the agencies have postponed the applicability date of the facility-based assessment areas and public file provisions from April 1, 2024, to January 1, 2026. As a result, banks would not be required to modify their assessment areas or public files in response to the final rule until the new 2026 date. This extension would put these elements on the same timeline as other components of the 2023 CRA final rule that also would take effect on January 1, 2026, including the performance tests and geographic area provisions.
The agencies also made technical, non-substantive updates to the CRA final rule and related agency regulations that reference it. One of these technical adjustments specified that banks are not required to update their public CRA Notices until January 1, 2026. Public comments on the postponed implementation date must be received 45 days following the rule's publication in the Federal Register.
Bank regulators respond to bankers’ motion to enjoin CRA final rule
On March 8, the Fed, OCC, and FDIC (the federal banking agencies, or “FBAs”) submitted a brief opposing the plaintiffs’ motion for a preliminary injunction to stop the CRA final rule from going into effect. As previously covered by InfoBytes, a group of trade, banking, and business associations filed a class-action complaint for injunctive relief against the bank regulators’ enforcement of the final rule to implement the CRA before it goes into effect on April 1. The FBAs assert that, in opposing the final rule, the plaintiffs are asking the court to “graft” two exclusions from the CRA’s purpose that are not actually in the statute: first, to exclude geographic areas where a bank conducts retail lending from the scope of the bank’s “entire community”; and second, to exclude a bank’s deposit activities from the assessment on whether a bank is meeting its entire community’s “credit needs.” The banking regulators also argued that the plaintiffs’ motion for preliminary relief should fail because the plaintiffs cannot show irreparable harm, in that they have failed to demonstrate that costs to comply with the CRA final rule, which would not apply until 2026 and 2027, were significant when considered in the context of the bank’s overall finances. Finally, the FBAs argued that the public interest and balance of equities favor allowing the final rule to proceed, as, among other factors, “the rule provides significant regulatory relief and lower compliance costs for smaller institutions by increasing the asset size thresholds that determine which performance tests apply to an institution.”
OCC releases February CRA evaluations for 31 banks, one “Needs to Improve”
On March 1, the OCC released its Community Reinvestment Act (CRA) performance evaluations for last February. The OCC evaluated 31 national banks and federal savings associations under four ratings: Outstanding, Satisfactory, Needs to Improve, and Substantial Noncompliance. Of the 31 evaluations reported by the OCC, only one entity holds the lowest rating, a small bank in Indiana, which was rated “Needs to Improve.” Most entities were rated “Satisfactory,” and six entities were rated “Outstanding.” In an OCC FAQ regarding the implementation of the CRA, the OCC detailed how it evaluates and rates financial institutions by reviewing both the institution itself (such as its capacity, constraints, business strategies, competitors, and peers) and the community the institution it serves (such as its demographics, economic data, lending, investment, and service opportunities).
Trade associations sue OCC, FDIC, and Federal Reserve on their Proposed Rules for the CRA
On February 5, a group of trade, banking, and business associations filed a class-action complaint for injunctive relief against the OCC, Federal Reserve, and FDIC (the Agencies) for their enforcement of the new rulemaking (the Rule) implementing the Community Reinvestment Act of 1977 (CRA). The plaintiffs argued that the Rule creates a “wholesale and unlawful change” to a successful fifty-year-old statute. After listing several problems, the plaintiffs requested the Court to “enjoin, hold unlawful, vacate, and set aside” the Rule; additionally, plaintiffs requested the Court declare that the Rule violates the CRA and the Administrative Procedures Act.
As previously covered by InfoBytes, the Rule was approved by the Agencies on October 24, 2023, published in the Federal Register on February 1, 2024, and would take effect on April 1, 2024. The plaintiffs state that the new regulatory rules are “extraordinarily and unnecessarily complex” since they require a “staggering” 649 pages. (An FDIC Vice Chairman was quoted as labeling the rules as “by far the longest rulemaking the FDIC has ever issued.”) In detail, the plaintiffs support their claims by pointing out the Rule creates different performance tests that differ “radically” from the previous regulatory framework, e.g., the Retail Lending Test is a two-part test, and that each of these tests includes “multiple sub-parts and sub-parts of sub-parts” that create complexity in the Rule. Banks will be given two years (until January 1, 2026) to comply with the Rule. Plaintiffs argue that banks must act immediately, citing the OCC’s own words that the estimated compliance costs are over $90 million during the first year.
The plaintiffs argue the Rule violates the APA by exceeding the Agencies’ statutory authority by “assessing banks on their responsiveness to credit needs outside of their geographic deposit-taking footprint” (Count I), and by issuing a rule that is arbitrary and capricious by failing to give reasonable notice of the areas and products that will be assessed and the market benchmarks against which performance will be evaluated; failing to conduct an adequate cost benefit analysis; and failing to consider the implications of the Rule (Count II).
OCC and FDIC announce their CRA evaluations
On February 2, OCC and the FDIC released their Community Reinvestment Act (CRA) evaluations. The OCC disclosed a list of evaluations of national banks, federal savings associations, and insured federal branches of foreign banks that became public in January 2024. Out of the 18 evaluations, six were rated “outstanding,” nine were rated “satisfactory,” and three were rated as “needs to improve.” The evaluations can be accessed on the OCC’s website, including a searchable list of all public CRA evaluations. Simultaneously, the FDIC released its list of state nonmember banks that were evaluated for CRA compliance in November 2023. Out of 57 evaluations, 56 were rated as “satisfactory” and one bank was rated as “outstanding.”
OCC announces CRA bank asset-size threshold adjustments for 2024
On December 26, 2023, the OCC announced revisions to the asset-size thresholds used to define small and intermediate small banks and savings associations under the Community Reinvestment Act (CRA). Effective January 1, 2024, a small bank or savings association will mean an institution that, as of December 31 of either of the past two years, had assets of less than $1.564 billion. An intermediate small bank or savings association will mean an institution with assets of at least $391 million as of December 31 of both of the prior two years, and less than $1.564 billion as of December 31 of either of the prior two years. As previously covered by InfoBytes, the Fed and the FDIC also announced joint annual adjustments to the CRA asset-size thresholds used to define “small bank” and “intermediate small bank.”
FFIEC agencies release 2022 CRA data
On December 20, FFIEC members released the 2022 CRA data on small business, small farm, and community development lending. (See fact sheet here and data table here.) The 711 lenders that provided the data reported they originated or purchased 8.9 million small-business loans totaling $284.6 billion. The total number of loans originated or purchased by reporting lenders decreased by 5.8 percent and the dollar amount of these small business loans originated decreased by 24.8 percent from 2021. Concerning community development lending activity, the agencies reported that based on data compiled from 633 banks, lending activity decreased by 1% from 2021 in terms of total dollar amount.
Regulators address concerns at Senate Banking Committee hearing, receive written concerns regarding Basel III
On November 14, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing where regulators, Fed Vice Chair for Supervision Michael Barr, FDIC Chair Martin Gruenberg, NCUA Chair Todd Harper, and acting Comptroller of Currency Michael Hsu, testified regarding the Basel III Endgame proposal. Gruenberg’s prepared remarks noted that Basel III reforms are a “continuation of the federal banking agencies’ efforts to revise the regulatory capital framework for our nation’s largest financial institutions, which were found to be undercapitalized and over-leveraged during the Global Financial Crisis of 2008.” The proposal would raise capital requirements for large banks (covered by InfoBytes here).
Concerning Basel III, Senator Tester (D-MO) mentioned he has “some concerns about the proposed changes and how its impact will be on workers’ and households’ and small businesses’ access to credit and overall vibrancy of our capital markets.” “These rules don’t affect any banks in Montana, but they do affect the big guys that affect Montana,” he noted.
Among other testimonies, Senator Warner (D-VA) expressed concerns regarding the timeline of the comment period and potential changes to the proposal. Specifically, Sen. Warner mentioned that comments may not be received until after the rule is close to finalization. Fed Vice Chair Barr noted that the regulators have yet to evaluate comments on the proposal, as most are expected to come through mid-January, and that depending on the substance of some comments, they are open to making appropriate changes to the proposal. Acting Comptroller of the Currency Hsu’s written testimony echoed Barr’s remarks, stating “[w]e will consider all comments, including alternative approaches.”
Moreover, on November 12, a group of Republican lawmakers of the committee also sent a letter to the OCC, FDIC, and the Fed. In the letter, the senators argued that the proposal would restrict billions of dollars in capital, resulting in costlier and more limited access to credit for millions of consumers, impacting affordable housing, mortgage lending, small business lending, and consumer access to credit cards and home equity lines. The proposal was also criticized for its potential to disadvantage U.S. companies globally and harm middle-market private entities and small businesses. Moreover, the letter suggested that the proposal could negatively impact pension funds, increase fees for risk hedging, and decrease returns for retirees.
Also on November 12, several banking industry groups sent a letter to the Fed, FDIC, and the OCC requesting them to issue a revised proposal. The letter alleges violations of the Administrative Procedures Act because the data used to inform the interagency proposal is not publicly available. The groups also argued that the proposed rule repeatedly utilizes non-public analyses based on the agencies’ “supervisory experience” to support different aspects of the rule. Regarding sensitive data, the groups say, “Nothing prevents the agencies from releasing such data and analyses in a manner that is anonymized or aggregated to the extent necessary to protect bank or other party confidentiality.” The senators also believe the proposal would impose “significant harm” throughout the economy “particularly in the face of current economic headwinds and tightening credit conditions.”