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Toomey seeks "greater transparency" on CRA agreements
On September 7, Senate Banking Committee Ranking Member Pat Toomey (R-PA) wrote a letter to the Federal Reserve Board, OCC, and FDIC (together, the “Agencies”) expressing his concern for “the lack of transparency associated with community benefits plans (CBPs) developed by banks and community groups in connection with the Community Reinvestment Act,” which often remain undisclosed by banks despite the requirements of the CRA. He noted that greater transparency is “critically necessary” for Congress and the public to judge the efficacy of the CRA and its implementing regulations. Toomey described that the growth and prevalence of the dollar value of CBPs in recent years underscores the need to update the regulations implementing the Gramm-Leach-Bliley Act’s CRA sunshine provision. Toomey requested that the Agencies establish a public, searchable database on their websites containing all CRA-related agreements, including CBPs, and to provide comprehensive data on those agreements. Additionally, Toomey urged the Agencies to broaden the definition of “covered agreement” under the regulations to align with congressional intent and mitigate the potential for evasion by banks and community groups.
Fed vice chair for supervision outlines future priorities
On September 7, Federal Reserve Board Vice Chair for Supervision Michael Barr laid out his goals for making the financial system safer and fairer during a speech at the Brookings Institution, highlighting priorities related to risk-focused capital frameworks and bank resiliency, mergers and acquisitions, digital assets and stablecoins, climate-related financial risks, innovation, and Community Reinvestment Act modernization plans. Addressing issues related to resolvability, Barr signaled that the Fed would begin “looking at the resolvability of some of the other largest banks [in addition to globally systemically important banks] as they grow and as their significance in the financial system increases.” With respect to bank mergers, Barr commented that “the advantages that firms seek to gain through mergers must be weighed against the risks that mergers can pose to competition, consumers and financial stability.” He said he plans to work with Fed staff to assess how the agency performs merger analysis and whether there are areas for improvement. Barr also discussed financial stability risks posed by new forms of private money created through stablecoins and stressed that Congress should work quickly to enact legislation for bringing stablecoins (especially those intended to serve as a means of payment) within the prudential regulatory perimeter. He added that the Fed plans to make sure that the crypto activity of supervised banks “is subject to the necessary safeguards that protect the safety of the banking system as well as bank customers,” and said “[b]anks engaged in crypto-related activities need to have appropriate measures in place to manage novel risks associated with those activities and to ensure compliance with all relevant laws, including those related to money laundering.”
States stress importance of CRA modernization
On August 5, a coalition of 15 state attorneys general submitted a comment letter in support of the joint notice of proposed rulemaking (NPRM) issued by the FDIC, OCC, and Federal Reserve Board (collectively, “agencies”) regarding modernizing the Community Reinvestment Act (CRA). As previously covered by InfoBytes, the NPRM, among other things, would update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. According to the letter, the NPRM is “a marked improvement over prior proposals that some of the agencies set out in the last several years.” The AGs noted that the final rule “must ensure that all members of our communities are fully served by financial institutions” and urged the agencies to continue to strengthen it. The AGs further encouraged the agencies to focus on: (i) ensuring the NPRM “vindicates CRA’s core purpose to address racial inequalities”; (ii) increasing the regulatory bar so “that banks are taking meaningful action to meet low- and moderate income (LMI) community needs; and (iii) “[l]everaging incentives to encourage affordable housing development for LMI communities without displacement.” Additionally, the AGs suggested that the NPRM “should be modified to ensure that this once-in-a-generation modernization effort gives the regulators the tools they need to carry out CRA’s imperative—that financial institutions be required to address the needs of our most vulnerable communities—in our States and across the Nation.” The AGs also noted that some states “expressed concern that the widening racial wealth gap stemming from historical redlining would be exacerbated by an uneven pandemic recovery.” Specifically, the letter stated that “two-and-a-half years into the COVID-19 crisis, the States face an affordable and accessible housing crisis, increased homelessness and housing insecurity, and historic levels of inflation that disproportionally threaten low-income communities and communities of color.” The AGs stated that CRA regulatory reform “can be a key element of addressing these problems.”
FDIC announces Missouri disaster relief
On August 12, the FDIC issued FIL-39-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Missouri affected by severe storms and flooding from July 25-28. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” Additionally, the FDIC noted that institutions “may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery.” The FDIC will also consider regulatory relief from certain filing and publishing requirements.
FDIC, OCC announce disaster relief
On August 3, the FDIC issued FIL-38-2022 to provide regulatory relief to financial institutions and help facilitate recovery in areas of Kentucky affected by severe storms, flooding, landslides and mudslides that began July 26 and is ongoing. The FDIC acknowledged the unusual circumstances faced by institutions affected by the storms and suggested that institutions work with impacted borrowers to, among other things: (i) extend repayment terms; (ii) restructure existing loans; or (iii) ease terms for new loans to those affected by the severe weather, provided the measures are done “in a manner consistent with sound banking practices.” The FDIC noted that institutions may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The agency will also consider relief from certain reporting and publishing requirements.
The same week the OCC issued a proclamation permitting OCC-regulated institutions, at their discretion, to close offices affected by flooding in Kentucky “for as long as deemed necessary for bank operation or public safety.” The proclamation directed institutions to OCC Bulletin 2012-28 for further guidance on actions they should take in response to natural disasters and other emergency conditions. According to the 2012 Bulletin, only bank offices directly affected by potentially unsafe conditions should close, and institutions should make every effort to reopen as quickly as possible to address customers’ banking needs.
Brainard discusses CRA reforms in Native American lands
On July 19, Federal Reserve Vice Chair Lael Brainard spoke before the National Native Coalition Virtual Series regarding the Community Reinvestment Act (CRA) Notice of Proposed Rulemaking (NPRM). During her remarks, Brainard noted that in May, the Fed, FDIC, and OCC issued a joint notice of proposed rulemaking modernizing CRA regulations to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated (covered by InfoBytes here). Brainard called this a “once-in-a-generation opportunity to strengthen the CRA to bring greater credit, investment, and banking services to the communities that have faced the greatest challenges.” She further noted that “the CRA will provide powerful incentives for banks to make investments in communities that do not have access to branches, such as in Native lands.” Her speech then focused on several aspects of the proposal that are beneficial for Native communities. She stated that the NPRM “provides greater incentives for community investments in Native Land Areas by providing enhanced clarity and specificity about what activities qualify for CRA credit.” Noting that Native community development financial institutions and minority depository institutions “are critical players in supporting credit access and investment in Native communities,” Brainard explained that the proposal provides additional certainty that activities with Treasury-certified CDFIs will qualify for CRA consideration and provides greater clarity to banks on receiving credit for activities with MDIs. She also described “another important change” of the NPRM, which is that the proposal “would result in greater CRA activity outside of where banks have branches and physical locations in order to address unmet needs in communities that have more limited access to bank branches.” Brainard concluded her remarks by reminding the audience that comments on the NPRM are due August 5.
FDIC announces Oklahoma, Montana disaster relief
On July 15, the FDIC issued guidance (see FIL-31-2022 and see FIL-32-2022) to provide regulatory relief to financial institutions and help facilitate recovery in areas of Oklahoma affected by a severe storm, tornadoes, and flooding that occurred between May 2 and 8 and in areas of Montana affected by a severe storm and flooding that occurred from June 10 and continuing. The FDIC writes that, in supervising impacted institutions, it will consider the unusual circumstances those institutions face. The guidance suggests that institutions work with borrowers impacted by the severe weather to extend repayment terms, restructure existing loans, or ease terms for new loans “in a manner consistent with sound banking practices.” The FDIC notes that institutions may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The agency will also consider relief from certain reporting and publishing requirements.
Agencies list distressed middle-income areas
On July 1, the FDIC, Federal Reserve Board, and the OCC released the 2022 list of distressed or underserved nonmetropolitan middle-income geographies where revitalization or stabilization activities are eligible to receive Community Reinvestment Act (CRA) consideration. The agencies designated the identified distressed or underserved nonmetropolitan middle-income geographies in accordance with their CRA regulations that continue to “reflect local economic conditions, including unemployment, poverty, and population changes.” As previously covered by InfoBytes, the agencies released a joint Notice of Proposed Rulemaking (NPRM) in May to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. Under the CRA, banks are encouraged to help meet the credit needs of the local communities in which they are chartered, including low- and moderate-income neighborhoods. The agencies will receive comments on the NPRM through August 5.
CFPB discusses expanding electronic payments access
On June 28, CFPB Deputy Director Zixta Martinez spoke before the FDIC Meeting of the Advisory Committee on Economic Inclusion to discuss expanding access to affordable payments, credit, and other financial products and services. In her remarks, Martinez first discussed electronic payments, which she considers to be “quickly supplanting cash and are now an essential part of the economy.” She then discussed the role of banks, noting that they have an “obligatory and leading role” in expanding electronic payments. Martinez stated that with “their obligations to increase banking access and reduce banking and financial inequities, banks can play a key role, for example, in reducing the persistent and growing homeownership gap between Black and white families and closing the economic gap between the banked and the under- and un-banked.” She also stated that having access to electronic payments will “low[er] monthly fees and further reduc[e] the cost of overdraft and non-sufficient fund fees” and will service banking deserts in rural areas and within communities of color. Martinez further discussed actions to build out banking access and described a recent proposal to update the Community Reinvestment Act’s (CRA) regulatory framework (covered by InfoBytes here). Martinez stated that the proposal will; (i) take steps to address problems with grade inflation on CRA exams (i.e., meaning that “almost every bank” passes”); (ii) “rely upon small business lending data, which will allow for a more in-depth understanding of small business lending issues,” race, and ethnicity; (iii) “increase incentives for banks to finance community development projects in areas experiencing persistent poverty”; and (vi) “recognize banks that assist low- and moderate-income communities with clean energy transition and climate resiliency.” Additionally, Martinez noted that the Bureau “is working to ensure that banking access and access to credit is not unfairly affected by algorithmic models.” In conclusion, she said the Bureau’s recently released guidance “confirm[s] that it is unlawful to use black box models that do not allow for clear understanding of adverse actions, such as denial of credit.” (Covered by InfoBytes here.)
Acting FDIC Chairman Gruenberg outlines CRA NPRM
On June 13, acting FDIC Chairman Martin J. Gruenberg provided remarks before the National Community Reinvestment Coalition (NCRC) regarding the Community Reinvestment Act (CRA). In his remarks, Gruenberg discussed “ten important provisions” in the rule proposed by the Federal Reserve Board, FDIC, and OCC in May. As previously covered by InfoBtytes, the notice of proposed rulemaking (NPRM) updates how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated. Calling the CRA “the foundation of responsible finance for low- and moderate-income communities in the United States,” Gruenberg noted that the “NPRM would significantly expand the scope and rigor of CRA and assure its continued relevance for the next generation.” To expand the scope of the CRA, he explained that the NPRM would “establish new retail lending assessment areas to allow for CRA evaluation in communities where a bank may be engaging in significant lending activity but where the bank does not have a branch.” He also noted that the NPRM would “raise the bar for CRA performance on the retail lending test in order for a bank to earn an outstanding or high satisfactory rating.” With respect to greater clarity for CRA evaluations, Gruenberg said that the NPRM would “clearly define community development activities by establishing eleven proposed categories of community development.” Regarding minority depository institutions, Gruenberg said that the NPRM “creates a specific community development definition for eligible activities, such as investments, loan participations, and other ventures conducted by all banks with these institutions.” Additionally, he noted that the NPRM would address credit or banking deserts, including rural areas, native lands, and areas of persistent poverty, and would encourage the retention or establishment of branches in low-to-moderate-income communities and low-cost transaction accounts.