Community Reinvestment Act

Federal RegisterFeb 1, 2024

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DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 25

[Docket ID OCC-2022-0002]

RIN 1557-AF15

FEDERAL RESERVE SYSTEM

12 CFR Part 228

[Regulation BB; Docket No. R-1769]

RIN 7100-AG29

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 345

RIN 3064-AF81

Community Reinvestment Act

AGENCY:

Office of the Comptroller of the Currency, Treasury; Board of Governors of the Federal Reserve System; and Federal Deposit Insurance Corporation.

ACTION:

Final rule.

SUMMARY:

The Office of the Comptroller of the Currency (OCC), Board of Governors of the Federal Reserve System (Board), and the Federal Deposit Insurance Corporation (FDIC) are adopting final amendments to their regulations implementing the Community Reinvestment Act of 1977 (CRA) to update how CRA activities qualify for consideration, where CRA activities are considered, and how CRA activities are evaluated.

DATES:

Effective date:

This rule is effective on April 1, 2024, except for amendment nos. 29, 52, and 75, which are effective April 1, 2024, through January 1, 2031, and amendment nos. 7, 11, 18, 20, 25, 35, 39, 43, 45, 49, 58, 62, 66, 68, and 72, which are delayed indefinitely. The agencies will publish a document in the

Federal Register

announcing an effective date for the delayed amendments.

Applicability date:

Sections __.12 through __.15, __.17 through __.30, and __.42(a); the data collection and maintenance requirements in § __.42(c) through (f); and appendices A through F of the common rule text as adopted by the OCC, Board, and FDIC are applicable on January 1, 2026. Section __.42(b) and (g) through (i) and the reporting requirements in § __.42(c) through (f) of the common rule text as adopted by the OCC, Board, and FDIC are applicable on January 1, 2027.

FOR FURTHER INFORMATION CONTACT:

OCC:

Heidi M. Thomas, Senior Counsel, or Emily Boyes, Counsel, Chief Counsel's Office, (202) 649-5490; or Vonda Eanes, Director for CRA and Fair Lending Policy, or Cassandra Remmenga, CRA Modernization Program Manager, Bank Supervision Policy, (202) 649-5470, Office of the Comptroller of the Currency, 400 7th Street SW, Washington, DC 20219. If you are deaf, hard of hearing, or have a speech disability, please dial 7-1-1 to access telecommunications relay services.

Board:

Taz George, Senior Supervisory Policy Analyst; Dorian Hawkins, Counsel; S. Caroline (Carrie) Johnson, Manager; Matthew Lambert, Senior Supervisory Analyst; Eric Lum, Senior Supervisory Analyst; Cayla Matsumoto, Supervisory Policy Analyst; or Lisa Robinson, Lead Supervisory Policy Analyst; Lorna Neill, Senior Counsel; Amal Patel, Senior Counsel; or Jaydee DiGiovanni, Counsel; Division of Consumer and Community Affairs or David Alexander, Special Counsel; Cody Gaffney, Senior Attorney; or Gavin Smith, Senior Counsel; Legal Division, Board of Governors of the Federal Reserve System at (202) 452-2412 or. For users of TDD-TYY, (202) 263-4869 or dial 711 from any telephone anywhere in the United States.

FDIC:

Pamela A. Freeman, Senior Examination Specialist, Compliance and CRA Examinations Branch, Division of Depositor and Consumer Protection, (202) 898-3656; Patience R. Singleton, Senior Policy Analyst, Supervisory Policy Branch, Division of Depositor and Consumer Protection, (202) 898-6859; Sherry Ann Betancourt, Counsel, Legal Division, (202) 898- 6560; Alys V. Brown, Senior Attorney, Legal Division, (202) 898-3565, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Summary of the Final Rule

II. Background

III. General Comments Received

IV. Section-by-Section Analysis

Section __.11 Authority, Purposes, and Scope

Section __.12 Definitions

Section __.13 Consideration of Community Development Loans, Community Development Investments, and Community Development Services

Section __.14 Community Development Illustrative List; Confirmation of Eligibility

Section __.15 Impact and Responsiveness Review of Community Development Loans, Community Development Investments, and Community Development Services

Section __.16 Facility-Based Assessment Areas

Section __.17 Retail Lending Assessment Areas

Section __.18 Outside Retail Lending Areas

Section __.19 Areas for Eligible Community Development Loans, Community Development Investments, and Community Development Services

Section __.21 Evaluation of CRA Performance in General

Section __.22 Retail Lending Test

Section __.23 Retail Services and Products Test

Section __.24 Community Development Financing Test

Section __.25 Community Development Services Test

Section __.26 Limited Purpose Banks

Section __.27 Strategic Plan

Section __.28 Assigned Conclusions and Ratings

Section __.29 Small Bank Performance Evaluation

Section __.30 Intermediate Bank Performance Evaluation

Section __.31 Effect of CRA Performance on Applications

Section __.42 Data Collection, Reporting, and Disclosure

Section __.43 Content and Availability of Public File

Section __.44 Public Notice by Banks

Section __.45 Publication of Planned Examination Schedule

Section __.46 Public Engagement

Section __.51 Applicability Dates and Transition Provisions

V. Regulatory Analysis

I. Summary of the Final Rule

The CRA

is a seminal piece of legislation that requires the OCC, the Board, and the FDIC (together referred to as the agencies, and each, individually, the agency) to assess a bank's

record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the bank's safe and sound operation. Upon completing this examination, the statute requires the agencies to “prepare a written evaluation of the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods.”

The statute further provides that each agency must consider a bank's CRA performance “in its evaluation of an application for a deposit facility by such institution.”

The agencies implement

the CRA and establish the framework and criteria by which the agencies assess a bank's performance through their individual CRA regulations, which are supplemented by supervisory guidance.

Under the CRA regulations, the agencies apply different evaluation standards for banks of different asset sizes and types.

12 U.S.C. 2901

et seq.

For purposes of this

SUPPLEMENTARY INFORMATION

, the term “bank” includes insured national and State banks, Federal and State savings associations, Federal branches as defined in 12 CFR part 28, insured State branches as defined in 12 CFR 345.11(c), and State member banks as defined in 12 CFR part 208, except as provided in 12 CFR __.11(c).

12 U.S.C. 2906(a).

12 U.S.C. 2903(a)(2).

See

12 CFR parts 25 (OCC), 228 (Regulation BB) (Board), and 345 (FDIC). For clarity and to streamline references, citations to the agencies'

existing

common CRA regulations are provided in the following format: current 12 CFR __.xx. For example, references to 12 CFR 25.12 (OCC), 228.12 (Board), and 345.12 (FDIC) would be streamlined as follows: “current 12 CFR __.12.” Likewise, references to the agencies'

proposed

and

final

common CRA regulations are provided in the following formats, respectively: “proposed § __.xx” and “final § __.xx.”

The agencies issued a notice of proposed rulemaking published in the

Federal Register

on June 3, 2022 (NPR, proposal, or the proposed rule),

seeking comment on updates to their respective CRA regulations to achieve the following objectives:

87 FR 33884 (June 3, 2022).

• Strengthen the achievement of the core purpose of the statute;

• Adapt to changes in the banking industry, including the expanded role of mobile and online banking;

• Provide greater clarity and consistency in the application of the regulations;

• Tailor performance standards to account for differences in bank size and business models and local conditions;

• Tailor data collection and reporting requirements and use existing data whenever possible;

• Promote transparency and public engagement;

• Confirm that CRA and fair lending responsibilities are mutually reinforcing; and

• Promote a consistent regulatory approach that applies to banks regulated by all three agencies.

The agencies have revised this objective for the final rule, to recognize that the agencies currently have common regulations.

The agencies believe that each objective is met through the promulgation of this final rule. Additional discussion of, and commenter feedback received regarding, the agencies' objectives can be found in section III.B of this

SUPPLEMENTARY INFORMATION

This section provides a summary of the final rule and highlights certain key elements and changes as compared to the proposal. For a more detailed discussion, including the agencies' considerations of the comments received, see sections III and IV of this

SUPPLEMENTARY INFORMATION

Bank Asset Size Categories and Limited Purpose Banks

The final rule implements a revised regulatory framework for the CRA that, like the current framework, is based on bank asset size and business model. This tailoring of the framework recognizes the capacity and resource differences among banks. Under the final rule, banks are classified as either a large bank, an intermediate bank, a small bank, or a limited purpose bank. Pursuant to the final rule: large banks are those with assets of at least $2 billion as of December 31 in both of the prior two calendar years; intermediate banks are those with assets of at least $600 million as of December 31 in both of the prior two calendar years and less than $2 billion as of December 31 in either of the prior two calendar years; and small banks are those with assets of less than $600 million as of December 31 in either of the prior two calendar years. These asset-size thresholds will be adjusted annually for inflation.

The final rule revises the definition of limited purpose bank to include both those banks currently considered “limited purpose banks” and those currently considered “wholesale banks,” as those terms are defined under the current regulation and were defined under the proposal. Specifically, the final rule defines a limited purpose bank as a bank that is not in the business of extending certain loans, except on an incidental and accommodation basis, and for which a designation as a limited purpose bank is in effect. The final rule therefore does not reference “wholesale banks” because a separate definition is no longer necessary. The agencies have also clarified that limited purpose banks are not evaluated as small, intermediate, or large banks.

Evaluation Framework

Overview.

The final rule's performance evaluation framework utilizes performance tests to evaluate a bank's performance in meeting the credit needs of its entire community. In finalizing this evaluation framework, the agencies seek to meet the objectives described above, including: strengthening the achievement of the core purpose of the statute; tailoring to account for differences in bank size, business model, and local conditions; and adapting to changes in the banking industry, including the rise of mobile and online banking. Depending on a bank's asset size or limited purpose bank designation, the agencies will evaluate banks under one or a combination of the following seven performance tests: the Retail Lending Test; the Retail Services and Products Test; the Community Development Financing Test; the Community Development Services Test; the Intermediate Bank Community Development Test; the Small Bank Lending Test; and the Community Development Financing Test for Limited Purpose Banks. The agencies have also retained the strategic plan option, with revisions, as an alternative method for evaluation under the CRA.

The agencies will evaluate large banks under four performance tests: the Retail Lending Test, the Retail Services and Products Test, the Community Development Financing Test, and the Community Development Services Test. The agencies will evaluate intermediate banks under the Retail Lending Test and either the current community development test, referred to in the final rule as the Intermediate Bank Community Development Test, or, at the bank's option, the Community Development Financing Test. The agencies will evaluate small banks under either the current small bank test, referred to in the final rule as the Small Bank Lending Test or, at the bank's option, the Retail Lending Test. Finally, the agencies will evaluate limited purpose banks, under the Community Development Financing Test for Limited Purpose Banks.

The final rule also provides that relevant activities of a bank's operations subsidiaries or operating subsidiaries are included in a bank's performance evaluation. Relevant activities of other affiliates would be considered at a bank's option.

For each applicable performance test, the agencies will assign conclusions reflecting the bank's performance in its facility-based assessment areas, and in the case of the Retail Lending Test, certain other geographic areas. In most instances, including for small banks that opt to be evaluated under the Retail Lending Test, the agencies will assign one of five conclusions to the bank: “Outstanding”; “High Satisfactory”; “Low Satisfactory”; “Needs to Improve”; or “Substantial Noncompliance.” For small banks evaluated under the Small Bank Lending Test, the agencies will assign one of four conclusions: “Outstanding”; “Satisfactory”; “Needs to Improve”; or “Substantial Noncompliance.”

The conclusions assigned in connection with each of the applicable performance tests are combined to develop a bank's CRA ratings. The agencies may assign a bank one of the four ratings, as indicated in the statute: “Outstanding”; “Satisfactory”; “Needs

to Improve”; or “Substantial Noncompliance.”

For banks that are evaluated under more than one performance test, specific weights are applied to each performance test conclusion, with weighting varying by bank asset size. For large banks: the Retail Lending Test is weighted at 40 percent; the Retail Services and Products Test is weighted at 10 percent; the Community Development Financing Test is weighted at 40 percent; and the Community Development Services Test is weighted at 10 percent. Relative to the proposal, this large bank weighting reflects a decrease in the percentages assigned to the Retail Lending Test and the Retail Services and Products Test and a resulting increase in the percentage assigned to the Community Development Financing Test. For intermediate banks, each applicable performance test is weighted at 50 percent.

As noted above, banks of all sizes will maintain the option to elect to be evaluated under an approved strategic plan. Among other revisions, the final rule updates the standards for obtaining approval for such plans. The final rule clarifies the proposal to explain the circumstances in which banks must include the performance tests that would apply in the absence of a strategic plan, the modifications and additions that banks may make to those tests, and the justifications that banks must provide for their draft plans.

Retail Lending Test.

The Retail Lending Test evaluates a bank's record of helping to meet the credit needs of its entire community through the bank's origination and purchase of home mortgage loans, multifamily loans, small business loans, and small farm loans, as well as through automobile lending if the bank is a majority automobile lender. Specifically, the Retail Lending Test includes an evaluation of how banks are serving low- and moderate-income individuals, small businesses, small farms, and low- and moderate-income census tracts in the bank's facility-based assessment areas and, as applicable, retail lending assessment areas and outside retail lending areas. As noted above, under the final rule, intermediate and large banks are required to be evaluated under the Retail Lending Test, and small banks may opt to be evaluated under this performance test.

The Retail Lending Test includes two sets of metrics, as well as additional factors that are used to complement the use of metrics. First, the Retail Lending Volume Screen measures the volume of a bank's retail lending relative to its deposit base in a facility-based assessment area and compares that ratio to a Retail Lending Volume Threshold based on the aggregate ratio for all reporting banks with at least one branch in the same facility-based assessment area.

Second, the agencies evaluate the geographic distribution and borrower distribution of a bank's major product lines in its Retail Lending Test Areas (facility-based assessment areas, retail lending assessment areas, and outside retail lending area) using a series of metrics and benchmarks. For example, for a bank's closed-end home mortgage lending in a Retail Lending Test Area, the geographic distribution analysis evaluates the bank's percentage of lending (1) in low-income census tracts and (2) in moderate-income census tracts, while the borrower distribution analysis evaluates the bank's percentage of lending (3) to low-income borrowers and (4) to moderate-income borrowers. Under the final rule, the agencies evaluate the distribution of a large bank's major product lines in its facility-based assessment areas, any retail lending assessment areas the bank is required to delineate, and its outside retail lending area. For intermediate banks, and small banks that opt to be evaluated under the Retail Lending Test, the agencies evaluate the distribution of the bank's major product lines in its facility-based assessment areas and any outside retail lending area, if applicable. Regardless of the geographic area in which a bank is evaluated, for most major product lines, a bank's performance relative to the retail lending distribution benchmarks is translated into a recommended conclusion using performance ranges that establish the level of performance needed to achieve a particular conclusion, such as “High Satisfactory.”

In addition, in the final rule the agencies consider a list of additional factors that are intended to account for circumstances in which the retail lending distribution metrics and benchmarks may not accurately or fully reflect a bank's retail lending performance, or in which the benchmarks may not appropriately represent the credit needs and opportunities in an area.

In response to commenter feedback, the agencies sought ways to ensure that the final rule's Retail Lending Test appropriately balances the agencies' objectives. For example, the agencies adjusted some of the multipliers utilized as part of the Retail Lending Test to make “Outstanding” and “High Satisfactory” Retail Lending Test supporting conclusions more attainable relative to the proposal, while maintaining an appropriate degree of rigor. Moreover, as compared to the proposal, the final rule reduces the number of product lines potentially evaluated under the Retail Lending Test from six to three (closed-end home mortgage loans, small business loans, and small farm loans) for most banks. In addition, the agencies will only evaluate a bank's automobile loans if automobile loans represent a majority of the bank's retail lending, or if the bank opts to have its automobile loans evaluated under the Retail Lending Test.

Retail Services and Products Test.

The Retail Services and Products Test utilizes a tailored approach to evaluate the availability of a bank's retail banking services and retail banking products and the responsiveness of those services and products to the credit needs of the bank's entire community, including low- and moderate-income individuals, low- and moderate-income census tracts, small businesses, and small farms. Under the final rule, this performance test maintains the overall approach set out in the NPR, with certain modifications, and incorporates benchmarks to evaluate the availability of a bank's branch and remote service facilities. In addition, the agencies will evaluate the digital and other delivery systems of some banks.

Evaluation of the retail banking services of a large bank with assets greater than $10 billion includes a review of the bank's branch availability and services, remote service facilities (including automated teller machines (ATMs)), and digital delivery systems and other delivery systems. The agencies will also consider the digital delivery systems and other delivery systems of large banks with assets less than or equal to $10 billion if the bank does not operate any branches or, for banks that operate at least one branch, at the bank's option.

Evaluation of a bank's retail banking products includes a review of the responsiveness of the bank's credit products and programs, and availability and usage of responsive deposit products. Both deposit products and credit products and programs are evaluated at the institution level and, in a change from the proposal, are given only positive consideration and may not negatively impact a bank's Retail Services and Products Test conclusion. This aspect of the performance test is designed to evaluate a bank's efforts to provide products that are responsive to the needs of low- and moderate-income communities. The agencies will not evaluate the availability and usage of responsive deposit products in connection with large banks with assets

less than or equal to $10 billion, unless the bank opts in.

Community Development Financing Test.

The Community Development Financing Test evaluates how well large banks and intermediate banks that opt into the performance test meet the community development financing needs in each facility-based assessment area, each State or multistate metropolitan statistical area (MSA), as applicable, and for the institution. The test is not assessed in retail lending assessment areas.

The Community Development Financing Test includes the following elements: (1) a community development financing metric used to evaluate the dollar volume of a bank's community development loans and investments relative to the bank's deposit base; (2) standardized benchmarks to aid in evaluating performance; and (3) an impact and responsiveness review to ensure consideration of community development loans and investments that are particularly impactful or responsive. The final rule also includes a metric for banks with assets greater than $10 billion to measure the bank's community development investments relative to deposits. This metric is intended to ensure a focus on certain bank community development investments (including Federal Low-Income Housing Tax Credit (LIHTC) and New Market Tax Credit (NMTC) investments). This metric is applied at the institution level and may only contribute positively to a bank's Community Development Financing Test conclusion.

Community Development Services Test.

The Community Development Services Test considers the importance of community development services in fostering partnerships among different stakeholders, building capacity, and creating conditions for effective community development, including in rural areas. The agencies will evaluate large banks under this performance test in facility-based assessment areas, in States, multistate MSAs, and nationwide.

Under the final rule, the evaluation includes a qualitative review of relevant community development services data, and an impact and responsiveness review to assess services that are particularly responsive to community needs. After considering commenter feedback, the performance test does not require a metric of community development service hours per full-time employee for banks with assets greater than $10 billion. Moreover, the final rule maintains the existing requirement that volunteer services considered under this performance test must be related to the provision of financial services or the expertise of bank staff and must have a community development purpose. The performance test will provide consideration for activities that promote financial literacy for low- or moderate-income individuals, households, and families, even if the activities benefit individuals, households, and families of other income levels as well.

Geographic Areas in Which a Bank's Activities Are Considered

Facility-based assessment areas.

As under the current CRA regulations, the final rule maintains facility-based assessment areas as the cornerstone of the CRA evaluation framework. The final rule adopts the delineation requirements for facility-based assessment areas mostly as set out in the proposal with clarifying changes. Specifically, banks will continue to delineate facility-based assessment areas in the MSAs or nonmetropolitan areas of States in which the following facilities are located: main offices, branches, and deposit-taking remote service facilities. As under the proposal, large banks are required to delineate facility-based assessment areas composed of whole counties, while intermediate and small banks will continue to be permitted to delineate facility-based assessment areas consisting of partial counties. The final rule continues to provide that facility-based assessment areas may not reflect illegal discrimination and may not arbitrarily exclude low- or moderate-income census tracts.

Retail lending assessment areas.

The final rule requires a large bank to delineate a new type of assessment area, referred to as retail lending assessment areas, in an MSA or the nonmetropolitan area of a State in which the large bank has a concentration of closed-end home mortgage or small business lending outside of its facility-based assessment area(s). Large banks are evaluated under the Retail Lending Test, but not the other performance tests, in retail lending assessment areas. Relative to the proposal, the final rule tailors the retail lending assessment area requirement by exempting large banks that conduct more than 80 percent of their retail lending within facility-based assessment areas.

Upon consideration of commenter feedback regarding the retail lending assessment area proposal, the final rule increases, relative to the proposal, the loan count thresholds that trigger the retail lending assessment area delineation requirement to at least 150 closed-end home mortgage loans or at least 400 small business loans in each year of the prior two calendar years. The final rule also simplifies the evaluation of a large bank's retail lending performance by reducing the number of product lines potentially evaluated in a retail lending assessment area from six to two product lines, and only evaluating a product line if the bank exceeds the relevant loan count threshold.

Outside retail lending areas.

Under the final rule, the agencies will evaluate the retail lending performance of all large banks, certain intermediate banks, and certain small banks that opt to be evaluated under the Retail Lending Test in the outside retail lending area, which consists of the nationwide area outside of the bank's facility-based assessment areas and applicable retail lending assessment areas, excluding certain nonmetropolitan counties. Evaluation in these areas is designed to facilitate a comprehensive evaluation of a bank's retail lending to low- and moderate-income individuals and communities under the Retail Lending Test, and to adapt to changes in the banking industry, such as mobile and online banking. For an intermediate bank or a small bank that opts to be evaluated under the Retail Lending Test, the agencies evaluate the bank's retail lending performance in the outside retail lending area on a mandatory basis if the bank conducts a majority of its retail lending outside of its facility-based assessment areas. If the intermediate or small bank does not conduct a majority of its retail lending outside of its facility-based assessment areas, the bank may opt to have its retail lending in its outside retail lending area evaluated.

Areas for eligible community development activities.

Like the proposal, the final rule provides that all banks will receive consideration for any qualified community development loans, investments, or services, regardless of location. In assessing a large bank's Community Development Financing Test performance, the final rule includes a focus on performance within facility-based assessment areas. Specifically, when developing conclusions for a State, multistate MSA, or for the institution overall, the final rule combines two components through a weighted average calculation: (1) performance within the bank's facility-based assessment areas in the State, multistate MSA, or for the institution overall; and (2) performance across the entire State, multistate MSA, and for the institution. The weights of the two

components are based on the percentage of a bank's retail lending and deposits inside its facility-based assessment areas. For example, for a bank with a relatively low percentage of retail lending and deposits inside its facility-based assessment areas, the bank's performance within its facility-based assessment areas receives less weight than its performance across the entire State, multistate MSA, or nationwide area. In this way, the Community Development Financing Test recognizes differences in bank business models.

Categories of Community Development

Updated community development definition.

Under the current CRA regulations, in evaluating a bank's CRA performance, banks may receive community development consideration for community development loans, investments, and services under various tests. The final rule updates the definition of community development to provide banks with additional clarity regarding the loans, investments, and services that the agencies have determined support community development. The agencies believe these activities are responsive to the needs of low- and moderate-income individuals and communities, designated distressed or underserved nonmetropolitan areas, Native Land Areas,

small businesses, and small farms. Specifically, the agencies have defined the following eleven community development categories in the final rule:

The final rule defines “Native Land Areas” in final § __.12.

• Affordable housing, which has five components: (1) rental housing in conjunction with a government affordable housing plan, program, initiative, tax credit, or subsidy; (2) multifamily rental housing with affordable rents; (3) one-to-four family rental housing with affordable rents in a nonmetropolitan area; (4) affordable owner-occupied housing for low- or moderate-income individuals; and (5) mortgage-backed securities.

• Economic development, which includes loans, investments, and services undertaken in conjunction or in syndication with government programs; loans, investments, and services provided to intermediaries; and other forms of assistance to small businesses and small farms. Unlike the proposal, this category includes direct loans to small businesses and small farms in conjunction or in syndication with government programs that meet a size and purpose test.

• Community supportive services, which includes activities that assist, benefit, or contribute to the health, stability, or well-being of low- or moderate-income individuals, and replaces the current rule's “community services targeted to low- or moderate-income individuals” category.

• Six categories of place-based activities, which replace the revitalization and stabilization activities component of the current rule. Each of the final place-based categories adopts a focus on targeted geographic areas and includes common place-based eligibility criteria that must be met. The six place-based categories are:

○ Revitalization or stabilization activities;

○ Essential community facilities;

○ Essential community infrastructure;

○ Recovery activities that promote the recovery of a designated disaster area;

○ Disaster preparedness and weather resiliency activities; and

○ Qualifying activities in Native Land Areas.

• Activities with minority depository institutions (MDIs), women's depository institutions (WDIs), low-income credit unions (LICUs), and community development financial institutions (CDFIs).

• Financial literacy, which retains the proposed approach of qualifying activities assisting individuals, families, and households of all income levels, including low- or moderate-income individuals, families, and households.

Illustrative list and confirmation process.

To promote clarity and consistency, the final rule also provides that the agencies will issue, maintain, and periodically update a publicly available illustrative list of non-exhaustive examples of loans, investments, and services that qualify for community development consideration. In addition, the final rule includes a process through which banks can confirm with the appropriate Federal financial supervisory agency whether a particular loan, investment, or service is eligible for community development consideration.

The CRA defines “appropriate Federal financial supervisory agency” as (1) the Comptroller of the Currency with respect to national banks and Federal savings associations (the deposits of which are insured by the Federal Deposit Insurance Corporation); (2) the Board of Governors of the Federal Reserve System with respect to State chartered banks which are members of the Federal Reserve System, bank holding companies, and savings and loan holding companies; (3) the Federal Deposit Insurance Corporation with respect to State chartered banks and savings banks which are not members of the Federal Reserve System and the deposits of which are insured by the Corporation, and State savings associations (the deposits of which are insured by the Federal Deposit Insurance Corporation). 12 U.S.C. 2902(1).

Impact and responsiveness review.

To promote clarity and consistency in the final rule, the agencies will evaluate the extent to which a bank's community development loans, investments, and services are impactful and responsive in meeting community development needs, through the application of a non-exhaustive list of review factors. Such factors were referred to as impact review factors in the agencies' proposal but are referred to as impact and responsiveness factors in the final rule.

Data Collection, Maintenance, and Reporting

Consistent with the proposal, the agencies are not imposing any new data collection and reporting requirements for small and intermediate banks. For large banks, the final rule leverages existing data where possible and introduces updated data collection, maintenance, and reporting requirements to fill gaps in the current regulation and facilitate implementation of the final rule. For example, the final rule requires certain large banks to collect, maintain, and report data that would enable the agencies both to implement the metrics and benchmarks included in the Retail Lending Test and Community Development Financing Test, and to evaluate activities under the Retail Services and Products Test. These data requirements are intended to support greater clarity and consistency in the application of the CRA regulations and are tailored by bank size, such as by introducing certain data requirements only for those large banks with assets over $10 billion dollars.

The final rule requires the agencies to publish on their respective websites certain information related to the distribution by borrower income level, race, and ethnicity of a large bank's home mortgage loan originations and applications in each of the bank's assessment areas. This disclosure would leverage existing data available under the Home Mortgage Disclosure Act (HMDA).

12 U.S.C. 2801

et seq.

Transition

Although the effective date of the final rule is April 1, 2024, the applicability date for the majority of the provisions is January 1, 2026. Specifically, the following provisions of the final rule will become applicable on January 1, 2026: final §§ __.12 through __.15; final §§ __.17 through __.30; final § __.42(a); the data collection and maintenance requirements in final § __.42(c) through (f); and appendices A through

F. Banks will have until January 1, 2027, to comply with the reporting requirements of § __.42(b) through (f), with data reporting requirements every April 1 beginning in 2027. In final § __.51, the agencies have also included transition provisions relating to: applicability of the current CRA regulations; HMDA data disclosures; CRA consideration of eligible loans, investments, services, or products; strategic plans; and a particular ratings standard relating to minimum performance requirements applicable to large banks. Until the applicability dates for these provisions, banks will follow the current CRA regulations, included as appendix G to the revised CRA regulations.

Transition to Section 1071 Data

As discussed in the section-by-section analysis of §§ __.12, __.22, and __.42, the agencies have included amendments to transition to the use of Consumer Financial Protection Bureau's (CFPB) final rule under section 1071 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)

(Section 1071 Final Rule)

small business and small farm lending data (section 1071 data) once the data are available. The section 1071 data would replace CRA small business and small farm lending data required to be collected, maintained, and reported pursuant to final § __.42(a)(1) and (b)(1).

Public Law 111-203, 124 Stat. 1376 (2010).

88 FR 35150 (May 31, 2023);

see also

12 CFR part 1002.

With respect to the agencies' transition to using section 1071 data, as indicated in the section-by-section analysis of § __.12, the agencies have removed proposed references to section 1071 data in the final rule's regulatory text. Instead, each agency is adopting separate agency-specific amendatory text that provides for a transition to section 1071 data. These transition amendments implement the intent of the agencies articulated in the proposal to leverage section 1071 data while accounting for the current uncertainty surrounding the availability of that data. Specifically, when effective, these transition amendments will add appropriate references to the section 1071 rulemaking, remove references to Call Report-based small business and small farm data, and make other corresponding changes to the final rule regulatory text.

The agencies are not including an effective date for these section 1071-related transition amendments in the final rule. Instead, once the availability of section 1071 data is clarified, the agencies will take steps to provide appropriate notice in the

Federal Register

of the effective date of the transition amendments. The agencies expect that the effective date will be on January 1 of the relevant year to align with the final rule's data collection and reporting, benchmark calculations, and performance analysis, which all are based on whole calendar years.

Implementation

The agencies expect to issue supervisory guidance, including examination procedures, to promote clarity and transparency regarding implementation of the final rule. In addition, the agencies will conduct outreach and training to facilitate implementation of the final rule. For instance, the agencies expect to develop data reporting guides and technical assistance materials to assist banks in understanding supervisory expectations with respect to the final rule's data reporting requirements. In addition, the agencies expect to develop templates, such as for the submission of digital and other delivery systems data as well as for responsive deposit products data, to increase consistency, and will continue to explore other tools to improve efficiency and reduce burden. The agencies are also planning to develop data tools for banks and the public that will increase familiarity with the operation of the performance tests and allow for monitoring of performance relative to benchmarks based on historical data.

Each of the topics highlighted through this

Summary of the Final Rule

are discussed in greater detail in the section-by-section analysis in section IV of this

SUPPLEMENTARY INFORMATION

. The agencies are setting forth in this

SUPPLEMENTARY INFORMATION

the final rule using common regulation text for ease of review. The agencies have also included agency-specific amendatory text

where necessary to account for differing agency authority and terminology.

The OCC notes that current 12 CFR part 25 includes subpart E, Prohibition Against Use of Interstate Branches Primarily for Deposit Production. This subpart implements section 109 of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, 12 U.S.C. 1835a, which only applies to certain national banks and Federal branches of a foreign bank. As proposed, this final rule redesignates this subpart as subpart F but does not amend it.

In addition to the changes described in this

SUPPLEMENTARY INFORMATION

, the agencies have made conforming and technical changes throughout the final rule. The agencies will evaluate at a later date other rules that cross-reference to the CRA regulations to identify conforming changes that may be appropriate.

II. Background

A. General Statutory Background

The CRA was passed by Congress as part of the Housing and Community Development Act of 1977

and is designed to encourage regulated banks to help meet the credit needs of the communities in which they are chartered. Specifically, Congress found that (1) regulated financial institutions are required by law to demonstrate that their deposit facilities serve the convenience and needs of the communities in which they are chartered to do business; (2) the convenience and needs of communities include the need for credit services as well as deposit services; and (3) regulated financial institutions have a continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered.

Public Law 95-128, 91 Stat. 1111 (Oct. 12, 1977).

12 U.S.C. 2901(a).

The CRA requires the agencies to “assess the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of such institution.”

Upon completing this assessment, the statute requires the agencies to “prepare a written evaluation of the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods.”

The statute further provides that each agency must consider a bank's CRA performance “in its evaluation of an application for a deposit facility by such institution.”

12 U.S.C. 2903(a)(1).

12 U.S.C. 2906(a).

12 U.S.C. 2903(a)(2).

Since its enactment, Congress has amended the CRA several times, including through: the Financial Institutions Reform, Recovery, and Enforcement Act of 1989

(which required public disclosure of a bank's CRA written evaluation and rating); the Federal Deposit Insurance Corporation Improvement Act of 1991

(which required the inclusion of a bank's CRA examination data in the determination of its CRA rating); the Resolution Trust Corporation Refinancing, Restructuring, and Improvement Act of 1991 (which permits the agencies to provide favorable consideration where the bank has donated, sold on favorable terms, or

made available rent-free any branch of the bank “located in any predominantly minority neighborhood to any minority depository institution or women's depository institution”);

the Housing and Community Development Act of 1992

(which included assessment of the record of nonminority-owned and nonwomen-owned banks in cooperating with minority-owned and women-owned banks and LICUs); the Riegle-Neal Interstate-Banking and Branching Efficiency Act of 1994

(which (1) required an agency to consider an out-of-State national bank's or State bank's CRA rating when determining whether to allow interstate branches, and (2) prescribed certain requirements for the contents of the written CRA evaluation for banks with interstate branches); and the Gramm-Leach-Bliley Act of 1999

(which, among other things, provided regulatory relief for smaller banks by reducing the frequency of their CRA examinations).

Public Law 101-73, 103 Stat. 183 (Aug. 9, 1989).

Public Law 102-242, 105 Stat. 2236 (Dec. 19, 1991).

Public Law 102-233, 105 Stat. 1761 (Dec. 12, 1991).

Public Law 102-550, 106 Stat. 3874 (Oct. 28, 1992).

Public Law 103-328, 108 Stat. 2338 (Sept. 29, 1994).

Public Law 106-102, 113 Stat. 1338 (Nov. 12, 1999).

Additionally, Congress directed the agencies to publish regulations to carry out the CRA's purposes.

In 1978, the agencies promulgated the first CRA regulations, which included evidence of prohibited discriminatory or other illegal credit practices as a performance factor as discussed further in the next section.

Since then, the agencies have together significantly revised and sought to clarify their CRA regulations twice—in 1995

and 2005

—with the most substantive interagency update occurring in 1995. In addition, the agencies have periodically jointly published the Interagency Questions and Answers Regarding Community Reinvestment (Interagency Questions and Answers)

to provide guidance on the CRA regulations.

12 U.S.C. 2905.

43 FR 47144 (Oct. 12, 1978). Congress also charged, in addition to the agencies, the Office of Thrift Supervision (OTS) and its predecessor agency, the Federal Home Loan Bank Board, with implementing the CRA. The OTS had CRA rulemaking and supervisory authority for all savings associations. Pursuant to Title III of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203, 124 Stat. 1376, 1522 (2010) (Dodd-Frank Act), the OTS's CRA rulemaking authority for all savings associations transferred to the OCC and the OTS's CRA supervisory authority for State savings associations transferred to the FDIC. As a result, the OCC's CRA regulation applies to both State and Federal savings associations, in addition to national banks, and the FDIC enforces the OCC's CRA regulations with respect to State savings associations.

60 FR 22190 (May 4, 1995).

70 FR 44268 (Aug. 2, 2005).

See

81 FR 48506 (July 25, 2016). “Interagency Questions and Answers” refers to the “Interagency Questions and Answers Regarding Community Reinvestment” guidance in its entirety. “Q&A” refers to an individual question and answer within the Interagency Questions and Answers.

B. CRA, Illegal Discrimination, and Fair Lending

The CRA was one of several laws enacted in the 1960s and 1970s to address fairness and financial inclusion in access to housing and credit.

During this period Congress passed the Fair Housing Act

to prohibit discrimination in the sale or rental of housing,

and the Equal Credit Opportunity Act (ECOA) in 1974

(amended in 1976), to prohibit creditors from discriminating against an applicant in any aspect of a credit transaction on the basis of race, color, religion, national origin, sex, marital status, and age, because all or part of the applicant's income derives from any public assistance program, or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act.

These fair lending, fair housing, and other similar laws provide the legal basis under Federal law for prohibiting discriminatory lending practices by creditors based on race, ethnicity, and other protected characteristics.

See, e.g.,

Board, Gov. Lael Brainard, “Strengthening the Community Reinvestment Act by Staying True to Its Core Purpose” (Jan. 8, 2020),

https://www.federalreserve.gov/newsevents/speech/brainard20200108a.htm

(“The CRA was one of several landmark pieces of legislation enacted in the wake of the civil rights movement intended to address inequities in the credit markets.”).

see also

current 12 CFR __.24(d).

Banks evaluated under a performance test that includes a review of their community development activities are assessed with respect to community development lending, qualified investments, and community development services, which must have a primary purpose of community development.

See

current 12 CFR __.12(g) through (i) and (t);

see also

current 12 CFR __.21 through __.27.

Guidance for Performance Evaluations

In addition to information included in their CRA regulations, the agencies also provide information to the public regarding how CRA performance tests are applied, where CRA activities are considered, and what activities are eligible through publicly available CRA performance evaluations,

the Interagency Questions and Answers, interagency CRA examination procedures,

and interagency instructions for writing performance evaluations.

See, e.g.,

Board “Search: Evaluations & Ratings (Federal Reserve Supervised Banks),”

https://www.federalreserve.gov/apps/CRAPubWeb/CRA/BankRating

; FDIC, “Community Reinvestment Act (CRA) Performance Ratings,”

https://crapes.fdic.gov/

; OCC, “CRA Performance Evaluations,”

https://occ.gov/publications-and-resources/tools/index-cra-search.html

See, e.g.,

FFIEC, “Community Reinvestment Act: CRA Examinations,”

https://www.ffiec.gov/cra/examinations.htm

Id.

D. Stakeholder Feedback and Recent Agency Rulemaking Efforts

The financial services industry has undergone transformative changes since the CRA was enacted, including the removal of national bank interstate branching restrictions and the expanded role of mobile and online banking. Prior to publishing the NPR, and to better understand how these developments impact both consumer access to banking products and services and a bank's CRA performance, the agencies sought, received, and reviewed feedback from the banking industry, community groups, academics, and other stakeholders on several occasions.

Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA)

From 2013 to 2016, the agencies solicited feedback on the CRA as part of the EGRPRA review process.

Stakeholders raised issues related to: assessment area definitions; incentives for banks to serve low- and moderate-income, unbanked, underbanked, and rural communities; regulatory burdens associated with recordkeeping and reporting requirements, and asset thresholds for the various CRA examination methods; the need for clarity regarding performance measures and better examiner training to ensure consistency and rigor in examinations; and refinement of CRA ratings methodology.

See, e.g.,

80 FR 7980 (Feb. 13, 2015).

See

82 FR 15900 (Mar. 30, 2017).

OCC CRA Advance Notice of Proposed Rulemaking and OCC and Federal Reserve Outreach Sessions

On September 5, 2018, the OCC published an advance notice of proposed rulemaking (ANPR) to solicit ideas for a new CRA regulatory framework.

More than 1,500 comment letters were submitted in response. The

OCC held more than 40 meetings and outreach events after its ANPR. To augment that input, the Board and the Federal Reserve Banks held about 30 outreach meetings with representatives of banks, community organizations, and the FDIC and OCC.

See

83 FR 45053 (Sept. 5, 2018).

For a summary of the Federal Reserve outreach session feedback, see “Perspectives from Main Street: Stakeholder Feedback on Modernizing the Community Reinvestment Act” (June 2019),

https://www.federalreserve.gov/publications/files/stakeholder-feedback-on-modernizing-the-community-reinvestment-act-201906.pdf

OCC-FDIC CRA Notice of Proposed Rulemaking and OCC CRA Final Rule

On December 12, 2019, the FDIC and the OCC issued a joint notice of proposed rulemaking to revise and update their CRA regulations.

In response, the FDIC and the OCC received over 7,500 comment letters.

85 FR 1204 (Jan. 9, 2020).

On May 2020, the OCC issued a CRA final rule (OCC 2020 CRA Final Rule), retaining the most fundamental elements of the joint proposal but also making adjustments to reflect stakeholder input.

The OCC deferred establishing the metrics-framework for evaluating banks' CRA performance until it was able to assess additional data,

with the final rule having an October 1, 2020, effective date and January 1, 2023, and January 1, 2024, compliance dates for certain provisions.

85 FR 34734 (June 5, 2020).

See

OCC, News Release 2020-63, “OCC Finalizes Rule to strengthen and Modernize Community Reinvestment Act Regulations” (May 20, 2020),

https://www.occ.gov/news-issuances/news-releases/2020/nr-occ-2020-63.html

;

see also

85 FR 34736.

85 FR 34784.

Board CRA Advance Notice of Proposed Rulemaking

On September 21, 2020, the Board issued a CRA ANPR (Board CRA ANPR) requesting public comment on an approach to modernize the CRA regulations by strengthening, clarifying, and tailoring the regulations to reflect the current banking landscape and better meet the core purpose of the CRA.

The Board CRA ANPR sought feedback on ways to evaluate how banks meet the needs of low- and moderate-income communities and address inequities in credit access. The Board received over 600 comment letters in response.

85 FR 66410 (Oct. 19, 2020).

Interagency Statement and Other Developments

On July 20, 2021, the agencies issued an interagency statement indicating their commitment to work collectively to, in a consistent manner, strengthen and modernize their CRA regulations.

On December 15, 2021, the OCC issued a final rule, effective January 1, 2022, to rescind the OCC 2020 CRA Final Rule and replace it with CRA regulations based on those that the agencies jointly issued in 1995, as amended. The OCC's final rule also integrated the OCC's CRA regulation for savings associations into its national bank CRA regulation at 12 CFR part 25.

See

“Interagency Statement on Community Reinvestment Act, Joint Agency Action” (July 20, 2021),

https://www.occ.gov/news-issuances/news-releases/2021/nr-ia-2021-77.html

(OCC);

https://www.federalreserve.gov/newsevents/pressreleases/bcreg20210720a.htm

(Board);

https://www.fdic.gov/news/press-releases/2021/pr21067.html

(FDIC).

86 FR 71328 (Dec. 15, 2021).

E. The Agencies' Proposal

Community development definitions.

The NPR included a proposal to revise the community development definitions to clarify eligibility criteria for a broad range of community development activities and incorporate certain guidance currently provided through the Interagency Questions and Answers. The agencies also proposed using a

primary purpose

standard for determining eligibility of community development activities, with

pro rata

consideration for certain affordable housing activities.

Qualifying activities confirmation and illustrative list of community development activities.

The agencies proposed to maintain a publicly available illustrative, non-exhaustive list of community development activities eligible for CRA consideration, which the agencies would periodically update. In addition, the agencies proposed a process, open to banks, for confirming eligibility of community development activities in advance.

Impact review of community development activities.

To promote clearer and more consistent evaluation procedures, the agencies proposed to include impact and responsiveness factors (referred to in the NPR as impact review factors) in the regulation. The impact review factors would inform the agencies' evaluation of the impact and responsiveness of a bank's activities under the proposed community development tests.

Assessment areas and areas for eligible community development activity.

The agencies offered a series of proposals on delineating facility-based assessment areas for main offices, branches, and deposit-taking remote service facilities (to include ATMs). The NPR sought to maintain facility-based assessment areas as the cornerstone of the CRA evaluation framework. Under the proposal, large banks would delineate assessment areas comprised of full counties, metropolitan divisions, or MSAs. Intermediate and small banks could continue to delineate partial county facility-based assessment areas, consistent with current practice.

The agencies also proposed that large banks would delineate retail lending assessment areas where the bank has concentrations of home mortgage and/or small business lending outside of its facility-based assessment areas. Under that aspect of the proposal, a large bank would delineate retail lending assessment areas where it had an annual lending volume of at least 100 home mortgage loan originations or at least 250 small business loan originations in an MSA or nonmetropolitan area of a State for two consecutive years.

The agencies also proposed to allow banks to receive CRA credit for any qualified community development activity, regardless of location, although performance within facility-based assessment areas would be emphasized.

Performance tests, standards, and ratings in general.

The agencies proposed an evaluation framework that would include a Retail Lending Test, a Retail Services and Products Test, a Community Development Financing Test, and a Community Development Services Test. Under the proposal, large banks would be evaluated under all four tests. Intermediate banks would be evaluated under the Retail Lending Test and the status quo community development test, unless they opted into the Community Development Financing Test. Small banks would be evaluated under the status quo small bank lending test, unless they opted into the Retail Lending Test. Wholesale and limited purpose banks would be evaluated under a tailored version of the Community Development Financing Test.

Under this proposed framework, large banks would be banks that had average quarterly assets, computed annually, of at least $2 billion in both of the prior two calendar years; intermediate banks would be banks that had average quarterly assets, computed annually, of at least $600 million in both of the prior two calendar years and less than $2 billion in either of the prior two calendar years; and small banks would be banks that had average quarterly assets, computed annually, of less than $600 million in either of the prior two calendar years.

The agencies also

proposed adding a new definition of “operations subsidiary” to the Board's CRA regulation and “operating subsidiary” to the FDIC's and OCC's CRA regulations to identify those bank affiliates whose activities would be required to be attributed to a bank's CRA performance (together, bank subsidiaries). The agencies proposed to maintain the current flexibilities that would allow a bank to choose to include or exclude the activities of other bank affiliates that are not considered bank subsidiaries. The NPR also discussed performance context, and the requirement for activity in accordance with safe and sound operations.

Of particular relevance to the agencies' CRA regulations, the SBA revised the size standards applicable to small commercial banks and savings

institutions, respectively, from $600 million to $750 million, based upon the average assets reported on such a financial institution's four quarterly financial statements for the preceding year. The final rule had a May 2, 2022, effective date.

See

87 FR 18627, 18830 (Mar. 31, 2022).

Retail Lending Test product categories and major product lines.

The agencies proposed categories and standards for determining when a bank's retail lending product lines are evaluated under the proposed Retail Lending Test. The agencies proposed the following retail lending product line categories: closed-end home mortgage, open-end home mortgage, multifamily, small business, and small farm lending. The agencies also proposed including automobile lending as an eligible retail lending product line. In addition, the agencies proposed a 15 percent major product line standard to determine when a retail lending product line would be evaluated.

Retail Services and Products Test.

The agencies proposed to evaluate large banks under the Retail Services and Products Test, which would use a predominantly qualitative approach, incorporating quantitative measures as guidelines, as applicable. The agencies proposed that the evaluation of digital and other delivery systems would be required for large banks with assets of over $10 billion, and not required for large banks with assets of $10 billion or less.

Furthermore, the credit products and deposit products part of the proposed Retail Services and Products Test aimed to evaluate a bank's efforts to offer products that are responsive to the needs of low- and moderate-income communities. The agencies proposed that the evaluation of deposit products responsive to the needs of low- or moderate-income individuals would be required for large banks with assets of over $10 billion, and not required for large banks with assets of $10 billion or less.

Community Development Financing Test.

The agencies proposed to evaluate large banks as well as intermediate banks that opt into the test under the proposed Community Development Financing Test. As proposed, the Community Development Financing Test would consist of a Community Development Financing Metric, benchmarks, and an impact review. These components would be assessed at the facility-based assessment area, State, multistate MSA, and institution levels, and would inform conclusions at each of those levels.

Community Development Services Test.

The agencies proposed to assess a large bank's community development services, underscoring the importance of these activities for fostering partnerships among different stakeholders, building capacity, and creating the conditions for effective community development. The agencies proposed that in nonmetropolitan areas, banks may receive community development services consideration for volunteer activities that meet an identified community development need, even if unrelated to the provision of financial services. The proposed test would consist of a primarily qualitative assessment of the bank's community development service activities. For large banks with assets of over $10 billion, the agencies proposed also using a metric to measure the hours of community development services activity per full time employee of a bank.

Wholesale and limited purpose banks.

The agencies proposed a Community Development Financing Test for Wholesale and Limited Purpose Banks, which would include a qualitative review of a bank's community development lending and investments in each facility-based assessment area and an institution level-metric measuring a bank's volume of activities relative to its capacity. The agencies also proposed giving wholesale and limited purpose banks the option to have examiners consider community development service activities that would qualify under the Community Development Services Test.

Strategic plans.

The agencies proposed to maintain a strategic plan option as an alternative method for evaluation. Banks that elect to be evaluated under a strategic plan would continue to request approval for the plan from their appropriate Federal financial supervisory agency. The agencies proposed more specific criteria to ensure that all banks meet their CRA obligation to serve low- and moderate-income individuals and communities. As proposed, banks approved to be evaluated under a strategic plan option would have the same assessment area requirements as other banks and would submit plans that include the same performance tests and standards that would otherwise apply unless the bank is substantially engaged in activities outside the scope of these performance tests. In seeking approval for a plan that does not adhere to requirements and standards that are applied to other banks, the plan would be required to include an explanation of why different standards would be more appropriate in meeting the credit needs of the bank's communities.

Assigned conclusions and ratings.

The agencies proposed to provide greater transparency and consistency on assigning ratings for a bank's overall performance. The proposed approach would produce performance scores for each applicable test, at the State, multistate MSA, and institution levels based on a weighted average of assessment area conclusions, as well as consideration of additional test-specific factors at the State, multistate MSA, or institution level. These performance scores would be mapped to conclusion categories to assign test-specific conclusions at each level. The agencies further proposed to combine these performance scores across tests to assign ratings at each level.

The agencies proposed to determine a bank's overall rating by taking a weighted average of the applicable performance test scores. For large banks, the agencies proposed the following weights: 45 percent for Retail Lending Test performance score; 15 percent for Retail Services and Products Test performance score; 30 percent for Community Development Financing Test performance score; and 10 percent for Community Development Services Test performance score. For intermediate banks, the agencies proposed to weight the Retail Lending test at 50 percent and the community development test, or if the bank opted into the Community Development Financing Test, at 50 percent.

The agencies also proposed updating the criteria to determine how discriminatory and other illegal practices would adversely affect a rating, as well as what rating level (State, multistate MSA, and institution) would be affected.

Performance standards for small and intermediate banks.

The agencies proposed to continue evaluating small banks under the small bank performance standards in the current CRA framework. However, under the proposal, small banks could opt into the

Retail Lending Test and could continue to request additional consideration for other qualifying CRA activities. The agencies would evaluate intermediate banks under the proposed Retail Lending Test, and would evaluate an intermediate bank's community development activity pursuant to the criteria under the current intermediate small bank community development test. Intermediate banks could also opt to be evaluated under the proposed Community Development Financing Test.

Effect of CRA performance on applications.

The agencies proposed no substantive changes to the regulatory provisions concerning the effect of CRA performance on bank applications, such as those for mergers, acquisitions, or consolidation of assets, deposit insurance requests, and the establishment of domestic branches.

Data collection, reporting, and disclosure.

The agencies proposed to revise data collection and reporting requirements to increase the clarity, consistency, and transparency of the evaluation process through the use of standard metrics and benchmarks. The proposal recognized the importance of using existing data sources where possible, and tailoring data requirements, where appropriate.

In addition to leveraging existing data, however, the proposal would have required large banks to collect, maintain, and report additional data. The data requirements under the proposal for intermediate banks and small banks would remain the same as the current requirements. All large banks under the proposal would have new requirements for certain categories of data, (including community development financing data, branch location data, and remote service facility location data); however, some new data requirements would only apply to large banks with assets of over $10 billion. The agencies also proposed updated standards for all large banks to report the delineation of their assessment areas.

Content and availability of public file, public notice by banks, publication of planned examination schedule, and public engagement.

The agencies proposed to provide more transparent information to the public on CRA examinations and encourage communication between members of the public and banks. The agencies proposed to make a bank's CRA public file more accessible to the public by allowing any bank with a public website to include its CRA public file on its website. The agencies also proposed publishing a list of banks scheduled for CRA examinations for the next two quarters at least 60 days in advance in order to provide additional notice to the public. Finally, the agencies proposed to establish a way for the public to provide feedback on community needs and opportunities in specific geographies.

Transition.

The agencies proposed a phased-in timeline that would facilitate the transition from the current regulatory and supervisory framework to the updated CRA regulatory and supervisory framework.

III. General Comments Received

The agencies received approximately 950 unique comment letters regarding the proposal from a wide range of commenters, including: financial institutions; non-financial institution and financial institution trade associations; CDFIs; financial and non-financial businesses; community development organizations; consumer advocacy groups; civil rights groups; other nonprofit organizations; Federal, State, local, and tribal government commenters; tribal organizations; academics; individuals; and other interested parties. The agencies have carefully considered all the commenter feedback in developing the final rule.

Comments received by the agencies cover a wide-ranging set of topics across the entire proposal. General public comments on the NPR are summarized below. Comments relating to specific regulatory provisions of the agencies' proposal and the final rule are discussed in detail in the section-by-section analyses of the specific provisions on which commenters shared their views.

A. General Comments Regarding the NPR

Modernizing the CRA performance evaluation framework.

Many commenters expressed appreciation for the agencies' unified efforts to modernize the CRA framework. Some commenters noted support for the objective of providing transparency and consistency for banks covered by CRA and the communities they serve. In addition, several commenters, expressed support for various aspects of the NPR, including the proposal's metrics-driven approach and attention to climate resiliency.

Some commenters stated that while the agencies' proposal is a step in the right direction, more could be done to improve the CRA regulations, such as requiring the agencies to consult with a diverse set of community representatives when evaluating an institution's CRA performance. A few commenters also suggested that the final rule should encourage both meaningful action to help low- and moderate-income communities and collaboration between banks and financial technology (fintech) companies. Another commenter recommended that the agencies view the military community as a community deserving of CRA support. The commenter further stated that bank activities that serve the military community should generally receive CRA credit.

Other commenters opposed or expressed concerns about the proposal for various reasons, asserting that aspects of the NPR could result in, for example: decreased bank competition; undue burden and costs; less credit availability; gentrification of urban Black neighborhoods; and fewer services in low- and moderate-income communities.

Complexity of the proposed rule.

Numerous commenters expressed concern that the agencies' proposal was too complex and difficult to understand—primarily related to the proposed performance test measures and ratings methodology requiring significant resources and costs to implement—and recommended that the agencies develop a simpler final rule to avoid unintended negative consequences. Some commenters recommended the agencies develop tools, guidance, and training for examiners and allow banks to consult with the agencies as needed.

Coordination of the CRA regulations with State and Federal agencies.

A few commenters expressed concerns regarding the lack of coordination between the agencies, the CFPB, and the States and suggested the agencies work together with these other entities to improve consistency and further the mission of CRA. Other commenters noted that given shifts in the banking industry, the agencies should extend CRA regulations to nonbank lenders and, some commenters recommended, work with the CFPB to do so.

Length of the comment period and other rulemakings.

Several commenters objected to the length of the comment period stating that it was too short and did not provide sufficient time for analysis and comment, with some commenters recommending that the agencies withdraw the proposal, issue a revised set of proposed rules, or open a new comment period. A few commenters suggested that the agencies should delay issuance of a final rule given uncertainty in the industry and the status of other rulemakings such as the CFPB's Section 1071 Final Rule and the agencies' separate rulemaking on capital requirements for certain banks.

Application of the proposed regulations to different business models.

Some commenters expressed concern that the agencies' proposal did not address the needs of different business models and could create a one-size-fits-all approach that favors particular business models, which would not reflect the ever-changing banking landscape. These commenters indicated that the final rule should do more to recognize the inherently diffuse nature of digital banking and that more flexibility is necessary to account for different business models.

Promoting activities in local communities, including rural and underserved areas.

Some commenters asserted that the NPR would be more effective in boosting reinvestment activity in underserved areas if the evaluations and ratings were more rigorous. Other commenters expressed concerns regarding the proposed use of metrics and certain data, suggesting that they could lead to disinvestment in hard to serve areas and overinvestment in urban areas due to the use of census data.

The agencies also received comments outlining different methods of promoting activities and investments at the local level, including specific recommendations: on how to promote investments in underserved rural and native communities; that the agencies should incentivize affordable small dollar loans and other products; and that the agencies should seek to end “rent-a-bank” partnerships.

A few other commenters suggested that the final rule should address the issue of appraisal bias to ensure lenders are fulfilling the needs of the communities they serve, and recommended that bank lenders should complete additional due diligence on the appraisers they work with.

The agencies also received several comments regarding the importance of performance context, suggesting that performance context and examiner discretion is necessary to understand the metrics embedded in the CRA exam.

Legal issues.

Some commenters provided general comments raising legal concerns with the proposal. For example, some commenters stated that if the proposal is finalized as proposed, the final rule could be challenged as arbitrary and capricious because it was not supported by a reasoned analysis. Several commenters expressed the view that the agencies lack the authority to adopt the proposal. Finally, a commenter questioned the FDIC Board's authority to issue the NPR and to adopt a final rule based on certain aspects of the FDIC's organic statute and the FDIC Board's composition at the time the NPR was issued.

Other comments.

The agencies also received suggestions about how the agencies could evaluate the impact of the final rule, including five-year lookback reviews and an impact study. Commenter feedback also included noting that performance evaluations should be published as soon as reasonably possible. Some commenters urged the agencies to expand the coverage of CRA to credit unions to ensure low- and moderate-income communities are adequately served.

Final Rule

The agencies have carefully considered the general commenter feedback regarding ways in which the NPR could be improved and believe the final rule strikes the proper balance between the stated objectives, including to update the CRA regulations to strengthen the achievement of the core purpose of the statute and adapt to changes in the banking industry. For additional discussion regarding the agencies' objectives, see section III.B of this

SUPPLEMENTARY INFORMATION

. The agencies also carefully considered commenters' concerns regarding the complexity of the proposed rule and have made modifications to various aspects of the final rule to reduce complexity as explained in more detail in section IV of this

SUPPLEMENTARY INFORMATION

. In addition, with respect to the Retail Lending Test, the agencies believe that the final rule ensures that CRA evaluations of retail lending are appropriately robust and comprehensive, provides greater consistency and transparency, and reduces overall complexity relative to the approach set out in the NPR. The agencies note that any evaluation approach leveraging metrics and benchmarks that captures the different ways that banks may serve the credit needs of an area will necessarily entail a degree of complexity.

The agencies appreciate commenter feedback that the military community should be considered a community deserving of CRA support. The agencies believe that the final rule encourages banks to meet the credit needs of military communities. For example, the final rule codifies “military bank” as a defined term in final § __.12, and clarifies the assessment area and evaluation approach to military banks in final §§ __.16(d) and __.21(a)(5), respectively.

In addition, the agencies are specifying in final § __.28(d) that violations of the Military Lending Act and Servicemembers Civil Relief Act may constitute discriminatory or other illegal credit practices that may adversely affect a bank's CRA performance. More generally, the agencies believe that many bank activities that serve the military community may receive community development consideration under the final rule. For further discussion of these provisions, see the section-by-section analyses of §§ __.12, __.16(d), __.21(a)(5), and __.28(d).

See also

12 U.S.C. 2902(4).

The agencies appreciate comments encouraging the agencies to coordinate with States, the CFPB, and other Federal regulators to improve consistency and efficiency of CRA examinations, and the agencies note that they currently, and will continue to, coordinate with other regulators when appropriate on CRA examinations. Further, the agencies are not able to extend the CRA regulations to cover nonbank lenders and credit unions. Such an expansion is outside the scope of this rulemaking and the agencies' current authority.

In response to comments regarding the length of the comment period, the agencies note that the NPR's comment period was 90 days, which is consistent with the requirements of the Administrative Procedure Act and provided sufficient time for public consideration and comment, as demonstrated by the number of detailed and thoughtful comments the agencies received on the proposal.

One of the objectives of the CRA proposal was to tailor performance standards to account for differences in bank size, business models, and local conditions. The agencies have carefully considered commenter feedback, and while the agencies believe the proposal provided flexibility to accommodate institutions with different business models, the agencies have made various changes in response to commenter feedback to provide additional flexibility in the final rule as outlined in the section-by-section analyses in section IV of this

SUPPLEMENTARY INFORMATION

. The agencies also note the final rule retains the strategic plan option for banks to adjust the performance tests or weighting based on their business model.

After carefully considering commenter suggestions on how to encourage reinvestment activity through rigorous evaluations and standards, the agencies are declining to adopt these specific commenter recommendations. The agencies believe the final rule's evaluation framework is appropriately rigorous and encourages reinvestment activity, while maintaining flexibility and allowing room for consideration of

performance context. The agencies have considered the views from some commenters raising concerns on the potential negative impacts of the use of metrics and data in the proposal. As discussed further in section IV of this

SUPPLEMENTARY INFORMATION

, the agencies believe the use of metrics and data in the final rule is appropriately tailored to encourage, rather than deter, reinvestment in hard to serve areas. While the agencies appreciate commenters' suggestions on additional methods to encourage activities and investments at the local level, the agencies are declining to adopt these recommendations and believe the final rule adequately evaluates activities and investments in underserved and native communities. The agencies appreciate the comments highlighting the importance of performance context in CRA examinations, and the agencies are retaining the use of performance context in the final rule, as explained in the section-by-section analysis of § __.21(d).

The agencies appreciate commenters' suggestions to address appraisal bias, and the agencies note that if such bias were found to evidence discrimination by an institution evaluated under CRA, the agencies may consider this as the basis for a downgrade as discussed in the section-by-section analysis of § __.28.

The agencies believe that the NPR adequately explained the agencies' rationale for the proposed changes. The NPR contains detailed analysis of the current CRA regulations, the need for modernization, and an in-depth review of the proposed rule and alternatives the agencies considered, which are all supported by extensive data.

The agencies acknowledge that commenters provided general comments raising legal concerns with the proposal. The agencies note that the CRA authorizes the agencies to adopt regulations to carry out the purposes of the statute,

and requires the agencies to assess the institution's record of meeting the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the bank.

The final rule furthers the purposes of the CRA and is consistent with the agencies' rulemaking authority. The agencies also considered the points raised by the commenter questioning the FDIC Board's authority but find no such impediment to adoption of the final rule. Legal issues concerning particular aspects of the proposal are discussed in the section-by-section analysis in section IV of this

SUPPLEMENTARY INFORMATION

See

12 U.S.C. 2905.

12 U.S.C. 2903(a)(1).

In response to comments regarding lookback reviews, the agencies often do reviews of their examinations after implementation of revised or new rules. While the agencies will keep these recommendations in mind, the agencies are not committing to adopt such recommendations in a specific timeframe or through a specified method. Regarding the development of tools, including for small banks, as noted in section I of this

SUPPLEMENTARY INFORMATION

, the agencies expect to develop various materials for banks including data reporting guides, data reporting templates, and technical assistance to assist banks in understanding supervisory expectations with respect to the final rule's performance evaluation standards and data reporting requirements. The agencies will continue to explore other tools to provide transparent information to the public, improve efficiency, and reduce burden.

B. General Comments Regarding the Agencies' CRA Modernization Objectives

As noted in section I of this

SUPPLEMENTARY INFORMATION

, the agencies' updates to their CRA regulations in this final rule are guided by eight objectives. These objectives were set out in the NPR, and some general comments received on the objectives are summarized below. Throughout this

SUPPLEMENTARY INFORMATION

, the agencies provide additional information and discussion regarding the ways in which this final rule accomplishes the objectives, including in the section-by-section analysis in section IV.

The Agencies' Proposal, Comments Received, and the Final Rule

Strengthen the achievement of the core purpose of the statute.

As provided for in the statute, the CRA states that “[i]t is the purpose of this chapter to require each appropriate Federal financial supervisory agency to use its authority when examining financial institutions, to encourage such institutions to help meet the credit needs of the local communities in which they are chartered consistent with the safe and sound operation of such institutions.”

12 U.S.C. 2901(b).

12 U.S.C. 2903(a)(1).

Commenter feedback on this objective included: support for updating the CRA regulations to achieve this purpose; that CRA modernization should result in a net increase in the quantity and quality of financial products and services available in low- and moderate-income areas; and, that the burden is on the agencies to demonstrate that modernization efforts would meet these baseline goals for reform. Additional commenter feedback included: that the sole criterion for extending CRA consideration to a business activity should be its direct, significant, and exclusive benefit to low- and moderate-income individuals; that by ignoring race during CRA exams, the agencies' proposal falls far short of this objective; and that to achieve the goal of serving communities with the greatest needs, the agencies must maintain a balance between the qualitative and quantitative aspects of the tests and, specifically, to align the twin tracks of CRA compliance and CDFI certification.

The agencies believe that the final rule updates the CRA regulations to strengthen the achievement of the core purpose of the statute. The agencies believe the final rule accomplishes this in various ways, for example, by: establishing a tailored and rigorous approach for the performance tests used to assess a bank's record of meeting the credit needs of its entire community; evaluating the responsiveness of certain bank's credit products and deposit products, including an impact and responsiveness review for community development activities; and including community development definitions that reflect an emphasis on activities that are responsive to community needs, especially the needs of low- and moderate-income individuals and communities. With respect to a commenter's assertion that the agencies should not ignore race during CRA examinations, the agencies note that the final rule retains the conditions that facility-based assessment areas are prohibited from reflecting illegal discrimination and must not arbitrarily exclude low- or moderate-income census tracts. Additionally, banks' performance under the CRA can be adversely affected by evidence of discriminatory or other illegal credit practices, including violations of ECOA and the Fair Housing Act. The agencies also believe the final rule appropriately balances the qualitative and quantitative aspects of the performance tests by

incorporating standardized metrics and benchmarks in several of the performance tests, and retaining the ability for the agencies to consider performance context.

Adapt to changes in the banking industry, including the expanded role of mobile and online banking.

Many commenters expressed general support for this objective with several of these commenters noting that now is the time to update the CRA regulations, given advances in banking technology. A few of these commenters also stated that the CRA has not kept up with the way consumers expect to use technology to access financial products and services and that the current CRA regulations and guidance do not recognize the wide diversity in business practices of banks or the changes in the financial services industry that have occurred since the CRA was enacted in 1977.

While some commenters believed the agencies met this objective, particularly in response to the expanded role of mobile and online banking, other commenters did not believe the proposal sufficiently met the objective, noting: efforts to modernize the CRA regulations should account for current and future ranges of banking and financial service business models; the NPR emphasizes physical bank branches, which the commenter asserted will require the agencies to update the CRA rule once digital banking becomes more common; the proposal may adversely impact how banks are able to respond to innovations in the marketplace, explaining that banks should have the ability to comply with the letter and spirit of the CRA within their chosen business models; the agencies should request additional authority from Congress to maintain the integrity and vibrancy of the CRA; and, CRA modernization must recognize and address the critical importance of digital equity for creating opportunities and upward mobility for low- and moderate-income, minority, and rural communities. Also, a commenter stated that adapting to advances in banking technology should be the one and only objective of CRA reform, and that the other seven objectives can be accomplished within the current regulatory framework and through more effective examinations.

The agencies believe that the final rule takes into account changes in the banking industry. For example, evaluating retail lending outside of facility-based assessment areas accounts for current and future ranges of banking business models. The agencies also believe that the final rule strikes the appropriate balance by maintaining the importance of physical branches, while including consideration of digital and other delivery systems for large banks in recognition of the trend toward greater use of online and mobile banking. The section-by-section analysis provides additional discussion regarding the agencies' decision to maintain the importance of physical branches in this final rule.

See

section IV of this

SUPPLEMENTARY INFORMATION

Provide greater clarity and consistency in the application of the CRA regulations.

Some commenters expressed general support for this objective, with a commenter stating, for example, that the CRA regulations and supervision have become overly complex and unpredictable. Another commenter asserted that the proposal promotes this objective by establishing a framework that would lead to many positive changes but asserted that certain revisions to the proposal are required to effectively meet the objective.

The agencies believe that the final rule meets this objective in several ways, including, for example, by clarifying eligibility requirements for community development activities, providing that the agencies will maintain a publicly available illustrative list of non-exhaustive examples of qualifying activities, and updating certain performance tests to incorporate standardized metrics, benchmarks, and thresholds and performance ranges, as applicable.

Better tailor performance standards to account for differences in bank size, business models, and local conditions, and better tailor data collection and reporting requirements and use existing data whenever possible.

Commenter sentiments on this objective included support for tailoring the performance standards and data requirements of the final rule, as well as concerns that the agencies' proposal failed to meet these objectives. The agencies believe the final rule tailors the performance standards based on bank size, business models, and local conditions in multiple ways. For example, small banks may continue to be evaluated under the Small Bank Lending Test, unless they opt into the Retail Lending Test; and intermediate and large banks, which have more resources than small banks, will be evaluated under the Retail Lending Test. The final rule also tailors data collection and reporting requirements because, as further explained in the section-by-section analysis of § __.42, the new data collection and maintenance requirements in the final rule do not apply to small and intermediate banks, and certain new requirements apply only to large banks with more than $10 billion in assets.

Promote transparency and public engagement.

Commenter feedback on this objective included statements that the CRA regulations must enhance community participation so that CRA activity is tied to community needs, and concerns that the proposal may not expand community participation. The agencies believe the final rule advances this objective. For example, as explained in more detail in the section-by-section analysis of § __.46, the final rule specifically provides a process whereby the public can provide input on community credit needs and opportunities in connection with a bank's next scheduled CRA examination. Further, the strategic plan provision provides an opportunity for the public to provide input on a bank's strategic plan.

See

the section-by-section analysis of § __.27.

Confirm that the CRA and fair lending responsibilities of banks are mutually reinforcing.

The agencies received an array of comments on this objective. Some commenters, for example, asserted that robustly enforcing current and future CRA requirements relating to race and ethnicity, in addition to other relevant Federal, State, and local laws and regulations, is essential to addressing racial and ethnic inequality. Many commenters asserted that greater coordination between CRA examinations and fair lending examinations is needed, including, for example, through development of a CRA examination racial discrimination assessment that would identify disparate trends, such as in marketing, originations, pricing and terms, default rates, and collections. In turn, these commenters indicated that any adverse findings from this assessment should trigger and support fair lending examinations. A few commenters indicated that such CRA discrimination assessments should include an affordability analysis and an analysis of the quality of lending for all major product lines that includes, for example, a review of delinquency and default rates. Other commenters asserted that, in CRA examinations, the agencies should assess whether banks employ discriminatory algorithm-driven models or other assessment criteria that disproportionately screen out low- and moderate-income and minority consumers. Additional commenters indicated that, likewise, when a fair lending examination is pending, appropriate CRA follow-up activity and corrective action must ensue once it has concluded.

Several commenters suggested incorporating additional information related to discrimination into banks' CRA examinations. In this regard, a few commenters noted that public information about fair lending examinations included in CRA performance evaluations has typically been cursory. Several commenters specified that the agencies should use race-based HMDA data and, once available, race-based section 1071 data as a screen in CRA examinations for fair lending reviews. Some commenters suggested that the agencies should consider evidence of discrimination obtained by State and local agencies.

On fair lending examinations specifically, commenter feedback included: that the agencies should bolster fair lending reviews accompanying CRA exams for banks that perform poorly in the HMDA data analysis of lending by race; that fair lending examinations should solicit and rely on feedback from all relevant Federal and State agencies, as well as community group stakeholders; that both section 1071 data and HMDA data by race should be utilized in bank fair lending examinations; that fair lending examinations should include a quantitative analysis of lending to minority individuals and communities and incorporate an analysis of access to services; and that disparate impact related to climate change should be incorporated into the existing fair lending supervisory framework.

The agencies reiterate their view that CRA and fair lending requirements are mutually reinforcing. Both regimes recognize the importance of ensuring that the credit markets are inclusive. Accordingly, and as noted above and discussed further in the section-by-section analysis of § __.16, the final rule retains the provisions that delineations of a bank's facility-based assessment areas are prohibited from reflecting illegal discrimination and must not arbitrarily exclude low- and moderate-income census tracts. As discussed further in the section-by-section analysis of § __.23, the agencies are specifying in the final rule that all special purpose credit programs under ECOA can be a type of responsive credit program. As discussed further in the section-by-section analysis of § __.28, the agencies are also retaining the provision that allows downgrading a bank for discriminatory or other illegal credit practices. For more information and discussion regarding the agencies' consideration of comments recommending adoption of additional race- and ethnicity-related provisions in the final rule, see section III.C of this

SUPPLEMENTARY INFORMATION

. Moreover, although the agencies appreciate suggestions to enhance the rigor of fair lending examinations, such examinations are outside the scope of this rulemaking. The agencies are nevertheless committed to upholding their regulatory responsibilities for both fair lending and CRA examinations, and the agencies will seek to coordinate those examinations where practicable.

Additionally, and in furtherance of the agencies' objective to promote transparency, as discussed in the section-by-section analysis of § __.42(j), the final rule requires the agencies to provide additional information to the public for large banks related to the distribution by borrower income, race, and ethnicity of the bank's home mortgage loan originations and applications in each of the bank's assessment areas. This disclosure would leverage existing data available under HMDA. As discussed in the section-by-section analysis of § __.42(j), providing data about borrower and applicant race and ethnicity in this disclosure would have no independent impact on the conclusions or ratings of the bank and would not on its own reflect any fair lending finding or violation. Instead, this provision of the final rule is intended to enhance the transparency of information available to the public.

Promote a consistent regulatory approach that applies to banks regulated by all three agencies.

Commenter feedback on this objective included support for a coordinated interagency approach to CRA modernization and a unified CRA rule, with a commenter stating that the CRA's purpose is more fully realized when the agencies work in concert. Some commenters expressed support for coordination between Federal and State CRA regulatory requirements and between Federal and State agencies for CRA exams.

The agencies appreciate these comments, believe the final rule meets this objective, and will continue to coordinate their implementation of the final rule as appropriate.

C. General Comments Regarding the Consideration of Race and Ethnicity in the CRA Regulatory Framework

Comments Received

The agencies received many comments regarding consideration of race and ethnicity in the CRA regulatory and supervisory framework from a wide range of commenters. General comments on this topic are summarized below, in this section of the

SUPPLEMENTARY INFORMATION

. Furthermore, the agencies received comments regarding the consideration of race and ethnicity with respect to the agencies' proposed approach to an array of specific topics, such as: bank size categories;

assessment areas;

the Retail Lending Test;

the Retail Services and Products Test, including the consideration of special purpose credit programs;

affordable housing;

economic development;

activities with MDIs and CDFIs;

disaster preparedness and climate resiliency;

impact factors;

data on race and ethnicity in the CRA regulatory framework;

discriminatory or other illegal practices;

bank applications;

public files;

and public engagement.

The agencies have carefully considered this commenter feedback in developing the final rule.

See

the section-by-section analysis of final § __.12 (asset size).

See, e.g.,

the section-by-section analysis of final § __.16 (facility-based assessment areas).

See

the section-by-section analysis of final § __.22 (Retail Lending Test), including the section-by-section analyses of final § __.22(d)(1)(ii)(A)(

), (d)(4), and (e).

See

the section-by-section analysis of final § __.23 (Retail Services and Products Test).

See

the section-by-section analysis of final § __.13(b) (affordable housing).

See

the section-by-section analysis of final § __.13(c) (economic development)

See

the section-by-section analysis of final § __.13(j) (activities with MDIs, WDIs, LICUs, or CDFIs).

See

the section-by-section analysis of final § __.13(i) (disaster preparedness/weather resiliency).

See

the section-by-section analysis of final § __.15 (impact and responsiveness review).

See

the section-by-section analysis of final § __.42(j) (HMDA disclosure).

See

the section-by-section analysis of final § __.28(d) (conclusions and ratings).

See

the section-by-section analysis of final § __.31 (effect of CRA performance on applications).

See

the section-by-section analysis of final § __.43 (public file).

See

the section-by-section analysis of final § __.46 (public engagement).

Comments relating to specific regulatory provisions of the agencies' proposal and the final rule, referenced above, are discussed in detail in the section-by-section analyses of the specific provisions on which commenters shared their views. Those discussions cross-reference this section of the

SUPPLEMENTARY INFORMATION

where appropriate.

General comments.

Many commenters providing input on the consideration of race and ethnicity under the CRA asserted that the agencies' proposal represented a missed opportunity to make racial equity a central focus of the CRA and to maximize what some commenters viewed as the statute's potential impact on advancing minority

access to lending, investment, and services through the mainstream financial system. Most of these commenters stated that the CRA was enacted as a response to the history of redlining, other systemic discrimination, and structural racism, and that the agencies' current and proposed CRA regulations do not adequately address the need to advance racial equality, reduce racial wealth and homeownership gaps, and address intergenerational poverty in minority communities. In this regard, commenter feedback included that there has been little progress in closing the racial wealth gap since the enactment of the CRA, and that the racial wealth gap has actually worsened since that time. Commenter feedback also included that approximately 98 percent of banks pass their CRA examinations and that expanded consideration of race and ethnicity would be appropriate to increase the rigor of CRA examinations. Additional views included that the agencies should use the CRA to broaden access to credit for racial and ethnic minorities in much the same way that the statute has broadened access to credit for low- and moderate-income individuals and communities.

Some of these commenters also urged greater consideration of race in a modernized CRA evaluation framework due to racial inequality related to land use policies, and unjust and inequitable lending practices, all of which, these commenters indicated, have contributed to persistent disparities in home ownership rates, wealth accumulation, and educational and health outcomes for racial and ethnic minorities. In this regard, some commenters drew attention particularly to the lack of affordable housing opportunities for racial and ethnic minorities in metropolitan and rural communities alike. For instance, one commenter asserted that racial and ethnic minorities who are more likely to live in low-cost neighborhoods as part of the legacy of historical residential segregation and decades of discriminatory real estate practices are not adequately served due to unmet demand for low-cost housing, including but not limited to small-dollar home mortgage loans. In addition to the housing concerns, another commenter asserted that low-income minority communities disproportionately do not have access to the banking services and products that they need to build wealth, and further stated that not requiring banks to better address these needs leads to increased potential for predatory lending and reduced wealth in these communities. Some commenters also asserted that robustly enforcing current and future CRA requirements relating to race and ethnicity, in addition to other relevant Federal, State, and local laws and regulations, is essential to addressing racial and ethnic inequality.

A few commenters asserted that explicit consideration of race and ethnicity in the CRA evaluation framework would provide a buffer against displacement of minority consumers, which these commenters indicated leads to the loss of important local resources, such as healthcare and social services. In this regard, commenter feedback included: advocating for a greater focus on loans to minority consumers and not simply loans in minority communities, where the loans might be made largely to white consumers; an assertion that banks' lending practices in connection with minority consumers and minority communities were impacted by the lack of diversity among bank employees, particularly at senior and executive levels; an assertion that all banks should be positioned to work with non-English speaking consumers; and a recommendation that banks be given consideration for offering linguistically and culturally appropriate services and resources to consumers with limited English proficiency so that such consumers may access safe and affordable credit.

Some commenters suggested that the agencies adopt forms of quantitative analyses to consider race and ethnicity as part of CRA evaluations. For example, a commenter recommended that the agencies conduct periodic statistical analyses to identify areas where discrimination or ethnic and racial disparities in credit access exist. This commenter further recommended that in areas where significant disparities exist, the agencies should incorporate performance measures based on race and ethnicity into bank performance evaluations, with separate race- and ethnicity-based performance measures contributing to bank ratings on individual performance tests and overall.

On the subject of terminology, a commenter urged the agencies not to use the term “minority” in the CRA regulations but rather to use the term BIPOC (Black, Indigenous, and People of Color), which the commenter asserted better acknowledges different types of prejudice and discrimination.

The agencies acknowledge the commenter suggestion to use the term “BIPOC” throughout the final rule but are electing to use the term “minority,” which is used expressly in the CRA statute, and to clarify, where practicable, when the agencies intend to refer specifically to racial and ethnic minorities.

See

12 U.S.C. 2907(b)(3).

Comments on legal basis for express consideration of race and ethnicity in the CRA regulatory framework.

Several commenters provided input supporting the permissibility of express consideration of race and ethnicity under the statute. Some of these commenters asserted that the CRA is a civil rights law and that, accordingly, the agencies have authority to expressly consider race and ethnicity in their CRA regulations to address redlining and other racial discrimination in banking. Moreover, several commenters stated that addressing racial inequities is a core “remedial” purpose of the CRA as part of a “suite” of laws enacted to address racial inequities in housing and credit. A few commenters pointed to the CRA's focus on encouraging banks to serve their “entire community”

suggesting that the agencies should therefore focus specifically on the minority constituencies who are part of the entire community in evaluating each bank's CRA performance. Another commenter provided legal analysis arguing that the agencies could incorporate express consideration of race and ethnicity in CRA regulations in various ways that the commenter stated were consistent with requirements applicable to race-based government action under the Equal Protection Clause of the U.S. Constitution. Relatedly, the commenter indicated that, to satisfy constitutional requirements and appropriately target the effects of discrimination, the agencies should conduct and periodically update a study to determine with specificity where, and regarding which financial products, discrimination continues to have an impact. Other commenters asserted that express references to race in the statute, such as the provision allowing investments with MDIs to count for CRA,

indicate that an explicit focus on race is within the purview of the CRA.

See

12 U.S.C. 2903 and 2906.

See, e.g.,

12 U.S.C. 2903(b).

Conversely, a few commenters cautioned against expanding consideration of race and ethnicity in the CRA regulatory framework due to legal concerns. Some of these commenters expressed their perspective that the law is limited in its capacity to address racial equity, even though they view the CRA as a civil rights law and acknowledge that racial equity is central to equal opportunity, social cohesion, and prosperity. Another commenter

suggested that the CRA is a race-neutral law designed to combat race-based discriminatory policies and practices. Additionally, commenter feedback included that, although structural racism is a reality, incorporating racial equity into the CRA evaluation process could lead to both legal and practical issues and undermine the valuable contribution that CRA can make to low- and moderate-income consumers and communities.

Low-and moderate-income status and race.

Many commenters advocating for greater consideration of race and ethnicity under the CRA indicated that, in addition to focusing on low- and moderate-income consumers and communities, the agencies should explicitly focus on minority consumers and communities. For example, a commenter asserted that racial discrimination will persist if income categorizations continue to be used to rate bank performance without considering race. Some commenters also noted that low- and moderate-income communities and minority communities are not the same, so closing racial wealth gaps requires express consideration of race. To illustrate this point, a commenter stated that about two-thirds of low-income communities are predominantly minority, but only about one-third of moderate-income neighborhoods are predominantly minority. Another commenter similarly indicated that nearly two-thirds of low- and moderate-income households are White, while nearly 40 percent of Black households and more than half of Hispanic households are not low- or moderate-income.

Consequently, many commenters urged that racial equity should be incorporated comprehensively into the agencies' CRA regulations, including through both incentives and affirmative obligations for banks to serve racial and ethnic minority consumers, businesses, and communities. Many of these commenters asserted that doing so would have a direct, positive impact on such minorities' economic inclusion, quality of life, and health outcomes. Closing the racial wealth gap, a commenter stated, would also make the U.S. economy substantially stronger. To facilitate the incorporation of racial equity into the CRA regulations, a commenter asserted that the agencies could employ the “other targeted population” framework already provided for in the Riegle Community Development and Regulatory Improvement Act's definition of “targeted populations,” which the commenter explained can include either individuals who are low-income or others who “lack adequate access to Financial Products or Financial Services in the entity's Target Market,” to include certain minority groups.

Final Rule

The agencies have considered and appreciate the many comments asserting that the agencies should incorporate additional regulatory provisions regarding race and ethnicity into the CRA regulatory and supervisory framework. These comments raise important and significant considerations about financial inclusion, discrimination, and broader economic issues. The agencies have carefully considered these comments, including those summarized in this section and in the section-by-section analysis of the final rule (

see

section IV of this

SUPPLEMENTARY INFORMATION

), as well as the statutory purposes and text of the CRA. The agencies have also assessed other relevant legal and supervisory considerations, including, in particular, the constitutional considerations and implementation challenges associated with adopting regulatory provisions that expressly address race and ethnicity when implementing statutory text that does not expressly address race or ethnicity. Based upon these considerations, the agencies have determined not to include additional race- and ethnicity-related provisions other than what is adopted in this final rule and discussed in more detail throughout this Introduction and section IV of the

SUPPLEMENTARY INFORMATION

The agencies believe that the final rule strengthens the CRA's emphasis on encouraging banks to engage in activities that better achieve the core purpose of the CRA, and thereby meet the credit needs of their entire communities, including low- and moderate-income individuals and communities. Relatedly, the agencies continue to recognize that the CRA and fair lending requirements are mutually reinforcing, including by specifying in the final rule that special purpose credit programs under ECOA can be a type of responsive credit program, and by reaffirming that violations of the Fair Housing Act and ECOA can be the basis of a CRA rating downgrade. As noted, for example, in section III.B of this

SUPPLEMENTARY INFORMATION

, the final rule also retains the current rule's prohibition against banks delineating facility-based assessment areas in a manner that reflects illegal discrimination or arbitrarily excludes low- and moderate-income census tracts, and provides that the CRA performance of banks that engage in discriminatory or other illegal credit practices can be adversely affected by such practices. For more information and discussion regarding how the final rule strengthens the achievement of the core purpose of the statute, and confirms that CRA and fair lending responsibilities are mutually reinforcing (

see

sections III.B and IV of this

SUPPLEMENTARY INFORMATION

IV. Section-by-Section Analysis

Section __.11 Authority, Purposes, and Scope

Current Approach and the Agencies' Proposal

Current § __.11 sets forth the authority, purposes, and scope of the CRA regulations. Paragraphs (a) and (c) of the section are agency-specific regulatory text, with paragraph (a) outlining the legal authority for each agency to implement the CRA and paragraph (c) providing the scope of each agency's CRA regulations. Common rule text in § __.11(b) provides that this part implements the CRA by establishing the framework and criteria by which the agencies assess a bank's record of helping to meet the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of the bank; and providing that the agencies take that record into account in considering certain applications.

Consistent with the current rule, proposed § __.11 sets forth the authority, purposes, and scope of the CRA regulations, with the authority and scope paragraphs (proposed § __.11(a) and (c)) including agency-specific regulatory text. Proposed § __.11(b) included technical, non-substantive edits to the current regulatory text, such as adding CRA's legal citation.

The OCC proposed to amend its authority section, § 25.11(a) by referencing part 25 in its entirety instead of each subpart, and by removing paragraph (a)(2), Office of Management and Budget (OMB) control number, as such information is unnecessary for regulatory text. The OCC also proposed technical edits to its scope section, § 25.11(c), to reflect the organization of the proposed common rule text.

The Board did not propose any amendments to its authority section, § 228.11(a), and proposed to amend its scope section, proposed § 228.11(c), to replace references to “special purpose banks” with “exempt banks” to avoid any potential confusion with the OCC's special purpose bank charter.

The FDIC proposed to amend its authority section, § 345.11(a), by removing paragraph (a)(2), OMB control number, as such information is unnecessary for regulatory text. The FDIC did not propose any amendments to its scope section in § 345.11(c).

Comments Received and Final Rule

The agencies did not receive comments specific to the language in proposed § __.11(b) or the agency-specific language in proposed § __.11(a) and (c). Therefore, the agencies are adopting § __.11(b) as proposed, and the Board is adopting its agency-only provisions, paragraphs (a) and (c), as proposed.

The OCC adopts paragraph (a) as proposed, and paragraph (c) as proposed with technical edits. Specifically, the OCC has moved the definition of “appropriate Federal banking agency” in proposed § 25.11(c)(1)(iii) to final § 25.12 (Definitions), where it more appropriately belongs. As in the current rule and as proposed, “appropriate Federal banking agency” in the final rule means, with respect to subparts A (except in the definition of minority depository institution in § 25.12) through E and appendices A through G, the OCC with respect to a national bank or Federal savings association and the FDIC with respect to a State savings association.

In addition, the OCC has added Federal branches of foreign banks to paragraph (c)(1)(i), which lists the types of entities for which the OCC has authority to prescribe CRA regulations, to more accurately describe this authority. The OCC has also made minor technical edits to the listing of part 25 subparts in final paragraph (c).

Final subpart F of part 25, Prohibition Against Use of Interstate Branches Primarily for Deposit Production, applies only to certain national banks and Federal branches of a foreign bank and includes “OCC” instead of “appropriate Federal banking agency.”

The FDIC is adopting paragraph (a) as proposed and paragraph (c) with technical edits. In the proposed rule, the FDIC's paragraph (c)(2) maintained references to current § 345.41. The FDIC is adopting paragraph (c)(2) to reflect the final rule's new assessment area provisions. Thus, final paragraph (c)(2) provides that, for insured State branches of a foreign bank established and operating under the laws of any State, their facility-based assessment area and, as applicable, retail lending assessment areas and outside retail lending assessment area, are the community or communities located within the United States, served by the branch as described in § 345.16 and, applicable, §§ 345.17 and 345.18.

Section __.12 Definitions

In proposed § __.12 (Definitions), the agencies proposed many terms defined in the current CRA regulations, some with substantive or technical revisions. The agencies also proposed new definitions that the agencies considered necessary to clarify and implement proposed revisions to the CRA evaluation framework, some of which reflect understandings of terms long used in the CRA evaluation framework or that are consistent with the Interagency Questions and Answers.

The agencies received numerous comments on some of these definitions. These comments and the definitions as included in the final rule are discussed below.

Affiliate

Under the current CRA regulations, the term “affiliate” means any company that controls, is controlled by, or is under common control with another company. The term “control” has the same meaning given to that term in section 2 of the Bank Holding Company Act, 12 U.S.C. 1841(a)(2), and a company is under common control with another company if both companies are directly or indirectly controlled by the same company.

The agencies proposed to retain their current definitions of “affiliate,” with the Board including one technical change to the definition in its regulation to add a reference to its bank holding company regulations, Regulation Y, 12 CFR part 225. Specifically, the Board proposed to define

affiliate

as any company that controls, is controlled by, or is under common control with another company. The term “control” has the meaning given to that term in 12 U.S.C. 1841(a)(2), as implemented by the Board in 12 CFR part 225, and a company is under common control with another company if both companies are directly or indirectly controlled by the same company. The FDIC and the OCC did not propose any revisions to the definition of “affiliate” in the agencies' respective CRA regulations.

See

current 12 CFR __.12(a).

See

current 12 CFR 25.12(a) (OCC) and 345.12(a) (FDIC).

The agencies did not receive any comments on the proposed definitions of “affiliate” and adopt the definitions as proposed in the final rule. Accordingly, the Board is adopting the proposed definition of “affiliate” in the final rule, which will be contained solely in its CRA regulations. The FDIC and the OCC are retaining the current definition of “affiliate” in their respective CRA regulations, which define

affiliate

as any company that controls, is controlled by, or is under common control with another company. The term “control” has the same meaning given to that term in 12 U.S.C. 1841(a)(2), and a company is under common control with another company if both companies are directly or indirectly controlled by the same company.

See id.

Affordable Housing

The agencies proposed to add a definition of “affordable housing” to mean activities described in proposed § __.13(b).

See

the section-by-section analysis of § __.13(b) for a detailed discussion of affordable housing. The agencies did not receive any comments on the proposed “affordable housing” definition and adopt it as proposed in the final rule.

Area Median Income

The agencies proposed to retain the current definition of “area median income,”

with one conforming change to replace the term “geography” with “census tract,” but keep the same meaning (see the discussion of “census tract” in § __.12 of this section-by-section analysis).

Under the proposal, “area median income” would mean: (1) the median family income for the metropolitan statistical area (MSA), if a person or census tract is located in an MSA, or for the metropolitan division, if a person or census tract is located in an MSA that has been subdivided into metropolitan divisions; or (2) the statewide nonmetropolitan median family income, if a person or census tract is located outside an MSA.

See

current 12 CFR __.12(b).

See

current 12 CFR __.12(k) (defining “geography” to mean “a census tract delineated by the United States Bureau of the Census in the most recent decennial census”).

The agencies did not receive any comments on the proposed “area median income” definition. However, the agencies are adopting the definition in the final rule as proposed with conforming and clarifying edits. First, in paragraph (1), the agencies have made a minor conforming change by replacing “metropolitan statistical area (MSA)” with “MSA.” Second, in paragraphs (1) and (2), the agencies have replaced the phrase “if a person” with “if an individual, family, household.” Third, in paragraph (1), the agencies have added the phrase “that has not been subdivided into metropolitan divisions” after “located in an MSA” to differentiate the first and second prongs of this paragraph. Fourth, in paragraph (2), as a conforming change, the

agencies have replaced the phrase “outside an MSA” with “in a nonmetropolitan area.” Final § __.12 defines “nonmetropolitan area” to mean any area that is not located in an MSA.

Accordingly, the final rule defines “area median income” to mean: (1) the median family income for the MSA, if an individual, family, household, or census tract is located in an MSA that has not been subdivided into metropolitan divisions, or for the metropolitan division, if an individual, family, household, or census tract is located in an MSA that has been subdivided into metropolitan divisions; or (2) the statewide nonmetropolitan median family income, if an individual, family, household, or census tract is located in a nonmetropolitan area.

Assets

The final rule includes a new definition for “assets,” not included in the proposal. This term means total assets as reported in Schedule RC of the Consolidated Reports of Condition and Income as filed under 12 U.S.C. 161, 324, 1464, or 1817, as applicable (Call Report), or as reported in Schedule RAL of the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Banks (Report of Assets and Liabilities), as filed under 12 U.S.C. 1817(a), 3102(b), or 3105(c)(2), as applicable. Although the agencies did not propose this definition, they have added it to the final rule to clarify the intended meaning of this term in the CRA regulations.

Assessment Area

The current CRA regulations define “assessment area” to mean a geographic area delineated in accordance with 12 CFR __.41.

Current § __.41 sets out the criteria for banks to delineate assessment areas. The agencies proposed to replace “assessment area” with three new terms in proposed § __.12: “facility-based assessment area,” “retail lending assessment area,” and “outside retail lending area,” as these new terms are used in the proposal. These new definitions are discussed below. The agencies did not receive any comments concerning the removal of the “assessment area” definition and have removed this term in the final rule.

See

current 12 CFR __.12(c).

Bank

Under the current CRA regulations, the Board and FDIC have separate definitions for the term “bank.” Each agency defines “bank” to refer to the entities regulated by the agency for which the agency evaluates CRA performance. The FDIC and Board did not propose changes to the current definitions of “bank” in their respective CRA regulations and received no comments on their proposed definitions of “bank.” Accordingly, the final rule retains the current definitions of “bank” in the FDIC's and the Board's regulations.

The agencies' definitions of “bank” are included in the agency-specific amendatory text, outside of the common rule text.

As such, for the FDIC, the term “bank” means a State nonmember bank, as that term is defined in section 3(e)(2) of the Federal Deposit Insurance Act (FDIA) (12 U.S.C. 1813(e)(2)), with federally insured deposits, except as defined in final § 345.11(c). The term “bank” also includes an insured State branch as defined in final § 345.11(c).

For the Board, the term “bank” means a State member bank as that term is defined in section 3(d)(2) of the FDIA (12 U.S.C. 1813(d)(2)), except as provided in final § 228.11(c)(3) and includes an uninsured State branch (other than a limited branch) of a foreign bank described in final § 228.11(c)(2). Accordingly, consistent with the Board's current CRA regulations, the term “bank” in final § 228.12 includes an uninsured State branch (other than a limited branch) of a foreign bank that results from an acquisition described in section 5(a)(8) of the International Banking Act of 1978 (12 U.S.C. 3103(a)(8)). Also, generally consistent with the current CRA regulations, “bank” in final § 228.12 does not include banks that do not perform commercial or retail banking services by granting credit to the public in the ordinary course of business, other than as incident to their specialized operations and done on an accommodation basis.

This exception for banks that do not perform commercial or retail banking services aligns with the current CRA regulations, including that performing commercial and retail banking services solely “on an accommodation basis” will not qualify an entity as a “bank.”

See

final § 228.12 (defining “bank” to exclude institutions described in final § 228.11(c)(3)). These institutions include bankers' banks, as defined in 12 U.S.C. 24(Seventh), and banks that engage only in one or more of the following activities: providing cash management-controlled disbursement services or serving as correspondent banks, trust companies, or clearing agents.

The OCC's current CRA regulation provides that “bank or savings association” means, except as provided in § 25.11(c), a national bank (including a Federal branch as defined in part 28) with federally insured deposits or a savings association. Further, the OCC regulation provides that “bank and savings association” means, except as provided in § 25.11(c), a national bank (including a Federal branch as defined in part 28) with federally insured deposits and a savings association.

See

current 12 CFR 25.12(e). Pursuant to title III of the Dodd-Frank Act, and as described in footnote 2 of this

SUPPLEMENTARY INFORMATION

, the OCC's CRA regulation applies to both State and Federal savings associations, in addition to national banks. The FDIC enforces the OCC's CRA regulations with respect to State savings associations.

For clarity and conciseness, the OCC proposed separate definitions of “bank” and “savings association,” without changing the substance of the current definitions. The OCC received no comments on this technical change and adopts the definitions as proposed in the final rule. As a result, in the final rule, “bank” means a national bank (including a Federal branch as defined in part 28) with federally insured deposits, except as provided in § 25.11(c); and “savings association” means a Federal savings association or a State savings association.

Bank Asset-Size Definitions

Current Approach

Under the current CRA regulations, the agencies define “small bank” to mean “a bank that, as of December 31 of either of the prior two calendar years, had assets of less than $1.503 billion.”

The agencies defined “intermediate small bank” to mean “a small bank with assets of at least $376 million as of December 31 of both of the prior two calendar years and less than $1.503 billion as of December 31 of either of the prior two calendar years.”

The agencies adjust these terms annually for inflation based on the year-to-year change in the average of the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million.

The current CRA regulations do not define the term “large bank,” but any bank with assets exceeding those defining an “intermediate small bank” is understood to be a large bank (otherwise referred to as a “large institution”).

The current asset-size threshold for a “small bank” reflects the annual dollar adjustment to the figures contained in current 12 CFR __.12(u)(1).

See

current 12 CFR __.12(u)(2).

See

current 12 CFR __.12(u)(1).

See

current 12 CFR __.12(u)(2).

The Agencies' Proposal

The agencies proposed raising the asset-size threshold for the “small bank” definition to provide more clarity, consistency, and transparency in the

evaluation process, and in recognition of the potential challenges associated with regulatory changes and data collection requirements for banks with more limited capacity. Under the proposal, a small bank would be a bank that had average assets of less than $600 million in either of the prior two calendar years, based on the assets reported on its four quarterly Call Reports for each of those calendar years. The agencies also proposed to add a new definition for “intermediate bank” that would replace the current “intermediate small bank” definition. Under the proposal, intermediate bank would mean a bank that had average assets of at least $600 million in both of the prior two calendar years and less than $2 billion in either of the prior two calendar years, based on the assets reported on its four quarterly Call Reports for each of those calendar years. The agencies intended the proposed “intermediate bank” definition to comprise a category of banks that have meaningful capacity to engage in CRA-related activities under the proposed Retail Lending Test and conduct community development activities, but that might have more limited capacity regarding data collection and reporting requirements than large banks.

Finally, the agencies proposed to add a new “large bank” definition that would mean a bank that had average assets of at least $2 billion in both of the prior two calendar years, based on the assets reported on its four quarterly Call Reports for each of those calendar years. This proposed definition reflects the agencies' view that banks of this size generally have the capacity to conduct the range of activities that would be evaluated under each of the four performance tests proposed to apply to large banks.

The agencies proposed to make annual adjustments to the asset-size thresholds for all three categories of banks based on the same CPI-W inflation measure used in the current CRA regulations for small and intermediate banks.

See

current 12 CFR __.12(u)(2).

As under the current CRA regulations, asset-size classification is relevant because it determines a bank's CRA evaluation framework. Consistent with the proposal, under the final rule, large banks are evaluated under the Retail Lending Test in final § __.22, the Retail Services and Products Test in final § __.23, the Community Development Financing Test in final § __.24, and the Community Development Services Test in final § __.25. Intermediate banks are evaluated under the Retail Lending Test in § __.22, and either the current Intermediate Bank Community Development Test, in final § __.30(a)(2),

100

or, at the bank's option, the Community Development Financing Test in final § __.24.

101

Small banks are evaluated under the small bank lending test, in final § __.29(a)(2),

102

or, at the bank's option, the Retail Lending Test in final § __.22.

100

In the proposal, the Intermediate Bank Community Development Test, referred to as the “intermediate bank community development evaluation,” is in proposed § __.29(b).

101

See

final § __.30(a)(1).

102

In the proposal, the Small Bank Lending Test, referred to as the “status quo small bank lending test,” is in proposed § __.29(a).

Comments Received

The agencies received numerous comments on the proposed “small bank,” “intermediate bank,” and “large bank” definitions. Given that the current and proposed definitions are interconnected, the agencies believe it is appropriate to discuss the comments collectively.

Many commenters expressed general support for the proposal to increase the asset-size thresholds for small, intermediate, and large banks. Many of these commenters indicated that the proposed thresholds are reasonable and would represent appropriate burden relief for banks that would qualify as small or intermediate banks under the proposed definitions. Several commenters stated that the proposed asset-size thresholds are appropriate to ensure that smaller banks with more limited staff and other resources are not subjected to the same performance expectations or data collection and reporting requirements as larger banks. Several other commenters supported the proposed asset-size thresholds based not only on other regulatory burden they anticipate under the proposal but also on the principle that community banks already experience significant regulatory burden unrelated to the CRA. Another commenter approved of the increased asset-size thresholds on the basis that they would permit smaller banks to expand to meet the needs of their communities without necessarily subjecting themselves to new CRA requirements that the commenter stated were likely to have onerous costs.

Many commenters specifically expressed support for increasing the asset-size threshold for a small bank to $600 million. These commenters noted that the asset-size threshold would apply to approximately the same percentage of banks as were classified as small banks when the agencies' amended their CRA regulations in 2005. Several other commenters explained that the asset-size threshold increases would be a timely and welcome adjustment because of changes in the banking industry and the unprecedented growth of bank balance sheets and excess liquidity that has resulted from Federal Government stimulus in response to the COVID-19 pandemic. Another commenter indicated that raising the asset-size threshold as proposed was a timely action on the part of the agencies due to recent trends in inflation that are beyond banks' control. One commenter stated that the current asset-size thresholds are too low and reflected prior conditions.

Many other commenters expressed opposition to the proposed asset-size threshold increases and advocated for the agencies to maintain the current thresholds. Some of these commenters stated that the proposed changes were inappropriate because reclassified banks would be subject to less rigorous performance standards and diminished agency oversight, which would minimize transparency and accountability and reduce those banks' CRA obligations and reinvestment. Other commenters noted that raising the asset-size thresholds would result in missed opportunities for reclassified banks to expand and improve their CRA activity under more rigorous performance standards. These commenters also asserted that the proposed changes to the asset-size thresholds are not justified because banks already perform successfully under the current, lower thresholds for small, intermediate small, and large banks.

Many commenters focused on the number of banks that would be reclassified into a smaller asset-size category and the adverse effect this reclassification could have on community development financing, with a few commenters stating that increasing the small bank asset-size threshold would reduce the amount of community development activity, especially in smaller and more rural communities. Some commenters highlighted the agencies' statement in the proposal that approximately 778 current intermediate small banks would be reclassified as small banks and 216 current large banks would be reclassified as intermediate banks.

103

These commenters expressed their belief that the reclassified banks would no longer be held accountable (or would

be held accountable to a lesser degree) for community development financing activity. Many of these commenters suggested that this loss of accountability would cause significant reductions in community development financing, with some commenters citing estimated annual losses of $1 billion to $1.2 billion. These commenters argued that, if these forecasted losses in community development financing are remotely accurate, the change in asset-size thresholds would amount to a significant failure on the part of the agencies. Many commenters indicated that although the impact of reduced community development financing would be experienced in low- and moderate-income communities nationwide, the losses are likely to be most acute in less populated communities, such as rural, micropolitan, and small-town areas, where a substantial number of the reclassified banks are located. A few commenters specified that any loss of community development financing could adversely affect the availability of affordable housing and bank responsiveness to other important community needs.

103

See

87 FR 33884, 33924 (June 3, 2022).

Several commenters explained that reductions in community development financing as a result of asset-size threshold changes could adversely affect CDFIs by diminishing bank-CDFI relationships, and the flow of capital from banks to CDFIs—especially CDFIs located in smaller or rural communities. Noting that the agencies stated in the proposal that raising the asset-size thresholds would impact only two percent of bank assets in the banking system, some commenters indicated that a reclassified bank may be the only lender or one of a small number of banks with any presence in a geographic area.

Some commenters stated that reclassifying some current large banks as intermediate banks could negatively impact the availability of banking services in low- and moderate-income and rural communities because the proposed Retail Services and Products Test and Community Development Services Test would only apply to large banks. Several other commenters stated that reclassifying a large bank as an intermediate bank would effectively eliminate agency evaluation of applicable service considerations such as the operation of bank branches in their communities.

A few commenters expressed concerns about the impact of the agencies' proposal to revise asset-size thresholds on racial or ethnic minority communities. A commenter stated that a number of Black communities would be significantly adversely impacted by the reclassification of certain large banks as intermediate banks and certain intermediate small banks as small banks. The commenter asserted that these changes would reduce these banks' incentives to engage with Black communities, given the specific performance tests that would be applicable to small banks and intermediate banks under the agencies' proposal. Another commenter raised concerns that small banks and intermediate banks would not be subject to a retail services test. In the commenter's view, an evaluation of retail services is critical to ensure that bank branches are located in both low- and moderate-income communities and minority communities.

A few commenters stated that raising the large bank asset-size threshold could result in diminished bank investment in New Markets Tax Credits (NMTC) and other community tax credit investments given that, under the proposal, intermediate and small banks would not have corresponding community development requirements. These commenters also indicated that relieving banks of these requirements could negatively impact overall demand for community tax credit investments, for which the majority of investors are CRA-motivated banks.

Many of the commenters opposing the proposed asset-size threshold increases asserted that regulatory relief for banks was not a sufficient justification for changes that would adversely impact local communities. Several commenters argued that the potential burden on banks from being classified as a larger institution would not outweigh the need for accountability and equity. Another commenter indicated that the agencies did not produce estimates or data indicating that the proposed regulatory approach would be so prohibitively burdensome that significant increases in asset-size thresholds were necessary.

Several other commenters stated that the agencies' proposal should, at a minimum, provide for the same range of community development financing activity for all current intermediate small banks and large banks as under the current CRA regulations. A commenter asserted that the proposal goes backwards with no justification for how the reduction in compliance burden for banks reclassified as smaller banks would offset the loss of reinvestment activity from a public benefits perspective. Some commenters added that the impacted banks are engaging in community development under the current asset-size thresholds without any apparent deleterious impacts. Other commenters asserted that maintaining the current asset-size thresholds would be more consistent with the agencies' goal of strengthening the CRA framework.

A few commenters suggested that the current asset-size thresholds could remain in place and continue to be adjusted for inflation. A commenter indicated that, based on the application of inflation adjustments to the current asset-size thresholds, the proposed small bank asset-size threshold was too large in comparison. The commenter explained that if the agencies' proposed asset-size thresholds for small, intermediate, and large banks were adjusted for inflation, the asset-size thresholds would be approximately $375 million for small banks and approximately $1.5 billion for large banks.

A commenter opposed the proposed asset-size threshold changes on the grounds that the thresholds for intermediate and large banks are arbitrary and not based on any relevant data or analysis. The commenter also asserted that the proposed intermediate bank threshold is similarly unsupported and would subject reclassified intermediate banks to considerably increased compliance costs without commensurate benefit. Another commenter stated that the agencies did not provide documentation supporting the increase in the proposed asset-size thresholds.

Alternate asset-size thresholds.

Many commenters recommended that the agencies adopt asset-size thresholds for small, intermediate, and large banks that are higher than those proposed. These commenters suggested asset-size thresholds of $750 million to $5 billion for intermediate banks and from $2.5 billion to $20 billion for large banks. Commenters asserted that higher asset-size thresholds are necessary to provide regulatory relief and limit the significant compliance burdens that the agencies' proposal would otherwise impose on smaller banks. A commenter stated that increasing the small bank asset-size threshold to $750 million would avoid placing unnecessary regulatory burden on smaller mission-driven institutions. Another commenter stated that regulatory burden considerations justified a variety of small bank asset-size thresholds of up to $3 billion. Another commenter stated that it lacked the financial and human resources to monitor performance under the proposed Retail Lending Test and requested a significantly higher asset-size threshold for large banks. Other commenters suggested asset-size

thresholds for large banks ranging from $3.3 billion to $20 billion, based on compliance burden as well as inflation adjustments.

A few commenters specifically drew attention to smaller banks' resource capacities in advocating for higher asset-size thresholds. A commenter suggested an asset-size threshold of $750 million for small banks and an asset-size threshold of $3 billion for large banks based on resource capacity. Another commenter expressed support for a large bank asset-size threshold of $3 billion. Several other commenters recommended an asset-size threshold of $1 billion for small banks and an asset-size threshold of $5 billion for large banks to better reflect resource capacity and the ability to comply with the proposed performance test requirements. A commenter suggested that a $1 billion asset-size threshold for small banks would prove beneficial to many community banks located in rural areas with few low- and moderate-income census tracts. A few commenters suggested that asset-size thresholds of $1 billion and $10 billion for small and large banks, respectively, would better reflect bank capacity and compliance resource availability. Another commenter stated that an asset-size threshold cap on intermediate banks of $3 billion would be a better representation of the median large bank in its State and region. One commenter argued that setting the asset-size thresholds for small banks and intermediate banks at $1 billion and $3 billion, respectively, would provide significant regulatory relief for smaller banks and free up resources for the agencies to focus on the largest banks and banks with poor CRA performance. Similarly, another commenter stated that any bank with assets between $1 billion and $15 billion should be classified as an intermediate bank to reduce regulatory burden.

A commenter cited rapid growth in bank balance sheets due to bank consolidation and monetary and fiscal policy as reasons to further raise the small and intermediate bank asset-size thresholds, to a small bank threshold of $750 million and a large bank threshold of $2.5 billion. Another commenter cited similar reasons in support of a $1 billion asset-size threshold for small banks. Another commenter suggested a small bank asset-size threshold ranging anywhere between $2 billion and $5 billion and a large bank asset-size threshold of $10 billion due to the growth in bank balance sheets.

Further, some commenters stated that the asset-size thresholds should better reflect the distribution of small, intermediate, and large banks when these categories were originally established. Many commenters stated that, to maintain a similar percentage distribution of banks in the intermediate bank category to the distribution of

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