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Speeches, Statements & Testimonies

Statement by Martin J. Gruenberg, Chairman, FDIC, Final Rule on Community Reinvestment Act Regulations

October 24, 2023

The Board of Directors of the FDIC, jointly with the Board of Governors of the Federal Reserve and the Comptroller of the Currency, is today considering a final rule to strengthen and modernize the Community Reinvestment Act (CRA).1

To say this has been a long time coming is a bit of an understatement. Earlier this month – October 12 – marked the 46th anniversary of the enactment of CRA in 1977. It has been over 25 years since the last major revision of the CRA rule in 1995. This current effort to revise CRA began with an Advance Notice of Proposed Rulemaking by the Federal Reserve in January 2020.2 The three banking agencies issued a joint Notice of Proposed Rulemaking (NPR) on May 5, 2022.3

The agencies received close to one–thousand unique comments on the NPR from a broad range of stakeholders. These include banks and banking trade groups, community groups, civil rights groups, state and local officials, non–profit and for–profit developers, and environmental groups, among others. Many of these comments were thorough, thoughtful, and comprehensive. The agencies reviewed these comments and gave them careful consideration in the development of this final rule.

I believe it has been worth the wait. This final rule represents an ambitious effort to adapt CRA to the dramatically changed nature of the banking business since the law’s enactment in 1977 and the last major rule change in 1995. It is both evolutionary and transformative.

To begin with, banks today no longer serve their customers exclusively through a branch–based network around which CRA assessment areas are currently drawn. While bank branches continue to play a critical role in serving communities, some banks have only one branch or no branch at all. Yet, they engage in large scale lending across the country. Banks increasingly interact with customers either online or through mobile phones in areas in which the bank may not have a physical presence. Lending by banks in such areas is not currently subject to a CRA evaluation.

This final rule adapts to this new banking reality by requiring large banks to establish Retail Lending Assessment Areas (RLAAs) in those geographies outside of their physical footprint where they originate significant numbers of closed–end mortgage loans or small business loans.

Under the final rule, the loans in these new assessment areas will be subject to CRA review and evaluation for the first time, ensuring that large banks serve all segments of the communities in which they are chartered to do business, including low– and moderate–income communities, as the law requires. This represents a critically important adaptation of CRA to the changing nature of the business of banking.

Consistent with this objective, the final rule will give banks credit for community development activities on a nationwide basis, not just in their traditional, branch–based assessment areas. This will recognize banks for their community development financing activities in rural and other underserved areas, including Native Land areas, many of which are so–called “banking deserts.” This final rule will give them, for the first time, consideration for channeling capital into areas that may be particularly desperate for banking services.

Second, the final rule establishes a series of metrics and benchmarks against which banks will be measured for CRA performance for lending and community development. This will add important rigor to the CRA evaluation process.

It will allow the banking agencies to establish specific standards for bank performance to achieve a particular CRA rating that will provide an incentive for increased lending to underserved communities. It will also provide greater clarity, transparency, and predictability for the banks and the public, as well as consistency among the agencies.

Third, the final rule tailors CRA evaluations and data collection to bank size, complexity, and business type.

All banks are not the same, and all communities are not the same. The final rule tailors the CRA tests and data collection to each bank size category – small, intermediate, and large. For instance, small banks would continue to be evaluated under the existing regulatory framework but would have the option to be evaluated under aspects of the new regulation.

There would be no new data collection or reporting requirements for small or intermediate banks. Overall, the agencies sought to leverage existing data as much as possible. However, large banks with assets over $2 billion will have to collect and report community development data, and large banks over $10 billion in assets will have additional data requirements relating to deposits and retail banking products.

Fourth, the final rule recognizes the importance of minority depository institutions (MDIs), Treasury Department–certified Community Development Financial Institutions (CDFIs), Women’s Depository Institutions (WDIs), and Low Income Credit Unions (LICUs) in providing financial access to underserved consumers and communities.

For example, the final rule creates a specific community development definition for eligible activities, such as investments, loan participations, and other ventures conducted by all banks with these institutions, including by other MDIs, WDIs, or CDFI banks. All community development activities conducted by banks with these entities will get credit under the final rule.

Fifth, in furtherance of the agencies’ objective to promote transparency, the final rule will require the disclosure of the distribution of home mortgage loan originations and applications of large banks in each of the bank’s assessment areas by income, race and ethnicity utilizing publicly available data under the Home Mortgage Disclosure Act (HMDA). This aspect of the final rule is intended to provide transparent information to the public in regard to the bank’s lending to communities of color. Although the data disclosed would not have an impact on the CRA ratings of the bank, it would allow the public to compare lending by a bank in those communities to other communities, as well as allow comparisons to other banks.

One further point –– the current CRA rule prohibits banks from drawing assessment areas that reflect illegal discrimination or arbitrarily excluding low– and moderate–income census tracts. That provision is retained in the final rule. In addition, and related to the issue of redlining, large banks will be required to include whole counties in establishing their assessment areas. This will ensure that low–income or minority areas will not be carved out of assessment areas.

Sixth, while we know that technology has led to significant changes in the provision of bank services, bank branches continue to play a crucial role for consumers and communities. For example, just over three–quarters of closed–end mortgages originated by large banks in recent years were located in branch–based assessment areas. These branch–based assessment areas remain a foundation of CRA. Under the final rule, each banking agency will be required to evaluate a bank’s record of opening and closing branches to inform the degree of accessibility of banking services to low and moderate income communities.

Further, access involves more than the availability of a branch. A consumer must also have access to products and services that are affordable and responsive to their needs. Expanding consumer access to federally insured banks has been a priority of the FDIC. The final rule will provide positive CRA consideration to large banks for the offering and demonstrated consumer usage of low–cost transaction accounts – accounts with low or no minimum balance requirements and no overdraft fees –– such as Bank On Certified accounts.

Finally, the rule gives credit to community development activities designed to strengthen disaster preparedness and weather resiliency in low– and moderate– income communities. Examples of eligible activities could include supporting the establishment of flood control systems in a flood prone area; retrofitting affordable housing to withstand future disasters or climate–related events; promoting green space in low– and moderate–income census tracts in order to mitigate the effects of extreme heat; financing community centers that serve as cooling or warming centers in areas that are more vulnerable to extreme temperatures; infrastructure to protect against the impact of rising sea levels; and assistance to small farms to adapt to drought challenges.

There is much more in this rule, but these are some of the highlights.

In conclusion, CRA was a response to the redlining practices of government housing programs and private sector lending institutions that denied credit to neighborhoods with poorer households and large minority populations. It seeks to address one of the most intractable challenges of our financial markets – access to credit, investment, and basic banking services for low– and moderate–income communities, both urban and rural.

CRA’s simple premise – that banks have an affirmative obligation to serve the local communities in which they do business – is as powerful and relevant today as it was in 1977.

Since its enactment, CRA has become the foundation of responsible financing for low– and moderate–income communities in the United States.

This final rule will significantly expand the scope and rigor of CRA and will assure its continued relevance for the next generation.

For these reasons, I strongly support this final rule.

Finally, I would like to thank the staff of the FDIC for their tireless commitment to completing this rulemaking, and for their passion and dedication to strengthening and modernizing CRA to benefit underserved communities across our country. I would also like to thank the staff of the Federal Reserve and the OCC for their equally dedicated work.

Last Updated: October 24, 2023