This Atlanta Fed webinar provided an overview of the Federal Reserve's Advance Notice of Proposed Rulemaking (ANPR) on Community Reinvestment Act (CRA) regulations. Officials from the Atlanta Fed's Supervision, Regulation, and Credit and community and economic development teams discussed highlights of the ANPR, explained how to submit public comments before the February 16 deadline, and answered questions from listeners.

Presentation Adobe PDF file format  |  Podcast Explores Modernizing the Community Reinvestment Act (CRA) podcast


Karen Leone de Nie: Well, good morning, everyone. Welcome to today's webinar and thank you for joining us. My name is Karen Leone de Nie, and I'm the vice president of community and economic development at the Atlanta Fed. It's an honor to be with you today, here with you today. We're here to explain the Board of Governors of the Federal Reserve System's Advanced Notice of Proposed Rulemaking for the Community Reinvestment Act, or CRA.

The Community Reinvestment Act was first enacted by Congress in 1977 to help overcome systemic barriers to credit and financial services by encouraging banks to provide investment credit and services that low- and moderate-income communities need and deserve. It remains critically important, but much has changed, and attention is needed to figure out how we modernize the regulations that implement the CRA. That's why we're here to talk about the Federal Reserve's Advanced Notice of Proposed Rulemaking or ANPR, which incorporates ideas from previous public comments, research, discussions with other banking agencies, and 29 CRA ramp roundtables that were held in recent years around the country, including in the Sixth District [which is the Atlanta Fed's coverage area].

Today, you'll hear from colleagues from the Atlanta Fed: Jessica Farr, who's a subject matter expert for Supervision, Regulation and Credit, as well as David Jackson, who's a senior adviser for community and economic development. The purpose of today's discussion is to explain what is included in the ANPR, how to provide comment, and to answer questions. In addition to Federal Reserve staff, we are joined by representatives of other banking agencies who are here to listen and learn from your questions. We received many questions from audience members in advance, so thank you, and we will try our best to address as many as possible today. We also welcome that you ask questions about the ANPR or how to comment using the Q&A feature on Zoom. As I said, we'll do our best to get to as many as possible. We have many people who have joined us today, and I anticipate a lot of questions. We will also share the slide deck with you after the event.

But finally, I want to invite you to join us for other events. In the spirit of the CRA, the Atlanta Fed has been hosting virtual sessions to talk about the hows and whys of fostering inclusive and resilient recovery in the Southeast. The next one, on January 14, will focus on small business. If you're not already on our mailing list or following us on social media, please let us know and we'll help you connect. We are also cohosting the next discussion focused on education as part of the Racism and the Economy series, which is aimed at lifting up actions to better dismantle structural racism that prevents everyone from equally benefiting from the economy, ultimately to strive to make it everyone's economy.

Those last two words, everyone's economy, have become the Atlanta Fed's call to action, and the CRA is one tool to make that a reality. But before we get into the details of the ANPR, I would like to turn it over to Mike Johnson, who is the executive vice president for Supervision, Regulation and Credit here at the Atlanta Fed. Mike?

Mike Johnson: Thank you, Karen, for that great introduction to today's session. Let me add my welcome to everyone who's joined us for this important conversation today. As Karen mentioned, my name's Mike Johnson. I'm the officer in charge of supervision for the Sixth District, the Atlanta Fed. In addition to core safety and soundness supervision, we also supervise our state member banks with respect to consumer compliance laws and regulations as well as perform assessments under the Community Reinvestment Act. I couldn't agree with Karen more about the importance of CRA particularly in today's world and how directly linked CRA is to the broader theme of ensuring an inclusive participation in everyone's economy. That's what the goal of CRA is all about, and our efforts today in modernizing CRA are with the spirit and the requirements of that law in mind.

Our goal is to preserve those objectives, but we also want to do that in a cost-efficient way and critically important in a transparent manner as well. We don't have all of the answers. Karen talked about the engagement that went into the development of the ANPR. We want to continue that engagement and even expand upon that for the final rule. Again, we don't have all of the answers at all; this is very much a joint effort. So thank you for joining us today in that joint effort to learn more about the ANPR. I also want to thank you all in advance for your comments that I know will be insightful and allow us to meet these broad objectives together. So thank you for that. And with that, I want to turn it over to the meat of the agenda and specifically to Jessica Farr, who will walk through the ANPR for us. Jessica, you're up.

Jessica Farr: Thank you so much, Mike, and thank you [inaudible]. Yes, we'll start on slide three. I am going to start with a brief discussion of the CRA modernizations that guided us as we were drafting the ANPR. Then we'll walk through some of the key proposals in the ANPR that are related to assessment areas, the evaluation framework, including the proposed retail and community development tests. We'll touch briefly on qualifying activities and geographies as well as ratings, data collection, and then some high-level proposals that will impact rural communities.

As Karen noted, the ANPR was informed by extensive and robust outreach, including feedback from industry and community leaders, as well as ideas from the three banking agencies and community development and supervision staff from across the Federal Reserve System. I also want to encourage you, as Mike just stated, to review the ANPR, all 200 pages of it, over the course of the next month, prior to the close of the public comment window in February, and to pay close attention to all of the areas where we're seeking feedback. I'm going to mention a few of those today, but there are nearly, I think, 100 questions in the ANPR, and we certainly look forward to hearing your thoughts. At the close of my comments, we'll review the process for submitting comments. With that, can we please turn to the next slide?

Great. Just wanted to give a little bit of background on the publication of the ANPR. As most of you are probably aware, the Board published an Advanced Notice of Proposed Rulemaking to modernize CRA on September 21, 2020. We'll refer to that going forward as the ANPR. It's very important to note, this is the start of the rulemaking process, and it's a way for us at the Board to get feedback on a proposed framework for steering modernization before we actually get to the point of proposing new regulatory text. In addition to the ANPR itself, there are a number of materials on the Federal Reserve's website about the ANPR, and we'll include a link to those materials at the close of my comments as well. And as noted earlier, the comment deadline for the ANPR is on February 16, 2021. So we have a little more than a month to go.

I'm going to talk now a little bit more in detail about our objectives with CRA modernization. So can we switch to the next slide? Great. Karen did a nice job summarizing this first category of objectives for CRA modernization. But our objectives really fall into three broad categories. First, we were focusing on how we can strengthen CRA to better meet its statutory purpose. As Governor [Lael] Brainard, who is the lead principal over CRA reform at the [Federal Reserve] Board of Governors, has said in many recent remarks, CRA is more important today than ever before, especially in light of COVID-19 and the national discussion around racial injustice.

CRA was enacted in 1977 to address redlining, and it remains an important tool to address income inequality today. The CRA statute directed the relevant federal financial supervisory agencies to encourage the banks they supervise to safely and soundly meet the credit needs of the communities they serve, including low- to moderate- income neighborhoods, and to evaluate banks' records of doing so. Research continues to show the positive impacts that CRA has had on access to capital and financial services, and the law encourages banks to be important partners in broader efforts to revitalize communities across our country.

However, even with the implementation of the CRA and other complimentary laws, the lasting impact of discriminatory lending and inequities in access to credit remains evident today. As a result, the ANPR includes proposals to address inequities in credit access, banking needs for low- to moderate-income communities and other underserved communities as well as focusing on financial inclusion for other underserved communities. This is also an area where we're seeking feedback from public comments.

But as one example, we seek to advance financial inclusion through different reforms, including providing more incentives for bank investments in minority depository institutions, as well as other geographic areas of need that are located outside bank assessment areas. Additionally, we're focused on updating standards in light of changes in banking over time, including the growth of mobile and internet banking, and several of our proposals are focused on updating standards to reflect these changes. Next slide, please. Thank you.

The second category of objectives is really focused on how we can provide more certainty, how we can tailor the regulations based on bank business size and business strategy, as well as focused on minimizing burden. Specifically, in this category, we're focused on providing more certainty around the types of activities that qualify and where those activities qualify. We're also focused on trying to provide more transparency in terms of how performance is evaluated and how ratings are assigned. Additionally, we've developed a proposed evaluation framework that can be tailored by bank size and business strategy and focused again on minimizing burden. Next slide, please.

Lastly, and perhaps most importantly, as we all know, CRA reform has been a priority for the Federal Reserve System, and we've worked extensively with the FDIC and the OCC [Office of the Comptroller of the Currency] for many years in talking about CRA modernization. We all share similar goals around CRA modernization, and we certainly at the Board have benefited extensively from the feedback that we've gathered through the OCC's ANPR as well as the ANPR that they released and moving toward their own new rule that was adopted last May. So we've shared a lot of feedback with them and gathered good information from that comment period, and we believe that what we have put together in our ANPR provides a foundation for the banking agencies to converge on a consistent regulatory approach that would have broad support among different stakeholders. The bottom line is the Board is committed to getting CRA reform done right. Can we turn to the next slide please?

So now I'm going to touch on some of the high-level topics within the ANPR, and I'm going to start with assessment areas. With assessment areas, the goal of our work was to modernize assessment areas to better reflect changes in the banking industry—including internet and mobile banking—while maintaining a focus on branches. This approach was consistent with the feedback that we heard from both industry and community stakeholders.

So the first category or the first focus is, we're seeking feedback on what we're referring to as facility-based assessment areas, which will be focused on where a bank has physical locations. So we propose maintaining facility-based assessment areas around where a bank has branches. However, we're considering things like tailoring for small versus larger banks in terms of how assessment areas are designated. Smaller banks would have the option of designating assessment areas that are smaller than one county, whereas large banks would have to take a full county in designating their assessment areas. The ANPR also asks for feedback on whether loan production offices should be a new basis for assessment areas and whether deposit-taking ATMs should continue to be a basis for designating assessment areas.

Secondly, the ANPR asks for feedback on options for new assessment areas that would not be based on a bank's physical location. Specifically, we seek feedback on assessment areas that would be based on concentration of either deposits or lending that are not near a branch, and we also seek feedback on establishing nationwide assessment areas for certain banks that conduct a significant amount of online activity. Next slide, please.

So turning now to an overview of the evaluation approach that we have proposed, a key goal in developing this framework was we wanted a framework that could be tailored to the bank business size and business model. So therefore, large banks will be evaluated under this proposal under a proposed retail test and a community development test. We think having both of these tests recognizes the critical importance of both retail and community development activities and meeting community needs. Small retail banks would have the option to be or would be evaluated under the current framework for small banks, unless they choose to opt into the new proposed framework.

If small banks elect the new framework, they would be assessed solely under a retail lending subtest similar to the current approach today, but they would have the option to have other activities considered as a possible enhancement to their rating for the retail lending subtests. An important note here is the ANPR seeks feedback on where we draw the line between small and large banks, and specifically, we propose and request feedback on two options—$750 million or a billion [dollars]—as the appropriate threshold to distinguish between a small versus a large bank. Wholesale and limited-purpose banks will continue to be evaluated [with] only just a community development test and any bank could be evaluated under a strategic plan. Next slide please.

So, this slide was going to go into a little bit more detail about the proposed framework and shows a graphic for the evaluation framework that I've just described. I wanted to give you a few more details. So under the retail test, there would be two subtests, a retail lending subtest and a retail services subtest. The retail lending subtest would focus on how well the bank is lending in low- to moderate-income communities and to low- to moderate-income individuals, small businesses, and small farms. This is very similar to the approach and the procedures that we use today to evaluate retail lending.

However, the Board is proposing a metrics-based approach for the retail lending subtest. The retail services subtest would focus both on a bank's delivery systems, including branching and nonbranching delivery systems, as well as deposit products, which would include checking accounts and savings accounts and look at how well and how effectively these services are meeting the needs of low- to moderate-income individuals and communities. The proposed retail services subtest retains a focus on the importance of branching while also proposes updates to the way banking has changed with the rise of online banking. Retail services would continue to be evaluated qualitatively that were seeking feedback on certain quantitative measures that could be incorporated to try to streamline and improve the consistency in the retail services analysis.

On the other side of the graphic, the community development test, it also includes two subtests: a community development financing subtest and a community development services subtest. The community development financing subtest would focus on measuring loans and investments that are geared toward community development activities such as affordable housing, economic development, community services, and the revitalization and stabilization of low- to moderate-income communities. The community development service subtest, on the other hand, would focus on volunteer activities that benefit low- to moderate-income communities as well as certain volunteer activities in rural areas. For the community development test, we're focused on and have proposed several options that will help us evaluate more consistently the impact and responsiveness of community development activities, including the use of impact scores. Additionally, we would continue to focus on performance context as an important consideration.

We're trying to thread the balance here of evaluating consistency with metrics but also really focusing on the importance of impact and responsiveness and the idea that all that community development activities are not necessarily considered equal. It's important to know when we're talking about our metrics-based approach overall, we're proposing an approach to developing performance standards that will reflect different economic conditions and opportunities in different parts of the market. Therefore, the performance standards, both for the retail test and the community development test, would be dynamic and calibrated to individual communities. Additionally, our approach is using metrics to evaluate assessment area performance at the assessment level and not performance for the institution overall. I'll touch on this a bit more when I talk about ratings in a moment. Next slide please.

The next area we wanted to talk about is qualifying activities. One of the key areas that we focused on with the qualifying activities were what activities would help to advance financial inclusion. We focused on some activities that would provide greater incentives for further bank investments in minority depository institutions [MDIs], women-owned financial institutions, low-income credit unions, and community development financial institutions [CDFI]. As an example, the ANPR proposes to make activities with minority depository institutions a factor for an outstanding rating, and we seek feedback on what kind of activities and the level of activities and how this should be structured. Additionally, the ANPR proposes to automatically qualify activities with Treasury-certified CDFIs with the goal of increasing capital for these important mission-oriented institutions that serve the credit needs of low- to moderate-income communities, low- to moderate-income individuals, and small businesses.

In the area of qualifying activities, we've heard feedback from many stakeholders that there's a lack of clarity around what activities are eligible for CRA credit. To help address this feedback, the ANPR is proposing to better define eligibility for qualifying activities such as something like unsubsidized or naturally occurring affordable housing, and instead of dealing with this through the guidance, we're looking at how we can bring that into the actual regulation. The ANPR also seeks feedback on designating certain types of community development activities as being particularly responsive to community needs [that] are particularly impactful such as affordable housing activities, serving the needs of very low-income households or economic development activities with the smallest businesses or minority-owned small businesses.

Lastly, there was very positive stakeholder feedback on the OCC's proposal, which was adopted in their final rule, to offer a preapproval process for banks to get an advanced read on whether a particular activity would count as well as to provide an illustrative list of qualifying activities. As a result, the ANPR seeks feedback on how such approaches could be designed and how they would work in practice. Next slide please.

Turning now to qualifying geographies. Another area where we've sought to provide greater clarity and certainty is in the areas where banks can receive credit for community development activities. As one example, the ANPR proposes that banks will receive consideration for activities outside of their assessment areas, but anywhere within an eligible state territory or region, and we've defined an eligible state territory or region as any state, territory, or region where a bank has a facility-based assessment area. So as an example, here in the Sixth District, a bank that had a physical, a facility-based assessment area in the city of Birmingham could consider the state of Alabama as an eligible state, and activities in the state of Alabama would be considered.

The goal of this is to try to address both CRA hotspots and deserts and encourage banks to consider deploying resources more broadly to underserved areas outside of their assessment areas where they're confident they can receive CRA consideration. Additionally, the ANPR seeks feedback for treatment of activities and designated areas of need such as Indian country, the Delta, Appalachia, or other areas that exhibit persistent economic distress. Next slide, please.

Turning now toward ratings, the Board's approach to developing ratings is really based in how we can build performance and starting as a building block performance in a bank's local communities. Under our proposal, we assign ratings for both the retail and community development test based on conclusions that are derived at the assessment area level. Importantly, we also eliminate the distinction between full scope and limited scope assessment areas, which is used under the current CRA evaluation procedures. We seek feedback on options to ensure that the ratings procedures are inclusive of all geographies including smaller and rural assessment areas that often don't receive the same weight or consideration under current evaluation standards.

The Board is examining approaches to more consistently evaluate community development activities that are occurring outside of assessment areas when we're assigning a bank's state or institution rating for the community development test. Given CRA's traditional emphasis on retail credit, we do believe that the retail test should be weighted slightly more than the community development test when we derive the overall institution ratings. Additionally, as we discussed earlier, the Board is proposing to make activities with minority depository institutions, women-owned financial institutions, low-income credit unions, a factor for consideration for an overall outstanding rating for either the lending or the community development test.

Finally, the ANPR proposes retaining the practice, and if examiners determine that a bank has engaged in discriminatory or illegal credit practices including violations of relevant consumer laws and regulations enacted or implemented since regulation BB was last substantively updated, a ratings downgrade could occur at the institution level. Next slide please.

Turning to data collection. With respect to minimizing data collection and reporting burden, we do recognize that there's an important trade-off here between introducing the use of metrics which would provide additional certainty and clarity, on the other hand, adding in requirements for additional data collection and reporting. We seek feedback on the best way to balance these two objectives, and to the greatest extent possible, the proposed metrics that we've incorporated would rely on existing data. So it's important to note small banks would be exempt from any type of deposit data collection and reporting requirements, and the data that's used for the retail lending subtest or for the retail lending analysis for small banks would be the same that we use for current examinations.

Additionally, for large banks, existing data sources would be used to the greatest extent possible. However, as I talked about a moment ago with the community development test, we are introducing the use of a community development financing metric and additional data collection and reporting on community development financing activities would be required in order to evaluate community development financing in a more transparent and consistent manner. The ANPR also seeks feedback on deposit data options for large banks and in particular for large banks that do an extensive amount of deposit activity outside of the areas that are served behind their physical branches. Specifically, the Board is evaluating the, whether we can go forward with the use of the FDIC Summary of Deposits Data versus requiring new data collection and reporting for deposits. Next slide, please.

Finally, I wanted to touch on a couple of key proposals that we've included that focus on rural areas. Throughout all of our outreach and gathering feedback in the last couple of years, we recognize that there are unique issues facing rural areas, and we've tried to make a conscientious effort to encourage bank activities in rural areas and to recognize the unique opportunities and constraints in these areas. As we know, rural areas often have less community development capacity and opportunity, so we think it's important for banks to give back to their local communities in different ways. Therefore, the ANPR proposes to consider a wider range of community development service activities in rural areas, such as volunteering to help build affordable housing and serving on the board of impactful civic or nonprofit organizations that may be leading important community development efforts within rural communities.

Second, as we discussed earlier, the ANPR is proposing to designate geographic areas of need where banks can conduct activities outside of assessment areas. We believe that this could help encourage more activities in rural areas where there are unmet credit needs. Third, as I discussed with the metrics, we're proposing the use of calibrated thresholds for both retail lending and the community development financing subtests so [that] performance standards better reflect the differing needs and opportunities in rural areas. Banks that are serving rural areas would not be subject to the same performance standards as banks that are serving larger urban areas.

Finally, the proposal will include several options to ensure that all assessment areas including smaller rural assessment areas are appropriately weighted and factored into a bank's overall ratings. With that, I'm going to turn to David to give us an update on the comment period and submitting our public comments.

David Jackson: Thanks, Jessica. So yeah, now we're going to turn to discussing how you can interact in the comment period and a time for questions. Stakeholders have expressed strong support for the agencies to work together to modernize CRA. By reflecting stakeholder views and providing an appropriately long period of 120 days for public comment, the ANPR advances the goal of building a foundation for the banking agencies to converge on a consistent approach that has broad support of stakeholders. We encourage you to review the ANPR and all of the additional supporting documents on the Federal Reserve Board's public rulemaking page and submit a comment through the formal channel. We're going to drop a link to that site where you can make comments in the chat.

We are also organizing additional listening sessions to gather feedback from stakeholders across the country. Nearly 50 meetings are planned by all the reserve banks at this time. We look forward to hearing your comments. Next slide please. So now we'll turn to questions. We received a significant number of questions during the registration process. So we'll start with those and if time allows, we'll go on to questions that you put into the Q&A here in the chat. So the first question, Jessica, is we've received quite a few questions about the process for the agencies to come together on a rule that is adopted by each of the three agencies. Can you give us more information about that?

Farr: Sure. Thank you. Yes. I know this is a topic that comes up quite frequently, and I know that there is much concern and we share that concern that the three agencies do come together to adopt a rule that is consistent across the agencies. As I stated in the beginning, we are committed to doing what we can to converge on a consistent approach with the other agencies, and that was one of our goals with putting out the ANPR was so that we could solicit some additional feedback to contribute to that conversation.

As I stated, the proposal that we've put forth does reflect a broad set of stakeholder views, including those ideas that have been advanced by the OCC and the FDIC. We've tried to leverage some of the ideas that got good stakeholder feedback in the OCC's rule. We have both focused on those in the ANPR and the OCC's new rule. There is an increased emphasis on metrics and much similarity between the metrics that have been proposed. We really hope that the ANPR can build a foundation for us to come together around an approach that has broader stakeholder support. Our hope is with the long comment period that we have the time for the agencies to come back together and find a way to move forward together. You're on mute, David.

Jackson: Thanks. Thanks, Jessica. We've received quite a few questions about the process for the agencies to come together toward a rule adopted by the three banks and you've talked to us a lot about that and I know it's going to be really involved with what people's comments are. So what is the timeframe for the proposed changes to the CRA regulations?

Farr: That is a good question. As I stated, this is really the first step in the rulemaking process for us and the public comment window will close on February 16. After that, we'll be reviewing all of the comments that have been received in order to inform our future rulemaking. As I stated, our goal is to work with the other agencies to modernize CRA. However, Governor Brainard continues to push us forward towards developing an NPR, however, the timing for future action at this time is not known. Also, it's important to know that in terms of the overall process, the next step would be an NPR which would be followed by another public comment window, followed by the development of a final rule. Even once the new rule is adopted, we anticipate a fairly long transition period, and therefore it means that it will be quite some time before any final rule is fully implemented.

Jackson: We've also received some questions asking how community development investments and loans will be reviewed under one test.

Farr: Sure. I can try to explain that a little bit more. This goes into a little more detail in the community development financing test. As I mentioned, within the proposed framework that we've put forth, we're looking to combine the evaluation of a bank's community development loans and qualified investments under one community development financing test, and we would measure that activity relative to a bank's deposits within an assessment area. This metric is used at the assessment level to evaluate a bank's community development financing performance. Under this proposal, we would include both originations of community development loans and qualified investments, as well as those that are held on balance sheet from prior years. Capturing the book value of community development loans that remain on the balance sheet for prior evaluation periods would be similar to what we currently do with qualifying investments, and it would also hopefully encourage banks to provide more patient capital.

Finally, as I mentioned, we're considering options that will help us with better evaluating impact and responsiveness of community development activities, recognizing that volume alone is not sufficient, that volume of activities alone is not sufficient. Therefore, we're seeking feedback on the concept of impact scores that would help to provide a more detailed picture of the impact of a bank's community development financing activities. And again, we'll rely on performance context in evaluating both impact and responsiveness of community development financing activities.

Jackson: Great. There [have] also been questions around the rationale for raising the threshold for banks that will be rated on the community development performance. Can you tell us some more about the thinking there?

Farr: Sure, sure. That's another important point and an important one to clarify. So as I mentioned, the evaluation approach would establish procedures for small banks and large banks—large retail banks–based on the institution asset size, and importantly, we would eliminate the current intermediate small bank category in order to reduce complexity and create a more consistent evaluation standard. Currently, as I'm sure many of you are aware, the asset threshold between small and intermediate—all right, I'll take a step back. Currently, we have three sets of evaluation procedures: one for small banks, one for intermediate small banks, and one for large banks. The asset threshold between small and intermediate small banks is currently about $326 million and the threshold between intermediate small banks and large banks is about $1.3 billion. We're seeking feedback on whether to set the asset threshold differentiating between small and large banks at either $750 million or a billion [dollars].

We're aware that under this proposed framework, increasing the small banks threshold above the existing $326 million limit would reduce the scope of activities that are evaluated under CRA for some banks compared to the approach used today. Banks that are currently subject to the community development test under the intermediate small bank would no longer be subject to that test. However, while increasing the threshold might limit some of the community development activities evaluated for purposes of CRA, it would also better tailor the compliance and data implications of the proposed community development test to really focus more on those banks that have substantial community development activity. But as I stated, this is an important area for public comment and feedback and specifically, we're interested in how this might impact smaller rural communities that might rely more heavily on banks that are currently subject to the intermediate small bank procedures.

Jackson: Yeah, I see we received a question in the chat that addresses this as well around would it make sense to align large bank asset size with the current $1.3 million threshold for CRA reporting? I think what we're really saying here is—and correct me if I'm wrong Jessica—is we want people to submit comments and their opinions on this is due to submission of the information that people have in their markets that will help answer this question going forward. Is that correct?

Farr: That is definitely correct and recognizing that there will also be comments on the other end saying that CRA's large bank category does not align with how we consider large banks under any other regulatory framework and that we should consider increasing the asset threshold between small and large banks to something much higher. So very much so.

Jackson: We received questions with the registration in the chat today wondering about how the ANPR can address bank partnerships in community development financial institutions. Can you tell us more about what the thinking is there?

Farr: Sure. I will fully admit this is another area where I hope we receive some very good public comments, but I think there's acknowledgement throughout the ANPR about the critical role that CDFIs play in serving low- to moderate-income communities and providing access to credit to LMI individuals, small businesses, many who are not currently served by the banking system. We certainly recognize that CDFIs are an important intermediary and they understand the needs of communities in a way that banks don't necessarily. Therefore, we're trying to think about ways through the ANPR that we can strengthen the role of CDFIs and other mission-driven financial institutions.

So as I noted earlier, we are proposing that all investments and loans with CDFIs would be automatically qualified for CRA consideration. Then, we're also seeking feedback on whether banks should receive consideration for activities with CDFIs anywhere in the country regardless of the geography served by the CDFI. However, we're certainly interested in more creative ideas and ways that we can look at how to strengthen the role of CDFIs in the community development financing ecosystem through CRA modernization.

Jackson: A question that came up in the chat was also about MDIs and woman-owned banks, and I'm sure comments about how those could be taken care of and addressed better in the ANPR would be welcome as well. Is that correct?

Farr: Most definitely. We're very focused on ways to increase and strengthen MDIs and MDI partnerships and looking for creative feedback on those questions as well.

Jackson: Mm-hmm (affirmative). Pivoting a little in the questions. We now have a question about how will climate change considerations factor into CRA modernization, and I might add disaster recovery also in that. Can you tell us more?

Farr: Sure. I think we're excited that this got into the ANPR because I think this is a new topic and certainly a very important topic that I'm glad we can start to discuss within the context of CRA. So one thing that we're looking at is whether we can codify the treatment of different qualifying activities that are specific to designated disaster areas so we can provide additional certainty. So currently the way that we address designated disaster areas is through the definition of revitalization and stabilization, and we list out different types of activities that can help to revitalize or stabilize areas that have been impacted by natural disasters.

However, we wanted to broaden that and to think more broadly, not just about disaster recovery, but also about disaster preparedness and climate resiliency, recognizing that being prepared for natural disasters is as important as being able to recover from natural disasters. So with regards to climate change, we have one question, I think it's Question 62 in the ANPR, where we list whether the types of activities that should be related to disaster recovery should be expanded to include disaster preparedness and climate resiliency in certain targeted geographies. As I noted, this is definitely an emerging area and we look forward to public comments on this topic. I'd say this is one that we'll definitely need a lot more research and analysis on as we move forward.

Jackson: Great. Also, does the ANPR envision a new structure for where commercial and industrial loans no longer need to be greater than $1 million to be considered as community development loan, and does the ANPR consider an increase in the small business loan or revenue size for CRA?

Farr: Those are both good questions and both areas where we're looking for more feedback. So we have put out the idea or requested feedback on whether we should be considering adjusting the small business revenue and loan-size thresholds to account for inflation and just changes in the banking industry overall since those definitions were originally proposed. Another area that we've given some thought and where we seek feedback is on whether all small business loans, so loans ... Currently, we look only at loans under a billion dollars, I mean, under a million dollars to businesses with gross annual revenues under a million dollars. But we're looking at whether we should be thinking about it a little bit more broadly on the retail side to consider all loans to small businesses regardless of loan size on the retail side, instead of looking at some under the retail tasks that are under a million and then considering those that are over a million on the community development loan side. So that's another area where we certainly look forward to public comments.

Jackson: Related to that question is one we got in the chat, which is a question about [whether] metrics data will be used to measure whether a bank is meeting its LMI needs. I assume this is also an area where people should submit comments on what they think should be measured, but has the ANPR already articulated some measures?

Farr: So there is a very detailed discussion in the retail lending subtests section on the metrics and how we have developed metrics for evaluating retail lending. In addition, we are thinking about and seek comment really on the performance context side, what kind of consistent metrics might not be captured through the use of some of the comparators that we've put forth for evaluating retail lending and committee development financing activities so that would better help us understand the needs of local communities and tie banks performance to how well they're meeting those needs. This is something we'll definitely be doing a lot more research on if we try to build out the concept of using impact scores to evaluate the impact of community development activities so that we can consistently tie impact to targeted metrics that help us identify what community development needs are.

Jackson: And so this is another area where we would say comment, comment, comment, right?

Farr: Yeah.

Jackson: We know that every comment is going to be read, and I know that we're forming teams now to review those. Another question that came in the registration is, what is the role of deposit-taking ATMs in the new policy framework and how does it differ from the previous structure?

Farr: Sure. That's a good question. Currently under our current regulation, banks are required to delineate assessment areas of metropolitan areas or political subdivisions in which they have their main offices, branches or deposit-taking ATMs. The assessment area emphasis on branches really reflects what was the prevailing business model for financial services delivery when CRA was enacted. But as we discussed earlier, throughout the ANPR, we're contemplating changes to try to update based on changes in the banking system, particularly when it comes to assessment area definitions, and therefore, we're proposing to give banks the option of delineating facility-based assessment areas around deposit-taking ATMs, but not necessarily requiring them to do so.

Through the outreach and the feedback, some stakeholders have noted that it's outdated because of the fact that customers can use smartphones and other technologies to make deposits anywhere now. However, if a bank is taking a large concentration of deposits only through deposit-taking ATMs, then it could still be appropriate to designate an assessment area around, specifically around deposit-taking ATMs.

Jackson: Another question is, how can the proposed rule be more inclusive of people with disabilities in lending and community development activities?

Farr: Great. I love that we're getting such varied questions, or we got such varied questions through. It helps to demonstrate the diversity in the audience that we have on this webinar today.

Jackson: Mm-hmm.

Farr: I would say again, David, you've done a really good job of reiterating all of the places where we seek comment. This is another area where I would say we definitely look forward to good public comments. But there are several sections in the ANPR that will cover people with disabilities. First in the proposed retail services subtest, in evaluating the delivery system component, we're proposing to evaluate the distribution of a bank's branches and their branch-based services, including the type of accommodations they make for serving customers with disabilities. Additionally, we're proposing to elevate consideration of deposit products under the retail services test, and we would be looking at different measures to determine the effectiveness of the bank's products and meeting the needs of low- to moderate-income communities, and I would broaden that to say, meeting the needs of other underserved customers as well.

So I think that's an area where we could talk specifically about meeting the needs of the disability community. And finally, under the definition of community services, which is one of the community development definitions, we're expanding the list of qualified activities to include those activities that are specifically targeted to recipients at federal disability programs. However, this is a great question, and I think there's more that we should consider, and I hope that we'll receive some good comments on this area.

Jackson: As a follow-up to that, there was a question in the chat that asks are banks required to collect diversity data at the board and investment committee levels. So I think the question really is, do they collect that and of course, if people think there is need to collect more, please submit questions around that, but how would you answer that one, Jessica?

Farr: So this is not tied to CRA. It's not going to be something that we're dealing with through CRA. I think there are requirements, but I am not 100 percent sure what they are, so I don't want to speak out of turn.

Jackson: Got you. That makes sense. Moving on, there was a question, when evaluating a new performance requirement, does a bank have to be rated to satisfactory in all assessment areas to pass? I'll add onto that a question that was dropped in the chat that asks, is the current outstanding, satisfactory, needs improvement, and substantial noncompliance still being suggested as the unit of measure going forward?

Farr: Yes, I actually am going to take those in reverse. So the first question about the four-tiered rating system, yes, I think we are going to maintain a four-tiered rating system for all banks of all sizes. So currently large banks for the performance test are also have an option of a high satisfactory or low satisfactory and I think we are proposing to just use a satisfactory rating overall. However—and this gets into the weeds of the ANPR in our rating system—we're proposing the use of scores to derive our ratings, and those scores will be public or are proposed to be public within the performance evaluation as well. So hopefully that would give a little bit more context to how we actually derived the final four-tiered grading.

In terms of the second question and whether a bank would have to be rated satisfactory in all assessment areas to get the satisfactory rating overall, as I noted, we have proposing revisions to the ratings framework to try to provide greater clarity and transparency and consistency. The foundation to our proposed approach is a weighted average of assessment conclusions where we will weight performance in every assessment area based on the concentration of deposits and loans within that assessment area relative to either the state or the institution. Such an approach will actually help us ensure that the ratings, our final ratings performance, and all of the bank's markets including those where lending volume is low relative to deposit volume.

We're also considering other options that I mentioned earlier of how we can make sure that smaller rural assessment areas are appropriately factored into performance test ratings and can specifically—we put forth a couple of ideas in the ANPR including limiting how high an overall rating for a state or institution could be based on whether [or] if there is a pattern of weaker performance in multiple assessment areas.

Additionally, we're considering whether a bank's assessment area conclusion could be downgraded from needs to improve to substantial noncompliance if we see a trend of needs to improve performance at the assessment area level at the prior exam and the bank shows no appreciable improvement and performance context obviously doesn't explain why there's no change. So again, to try to address trends in weaker performance across smaller assessment areas. So while we don't specifically say anything to this question that every assessment area needs to be rated satisfactory for a bank to pass overall, we really are trying to look for proposals to make sure that banks don't count on strong performance in just a few assessment areas but really focus on solid performance in all of the assessment areas that they serve.

Jackson: Great. Thank you. We have a question about a low number of comments and a lack of interest, and I know that during the holidays, there wasn't a lot of opportunity for people to ask questions, but we've given a long comment period so that we can generate those questions. Is that right, Jessica?

Farr: Yes, and I will say having been the comment reviewer, for both the OCC's ANPR and the NPR, that the flood of comments that comes in the day the comment window closes or within a couple of days of the comment window closing is the trend, and especially given what a busy time we've had. I mean, this was released in the Federal Register in October, and we all know there was an election in November coupled with the pandemic and many other things going on in the last couple of months. So that was really our thinking behind making sure we had such a long comment window, and we still fully expect to get a high volume of comments when the window closes in February.

Jackson: So we're about to wrap up, but I think the closing point here would be take a look at it, read it and comment, comment, comment. We really want this to be an ANPR that is responsive to what people feel should happen, and the way to get that sense into the discussion is through the comment periods. Correct?

Farr: Exactly. Exactly. And as you mentioned, over the course of the next four to six weeks, we're conducting nearly 50 listening sessions around the country with different stakeholder groups. Additionally, the Board will be hosting several national listening sessions later this spring on certain topics, so there are multiple avenues for getting feedback in to inform this rulemaking process, but certainly the submission of public comment is first and foremost, and we look forward to reading from everybody.

Jackson: Great. So thank you, Jessica, Mike and Karen for being part of this webinar today, we really want to make sure that everyone knows about the ANPR, knows how to comment and has an opportunity to do that. Thank you for joining us. Please join us for our Racism and the Economy series [that] is coming up and look for other opportunities to get information. You see on the slide that you can sign up for our newsletter through text or through email and thank you for joining us today.

Farr: Thank you.