American Banker: CRA’s black box could prove difficult to open

American Banker, April 11, 2018: CRA’s black box could prove difficult to open

On April 3, the Treasury Department released a memorandum to the federal banking agencies with its findings and recommendations for reform of how those agencies administer the Community Reinvestment Act.

With CRA, however, the problem is more difficult: Objective, transparent standards will necessarily involve regulators choosing what counts and what does not, even if done through a proper notice and comment process. So, they will have to play the role of Goldilocks in a way that the Fed need not in CCAR. One alternative — akin to to using bank models in CCAR — is expanding the use of CRA strategic plans, whereby banks develop their own CRA plans and submit them to the relevant regulator for approval. The Treasury reports that the regulatory burdens and delays associated with this option have deferred them from using a strategic plan since it first became an option in 1996. A streamlined process could be developed to make this a live option.

In any event, the Treasury Department has done regulators, and others who care about community reinvestment, a favor by recognizing the need for reform and establishing a sound analytical basis on which to begin that difficult task.

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