NCRC analysis of the advanced notice of proposed rulemaking (ANPR)

On August 28, the Office of the Comptroller of the Currency (OCC) issued an Advance Notice of Proposed Rulemaking (ANPR) concerning the Community Reinvestment Act (CRA). The ANPR does not propose specific changes to the regulation implementing CRA. Instead, the OCC describes concepts or frameworks for changing CRA and poses several questions regarding the effectiveness of CRA and ways it can be improved.

Although the ANPR does not propose specific changes to CRA, the key concepts it outlines are cause for serious concern. In particular, the “one ratio” would most likely decrease banks’ responsiveness to local needs, which would contradict the intent of the CRA statute. In addition, some of the questions and comments made by the OCC in the ANPR suggest diminishing the emphasis on branching and making CRA exams easier for banks to pass, both of which would result in considerably fewer loans and investments in low- and moderate-income neighborhoods.

This analysis does not answer all the questions posed by the OCC. Instead, it describes the major concepts and questions in the ANPR and the high stakes this ANPR poses to continued reinvestment in underserved communities. NCRC will be furthering developing its positions as it engages in conversations with members and allies over the ANPR comment period, which ends on November 19. You can access the ANPR here.

The OCC Must Rescind Damaging Unilateral Changes to CRA and Align with the Federal Reserve Board and FDIC

Over the last several months, the OCC has made unilateral changes to CRA that stretch out CRA exams for large banks and weaken fair lending and merger reviews of banks. The OCC must rescind these changes and align any future changes to the CRA regulation and examination procedures with the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC).

In a recent bulletin, the OCC describes a 48 month cycle for large banks with more than 30 rating areas and 36 months for those with less than 30 areas.[1] This is a stretch out for OCC banks with more than 30 areas. The Treasury Department documented that OCC time periods for all large banks was previously 36 months. This was already on the high end compared to the other agencies that had time periods ranging from 12 to 36 months for large banks. Less frequent CRA exams reduce accountability and incentives for banks to perform in a consistently vigorous manner in fulfilling their CRA obligations.

The OCC has also issued a memo that dilutes the negative impact of discrimination and violation of consumer protection law on a bank’s CRA rating.[2] Instead of being emulated by the other agencies, this approach must be rescinded. A bank is not serving credit needs in a satisfactory manner if it is engaging in illegal and harmful activities on a large scale, behavior which now results in ratings downgrades.

The OCC has also made it easier for banks with failed CRA ratings to grow through mergers with other financial institutions or acquiring branches.[3] Since only about two percent of banks fail on an annual basis, these institutions are exceptionally poor CRA performers. Currently, the only penalty for a failed CRA grading is the possibility of denial of merger or branch applications; one of only a few sticks that motivate banks to pass their CRA exams. A presumption that applications will be denied for failed CRA performance must remain the regulatory practice.

The One Ratio vs. Assessment Areas and Public Input

The one ratio would consist of the dollar amount of a bank’s CRA activities (loans, investments, and services to low- and moderate-income borrowers and communities) divided by the bank’s assets. The ratio is supposed to reflect CRA effort compared to a bank’s capacity and would influence a bank’s CRA rating.[4] Think of it this way: the same level of effort or dollar amount of CRA activities would not earn a bank with a larger amount of resources the same CRA rating as a bank with a smaller amount of resources.

The OCC has promoted the one ratio as a means to inject more certainty and clarity into CRA exams. The idea behind the one ratio is that it will immediately signal to banks whether they are in compliance with CRA and can expect to pass their next CRA exam. The OCC is probably thinking about safety and soundness exams that calculate capital ratios and result in ratings. However, before applying this concept to CRA, we must pause and remember the purpose of the law.

The CRA statute reminds us that banks “have continuing and affirmative obligations to help meet the credit needs of the local communities in which they are chartered.” The key word is local. One ratio cannot tell an examiner, a bank, or a member of the public how responsive a bank is to its various service areas. Current CRA exams ensure banks are responsive to local needs by establishing assessment areas where branches take deposits. CRA exams scrutinize to what extent a bank makes loans and investments and offers services to low- and moderate-income people and communities in its various assessment areas.

When reaching conclusions about performance, exams also assess to what extent a bank responds to different needs in its assessment areas. For instance, preserving affordable housing is a priority need in a metropolitan area experiencing rapid housing price increases whereas financing small businesses and job creation is a priority need for a metropolitan area with high unemployment. If a bank does well in job creation initiatives in the high unemployment metro area, but not so well in financing affordable housing in the expensive metro area, it would probably receive higher marks for its performance in the area with high unemployment than the expensive area. The exam then tallies performance across assessment areas to develop an overall rating. Differences in responsiveness to needs therefore gets factored in exams with assessment areas.

Assessment areas allow examiners to conduct performance context analysis and determine to what extent banks are responding to differing priority needs. A CRA exam focused on the one ratio is incompatible with performance context analysis.[5] Moreover, an exam focused on the one ratio would not be effective in considering public input regarding local needs.[6]Examiners are currently required to consider community comments on local needs and how well banks are responding to them. Examiners take these comments into account when reaching conclusions about bank performance in assessment areas. A one-ratio focused exam, in contrast, would not explicitly factor community input into the conclusions of performance for each assessment area. There is no better way to determine if banks are fulfilling their responsibilities under CRA than to listen carefully to local residents. The one ratio-centered exam, in short, could very well violate the intent and purpose of CRA to require banks to respond to local needs as articulated by community residents.

The OCC suggests that the ratio could be adjusted to provide more weight to activities that are particularly responsive to distressed communities with high needs for credit. For instance, an investment of $1 million in a distressed community can be weighted by a factor of two, meaning it will count for $2 million in the numerator of the ratio.[7] While this may sound appealing, consider how complicated and subjective it would be to do this weighting for banks, particularly large banks, which serve upwards of 20 states and hundreds of counties.

The other downside is that generous and frequent weighting (multiplying loans and investments by 2 or more) could easily result in half or less the dollar amount of loans and investments. The current system, while not perfect, can better adjust for responsiveness by weighting the importance of performance in each assessment area, including distressed areas. This avoids crude outcomes like one half the number of loans and investments equaling the same ratio due to weighting.

Another shortfall of the one ratio is that banks are likely to find the easiest loans and investments to undertake regardless of how well they respond to needs. They will search for lowest risk and highest yield. They will search for larger dollar loans and investments to bump up their numerator. Instead of working closely with community groups and other stakeholders to meet needs in assessment areas, the banks will be mostly engaged in a mathematical exercise to increase their numerator.

While the ANPR suggests that assessment areas will remain on CRA exams, the OCC seems to emphasize weights in ratio calculations, which suggests diminished importance of assessment areas. NCRC is not opposed to metrics or ratios on exams. NCRC adapts a ratio from existing CRA exams of community development loans and investments compared to assets when we propose community benefit agreement targets to banks. However, we are opposed to a single metric like the one ratio being determinative of the score on CRA exams.

Expansion or Contraction of Assessment Areas

CRA exams currently rate and reach conclusions about bank performance in assessment areas or geographical areas encompassing bank branches. For banks that make the great majority of their loans through branch networks, assessment areas are effective in rating them. However for other banks that use the internet, brokers, or other non-branch means to make large numbers of loans, current assessment area definitions should change. In particular, assessment areas can include geographical areas such as states, metropolitan areas, or rural counties where banks do not have branches but have high volumes of loans, deposits, or other business activity. Some OCC exams including the Bank of the Internet adopt an existing Question and Answer (Q&A) from the Interagency Q&A document to designate assessment areas in this manner.[8]

Inexplicitly, the ANPR does not seem to build upon this precedent. Instead, it discusses how lending, investing, or other activities outside of areas with bank branches can be considered in “the aggregate.”[9] In other words, if a bank made a $5 million investment and issued $10 million of loans to low- and moderate-income borrowers outside of its branch network, the $15 million could be added to a one ratio. In contrast, if the $15 million of loans and investments occurred in one state, that state could be designated as an assessment area and the lending and investing could be judged in the traditional manner to see how responsive it was to the needs in that state. An “aggregate” consideration of activity outside of branch networks would be inadequate and would fail to determine how responsive the activity was to local needs.

Assessment areas spur banks to improve their performance. Estimates from studies conducted by Federal Reserve economists suggest that lending in low- and moderate-income census tracts would be 10 to 20 percent lower when assessment areas are eliminated from exams or reduced in importance.[10] Likewise lending in areas beyond bank branches will not be as effective in serving low- and moderate-income borrowers and census tracts if it is not scrutinized by exams using assessment areas.

Analysis of Branches and Services

Current CRA exams include a service test that assess a bank’s branching patterns and provision of deposit accounts as well as a bank’s financial counseling efforts.

The OCC asks a startling question of whether branching patterns, particularly in low- and moderate-income census tracts, should continue to be evaluated on CRA exams.[11] This should not even be a question. Branches are critical for helping low- and moderate-income people obtain home loans, small business loans, and basic banking services. Lending transactions, particularly buying a home, are among the most complicated financial transactions most Americans will undertake. Lower income consumers, in particular, need one-on-one counseling for qualifying and applying for loans. Academic research, including NCRC’s, has revealed that home and small business lending increases in low- and moderate-income neighborhoods with bank branches.[12] In contrast, when branches close, lending decreases for several years, especially small business lending. This is likely due to the non-automated, labor intensive method of lending to and counseling traditionally underserved populations.[13]

If CRA exams de-emphasize branches and do not analyze branching patterns by income level of census tract, the exams would likely result in less lending to low- and moderate-income borrowers and census tracts. Instead of decreasing emphasis on branching, CRA exams should contain more data on the income levels of customers using deposit products so that exams can better judge the effectiveness of banks in serving low- and moderate-income customers. More data on incomes of deposit customers is especially important for judging on-line banks.

Another aspect of the service test that the ANPR asks about is community development services which are designed to help low- and moderate-income people access basic banking. The OCC asks if community development services such as financial counseling should be quantified in a standard way such as by dollar value so that these services can be added in the numerator of the one ratio.[14] This would artificially inflate these services. What is more important than calculating dollar values is measuring outcomes such as number of people opening bank accounts.  Along the same lines, grants to organizations with the intent of helping low- and moderate-income people should not automatically count on CRA exams. The bank and the recipient of the grant should demonstrate concretely how many low- and moderate-income people were assisted by the grant in community development initiatives such as obtaining housing or jobs.

Expansion of Activities and Populations Served

Over the years, some industry stakeholders have advocated for broadening the types of activities that can qualify on CRA exams and the populations that can be served. Some of this advocacy is motivated by lack of clarity of what activities count on exams. However, instead of broadening activities and straying from the statutory focus on CRA, the OCC could provide determinations in the time period before a bank’s CRA exam of whether activities such as various types of community development financing would count on exams. The Treasury Department recommended a system of early determinations when a bank was contemplating a specific project so that the bank knew in advance whether the project would receive consideration on the exam.[15] The OCC did not include this proposal in the ANPR although the agency discussed this approach with stakeholders.

Without more clarity, pressure for expanding the scope of activities will intensify. Earlier this year, a trade paper discussed a proposal to allow CRA consideration for financing a hospital no matter where it was constructed. While hospitals are vital institutions, new hospitals in affluent parts of a city without ready access to transit have limited utility for low- and moderate-income people.

The ANPR discusses whether expanding the range of activities should be considered.[16] For example, should internships at banks for low- and moderate-income young adults be considered on CRA exams? While these types of initiatives are desirable, the original purposes of CRA should guide final determinations of what counts. Congress enacted CRA to increase access to loans, deposit accounts, and other banking services. Consideration for meritorious activities that do not directly combat redlining and/or lack of access to banking will result in a regulation that frustrates the purpose of CRA to revitalize credit starved communities.

In terms of additional populations, CRA evaluation of lending to people and communities of color would not only be consistent with the purpose of CRA but would further satisfy the original intent of the legislation.[17] The 1977 hearings considering the CRA legislation featured numerous testimony documenting disparities in lending to communities of color. Senator Proxmire, who chaired these hearings and drafted the legislation, referenced these disparities, especially in inner city neighborhoods, as compelling Congress to pass CRA. Senator Proxmire states:

By redlining let me make it clear what I am talking about. I am talking about the fact that banks and savings and loans will take their deposits from a community and instead of reinvesting them in that community, they will actually or figuratively draw a red line on a map around the areas of their city, sometimes in the inner city, sometimes in the older neighborhoods, sometimes ethnic and sometimes black, but often encompassing a great area of their neighborhood.[18]

Racial disparities in lending have not significantly narrowed, in part, because CRA has not applied explicitly to people and communities of color. It is time to correct this injustice.

Asset Thresholds for CRA Exams: CRA Exams Must not Reduce Requirements for Any Category of Banks

A technically arcane but vitally important issue that is likely to be raised in industry comments in response to the ANPR is asset thresholds on CRA exams. The ANPR invites these comments by stating that “some stakeholders have expressed the view that asset thresholds have not kept pace with bank asset sizes.”[19] The American Bankers Association (ABA) advocated eliminating the Intermediate Small Bank (ISB) category altogether.[20] Small banks with assets below $313 million have a CRA exam that looks solely at retail lending. ISB banks with assets between $313 million and $1.3 billion have a retail lending test and a community development (CD) test. The CD test scrutinizes CD lending and investing such as construction loans for affordable housing or investments in Small Business Investment Corporations (SBIC).

Eliminating the ISB category means that the ISB banks would just have a retail test. NCRC estimates that ISBs finance about $3 billion annually in CD projects or about the same amount of annual funding as the Community Development Block Grant (CDBG) program. If the CD test is eliminated for ISB banks, their CD financing would plummet by 50 percent or more according to NCRC’s analysis.[21] ISB banks would lack incentives to engage in CD financing. Low- and moderate-income communities cannot afford to lose a valuable source of financing for community development, a source of financing that is equal to CDBG, which is the major community development funding program of the Department of Housing and Urban Development (HUD).

Small Business Lending Must Focus on the Credit Needs of the Smallest Businesses

In response to an ANPR question about small business lending, NCRC believes that the current definition of small business lending as non-residential loans of $1 million or less is inadequate and does not address the core issue of assessing how a bank meets the capital needs of the local business community. NCRC recommends that the definition of small business lending be updated to include loans made to businesses with gross annual revenue of $1 million or less, or to businesses headquartered in low- and moderate-income census tracts that pay a living wage. The ANPR has an example of including “all loans to businesses that meet the Small Business Administration (SBA) standards.”[22] NCRC believes that SBA standards would be inappropriate. For example, the SBA considers a brewery with 1,250 employees, and a television broadcast company with average annual receipts of $38.5 million, to be small businesses.[23] NCRC believes that it makes sense to use these standards in evaluating contracting opportunities as the SBA does, but that it is inappropriate to apply them to a bank’s CRA performance. The CRA evaluates how well financial institutions are meeting capital needs of underserved businesses, and businesses with annual revenue of $38.5 million do not face the same obstacles at securing financing as businesses with less than $1 million.

Missing Treasury Recommendations

The Treasury Department’s recommendations for modernizing CRA that were released in April 2018 discussed community benefits agreements and inclusion of affiliates in CRA assessments.[24] Specifically, Treasury wrote that “regulators should also make it clear that a community benefits plan, among other strategies, can be an effective tool for banks with less than Satisfactory ratings,” and that “the community benefits plan is a tool that could be used to demonstrate how the approved [merger] application would benefit the communities served.” On the issue of inclusion of affiliates, Treasury “recommends that the CRA regulators evaluate their approach to affiliates in order to ensure that performance evaluations accurately reflect the CRA-eligible activity of the overall bank.” NCRC believes that the regulators should recognize community benefits agreements and stop the practice of allowing financial institutions to choose whether affiliate activities are included on their CRA performance evaluations. The ANPR does not address these crucially important issues of CRA modernization.

Possible Areas of Agreement

We appreciate that the OCC asks whether purchases of loans should count as much as originations.[25] NCRC has long maintained that loan originations are more responsive to credit needs. However, NCRC also believes that loans purchased from community development financial institutions and community development corporations help these nonprofit organizations increase their impact, and that these purchases should not be evaluated the same way as purchases from other traditional financial institutions. We also appreciate that the OCC is thinking through data collection and reporting on CRA exams.[26] NCRC has maintained that significant improvements are needed in data collection such as in small business data and community development lending and investing to determine to what extent these activities are serving traditionally underserved communities. The small business data collected per the CRA regulations is coarse and does not provide enough detail about lending to the smallest businesses (it only provides information about whether loans are made to small businesses with revenues under $1 million). If the Consumer Financial Protection Bureau is not close to a proposed rule on Section 1071 small business data, the OCC, Federal Reserve Board, and FDIC should improve the current CRA small business data.

In addition, the information on community development lending and investment is presented in an inconsistent manner on CRA exams with data often not available for metropolitan areas or counties by the major categories of community development such as affordable housing or revitalizing low- and moderate-income census tracts. The agencies should require banks to submit community development data on a census tract or at least a county level on an annual basis. If this data is collected, it will enable community groups, banks, and agencies to determine to what extent community development needs are being financed across counties and can help develop more refined approaches to providing consideration for out-of-assessment area activities on CRA exams. NCRC would also like to see data collected on the number of applications for community development loans that financial institutions receive, and denial rates for these applications.


[1] OCC Bulletin 2018-17, June 15, 2018,

[2] OCC Bulletin 2018-23, August 15, 2018,

[3] OCC, Impact of CRA Ratings on Licensing Applications, November 2017,

[4] Office of the Comptroller of the Currency (OCC), Advance Notice of Proposed Rulemaking (ANPR), Federal Register, Vol. 83, No. 172, Wednesday, September 5, 2018,, pgs. 45056 and 45057.

[5] See question 9 of ANPR

[6] See question 11 of ANPR

[7] See question 10 of ANPR

[8] See Bank of the Internet’s CRA exam,

[9] ANPR, page 45057.

[10] Lei Ding and Leonard Nakamura, Don’t Know What You Got Till It’s Gone: The Effect of the Community Reinvestment Act on Mortgage Lending in the Philadelphia Market, Federal Reserve Bank of Philadelphia, Working Paper 17-15, June 2017,

[11] ANPR, Question 27.

[12] For a literature review of the impact of branches and assessment areas, see Josh Silver, The Importance of CRA Assessment Areas and Bank Branches, NCRC, June 2018,

[13] Hoai-Luu Q. Nguyen, Do Bank Branches Still Matter? The Effect of Closings on Local Economic Outcomes, December 2014,

[14] See Question 12 of the ANPR

[15] Treasury Department April 2018 Memorandum to the OCC, Federal Reserve Board, and FDIC,, p. 8.

[16] ANPR, page 45057-45058.

[17] ANPR talks about other populations in need of financial services, page 45056.

[18] Congressional Record, June 6, 1977, p. 17630.

[19] ANPR, page 45055.

[20] American Bankers Association 2015 letter on CRA.

[21] NCRC, Intermediate Small Banks, the Forgotten but Significant Resource for Affordable Housing and Community Development,

[22] ANPR, Question 23.

[23] U. S. Small Business Administration Table of Small Business Size Standards Matched to North American Industry Classification System Codes. Version 2017. Available online at

[24] Memorandum for the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation. Subject: Community Reinvestment Act – Findings and Recommendations. Department of the Treasury. Pages 22 and 24. Available online at

[25] ANPR, Question 25.

[26] ANPR discussion on pages 45058 and 45059.

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