WASHINGTON — Just as the heads of two federal banking regulators have
Senior officials at the Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and Federal Reserve briefed industry leaders at a conference last week on their discussions, providing further signs of momentum in efforts to develop an interagency CRA proposal.
The officials indicated that, after preliminary talks and a review of public comments submitted to the OCC, the agencies are ready to start writing a proposal.
“We have a lot of information and ideas. It's now time to put pen to paper,” Mark Pearce, director of the FDIC’s Depositor and Consumer Protection division, said at the Consumer Bankers Association conference.
Regulators signaled the agencies agree on the need for a clearer and consistent method for grading CRA compliance, but may stop short of developing a single CRA metric. They appeared to support some type of expansion for CRA assessment areas to capture more of a bank's digital activities, but not do so in a way to detract from community reinvestment now centered on the branch network.
The officials also hinted that regulators may consider limiting the amount of CRA credit a bank can receive for securities-related activities.
Here is a progress report on key areas of reform:
Consistency is crucial in CRA grading, but 'single metric' idea might be problematic
The regulators said their top priority was to have a clear and uniform measurement system for grading banks on their CRA activities. Banks and consumer groups have long argued that the CRA measurement system is
“A lot of what we're actually aiming for” as regulators is “greater clarity around what actually counts; greater transparency about how we're going to count it; greater certainty about where it's going to count; and then how much [CRA activity] is enough,” Grovetta Gardineer, the OCC’s senior deputy comptroller for bank supervision policy, said during the conference. She sat on a panel with Pearce and Joseph Firschein, who leads the Fed's community affairs team.
However, Grovetta indicated the OCC has pulled back from one idea it had floated in its advance notice of proposed rulemaking: a "single metric" for measuring a bank's CRA performance. Consumer groups, lawmakers and some in the industry have raised concerns that the single-metric system would oversimplify the process, especially for banks that have various business models and more complex community investments.
“A lot of people wrote in about” the single metric “and said it couldn’t work,” Gardineer said. “We heard that too. But I will say that [we need] a set of objective measures at the baseline: not a single number, but a set of objective measures that are clear for financial institutions and your examiners.”
Pearce said more clarity about the grading process would encourage banks to do more community investing — if they knew for certain that a project would count for CRA credit when an exam occurred in the future.
Loan officers tend to take “the sure thing rather than something that might actually make more of an impact," he said. "That's a trade-off that we would like to try to find a way to resolve.”
Gardineer suggested that regulators could use a formula for each type of qualifying CRA activity to determine how much CRA credit a bank receives based on how much it invests. Some have referred to this as a "multiplier" idea.
“I think that gives you some level of predictability and allows a bank to actually manage that portfolio in a real-time basis,” Gardineer said.
CRA assessment boundaries need to adapt to the digital age
Traditionally, a bank's CRA performance is assessed based on its investment within its branch network. But CRA reform advocates have long said that regulators need to rethink that approach.
First, there are rural communities that perhaps need CRA investments the most that fall outside the bank's branch network. Meanwhile, some banks with national platforms might only have one physical office, meaning the CRA assessment area is not aligned with where the bank is active.
All the details of a new approach to assessment areas still need to be ironed out, but regulators appear to agree that a new system needs to better reflect a bank's digital activities.
"A digital approach rather than physical branches" is "obviously a key issue as it relates to assessment areas,” Pearce said.
The Fed's Firschein agreed but cautioned that CRA reforms should not inadvertently lower the importance of branch banking.
“Although it's true that the advent of the internet and the existence of digital platforms is a real thing we need to take a look at, we also heard in a lot of the comments that branches still matter for a lot of banks,” Firschein said.
But, he added, “I don't see how we can get away with” not addressing “this question of place or assessment areas” in a CRA proposal.
In a speech last month, Federal Reserve Board Gov. Lael Brainard said one idea under discussion is
Regulators are discussing limits on granting CRA credit for mortgage securities
Another potential change brought up during the CBA conference was whether the agencies may restrict how many times a bank can purchase mortgage-backed securities to count as CRA credit.
Gardineer said some public comments raised concern about banks overrelying on MBS-related trades and that that concern has gained the attention of the regulators.
“We're giving full credit for banks that” purchase mortgage-backed securities “when basically not one new dollar is going into a community anywhere across the country,” she said. “After three, four, five, six different trades, I think that there may be a real debate as to whether those are new dollars going into any community that’s actually the spirit of CRA.”
No firm time frame for proposal, but regulators are committed to taking action
Regulators have been cautious not to set a hard deadline for when a joint proposal would be released. However, the heads of the OCC and FDIC said in separate speeches at the CBA conference that they would like to
“By March next year, yes. I am hopeful,” FDIC Chairman Jelena McWilliams said when asked whether CRA reforms could be complete by the next CBA annual conference in March 2020. “I actually believe [CRA] needs to be modernized. I don’t know that it’s working as it should.”
Comptroller of the Currency Joseph Otting later responded to the same question by saying the trade group “should move the conference up to December.”
Otting added that top leaders from all three bank agencies would meet April 11 to begin mapping out a proposal.
Gardineer said she "would not want to commit to the final time frame" but said the agencies are committed to try to move the process forward.
"What I will say is I do believe our principals are all very much engaged in understanding that this needs to be addressed," she said, adding: "This is something that we can't afford to study for another three or four or five years. I think that we need to try to put something on paper, put it out with input from all stakeholders and see if we can come up with something that will make this better."
