Comment Letter on Proposed Interagency Questions and Answers Regarding Community Reinvestment

Comment: The current answer lists a series of examples of activities that would be considered as community development services. We support the inclusion of these examples, particularly those clarifying that financial services, such as remittance services, will be considered for credit only if they increase access to financial services to low- and moderate-income individuals. Additionally, we agree that it is critical that banks provide financial services to low- and moderate-income individuals through branches in low- and moderate-income communities, but we would like the regulators to make clear that they will continue to closely monitor the percent of an intermediate small bank’s full service offices in low- and moderate-income communities in addition to the services they offer through those branches.

Question: When evaluating a qualified investment, what consideration will be given for prior period investments?

Comment: If a bank has made a qualified investment prior to the current examination period that was particularly innovative and complex, we agree that they should be given credit for that investment on their current examination if that investment remains outstanding and continues to have an impact. However, we believe that this should be considered a bonus to institutions that have engaged in particularly innovative and complex investments that respond to community needs or, in the language of the intermediate small bank test, that the activity requires special expertise or provides a benefit to the community that would not otherwise be provided. We do not want this to be a loophole for institutions participating in long-term, low risk investments with limited impact or responsiveness to community needs. Therefore, we believe that only institutions with an “outstanding” rating on their previous investment or community development test should be able to carry over investments from that previous test for consideration on their current evaluation.

Question: How will the community development test be applied flexibly for intermediate small banks?

Comment: We agree that intermediate small banks should not be allowed to ignore one or more parts of the flexible community development test. We believe that the critical criterion for examining a bank’s performance on the community development test should be an assessment of the bank’s responsiveness to community needs. Regulators should assess community needs through discussions with local community development organizations and government officials and analysis of available, relevant studies. We note that the demand for a product is not wholly indicative of the level of community need because banks’ stimulate markets by offering financial products and create new opportunities and demands. So in a very economically depressed community, bank initiatives will be important components of “creating need” and a bank should not be allowed to claim low current demand as definitive of actual or potential community need.

Question: What will examiners consider when evaluating the provision of community development services by an intermediate small bank.

Comment: We agree that regulators should consider types of services provided to benefit low- and moderate-income individuals such as low-cost checking accounts. We hope that the regulators will clarify that not only will they consider the provision of services to low- and moderate-income individuals through branches in low- and moderate-income communities, but also that they will consider the percent of an intermediate small bank’s offices in these communities. That the examiners will examine the provision and availability of services is a critical component of this Answer because the mere availability of a service is just the first step toward that service being used by an individual.

Question: When evaluating an intermediate small bank’s community development record, what will examiners consider when reviewing the responsiveness of community development lending, qualified investments, and community development services to the community development needs of the area?

Comment: We support the stronger consideration of community development activities if these activities show a particular responsiveness to community needs. We also support the statement that the examiners will consider quantitative measures of performance such as the number and amount of loans because a fair assessment of bank performance requires both quantitative and qualitative data.

We also request that regulators include an additional Q&A to clarify a new part of the recently adopted revisions to the CRA regulation which states that a bank’s CRA rating will be adversely affected by evidence of discriminatory or illegal credit practices. The level of impact on an institution’s CRA rating will be based on a number of factors such as the nature of the violation, policies in place at the institution to prevent such activity, and corrective measures enacted by the bank. Bank loans in any geography are covered as well as loans in any assessment area originated by any affiliate whose loans have been considered as part of the bank's lending performance. However, we request additional clarity on the implementation of this part of the regulation. We would also like clarification on issues such as: How will regulators examine institutions to check for discriminatory or illegal credit practices? What methods will regulators use to identify institutions that should be subject to more thorough examination? How will regulators assess mitigating factors affecting the adverse impact such discriminatory practices will have on an institution’s CRA rating?

We thank you for your consideration of our comments.

Sincerely,

{Your Name}