Breaking Down the CRA ExamJosh Silver, Vice President of Research and Policy, NCRCApril 20, 2012
Breaking Down the CRA ExamFederal Agencies Conducting CRA Exams• Federal Reserve Board http://www.federalreserve.gov• Federal Deposit Insurance Corporation http://www.fdic.gov• Office of Thrift Supervision (ceased operations but still has exams onwepbage) http://www.ots.treas.gov• Office of the Comptroller of the Currency http://occ.gov• Federal Financial Institutions Examination Council http://www.ffiec.gov
Breaking Down the CRA ExamCRA Exams: Frequency & Ratings• CRA exams scrutinize banks about once every two yearsfor banks or thrifts with assets > $250 million. Once everyfour or five years for small banks with assets < $250 million• Banks and thrifts receive one of four grades: Outstanding,Satisfactory, Needs-to-Improve, and Substantial Non-Compliance• Possible Low- and High-Satisfactory Ratings forcomponent tests and geographical areas
Breaking Down the CRA ExamHow to Find Out About CRA Exams• Every 3 months, the federal agencies publish aschedule of CRA exams.• Obtain the schedule from the federal agencywebsites or from NCRC.• Locate regional office of agency conducting CRAexam – NCRC can help
Breaking Down the CRA ExamSmall Banks• Less than $250 million• Lending test only• Five factors including responses to publiccomplaints• No reporting of CRA data on small business orcommunity development lending
Breaking Down the CRA ExamIntermediate Small Banks• Banks and thrifts with assets between $250 millionand $1 billion.• Lending and community development (CD) test.• Not required to report CRA data on small businessor farm lending
Breaking Down the CRA ExamLarge Bank CRA Exams•Large bank exam – banks with assets above $1billion• Lending, investment, and service test.• Large banks must report CRA small business,farm and CD loan data.
Breaking Down the CRA ExamExams for Wholesale and LimitedPurpose Banks• Community Development Test• Strategic Plan – in lieu of regular exam, mostlyused by non-retail banks
Breaking Down the CRA ExamParameters for CRA Exams• Assessment Areas – Make sure do not excludeLMI areas• Affiliates – Bank can choose to include/excludeaffiliates• Performance context – make sure examinersadequately asses needs; don’t excuse poorperformance on poverty rates, or lack of investmentopportunities
Breaking Down the CRA ExamPerformance Measures• Do the measures fairly and rigorously measure performance?• Lending Test – Bank’s percent of loans to LMI compared to all lenders,as a group. Consistently above or below? OCC – Market share analysis– Bank’s share of loans in LMI market compared to bank’s overallmarket share• Investment Test – investments to Tier 1 capital or assets; in addition toquantitative measures, are investments innovative or responsive• Service Test – any quantitative information on number of bankaccounts; percent of branches in LMI neighborhoods compared to peersor demographics?
Breaking Down the CRA ExamWords Used by Examiners• Excellent - corresponds to Outstanding• Good – corresponds to High Satisfactory• Adequate – corresponds Low Satisfactory• Poor – corresponds to Needs to Improve• Very poor – corresponds to SubstantialNoncompliance
Breaking Down the CRA ExamWhy Being Active on CRA Exams is Important• CRA has leveraged trillions of dollars in loans, investments, andservices since 1977; studies have demonstrated positive impact inincreasing safe and sound loans and investments: Federal Reserve,Harvard University, NCRC• Comments on CRA exams can influence ratings overall or in one ormore geographical areas or component tests; lower ratings on any of theexam components are motivation for banks to improve• Merger application process – more likely bank will make reforms ormake a specific pledge if members of public comment; $180 billionCapital One pledge, for example.• On-going discussions with bank CRA officials in your community
THANK YOU!To follow up with the speaker:Josh Silver, Vice President of Research and PolicyNational Community Reinvestment Coalition202-464-2708 or firstname.lastname@example.orgPresentations will be available at www.ncrc.org/conferencebyApril 30, 2012